As filed with the Securities and Exchange Commission on February 10, 1997
Registration No. 333-18065
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CHICAGO BRIDGE & IRON COMPANY N.V.
(Exact name of registrant as specified in its charter)
--------------------
The Netherlands 1798 None
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
P.O. Box 74658
1070 BR Amsterdam
The Netherlands
31-20-664-4461
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Robert H. Wolfe, Esq.
Chicago Bridge & Iron Company
1501 North Division Street
Plainfield, Illinois 60544
(815) 439-6000
(Address, including zip code, and telephone number, including area code,
of registrant's agent for service)
--------------------
Copies to:
Geoffrey E. Liebmann, Esq. Morton A. Pierce, Esq.
Cahill Gordon & Reindel Dewey Ballantine
Eighty Pine Street 1301 Avenue of the Americas
New York, New York 10005 New York, New York 10019
(212) 701-3000 (212) 259-8000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /_/
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
CALCULATION OF REGISTRATION FEE
: Proposed :
: maximum :
Title of each class of : aggregate : Amount of
securities to be registered : offering price(1) : registration fee
: :
Common Shares, par value : $150,000,000 : $45,455(2)
NLG .01 per share : :
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Previously paid.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to
be used in connection with an offering in the United States and Canada (the
"U.S. Prospectus") and one to be used in a concurrent offering outside the
United States and Canada (the "International Prospectus"). The two prospectuses
are identical except for the front and back cover pages, the inside front cover
page, the table of contents and the sections entitled "Underwriting" and
"Subscription and Sale." The form of U.S. Prospectus is included herein and is
followed by the alternate pages to be used in the International Prospectus. Each
of the alternate pages for the International Prospectus included herein is
labeled "Alternate International Prospectus Page." Final forms of each
Prospectus will be filed with the Securities and Exchange Commission under Rule
424(b).
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1997
Shares
CHICAGO BRIDGE & IRON COMPANY N.V.
(A company incorporated in The Netherlands
with its registered seat in Amsterdam)
Common Shares
(NLG 0.01 par value)
--------
All of the Common Shares, NLG 0.01 par value (the "Common Shares"), of Chi-cago
Bridge & Iron Company N.V. (the "Issuer") offered hereby are being sold by Chi
Bridge Holdings, Inc. (the "Selling Shareholder"), a subsidiary of Praxair, Inc.
The Issuer will not receive any of the proceeds from the sale of shares offered
hereby. Of the Common Shares being offered, shares are initially being offered
in the United States and Canada (the "U.S. Shares") by the U.S. Underwriters
(the "U.S. Offering") and shares are initially being concurrently offered
outside the United States and Canada (the "International Offering" and, together
with the U.S. Offering, the "Common Share Offering"). Prior to the Common Share
Offering, the Issuer was an indirect wholly owned subsidiary of Praxair, Inc.
Upon consummation of the Common Share Offering, the Issuer will no longer be a
subsidiary of Praxair, Inc., and Praxair, Inc. (through its subsidiary Chi
Bridge Holdings, Inc.) will continue to own approximately % ( % if the
Underwriters exercise their over-allotment option in full) of the then
outstanding Common Shares. The offering price and underwriting discounts and
commissions of the U.S. Offering and the International Offering are identical.
Prior to the offering, there has been no public market for the Common Shares. It
is anticipated that the initial public offering price will be between $ and $
per share. For information relating to the factors considered in determining the
initial public offering price to the public, see "Underwriting."
The Issuer intends to apply to list the Common Shares on the New York Stock
Exchange under the symbol "CBI." The Issuer intends to apply to list the Common
Shares in bearer form on the Official Market of the Amsterdam Exchanges N.V.
(the "Amsterdam Stock Exchange") under the symbol "CBI." See "Share Certificates
and Transfer."
For a discussion of certain factors that should be considered in connection with
an investment in the Common Shares, see "Risk Factors" beginning on page 16.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
<PAGE>
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to Selling
the Public Commissions Shareholder(1)
- --------------------------------------------------------------------------------
Per Share(2) ....... $ $ $
Total(3)............ $ $ $
================================================================================
(1) Before deducting expenses payable by the Issuer estimated at $ .
(2) The price per share in Dutch guilders is NLG .
(3) The Selling Shareholder has granted the U.S. Underwriters and the Managers
an option, exercisable by Credit Suisse First Boston Corporation for 30
days from the date of this Prospectus, to purchase a maximum of
additional Common Shares to cover over-allotments of shares. If such
option is exercised in full, the total Price to the Public will be $ ,
Underwriting Discounts and Commissions will be $ and Proceeds to Selling
Shareholder will be $ .
The U.S. Shares are offered by the several U.S. Underwriters when, as and if
delivered to and accepted by the U.S. Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the U.S. Shares will be
ready for delivery on or about , 1997 against payment in immediately available
funds in U.S. dollars through the book-entry facilities of The Depository Trust
Company and against payment therefor in immediately available funds in Dutch
guilders through NECIGEF, Euroclear and Cedel S.A.
Credit Suisse First Boston
Goldman, Sachs & Co.
Smith Barney Inc.
UBS Securities
The date of this Prospectus is , 1997.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
<PAGE>
[photos to come]
----------------
IN CONNECTION WITH THIS OFFERING, CREDIT SUISSE FIRST BOSTON
CORPORATION ON BEHALF OF THE U.S. UNDERWRITERS AND THE MANAGERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE
AMSTERDAM STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME AND WILL IN ANY EVENT BE DISCONTINUED 30 DAYS AFTER THE
SETTLEMENT OF THE OFFERING.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS
PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN
ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON SHARES PURSUANT TO
EXEMPTIONS FROM RULES 10b-6 AND 10b-7 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED.
-2-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless the context
otherwise requires, all references to the "Issuer" herein refer to Chi-cago
Bridge & Iron Company N.V., a corporation organized under the laws of The
Netherlands, all references to the "Company" or "CB&I" herein refer to the
Issuer, together with its predecessors and subsidiaries, in each case after
giving effect to the Reorganization (as defined below), all references to
"Praxair" herein refer to Praxair, Inc. and its subsidiaries and all references
to the "Selling Shareholder" herein refer to Chi Bridge Holdings, Inc. In this
Prospectus, references to "guilders" and "NLG" are to Dutch guilders, and
references to "dollars," "U.S. $" and "$" are to United States dollars. Unless
otherwise indicated, all data in this Prospectus assumes no exercise of the
Underwriter's over-allotment option.
The Company
CB&I is a global engineering and construction company specializing
in the engineering and design, materials procurement, fabrication, erection,
repair and modification of steel tanks and other steel plate structures and
associated systems such as petroleum terminals, refinery pressure vessels, low
temperature and cryogenic storage facilities and elevated water storage tanks.
The Company believes it is the leading provider of field erected steel tanks and
other steel plate structures, associated systems and related services in North
America and one of the leading providers of these specialized products and
services in the world. CB&I seeks to maintain its leading industry position by
focusing on its technological expertise in design, metallurgy and welding, along
with its ability to complete logistically and technically complex metal plate
projects virtually anywhere in the world. CB&I has been continuously engaged in
the engineering and construction industry since its founding in 1889. In 1996,
the Company was involved in over 500 projects for over 250 customers in 34
countries.
In the first nine months of 1996, the Company generated revenues of
$483.5 million, and its project backlog as of September 30, 1996 was $456.6
million. The Company's operating income has improved to $21.1 million for the
first nine months of 1996 from a loss of $1.8 million for the comparable period
of 1995. CB&I primarily serves customers in the petroleum, petrochemical,
chemical, electric and gas utility, pulp and paper, and metals and mining
industries, both directly and through other companies which service these
customers.
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<PAGE>
Approximately 62% of the Company's revenues during the first nine months of 1996
were attributable to petroleum and petro-chemical industry-related projects. The
Company operates on a global basis and has the supporting infrastructure to
compete in key geographic markets worldwide. For the first nine months of 1996,
CB&I derived approximately one-half of its revenues from operations outside of
the United States. Demand for the Company's products and services depends
primarily on its clients' capital expenditures for construction. The Company
seeks to benefit from recently higher levels of current and projected capital
expenditures by its primary customer base in the petroleum and petrochemical
industries, which it believes have resulted from increases in worldwide crude
oil prices during 1996.
Recent Developments
In the first quarter of 1996, Praxair acquired CBI Industries, Inc.
("Industries"), then the parent company of CB&I, for the purpose of owning its
industrial gas operations. At that time, Praxair announced its intention to
divest those businesses of Industries which were not strategic to Praxair,
including the Company. Praxair undertook to strategically reposition the Company
and, as part of this process, a new management team was hired for the Company,
headed by Gerald M. Glenn as President and Chief Executive Officer. Mr. Glenn
has over 30 years of combined experience with Fluor Corporation, the world's
largest publicly-owned engineering and construction company, and Daniel
International Corporation, and from 1986 to 1994 served as Group President of
Fluor Corporation's principal operating subsidiary, Fluor Daniel, Inc. The new
management team has focused its efforts on (i) redirecting and accelerating a
restructuring program designed to increase the Company's base profitability;
(ii) implementing a new compensation program linking management incentives to
improvements in shareholder value; and (iii) developing a business strategy to
enhance CB&I's future growth and profitability.
Restructuring Program
The comprehensive restructuring program (the "Restructuring
Program") currently being implemented by the Company's new management has
achieved estimated cost savings of approximately $6 million in the first nine
months of 1996, and is expected to result in estimated annual cost savings of
approximately $21 million in 1997 and approximately $23 million in 1998,
relative to the Company's 1995 fixed cost base. The benefits of the
Restructuring Program have been an integral component in the Company's recent
improvement in operating income.
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<PAGE>
The Restructuring Program is based on initiatives begun in 1994, and
was significantly refocused and accelerated in 1996 following the appointment of
the new management team. The program is expected to be fully implemented by the
end of 1997. The Restructuring Program initially focused on consolidating the
Company's organizational structure from six separate, decentralized business
units into a single global business operation. On-going enhancements in
connection with such consolidation include centralization of procurement,
equipment and personnel mobilization, and certain financial functions, as well
as streamlining and consolidating administrative and engineering support. As
part of the program, seven fabrication plants or warehouses have been closed and
three administrative office sites have been downsized or relocated, including
the headquarters of the Company's United States operations. The Company also has
targeted a reduction of approximately 160 salaried positions, of which
approximately 110 had been eliminated as of September 30, 1996.
Compensation Program
In order to more closely align the interests of the Company's
management and employees with those of its shareholders, CB&I is redesigning its
compensation program to include long-term, equity-based incentives.
In addition, during 1996, Praxair committed to compensate certain
members of the Company's management for their services in connection with the
further development and implementation of the Restructuring Program and the
Company's initial public offering. In fulfillment of that commitment, on or
immediately before the consummation of the Common Share Offering, the Company
will adopt and make a contribution to the CB&I Management Defined Contribution
Plan (the "Management Plan"), in which approximately 40 to 60 officers and key
management employees of the Company will participate. The Company will
contribute to the Management Plan approximately Common Shares (assuming an
initial public offering price of $ per share (the mid-point of the price range
as set forth on the cover page of this Prospectus)) (the "Management Plan
Shares"). The Management Plan Shares will vest three years (and with respect to
one participant, two years) after the date of the Common Share Offering.
Business Strategy
The Company is committed to increasing shareholder value by seeking
to build on the success established in the first nine months of 1996 and growing
its business in the
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<PAGE>
global marketplace through a combination of strategic initia-
tives including the following:
` Focus on Core Business. Prior management of the Com-
pany's parent, Industries, pursued a diversification
strategy during the 1980s and 1990s, which included
acquisitions of significant, unrelated businesses in
industrial gases and terminalling. Under CB&I's new
management team, the Company is committed to focusing
on its core activities of engineering and design,
fabrication, erection, repair and modification of
steel tanks and other steel plate structures. The
Company seeks to leverage its perceived competitive
advantages in design engineering, metallurgy and
welding, and its ability to execute projects virtu-
ally anywhere in the world, to actively pursue growth
opportunities in its core business.
` Continue Cost Reductions and Productivity Improve-
ments. CB&I's management believes that the Company's
Restructuring Program represents the foundation for a
long-term strategy of reducing the costs of its prod-
ucts and services, with the goal of establishing and
maintaining a position as a low cost provider in its
markets. All key functions of the organization -
engineering, procurement, construction, project
management, finance and administrative support - will
be required to demonstrate improvements in productiv-
ity, and will be provided compensation incentives for
achieving such goals.
` Target Global Growth Markets. The Company intends to
aggressively pursue business opportunities in
selected key growth markets, such as China, India,
Mexico and the former Soviet Union, on which prior
management placed relatively low priority. CB&I
intends to leverage its significant international
experience and technological strengths to expand into
these new geographic areas, where it believes that
its ability to rapidly mobilize project management
and skilled craft personnel, combined with its global
material supply and equipment logistics capabilities,
provides a key competitive advantage.
` Improve Financial Controls and Management. The Com-
pany believes it will improve the management of
project profitability through the on-going implemen-
tation of new systems which enhance cost estimating,
bidding, capital utilization and project execution.
Under the new systems, project economics will be
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<PAGE>
evaluated on a centralized basis under various risk and costing
assumptions, using global software systems tailored specifically for
the Company's operations.
` Pursue Partnering and Strategic Alliances. The Com-
pany intends to expand its use of partnering and
strategic alliances with customers and vendors.
These relationships can serve as a vehicle for
improvements in quality, productivity and profitabil-
ity for both parties. CB&I's existing partnering
relationships include several with major interna-
tional oil companies. The Company believes that such
customers recognize CB&I's ability to deliver high
quality, on-time projects and select CB&I as a pre-
ferred supplier to achieve significant cost savings
in building and operating tankage and related
systems.
Corporate Structure
Prior to the Reorganization, the Company's operations were conducted
by Chicago Bridge & Iron Company ("CBIC"), a Delaware corporation, and its
subsidiaries. After the Reorganization, CBIC will be the Company's primary
holding company for its U.S. operating subsidiaries, and Chicago Bridge & Iron
Company B.V. ("CBICBV"), a corporation organized under the laws of The
Netherlands with its registered seat in Amsterdam, will be the Company's primary
holding company for non-United States operations. In the Reorganization (i) the
shares of substantially all of CBIC's non-U.S. subsidiaries will be transferred
by dividend to the Selling Shareholder and contributed to the Issuer in exchange
for additional Common Shares and then contributed by the Company to CBICBV; and
(ii) the Selling Shareholder will contribute the shares of CBIC to the Issuer in
exchange for additional Common Shares. Upon consummation of the Reorganization,
both CBIC and CBICBV will be wholly owned direct subsidiaries of the Issuer, as
set out in the diagram below.
[diagram of post-Reorganization structure]
The Issuer maintains its registered office and corporate seat and
the principal office of CBICBV at Koningslaan 32-36, 1075 AD Amsterdam, The
Netherlands, and the mailing address is P.O. Box 74658, 1070 BR Amsterdam, The
Netherlands, and its telephone number at such address is 31-20-664-4461. The
executive office of CBIC is located at 1501 North Division Street, Plainfield,
Illinois 60544, and its telephone number at that address is (815) 439-6000.
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<PAGE>
The Offering
U.S. Offering ........................ Shares
International Offering ............... Shares
-------
Total .................... Shares
=======
Common Shares to be outstanding
after the Common Share Offering(1) ..............Shares
Use of Proceeds....................... The Company will not receive
any of the proceeds from the
sale of shares offered
hereby.
Listing of Shares .................... The Issuer intends to apply
to list the Common Shares of
New York Registry ("New York
Shares") on the New York
Stock Exchange (the "NYSE").
The Issuer intends to apply
to list the Common Shares in
bearer form on the Official
Market of the Amsterdam
Exchanges N.V. (the
"Amsterdam Stock Exchange").
Proposed New York Stock
Exchange Symbol .................... CBI
Proposed Amsterdam Stock
Exchange Symbol .................... CBI
Payment and Delivery ................. Delivery of New York Shares
will be made to purchasers'
book-entry accounts at The
Depository Trust Company
("DTC"), against payment in
U.S. dollars in same-day
funds. Common Shares in
bearer form (the "Bearer
Shares") will also be deliv-
ered to purchasers' book
entry accounts at NECIGEF,
Euroclear and Cedel S.A.
against payment in Dutch
guilders in same-day funds.
Thereafter, trading of New
York Shares effected at the
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<PAGE>
NYSE will be settled in dollars and
trading of Bearer Shares effected on the
Amsterdam Stock Exchange generally will
be settled in guilders, in each case in
accordance with the normal settlement
practices of those markets. A fee of
$0.05 per share will be charged to
shareholders for the exchange of New
York Shares for Bearer Shares (and for
the reverse). See "Share Certificates
and Transfer."
Dividend Policy ...................... Subject to restrictions con-
tained in the agreements gov-
erning the Company's indebt-
edness, the Company currently
expects to commence paying a
quarterly dividend not to
exceed $ per share, com-
mencing with the fiscal quar-
ter of the Company ending
, 1997. The declara-
tion of any dividend, includ-
ing the amount thereof, gen-
erally will be at the discre-
tion of the Company's super-
visory and management boards,
and will depend on the Compa-
ny's then financial condi-
tion, results of operations
and capital requirements, and
such other factors as such
boards deem relevant. See
"Dividend Policy."
- --------------------------
(1) Includes Common Shares which will be contributed
to the Management Plan which vest no earlier than the
third anniversary (and with respect to one participant,
the second anniversary) of the award date, but does not
include Common Shares reserved for issuance under
the Incentive Plan (as defined), of which shares
will be subject to options to be granted at or prior to
consummation of the Common Share Offering at an exercise
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<PAGE>
price equal to the initial offering price. See "Manage-
ment -- Compensation and Benefits -- Executive Compensa-
tion -- Long-Term Compensation" and "Management -- Compen-
sation and Benefits -- Special Stock-Based, Long-Term Com-
pensation Related to the Common Share Offering."
Risk Factors
Prospective purchasers of the Common Shares should consider
carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under the caption
"Risk Factors" beginning on page 16, which provides a discussion of the risks
involved in an investment in the Common Shares.
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<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands, except for per share data)
The summary historical and pro forma consolidated financial and
other data set forth below should be read in conjunction with, and are qualified
by reference to, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and accompanying notes thereto and other financial information included
elsewhere in this Prospectus.
The unaudited pro forma consolidated financial and other data set
forth below for the year ended December 31, 1995 and the nine month period ended
September 30, 1996 give effect to the acquisition of Industries by Praxair and
the Common Share Offering as if each had occurred at the beginning of the period
indicated. Such unaudited pro forma consolidated financial and other data are
based on the historical financial statements of the Company and the assumptions
and adjustments described in the accompanying notes and under "Unaudited Pro
Forma Consolidated Financial and Other Data." The unaudited pro forma data are
not designed to represent and do not represent what the Company's results of
operations actually would have been had the acquisition by Praxair and the
Common Share Offering been completed as of the beginning of the periods
indicated, or to project the Company's results of operations at any future date
or for any future period.
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<PAGE>
<TABLE>
<CAPTION>
Historical Information (1) Pro Forma(2)
----------------------------------------------------------------------- ---------------
Post-Praxair
Pre-Praxair Acquisition Acquisition
------------------------------------------------------------ --------------
Nine
Nine Months Nine Months Year Months
Ended Ended Ended Ended
Year Ended December 31, September September December September
1991 1992 1993 1994 1995 30, 1995 30, 1996 31, 1995 30,1996
---- ---- ---- ---- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues......................$803,339 $799,196 $680,541 $762,803 $621,938 $464,311 $483,531 $621,938 $483,531
Cost of revenue............... 689,431 677,067 630,978 692,266 614,230 440,503 431,252 614,993 431,252
Gross profit.................. 113,908 122,129 49,563 70,537 7,708 23,808 52,279 6,945 52,279
Selling and adminis-
trative expenses............ 44,465 44,006 44,193 45,503 43,023 29,427 30,784 45,411 32,209
Special charge................ - - 22,900(3) 16,990(4) 5,230(5) - - 5,230(5) -
Loss (gain) on the sale
of assets(6)................ - - (118) (11,360) (10,030) (3,844) 354 (10,030) 354
Income (loss) from operations. 69,443 78,123 (17,412) 19,404 (30,515) (1,775) 21,141 (33,666) 19,716
Interest expense.............. (1,262) (1,275) (298) (180) (799) (835) (3,787) (4,649) (3,787)
Other income.................. 6,377 4,405 3,056 1,652 1,191 1,245 581 1,191 581
Income (loss) before taxes
and minority interest....... 74,558 81,253 (14,654) 20,876 (30,123) (1,365) 17,935 (37,124) 16,510
Income tax expense (benefit).. 23,447 21,882 (6,080) 3,074 (8,093) (1,467) 4,674 (678) 4,110
Income (loss) before
minority interest........... 51,111 59,371 (8,574) 17,802 (22,030) 102 13,261 (36,446) 12,400
Minority interest in income... 1,877 2,041 1,247 1,359 3,576 2,179 2,331 3,576 2,331
Net income (loss)............. 49,234 57,330 (9,821) 16,443 (25,606) (2,077) 10,930 (40,022) 10,069
Income (loss) per common
share(2).................... N/A N/A N/A N/A N/A N/A N/A - -
Weighted average number of
common shares outstanding...
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Historical Information (1) Pro Forma(2)
----------------------------------------------------------------------- ---------------
Post-Praxair
Pre-Praxair Acquisition Acquisition
------------------------------------------------------------ --------------
Nine
Nine Months Nine Months Year Months
Ended Ended Ended Ended
Year Ended December 31, September September December September
1991 1992 1993 1994 1995 30, 1995 30, 1996 31, 1995 30,1996
---- ---- ---- ---- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................$422,254 $410,492 $408,936 $359,912 $356,125 $354,548 $359,538 N/A N/A
Total debt.................. 5,074 1,000 - - - - 55,000 N/A N/A
Total shareholders' equity.. 161,229 222,027 217,231 183,101 186,507 207,654 92,314 N/A N/A
Cash Flow Data:
Cash flow from operating
activities................ ($357) $38,447 ($39,151) ($26,950) $20,535 N/A N/A
Cash flow from investing
activities................ (11,764) 14,051 3,899 (3,786) 159 N/A N/A
Cash flow from financing
activities................ 2,662 (49,742) 32,012 25,776 (13,531) N/A N/A
Other Financial Data:
Depreciation and
amortization.............. 11,159 12,821 16,178 15,569 16,077 10,977 12,605 17,328 12,605
EBITDA(7)................... 80,602 90,944 21,598 40,603 (19,238) 5,358 34,100 (21,138) 32,675
Capital expenditures........ 29,811 44,465 19,232 18,772 14,880 11,945 8,075 14,880 8,075
Other Data:
Number of employees --
Salaried.................. 1,973 1,999 1,824 1,763 1,728 1,697 1,618 N/A N/A
Hourly and craft.......... 5,419 5,227 4,408 4,852 3,483 4,668 3,914 N/A N/A
New business taken(8).......$846,159 $732,415 $782,606 $648,082 $782,878 $547,700 $474,255 $782,878 $474,255
Backlog(8)..................$464,478 $364,326 $449,303 $323,343 $470,174 $393,398 $456,599 $470,174 $456,599
</TABLE>
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(1) Prior to the first quarter of 1996, the Company was a subsidiary of
Industries. During the first quarter of 1996, pursuant to a merger
agreement dated December 22, 1995, Industries became a subsidiary of
Praxair. This merger transaction was reflected in the consolidated
financial statements of the Company as a purchase effective January 1,
1996. The application of purchase accounting resulted in changes to the
historical basis of various assets. Accordingly, the information provided
for periods prior to January 1, 1996 is not comparable to subsequent
financial information.
(2) Pro forma information gives effect to the acquisition of Industries by
Praxair and the Common Share Offering as if each had occurred on the first
day of the period indicated. See "Unaudited Pro Forma Consolidated Income
Statements."
(3) In 1993, a special charge of $22.9 million was recorded to recognize the
expense of two major legal claims totalling $15.0 million as well as a $7.9
million write-down of non-performing assets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations."
(4) In 1994, the Company recorded a special charge of $17.0 million to
recognize the expenses of a major litigation settlement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
(5) In 1995, the Company recorded a special charge of $5.2 million comprised of
$0.8 million for work force reduction and $4.4 million for write-down of an
idle facility and other related costs.
(6) Loss (gain) on the sale of assets primarily represents gains on the sale of
property, plant and equipment. The gain recorded in 1995 relates to the
sale of certain underutilized facilities sold as a result of the
Restructuring Program. The gain recorded in 1994 includes gains from
affiliated entity transactions primarily from the sale of the Company's
minority interest in a terminal and also the sale of the Company's interest
in a fabrication facility.
(7) EBITDA is defined as income (loss) before minority interest plus special
charges, loss on the sale of assets, interest and income tax expenses and
depreciation and amortization expenses, less gain on the sale of assets and
other income. While EBITDA should not be construed as a substitute for
operating income (loss) or a better measure of liquidity than cash flow
from operating activities, which are determined in accordance with United
States GAAP, it is included herein to provide additional information
regarding the ability of the Company to meet its capital expenditures,
working capital requirements and any future debt service. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs,
particularly because it does not include capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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(8) New business taken represents the value of new project commitments received
by the Company during a given period. Such commitments are included in
backlog until work is performed and revenue recognized or until
cancellation. Backlog may also fluctuate with currency movements.
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RISK FACTORS
Prior to making an investment in the Common Shares, prospective
purchasers should consider all of the information set forth in this Prospectus
and, in particular, should evaluate the following risk factors:
Operating Risks
Construction and heavy equipment involve a high degree of
operational risk. Natural disasters, adverse weather conditions and operator
error can cause personal injury or loss of life, severe damage to and
destruction of property, equipment and the environment and suspension of
operations. The occurrence of any such event could result in revenue and
casualty loss, increased costs and significant liability to third parties.
Litigation arising from such an occurrence may result in the Company being named
as a defendant in lawsuits asserting substantial claims.
Although the Company maintains risk management, insurance and safety
programs intended to mitigate the effects of loss or damage, there can be no
assurance that any such programs will be sufficient or effective under all
circumstances or against all hazards to which the Company may be subject. An
enforceable claim for which the Company is not fully insured could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, no assurance can be given that the Company will
be able to maintain adequate insurance in the future at rates that it considers
reasonable. See "Business -- Legal Proceedings and Insurance."
Risk Associated with Fixed Price Contracts
A substantial portion of the Company's projects are currently
performed on a fixed price or lump sum basis, although some projects are
performed on a cost reimbursable or day rate basis or some combination of the
foregoing. The Company attempts to cover increased costs of changes in labor,
material and service costs of its long term contracts (which typically extend
from one to three years) either through an estimation of such changes, which is
reflected in the original price, or through price adjustment clauses. Despite
these attempts, however, the revenue, cost and gross profit realized on a fixed
price or lump sum contract will often vary from the estimated amounts because of
unforeseen conditions or changes in job conditions and variations in labor and
equipment productivity over the term of the contract. These variations and the
risks generally inherent in construction may result in gross
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profits realized by the Company being different from those originally estimated
and may result in the Company experiencing reduced profitability or losses on
projects. Depending on the size of a project, these variations from estimated
contract performance could have a material adverse effect on the Compa-ny's
business, financial condition and results of operations for any period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview --Contracts" and "Business -- Contracting Methods."
Risk Associated with Percentage of Completion Accounting
The Company's contract revenues are recognized using the percentage
of completion method. Under this method, estimated contract revenues are accrued
based generally on the percentage that costs to date bear to total estimated
costs. Estimated contract losses are recognized in full when determined.
Accordingly, contract revenues and total cost estimates are reviewed and revised
periodically as the work progresses and as change orders are approved, and
adjustments based upon the percentage of completion are reflected in contract
revenues in the period when such estimates are revised. Such estimates are based
on management's reasonable assumptions and experience, and are only estimates.
Variation of actual results from such assumptions or the Company's historical
experience could be material. To the extent that these adjustments result in a
reduction or an elimination of previously reported contract revenues, the
Company would recognize a charge against current earnings, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview --Revenue Recognition."
Fluctuating Revenues and Cash Flow
The Company is dependent upon major construction projects in
cyclical industries, including the petroleum, pet-rochemical, chemical, pulp and
paper, electric and gas utility, and water and wastewater industries, for its
revenues and cash flow. In the petroleum and petrochemical industry, which in
recent years has accounted for the largest component of the Company's revenues,
numerous factors influence capital expenditure decisions, including current and
projected oil and gas prices; exploration, extraction, production and
transportation costs; the discovery rate of new oil and gas reserves; the sale
and expiration dates of leases and concessions; local and international
political and economic conditions; technological advances; and the abilities of
oil and gas companies to generate capital. These factors are beyond the control
of the
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<PAGE>
Company. The failure to obtain major projects, the delay in awards of major
projects, the cancellation of major projects or delays in completion of
contracts could result in the under-utilization of the Company's resources which
could have a material adverse impact on the Company's business, financial
condition, results of operations and cash flows. In addition, construction
projects for which the Company's services are contracted may require significant
expenditures by the Company prior to receipt of relevant payments by a customer.
Such expenditures could have a material adverse impact on the Compa-ny's cash
flows. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Substantial Liquidity Requirements
The Company's operations require significant amounts of working
capital for acquisitions of and improvements to heavy-duty equipment and for the
procurement of materials for contracts to be performed over relatively long
periods of time. Capital expenditures for the acquisitions of and improvements
to heavy-duty equipment are generally part of the Company's normal annual
capital expenditure program. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." In addition, the Company's contract arrangements with customers
frequently require the Company to provide bid and performance bonds or letters
of credit to partially secure the Company's obligations under its bids and/or
contracts as well as requiring significant expenditures prior to receipt of
payments. Furthermore, the Company's customers will often retain a portion
(generally about 10%) of amounts otherwise payable to the Company during the
course of a project as a guarantee of completion of such project. See "--
Fluctuating Revenues and Cash Flow."
The Company conducts all of its operations through subsidiaries of
the Issuer and joint ventures between such subsidiaries and third parties.
Accordingly, a substantial amount of the Issuer's consolidated assets are held
by, and a substantial part of the Issuer's consolidated cash flows are
attributable to, such subsidiaries and joint ventures. As a result, the Issuer's
liquidity is substantially dependent upon its ability to obtain a flow of funds
from such subsidiaries and joint ventures. Certain subsidiaries and joint
ventures may incur substantial indebtedness to third parties, the terms of which
may restrict the ability of the Issuer to obtain funds from the applicable
subsidiaries and/or joint ventures. In addition, the arrangements governing
certain of the Company's joint ventures require approval of the other parties to
those joint ventures before distribution can be made to the parties.
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<PAGE>
These restrictions, along with restrictions imposed by the terms of the proposed
New Revolving Credit Facility (as defined under the caption "Description of New
Revolving Credit Facility") and other credit arrangements entered into by the
Company, could constrain the Issuer's liquidity and, as a result, the Issuer's
ability to pay dividends or the Company's ability to secure future financings
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
Risks of International Operations
The Company is a global contractor, with approximately 67% of its
new business taken in the first nine months of 1996 relating to projects outside
the United States, including in regions which may experience political
instability. Since the operations of the Company are carried out
internationally, they are subject to certain political, economic and other
uncertainties, including, among others, risks of war, expropriation or
nationalization of assets, renegotiation or nullification of existing contracts,
changing political conditions, changing laws and policies affecting trade and
investment, overlap of different tax structures, and the general hazards
associated with the assertion of sovereignty over certain areas in which
operations are conducted. Additionally, various jurisdictions have laws limiting
the right and ability of subsidiaries and joint ventures to pay dividends and
remit earnings to affiliated companies, unless specified conditions precedent
are met.
Many aspects of the Company's operations are subject to governmental
regulations in the countries in which the Company operates, including those
relating to currency conversion and repatriation, taxation of its earnings and
earnings of its personnel, and its use of local employees and suppliers. The
Company's operations are also subject to the risk of changes in laws and
policies in the various jurisdictions in which the Company operates which may
impose restrictions on the Company, including trade restrictions, that could
have a material adverse effect on the Company's business, financial condition
and results of operations. Other types of government regulation which could, if
enacted or implemented, materially and adversely affect the Company's operations
include expropriation or nationalization decrees, confiscatory tax systems,
primary or secondary boycotts directed at specific countries or companies,
embargoes, import restrictions or other trade barriers, mandatory sourcing
rules, high labor rates and fuel price regulation. The Company cannot determine
to what extent future operations and earnings of the Company may be affected by
new legislation, new regulations or changes in or new
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<PAGE>
interpretations of existing regulations. See "Business -- Gov-
ernmental Regulations -- General."
Currency Risks
As the Company's functional currency is the United States dollar,
its non-U.S. operations sometimes face the additional risks of fluctuating
currency values and exchange rates, hard currency shortages and controls on
currency exchange. Through its contracts with its customers, the Company
attempts to limit its exposure to currency and exchange rate fluctuations by
attempting to match anticipated non-U.S. currency contract receipts with
anticipated like non-U.S. currency disbursements. To the extent that it is
unable to match the anticipated non-U.S. currency receipts and disbursements
related to its contracts, the Company generally enters, if the Company believes
it is warranted under the circumstances, into forward exchange contracts, to the
extent available, to hedge non-U.S. currency transactions on a continuing basis
for periods consistent with its committed exposures. Because the Company
generally does not hedge beyond its contract exposure, the Company believes this
practice minimizes the impact of non-U.S. exchange rate movements on the
Company's results of operations. There can be no assurance, however, that the
attempted matching of non-U.S. currency receipts with disbursements or hedging
activity will adequately moderate the risk of currency or exchange rate
fluctuations which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, since the
Company generates revenues in countries around the world, there can be no
assurance that forward exchange contracts will be available with respect to any
given currency in which the Company generates revenues. See "Business --
Geographic Markets."
Potential Environmental Liability
The Company's operations and properties are affected by numerous
national, federal, state and local environmental protection laws and
regulations, such as those governing discharges to air and water, as well as the
handling and disposal of solid and hazardous wastes in each of the countries
where the Company operates. The requirements of these laws and regulations have
tended to become increasingly stringent, complex and costly to comply with. This
is true for the Company's United States operations and for its non-U.S.
operations, which operations historically have been conducted generally pursuant
to less stringent environmental laws and regulations than exist in the United
States. While the Company has an environmental compliance program in place, it
cannot guarantee that any non-compliance, if it exists, would not have a
material adverse
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<PAGE>
effect on the Company. There also can be no assurance that environmental laws
and regulations or their interpretation will not change in the future in a
manner that could materially and adversely affect the Company. In addition, the
Company may be subject to claims alleging personal injury or property damage as
a result of alleged exposure to toxic and hazardous substances.
Certain environmental laws, such as the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund") in the United
States, provide for strict and joint and several liability for investigation and
remediation of spills and other releases of toxic and hazardous substances. Such
laws may apply to conditions at properties currently or formerly owned or
operated by an entity or its predecessors, as well as to conditions at
properties at which wastes or other contamination attributable to an entity or
its predecessors come to be located. The Company can give no assurance that it,
or entities for which it may be responsible, will not incur such liability in
connection with the investigation and remediation of facilities it currently
owns or operates (or formerly owned or operated) or other locations in a manner
that could materially and adversely affect the Company.
The Company's business sometimes involves working around and with
volatile, toxic and hazardous substances, which exposes it to risks of liability
for personal injury or property damage caused by any release, spill, or other
accident involving such substances that occurs as a result of the conduct of its
business. The Company has been (and may continue to be) unable to obtain
adequate environmental damage or pollution insurance at a reasonable cost.
Although the Company maintains general liability insurance, this insurance is
subject to coverage limitations, deductibles and exclusions and may exclude
coverage for losses or liabilities relating to pollution damage. Therefore,
there can be no assurance that liabilities that may be incurred by the Company
will be covered by its insurance policies, or, if covered, that the dollar
amount of such liabilities will not exceed the Company's policy limits. Even a
partially uninsured claim, if successful and of significant magnitude, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Governmental Regulations --
Environmental," "Business -- Legal Proceedings and Insurance" and "Certain
Transactions; Relationship with Praxair."
Dependence on Petroleum and Petrochemical Industry
In recent years, demand from the worldwide petroleum and
petrochemical industry has been the largest component of
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the Company's revenues, and accounted for 62% of revenues in the first nine
months of 1996. Therefore, no assurance can be given that the Company's
business, financial condition and results of operations will not be materially
adversely affected because of reduced activity in the oil and gas industry. In
addition, the Company may be materially adversely affected by changing taxes,
price controls and laws and regulations relating to the petroleum and
petrochemical industries generally. See "-- Fluctuating Revenues and Cash Flow"
and "Business --Customers."
Competition
Several large companies offer metal plate products and services that
compete with some, but not all, of those of the Company. Local and regional
companies offer competition in one or more geographical areas and in certain
product lines. Although the Company believes customers consider, among other
things, the availability and technical capabilities of equipment and personnel,
efficiency, condition of equipment, safety record and reputation, price
competition is currently a primary factor in determining which qualified
contractor is awarded a contract.
In recent years, competition has resulted in substantial pressure on
pricing and operating margins. The Company expects overcapacity and other
competitive pressures in the industry to continue for the foreseeable future.
Several of the Company's competitors may have substantially greater capital
resources, experience, sales and marketing capabilities and broader product and
service offerings than the Company and are well established in their respective
markets. The Company's competitors, either alone or together with competitors
having sufficient resources, could engage in a variety of actions, including
aggressive price competition, increased commitment of resources to compete,
offering a higher level of customer service and efforts to recruit the Company's
customers, which may have the effect of delaying or preventing the
implementation of the Company's business strategy or adversely affecting the
Com-pany's ability to compete profitably. Given the nature of the construction
industry, certain of the Company's costs, including construction equipment and
personnel, are essentially fixed over the short term. In order to avoid
additional expenses associated with temporarily idling equipment and personnel,
the Company may from time to time choose to bid its, and its competitors may bid
their, services out for hire at less than attractive rates, depending on the
prevailing contractual rates in a given region. See "Business -- Competition."
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Reliance on Key Personnel
The Company's success depends to a significant extent upon the
performance of its key employees, the loss of one or more of whom could have a
material adverse effect on the Compa-ny's business, financial condition and
results of operations. The Company carries no key-man life insurance. The
Company believes that its future success will also depend in large part on its
ability to attract and retain highly skilled managerial, supervisory, technical,
sales and marketing personnel, who are in great demand. There can be no
assurance that the Company will be successful in attracting or retaining such
personnel, and the failure to attract or retain such personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainty in Enforcing United States Judgments Against Neth-
erlands Corporations, Directors and Others
The Issuer is a Netherlands company and a substantial portion of its
assets are located outside the United States. In addition, certain members of
the Issuer's management and supervisory boards are residents of countries other
than the United States. As a result, judgments of United States courts,
including judgments against the Issuer or members of its management or
supervisory boards predicated on the civil liability provisions of the federal
or state securities laws of the United States, may be difficult to enforce in
The Nether-lands. See "Service of Process and Enforcement of Civil Liabilities."
Possible Antitakeover Effects
The Issuer's Articles of Association and the applicable law of The
Netherlands contain provisions that may be deemed to have anti-takeover effects.
Among other things, these provisions provide for a staggered board of
supervisory directors and a binding nomination process. Such provisions may
delay, defer or prevent a takeover attempt that a shareholder might consider in
the best interest of the Company's shareholders. See "Description of Share
Capital." In addition, certain United States tax laws may discourage third
parties from accumulating significant blocks of the Common Shares. See "Taxation
- -- United States Federal Income Taxes -- Foreign Personal Holding Company
Classification" and "Taxation --United States Federal Income Taxes -- Controlled
Foreign Corporation Classification."
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Other Matters Related to Companies Incorporated in The
Netherlands
As a Netherlands "naamloze vennootschap" (N.V.), the Company will be
subject to certain requirements not generally applicable to corporations
organized in United States jurisdictions. Among other things, the issuance of
shares by the Issuer must be submitted for resolution of the general meeting of
shareholders, except to the extent such authority to issue shares has been
delegated by the general meeting of shareholders to another corporate body.
The Issuer's shareholders are expected to authorize, prior to the
Common Share Offering, the Supervisory Board to issue such additional authorized
but unissued Common Shares as the Supervisory Board shall determine. Under the
law of The Netherlands, such authorization can only be granted for a maximum
period of five years and the current authorization will expire in , 2002,
subject to future extension(s). In addition, the issuance of the shares is
generally subject to shareholder preemptive rights, except to the extent that
such preemptive rights have been excluded or limited by the general meeting of
shareholders (subject to a qualified majority of two-thirds of the votes if less
than 50% of the outstanding share capital is present or represented) or by the
corporate body empowered to do so by the general meeting of shareholders or the
articles of association. Shareholders do not have pre-emptive rights with
respect to shares which are issued against payment other than in cash nor with
respect to shares issued to employees of the Company. Prior to the consummation
of the Common Share Offering, the Issuer's shareholders are also expected to
adopt a resolution providing the Supervisory Board with an irrevocable five-year
authorization to exclude or limit shareholder preemptive rights. See
"Description of Share Capital -- Summary of Certain Provisions of the Articles
of Association and Other Matters -- Issue of Shares; Preemptive Rights."
New Status as Independent Entity
Prior to the Common Share Offering, the Issuer was an indirect
wholly owned subsidiary of Praxair, and prior thereto an indirect wholly owned
subsidiary of Industries, and the Company has depended upon Praxair and
Industries for certain financial and administrative support. Upon completion of
the Common Share Offering, the Company will be responsible for its own financing
and administering its own treasury, cash management, accounting, legal, tax,
insurance, human resources and other services (after an interim transition
period during which Praxair may continue to provide certain credit guarantees
which are already outstanding and will provide certain pension-
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related services for specified fees). Praxair may continue to provide certain
benefits-related services to the Company in the future. The Company is expected
to incur additional general and administrative expenses estimated to be
approximately $1.9 million annually in connection with the Company's status as
an independent publicly traded company. In addition, prior to the consummation
of the Common Share Offering, both Industries and Praxair provided credit
support under arrangements providing for performance bonds and letters of credit
issued on behalf of the Company. Such credit support will not extend to new
utilization under such arrangements and may not continue with respect to
outstanding obligations. Furthermore, the Company has generated significant
revenue from services provided to Praxair and its affiliates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Liquidity and Capital Resources" and "Certain Transactions; Relationship with
Praxair."
Risks of Joint Venture Operations
The Company conducts a significant portion of its operations through
joint ventures, all of which the Company manages. In 1995, approximately 18% of
the Company's consolidated revenues were derived from its joint ventures. At any
given time, the revenues or new business taken of a particular joint venture
could be significant. The Company's joint venture partners may from time to time
have economic or business interests or goals which are inconsistent with the
business interests or goals of the Company. The Company may not have control
over the operations or assets of a joint venture if the joint venture agreements
so provide. Although the Company generally manages the operations of its joint
ventures in the same manner as it manages the operations of its subsidiaries,
the Company may be required to consider the interests of its joint venture
partners in connection with decisions concerning the operations of the joint
ventures. The expenses of managing the operation of each joint venture are
allocated to such joint venture. All such joint ventures are organized as
corporate entities, and the joint venture participants, as shareholders of such
entities, generally are not subject to liability with respect to the activities
of the joint ventures. The Company generally is not liable to any joint venture
for activities undertaken on behalf of such joint venture in accordance with
authority granted by the joint venture. Although each joint venture also
maintains insurance coverages required by law as well as additional coverages,
there can be no assurance that such coverage will be adequate. The Company also
faces the risk that a joint venture partner may be unable to meet its economic
or other obligations and that the Company may be
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<PAGE>
required or choose to fulfill those obligations. See also
"-- Substantial Liquidity Requirements."
Selling Shareholder Influence over the Company
The Selling Shareholder will own 100% of the outstanding Common
Shares immediately prior to the consummation of the Common Share Offering. Upon
completion of the Common Share Offering, the Selling Shareholder will own
approximately % ( % if the Underwriters' over-allotment option is exercised in
full) of the then outstanding Common Shares (in each case, excluding outstanding
Common Shares which are Management Plan Shares; see "Management -- Compensation
and Benefits -- Special Long-Term, Stock-Based Compensation Related to the
Common Share Offering"). In addition, under the Issuer's Articles of
Association, the Selling Shareholder (or certain of its transfer-ees) will have
the right to appoint, remove and replace two members of the Supervisory Board so
long as the Selling Shareholder (or such transferee) owns at least 20% of the
outstanding Common Shares, and the right to appoint, remove and replace one
member of the Supervisory Board so long as the Selling Shareholder (or such
transferee) owns at least 10% but less than 20% of the outstanding Common
Shares. As a result, the Selling Shareholder will be in a position to influence
the management and affairs of the Company, including with respect to the
election and removal of directors, amendments to the Issuer's Articles of
Association and with respect to transactions which could cause a change of
control of the Issuer. Furthermore, the Company and Praxair have entered into
various agreements in connection with the Reorganization and the Common Share
Offering. Under the Registration Rights Agreement (as defined) provides that in
certain instances, the Selling Share-holder's consent is required prior to the
Issuer's registering additional Common Shares (or similar securities) under the
Securities Act. See "Management -- Supervisory Board," "Certain Transactions;
Relationship with Praxair" and "Description of Share Capital."
Shares Eligible for Future Sale; Registration Rights
Upon completion of the Common Share Offering, the Issuer will have
outstanding Common Shares, including Common Shares owned by the Selling
Shareholder ( if the Underwriters' over-allotment option is exercised in full)
and the Management Plan Shares as described under "Management -- Compensation
and Benefits -- Special Stock-Based, Long-Term Compensation Related to the
Common Share Offering." The Common Shares ( if the Underwriters' over-allot-ment
option is exercised in full) offered hereby will be eligible for sale in the
public market after the completion of the
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<PAGE>
Common Share Offering, except for any shares purchased by an "affiliate" of the
Issuer, which will be subject to the resale limitations of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). In the underwriting
agreements among the Issuer, the Selling Shareholder and the U.S. Underwriters
and Managers, respectively, the Issuer and the Selling Shareholder, as well as
certain directors and executive officers of the Company, will agree (subject to
certain exceptions) not to sell any Common Shares for a period of 180 days after
the date of this Prospectus without the prior consent of Credit Suisse First
Boston Corporation. Upon the expiration, or waiver, of the restrictions
contained in the Underwriting Agreement, the remaining outstanding Common Shares
will be "restricted securities" for purposes of Rule 144, and may not be resold
unless registered under the Securities Act or sold pursuant to an exemption from
registration thereunder. Praxair has certain rights to require the Issuer to
register Common Shares held by the Selling Shareholder (or its transferee) for
sale under the Securities Act to permit the public sale of such shares.
Significant sales of Common Shares (whether such shares are currently
outstanding or subsequently issued) under a registration statement, pursuant to
Rule 144 or otherwise in the future, or the prospect of such sales, may depress
the price of the Common Shares or any market that may develop, and may also
render difficult the sale of the Common Shares purchased by investors hereunder.
See "Certain Transactions; Relationship with Praxair -- Registration Rights
Agreement" and "Shares Eligible for Future Sale."
Absence of Prior Public Market; Possible Volatility of Share
Price
Prior to the Common Share Offering, there has been no public market
for the Common Shares and there can be no assurance that an active trading
market will develop or be sustained in the future. The initial public offering
price of the Common Shares has been determined solely by negotiations among the
Issuer, the Selling Shareholder and the representatives of the Underwriters and
does not necessarily reflect the market price of the Common Shares after
completion of the Common Share Offering or the price at which Common Shares may
be sold in the public market after the Common Share Offering. The initial public
offering price of the Common Shares will be determined by negotiations among the
Company, the Selling Shareholder and the Representatives based on various
factors. The market price of the Common Shares after the Common Share Offering
could be subject to significant fluctuations in response to various factors,
including variations in quarterly operating results, future announcements
concerning the Company or its competitors, interest rates, foreign exchange
rates, the depth and liquidity
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<PAGE>
of the market for the Common Shares, investor perceptions of the Company and
general economic, market and other conditions.
Dilution
The initial public offering price per share of Common Shares will
exceed the net tangible book value per Common Share. Accordingly, the purchasers
of the Common Shares offered hereby will experience immediate and substantial
dilution of $ in their investment (assuming an initial public offering price of
$ per share, the mid-point of the price range as set forth on the cover page of
this Prospectus). Additional dilution may occur following the exercise by
management and other employees of options to purchase Common Shares granted in
the future under the Company's option plans and agreements or purchases of
shares under employee share purchase plans. See "Dilution" and "Management --
Compensation and Benefits -- Executive Compensation -- Long-Term Compensation"
and "Management -- Employee Share Purchase Plan."
Risk of U.S. Taxation of Foreign Operations
The Issuer and its non-U.S. subsidiaries will carry out their
activities in a manner which the Company believes will not constitute the
conduct of a trade or business in the United States. Accordingly, although the
Company reports taxable income and pays taxes in the countries where it
operates, the Company believes that income earned by the Issuer and its non-U.S.
subsidiaries from operations outside the United States is not reportable in the
United States for tax purposes and is not subject to U.S. income tax. If income
earned by the Issuer or its non-U.S. subsidiaries from operations outside the
United States is determined to be income effectively connected to a United
States trade or business and as a result becomes taxable in the United States,
the Company could be subject to U.S. taxes on a basis significantly more adverse
than generally would apply to such business operations. If the Company were to
be deemed to be subject to such taxes, there can be no assurance that the
Company's business, financial condition and results of operations will not be
materially and adversely affected.
Risk of Being Classified as a Foreign Personal Holding Company
If certain events occur, the Issuer or any of its
non-U.S. subsidiaries may be classified, for U.S. tax purposes,
as a foreign personal holding company ("FPHC"). The events
which would trigger the classification as an FPHC are, in part,
beyond the control of the Company. The Issuer would be classi-
fied as an FPHC if in any taxable year (i) five or fewer
-28-
<PAGE>
individuals who are U.S. citizens or residents own (directly or constructively
through certain attribution rules) more than 50% of the voting power or the
value of the outstanding Common Shares and (ii) at least 60% of its gross income
is "foreign personal holding company income," which is defined under Section 553
of the Internal Revenue Code of 1986, as amended (the "Code"), to include, among
other things, dividends, interest, rent and royalties. If the Issuer were to be
classified as an FPHC, this would generally require each U.S. shareholder who
held Common Shares on the last day of the Company's taxable year to include in
such shareholder's gross income as a dividend that shareholder's pro rata
portion of undistributed income of the Issuer and of any non-U.S. subsidiaries
that are also FPHCs. The Issuer believes that it will not be an FPHC at the time
of the Common Share Offering made by this Prospectus but undertakes no
obligation to determine if it is an FPHC at any time. There can be no assurance
that the Issuer or any of its non-U.S. subsidiaries will not be classified as
FPHCs in the future. See "Taxation -- United States Federal Income Taxes --
Foreign Personal Holding Company Classification."
Risk of Being Classified as a Controlled Foreign Corporation
The Issuer is incorporated in The Netherlands and is not expected to
be a "controlled foreign corporation" for purposes of U.S. tax law after the
Common Share Offering. However, given the Selling Shareholder's continued
ownership, the Company may be classified as a controlled foreign corporation if
any other United States person acquires 10% or more of the shares of the Issuer
(including ownership through the attribution rules of Section 958 of the Code)
and the sum of the percentage ownership by all such persons and the percentage
ownership by the Selling Shareholder (and its affiliates) exceeds 50% (by voting
power or value) of the Issuer's stock. There is no assurance that the Issuer
will not be determined to be a controlled foreign corporation in the future. In
the event that such a determination were made, all U.S. holders of 10% or more
of the shares of the Issuer will be subject to taxation under Subpart F of the
Code. The ultimate consequences of this determination are fact-specific to each
10% or greater (including ownership through the attribution rules of Section 958
of the Code) U.S. shareholder but could include possible taxation of such U.S.
shareholder on income of the Issuer even in the absence of distribution by the
Issuer of such income. See "Taxation -- United States Federal Income Taxes --
Controlled Foreign Corporation Classification."
-29-
<PAGE>
THE COMPANY
CB&I is a global engineering and construction company specializing
in the engineering and design, materials procurement, fabrication, erection,
repair and modification of steel tanks and other steel plate structures and
associated systems such as petroleum terminals, refinery pressure vessels, low
temperature and cryogenic storage facilities and elevated water storage tanks.
The Company believes it is the leading provider of field erected steel tanks and
other steel plate structures, associated systems and related services in North
America and one of the leading providers of these specialized products and
services in the world. CB&I seeks to maintain its leading industry position by
focusing on its technological expertise in design, metallurgy and welding, along
with its ability to complete logistically and technically complex metal plate
projects virtually anywhere in the world. CB&I has been continuously engaged in
the engineering and construction industry since its founding in 1889. In 1996,
the Company was involved in over 500 projects for over 250 customers in 34
countries.
The Issuer is a corporation organized under the laws of The
Netherlands in November 1996 and maintains its registered office and corporate
seat and the principal office of CBICBV at P.O. Box 74658, 1070BR Amsterdam, The
Netherlands. The Issuer's telephone number at such address is 31-20-664-4461.
The executive office of CBIC is located at 1501 North Division Street,
Plainfield, Illinois 60544, and its telephone number at that address is (815)
439-6000. The Issuer is registered in the trade register of the Chamber of
Commerce of Amsterdam under No. 286.441.
The Issuer's objects clause as contained in its Articles of
Association is formulated in a broad manner, enabling the Issuer to do all such
things as may be in the broadest sense in furtherance of the business of the
Company as described herein (see "Business"), including, among other things, to:
incorporate, own, participate in, manage and promote businesses; perform
industrial, financial and commercial activities; design, develop, manufacture,
market, sell and service products of any nature; and to borrow, lend and raise
funds and render guarantees.
-30-
<PAGE>
DIVIDEND POLICY
It is anticipated that following the consummation of the Common
Share Offering, the Issuer will initially pay quarterly cash dividends which, on
an annual basis, will aggregate $ per Common Share and which may be changed over
time as its earnings and prospects warrant. However, no such dividend has been
declared and the declaration and payment of dividends will be a business
decision to be made by the Management Board and the Supervisory Board (each as
defined below under "Management") of the Issuer from time to time, subject to
the determination by shareholders at a general meeting and subject to applicable
mandatory provisions of Dutch law, and based on a variety of factors including,
among others, the Company's earnings, financial position, capital needs and such
other considerations as the Management Board and the Supervisory Board deem
relevant as well as any restrictions under the Issuer's debt instruments. See
"Description of Share Capital -- Summary of Certain Provisions of the Articles
of Association and Other Matters -- Dividends." The Issuer's first dividend is
expected to be payable on , 1997 to shareholders of record at the close of
business on , 1997. Although under Dutch law dividends generally are paid
annually after being approved at a general meeting of shareholders, quarterly
dividends in anticipation of an annual dividend may be distributed by a
company's management board, with the approval of its supervisory board. See
"Description of Share Capital -- Summary of Certain Provisions of the Articles
of Association and Other Matters -- Dividends."
It is expected that cash dividends, if any, will be declared in
dollars. For a description of the basis on which dividends may be converted into
Dutch guilders, see "Description of Share Capital -- Summary of Certain
Provisions of the Articles of Association and Other Matters -- Dividends." As
regards cash payments, the rights to dividends and distributions shall lapse if
such dividends or distributions are not claimed within five years following the
day after the date on which they were made available.
There are no legislative or other legal provisions currently in
force in The Netherlands or arising under the Com-pany's Articles of Association
restricting dividends to holders of the Common Shares not resident in The
Netherlands. Insofar as the law of The Netherlands is concerned, cash dividends
paid in any currency may be transferred from The Netherlands and converted into
any other convertible currency. Dividends payable by the Company are subject to
Dutch withholding tax at the current rate of 25%. The withholding tax on
dividends paid to holders of Common Shares who are not residents of The
-31-
<PAGE>
Netherlands may be reduced by virtue of an applicable income
tax convention in effect between The Netherlands and the coun-
try of residence of the recipient of the dividends. See "Taxa-
tion -- Netherlands Taxes -- Netherlands Dividend Withholding
Tax."
The Issuer is a newly formed corporation with no accumulated
earnings and profits for U.S. federal income tax purposes. If the Issuer
declares dividends in the Issuer's first taxable year after the Common Share
Offering in excess of the Issuer's current earnings and profits for such year,
the excess of the dividend paid with respect to a particular class of the
Issuer's shares over the earnings and profits allocable to such class of shares
shall be treated for United States federal income tax purposes as a return of
capital to the extent of the shareholder's basis in the shares, and a capital
gain to the extent of any amount of such excess distributed to the shareholder
in excess of such basis.
The Issuer is a holding company that derives all of its cash flow
from its subsidiaries. Consequently, the Issu-er's ability to pay dividends is
dependent on the earnings of its subsidiaries and the receipt by the Issuer of
distributions from such subsidiaries. In addition, the New Revolving Credit
Facility will, and any other credit arrangements which the Company may enter
into may, limit the Issuer's ability to pay dividends. See "Risk Factors --
Substantial Liquidity Requirements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of New Revolving Credit Facility."
DILUTION
Dilution is the reduction in the value of a purchas-er's investment
in Common Shares measured by the difference between the purchase price per share
and the net tangible book value per Common Share after the purchase. Giving
effect to the Reorganization, the consolidated net tangible book value of the
Issuer as of September 30, 1996 was $73.1 million or $ per share and, after
giving effect to the Common Share Offering (at assumed initial public offering
price of $ per share, the mid-point of the price range as set forth on the cover
page of this Prospectus and including the deduction of estimated offering
expenses payable by the Issuer), was $ million or $ per share. The net tangible
book value per share is determined by dividing the consolidated net tangible
book value of the Issuer by the number of Common Shares outstanding at that
date. The consolidated net tangible book value of the Issuer represents its
total assets less its total liabilities and intangible assets
-32-
<PAGE>
(consisting primarily of goodwill). Without taking into account any other
changes in such consolidated net tangible book value after September 30, 1996,
other than to give effect to the sale of the Common Shares offered hereby (at
assumed initial public offering price of $ per share, the mid-point of the price
range as set forth on the cover page of this Prospectus), purchasers of Common
Shares in the Common Share Offering would experience immediate dilution of $ per
share, which is equal to the difference between the assumed initial public
offering price and the net tangible book value per Common Share as of September
30, 1996. The following table illustrates this per share dilution:
Assumed initial public offering price per share .............. $
Net tangible book value per share as of September 30,
1996 after giving effect to the Common Share Offering ...... ____
Dilution per share to purchasers in the
Common Share Offering(1).................................... $____
- --------------------------
(1) Includes Common Shares which will be contributed to the
Management Plan which vest no earlier than the third anniversary (and
with respect to one participant, the second anniversary) of the award
date, but does not include Common Shares reserved for issuance
under the Incentive Plan, of which shares will be subject to
options to be granted at or prior to consummation of the Common Share
Offering at an exercise price equal to the initial offering price.
USE OF PROCEEDS
The net proceeds to the Selling Shareholder from the sale of the
Common Shares in the Common Share Offering are estimated to be approximately $
million, after deducting estimated underwriting discounts and commissions. The
Company will not receive any of the proceeds from the sale of Common Shares in
the Common Share Offering.
-33-
<PAGE>
CAPITALIZATION
(dollars in thousands)
The following table sets forth the cash, consolidated short-term
debt and capitalization of the Company at September 30, 1996 (after giving
effect to the Reorganization) and as adjusted to give effect to the Common Share
Offering, the contribution of Common Shares to the Management Plan and the
Reorganization. This table should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
_____As of September 30, 1996_____
Actual(1) As Adjusted(2)
Cash and cash equivalents................... $ 20,013 $
======== =======
Short-term notes payable.................... $ 1,218 $ 1,218
Long-term debt to Praxair................... 55,000 55,000(3)
SHAREHOLDERS' EQUITY:
Common stock, NLG .01 par value,
50,000,000 authorized,
issued and outstanding..............
Additional paid-in capital............
Retained earnings..................... - -
Cumulative translation adjustment..... (644) (644)
Total shareholders' equity........
------- -------
Total capitalization............ $ $
======= =======
- --------------------
(1) Reflects amounts after giving effect to the Reorganization.
(2) Reflects amounts after giving effect to the Reorganization, the contribution
of Common Shares to the Management Plan and the Common Share Offering.
(3) The Company intends to refinance its long-term debt to Praxair with
indebtedness incurred under the New Revolving Credit Facility.
-34-
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands, except for per share data)
The following table sets forth Selected Historical and Pro Forma
Consolidated Financial and Other Data for the periods and as of the dates
indicated. The selected historical consolidated statement of operations data for
each of the years in the three-year period ended December 31, 1995 and the
selected historical consolidated balance sheet data as of December 31, 1995 and
1994 have been derived from, and are qualified by reference to, the Audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The selected historical consolidated statement of operations data
for each of the years in the two-year period ended December 31, 1992 and the
selected historical consolidated balance sheet data as of December 31, 1993,
1992 and 1991 and as of September 30, 1995 have been derived from the Company's
unaudited financial statements. The selected historical consolidated unaudited
financial data set forth below for the nine-month periods ended September 30,
1996 and 1995 and as of September 30, 1996 have been derived from, and are
qualified by reference to, the unaudited consolidated financial statements of
the Company included elsewhere in this Prospectus and include all adjustments,
consisting of normal recurring adjustments, which management considers necessary
for a fair presentation of the financial position and the results of operations
of the Company for such periods. Results for the interim periods are not
necessarily indicative of the results for the full year.
The unaudited pro forma consolidated financial and other data for
the year ended December 31, 1995 and the nine-month period ended September 30,
1996 give effect to the acquisition of Industries by Praxair and the Common
Share Offering as if each had occurred at the beginning of the period indicated.
Such unaudited pro forma consolidated financial and other data are based on the
historical financial statements of the Company and the assumptions and
adjustments described in the accompanying notes and under "Unaudited
Consolidated Pro Forma Financial and Other Data." The unaudited pro forma data
are not designed to represent and do not represent what the Company's results of
operations actually would have been had the acquisition by Praxair and the
Common Share Offering been completed as of the beginning of the periods
indicated, or to project the Company's results of operations at any future date
or for any future period.
-35-
<PAGE>
The selected historical and pro forma consolidated financial and
other data set forth below should be read in conjunction with, and are qualified
by reference to, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and accompanying notes thereto and other financial information included
elsewhere in this Prospectus.
-36-
<PAGE>
<TABLE>
<CAPTION>
Historical Information (1) Pro Forma(2)
----------------------------------------------------------------------- ---------------
Post-Praxair
Pre-Praxair Acquisition Acquisition
------------------------------------------------------------ --------------
Nine
Nine Months Nine Months Year Months
Ended Ended Ended Ended
Year Ended December 31, September September December September
1991 1992 1993 1994 1995 30, 1995 30, 1996 31, 1995 30,1996
---- ---- ---- ---- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues....................$803,339 $799,196 $680,541 $762,803 $621,938 $464,311 $483,531 $621,938 $483,531
Cost of revenue............. 689,431 677,067 630,978 692,266 614,230 440,503 431,252 614,993 431,252
Gross profit................ 113,908 122,129 49,563 70,537 7,708 23,808 52,279 6,945 52,279
Selling and adminis-
trative expenses.......... 44,465 44,006 44,193 45,503 43,023 29,427 30,784 45,411 32,209
Special charge.............. - - 22,900 (3) 16,990 (4) 5,230 (5) - - 5,230(5) -
Loss (gain) on the sale
of assets(6).............. - - (118) (11,360) (10,030) (3,844) 354 (10,030) 354
Income (loss) from operations.69,443 78,123 (17,412) 19,404 (30,515) (1,775) 21,141 (33,666) 19,716
Interest expense..............(1,262) (1,275) (298) (180) (799) (835) (3,787) (4,649) (3,787)
Other income.................. 6,377 4,405 3,056 1,652 1,191 1,245 581 1,191 581
Income (loss) before taxes
and minority interest.......74,558 81,253 (14,654) 20,876 (30,123) (1,365) 17,935 (37,124) 16,510
Income tax expense (benefit)..23,447 21,882 (6,080) 3,074 (8,093) (1,467) 4,674 (678) 4,110
Income (loss) before
minority interest...........51,111 59,371 (8,574) 17,802 (22,030) 102 13,261 (36,446) 12,400
Minority interest in income... 1,877 2,041 1,247 1,359 3,576 2,179 2,331 3,576 2,331
Net income (loss).............49,234 57,330 (9,821) 16,443 (25,606) (2,077) 10,930 (40,022) 10,069
Income (loss) per common
share(2).................... N/A N/A N/A N/A N/A N/A N/A - -
Weighted average number of
common shares outstanding...
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Historical Information (1) Pro Forma(2)
----------------------------------------------------------------------- ---------------
Post-Praxair
Pre-Praxair Acquisition Acquisition
------------------------------------------------------------ --------------
Nine
Nine Months Nine Months Year Months
Ended Ended Ended Ended
Year Ended December 31, September September December September
1991 1992 1993 1994 1995 30, 1995 30, 1996 31, 1995 30,1996
---- ---- ---- ---- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets...............$422,254 $410,492 $408,936 $359,912 $356,125 $354,548 $359,538 N/A N/A
Total debt................. 5,074 1,000 - - - - 55,000 N/A N/A
Total shareholders' equity. 161,229 222,027 217,231 183,101 186,507 207,654 92,314 N/A N/A
Cash Flow Data:
Cash flow from operating
activities............... ($357) $38,447 ($39,151) ($26,950) $20,535 N/A N/A
Cash flow from investing
activities............... (11,764) 14,051 3,899 (3,786) 159 N/A N/A
Cash flow from financing
activities............... 2,662 (49,742) 32,012 25,776 (13,531) N/A N/A
Other Financial Data:
Depreciation and
amortization............. 11,159 12,821 16,178 15,569 16,077 10,977 12,605 17,328 12,605
EBITDA(7).................. 80,602 90,944 21,598 40,603 (19,238) 5,358 34,100 (21,138) 32,675
Capital expenditures....... 29,811 44,465 19,232 18,772 14,880 11,945 8,075 14,880 8,075
Other Data:
Number of employees --
Salaried................. 1,973 1,999 1,824 1,763 1,728 1,697 1,618 N/A N/A
Hourly and craft......... 5,419 5,227 4,408 4,852 3,483 4,668 3,914 N/A N/A
New business taken(8)......$846,159 $732,415 $782,606 $648,082 $782,878 $547,700 $474,255 $782,878 $474,255
Backlog(8).................$464,478 $364,326 $449,303 $323,343 $470,174 $393,398 $456,599 $470,174 $456,599
</TABLE>
-38-
<PAGE>
- ---------------
(1) Prior to the first quarter of 1996, the Company was a subsidiary of
Industries. During the first quarter of 1996, pursuant to a merger
agreement dated December 22, 1995, Industries became a subsidiary of
Praxair. This merger transaction was reflected in the consolidated
financial statements of the Company as a purchase effective January 1,
1996. The application of purchase accounting resulted in changes to the
historical basis of various assets. Accordingly, the information provided
for periods prior to January 1, 1996 is not comparable to subsequent
financial information.
(2) Pro forma information gives effect to the acquisition of Industries by
Praxair and the Common Share Offering as if each had occurred on the first
day of the period indicated. See "Unaudited Pro Forma Consolidated Income
Statements."
(3) In 1993, a special charge of $22.9 million was recorded to recognize the
expense of two major legal claims totalling $15.0 million as well as a $7.9
million write-down of non-performing assets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations."
(4) In 1994, the Company recorded a special charge of $17.0 million to
recognize the expenses of a major litigation settlement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
(5) In 1995, the Company recorded a special charge of $5.2 million comprised of
$0.8 million for work force reduction and $4.4 million for write-down of an
idle facility and other related costs.
(6) Loss (gain) on the sale of assets primarily represents gains on the sale of
property, plant and equipment. The gain recorded in 1995 relates to the
sale of certain underutilized facilities sold as a result of the
Restructuring Program. The gain recorded in 1994 includes gains from
affiliated entity transactions primarily from the sale of the Company's
minority interest in a terminal and also the sale of the Company's interest
in a fabrication facility.
(7) EBITDA is defined as income (loss) before minority interest plus special
charges, loss on the sale of assets, interest and income tax expenses and
depreciation and amortization expenses, less gain on the sale of assets and
other income. While EBITDA should not be construed as a substitute for
operating income (loss) or a better measure of liquidity than cash flow
from operating activities, which are determined in accordance with United
States GAAP, it is included herein to provide additional information
regarding the ability of the Company to meet its capital expenditures,
working capital requirements and any future debt service. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs,
particularly because it does not include capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
-39-<PAGE>
(8) New business taken represents the value of new project commitments received
by the Company during a given period. Such commitments are included in
backlog until work is performed and revenue recognized or until
cancellation. Backlog may also fluctuate with currency movements.
-40-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
The following Unaudited Pro Forma Consolidated Income Statements for
the year ended December 31, 1995 and the nine months ended September 30, 1996
give effect to the acquisition of Industries by Praxair and the Common Share
Offering as if each had occurred at the beginning of the period indicated. The
Unaudited Pro Forma Consolidated Income Statements are based on the historical
financial statements of the Company and the assumptions and adjustments
described in the accompanying notes.
As described under the captions "Management -- Compensation and
Benefits -- Special Stock-Based, Long-Term Compensation Related to the Common
Share Offering" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview -- Management Plan," at or prior to the
consummation of the Common Share Offering, the Company will make a contribution
to the Management Plan in the form of Common Shares having a value of
approximately $ (assuming an initial public offering price of $ per share (the
mid-point of the price range as set forth on the cover page of this
Prospectus)). Accordingly, the Company will record a pretax charge of
approximately $ (assuming an initial public offering price of $ per share (the
mid-point of the price range as set forth on the cover page of this Prospectus))
at the time of the contribution to the Management Plan. As this represents a
non-recurring 1997 charge to income, it has not been reflected in the pro forma
consolidated income statements.
The Unaudited Pro Forma Consolidated Income Statements are based
upon assumptions that the Company believes are reasonable and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
accompanying notes thereto included elsewhere in this Prospectus. The unau-dited
pro forma data are not designed to represent and do not represent what the
Company's results of operations actually would have been had the acquisition by
Praxair and the Common Share Offering been completed as of the beginning of the
periods indicated, or to project the Company's results of operations at any
future date or for any future period. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
-41-
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Income Statement
(dollars in thousands, except per share data)
Year Ended December 31, 1995
----------------------------
Pro Forma As
Historical Adjustments Adjusted (5)
---------- ----------- ------------
<S> <C> <C> <C>
Revenues................................................. $ 621,938 - $621,938
Cost of revenues......................................... 614,230 763 (1) 614,993
------- -------- -------
Gross profit........................................... 7,708 (763) 6,945
Selling and administrative expenses...................... 43,023 2,388 (2) 45,411
Special charge........................................... 5,230 - 5,230
Gain on sale of assets................................... (10,030) - (10,030)
------- ------- -------
Income (loss) from operations.......................... (30,515) (3,151) (33,666)
Interest expense......................................... (799) (3,850) (3) (4,649)
Other income............................................. 1,191 - 1,191
----- ------- -------
Income (loss) before taxes and minority interest....... (30,123) (7,001) (37,124)
Income tax expense (benefit)............................. (8,093) 7,415 (4) (678)
------ ------- -------
Income (loss) before minority interest................. (22,030) (14,416) (36,446)
Minority interest in income.............................. 3,576 - 3,576
----- -------- -------
Net income (loss)...................................... ($25,606) ($ 14,416) ($ 40,022)
======== ========= =========
Pro forma net income (loss) per common share............. ($ )
=========
Pro forma weighted average number
of common shares outstanding...........................
=========
</TABLE>
- ------------------------
(1) Reflects a $763 increase in depreciation expense as a result of the January
1, 1996 purchase accounting adjustment to increase the value of fixed
assets.
(2) Reflects an increase of $1,900 for administrative expenses expected to be
incurred in connection with being a public corporation, as well as the
amortization of goodwill of $488 based on total goodwill of $19,515.
Goodwill was recorded as a result of the acquisition of Industries by
Praxair and is being amortized over 40 years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" for a discussion of such additional administrative
expenses.
(3) Represents an increase in interest expense associated with the assumption
by the Company of $55 million of the debt of Industries to the Company's
financial statements. The debt bears interest at a fixed rate of 7%.
(4) Represents an adjustment to reflect the tax provision after giving effect
to the Reorganization and reflecting the income tax effect of the pro forma
adjustments.
(5) The Company will not receive any of the proceeds from the Common Share
Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview -- Restructuring Program" and "--
Liquidity and Capital Resources" and "Business -- Restructuring Program"
for a discussion of the Company's Restructuring Program.
-42-
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Income Statement
(dollars in thousands, except per share data)
Nine Months Ended September 30, 1996
------------------------------------
Pro Forma As
Historical Adjustments Adjusted (3)
---------- ----------- ------------
<S> <C> <C> <C>
Revenues................................................. $ 483,531 - $ 483,531
Cost of revenues......................................... 431,252 - 431,252
------- ------- ---------
Gross profit........................................... 52,279 - 52,279
Selling and administrative expenses...................... 30,784 1,425 (1) 32,209
Loss (gain) on sale of assets............................ 354 - 354
------- ------ ---------
Income (loss) from operations.......................... 21,141 (1,425) 19,716
Interest expense......................................... (3,787) - (3,787)
Other income............................................. 581 - 581
------- ------ ---------
Income (loss) before taxes and minority interest....... 17,935 (1,425) 16,510
Income tax expense (benefit)............................. 4,674 (564) (2) 4,110
------- ------ ---------
Income (loss) before minority interest................. 13,261 (861) 12,400
Minority interest in income.............................. 2,331 - 2,331
------- ------ ---------
Net income (loss)...................................... $ 10,930 $ (861) $ 10,069
========= ========== ==========
Pro forma net income (loss) per common share............. $
==========
Pro forma weighted average number of common
shares outstanding.....................................
==========
</TABLE>
- --------------------
(1) Reflects an increase of $1,425 for administrative expenses expected to be
incurred in connection with being a public corporation. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" for a discussion of such additional
administrative expenses and of a decrease in benefits costs during 1996 of
approximately $3,000 as compared to 1995 as the result of the transition
from the Industries benefit plans to the new benefit plans being
established by the Company. The Company's new benefit plans are expected to
be in place for 1997 and the level of 1997 benefit costs (excluding
one-time costs related to the Management Plan) is expected to be consistent
with the 1995 benefit costs.
(2) Represents an adjustment to reflect the tax provision after giving effect
to the Reorganization and reflecting the income tax effect of the pro forma
adjustment.
(3) The Company will not receive any of the proceeds from the Common Shares
Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview -- Restructuring Program" and "--
Liquidity and Capital Resources" and "Business -- Restructuring Program"
for a discussion of the Company's Restructuring Program.
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<PAGE>
The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Background. In the first quarter of 1996, Praxair acquired all of
the outstanding common stock of Industries, which was then the parent company of
CBIC. At that time, Praxair announced its intention to divest the businesses of
Industries that were not strategic to Praxair, including the Company. The
acquisition of Industries by Praxair was reflected in the Company's consolidated
financial statements as a purchase effective January 1, 1996 and resulted in
changes to the capitalization and historical basis of various assets of the
Company. Accordingly, the historical information provided herein, for periods
prior to January 1, 1996, is not comparable to subsequent financial information.
Restructuring Program. Following the Praxair acquisition, a new
management team was assembled for the Company and has concentrated its initial
efforts on redirecting and accelerating the Restructuring Program. The
Restructuring Program initially focused on consolidating the Company's
organizational structure from six separate, decentralized business units into a
single global business operation. On-going enhancements in connection with such
consolidation include centralization of procurement, equipment and personnel
mobilization, and certain financial functions, as well as streamlining and
consolidating administrative and engineering support. As part of the program,
seven fabrication plants or warehouses have been closed and three administrative
office sites have been downsized or relocated, including the headquarters of the
Company's U.S. operations. The Company also has targeted a reduction of
approximately 160 salaried positions, of which approximately 110 had been
eliminated as of September 30, 1996. The Company believes that the benefits of
the Restructuring Program have contributed significantly to the improvement in
operating profitability in the first nine months of 1996 relative to the
comparable period in 1995.
Management Plan. During 1996, Praxair committed to compensate
certain members of the Company's management for their services in connection
with the further development and implementation of the Restructuring Program and
the Company's initial public offering. In fulfillment of that commitment, on or
immediately before the consummation of the Common Share Offering, the Company
has agreed to make a contribution to the
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<PAGE>
Management Plan in the form of Common Shares having a value of approximately $
(approximately Common Shares, assuming an initial public offering price of $ per
share (the mid-point of the price range as set forth on the cover page of this
Prospectus)). This initial contribution of Management Plan Shares will vest
three years (and with respect to one participant, two years) after the date of
the Common Share Offering. Accordingly, the Company will record a pretax charge
of approximately $ (assuming an initial public offering price of $ per share
(the mid-point of the price range as set forth on the cover page of this
Prospectus)) at the time of the contribution to the Management Plan. See
"Management - Compensation and Benefits -- Special Stock-Based, Long-Term
Compensation Related to the Common Share Offering."
Operations. Historically, changing market conditions have dictated
that the Company shift product mix and geographic revenue mix in order to
maximize operating results. The Company has also reduced its fixed costs from
time to time to reflect changes in demand for its products and services. Due to
a significant reduction in new business obtained by the Company outside the U.S.
and decreases in government and nuclear repair work in the U.S., revenues in
1993 were sharply lower than the level in 1992. While revenues and operating
results improved somewhat in 1994, they remained below targeted levels. Actions
by the Company to adjust its support infrastructure were generally insufficient
to offset the declining revenue trend.
During the period of declining performance from 1992 through 1995,
the Company became increasingly internally focused. Experienced employees were
assigned to the full-time Restructuring Program effort (during 1996, most of
these employees returned to operating duties). In 1995, Industries had also
become involved in defending itself against the ultimately successful takeover
by Praxair. These factors along with execution issues (such as maintaining costs
in line with initial estimates, and equipment and personnel mobilization
difficulties) and unabsorbed overhead costs contributed to a significant
operating loss in 1995.
Although the Company believes that continued implementation of the
Restructuring Program has already resulted in and will continue to result in
savings, there can be no assurance that the Company's estimates of results
already achieved accurately reflect cost savings associated with the
Restructuring Program, that targeted reductions and goals can be achieved or
will continue and that part or all of the Restructuring Program can successfully
be implemented.
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<PAGE>
Contracts. The Company obtains contracts primarily through
competitive bidding, negotiations or partnering agreements with long-standing
customers. Project duration typically lasts from a few weeks to several years.
Typically, over 75% of the Company's work is performed on a fixed price or lump
sum basis. The balance of projects primarily are performed on variations of cost
reimbursable and target fixed or lump sum price approaches.
New Business Taken/Backlog. New business taken represents the value
of new project commitments received by the Company during a given period. Such
commitments are included in backlog until work is performed and revenue
recognized or until cancellation. The variability of the timing of new project
commitments, the size of the project and other factors beyond the Company's
control can cause significant fluctuation in the new business taken in any given
period or backlog outstanding at any given date. Backlog may also fluctuate with
currency movements.
Revenue Recognition. Revenues are recognized on the percentage of
completion method. Revenue recognition is based on the percentage that the
incurred costs to date bear to total estimated costs after giving effect to the
most recent estimates of total cost. The cumulative impact of revisions in total
costs estimates during the progress of work is reflected in the period in which
these changes become known.
Results of Operations
The following table summarizes the consolidated results of
operations for the years ended December 31, 1993, 1994 and 1995 and for the nine
months ended September 30, 1996:
-46-
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
1993 1994 1995 1996
------------------------------------------------------- -------------
(dollars in millions)
Income Statement Data:
% of % of % of % of
Revenues Revenues Revenues Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $680.5 100.0% $762.8 100.0% $621.9 100.0% $483.5 100.0%
Cost of revenues 630.9 92.7% 692.3 90.8% 614.2 98.8% 431.2 89.2%
Gross profit 49.6 7.3% 70.5 9.2% 7.7 1.2% 52.3 10.8%
Selling and admini-
trative expenses 44.2 6.5% 45.5 6.0% 43.0 6.9% 30.8 6.4%
Special charges 22.9 3.4% 17.0 2.2% 5.2 0.8% - 0.0%
Gain on sale of assets (0.1) (0.0%) (11.4) (1.5%) (10.0) (1.6%) 0.4 0.0%
Income (loss) from
operations (17.4) (2.6%) 19.4 2.5% (30.5) (4.9%) 21.1 4.4%
Interest expense (0.3) (0.0%) (0.2) (0.0%) (0.8) (0.1%) (3.8) (0.8%)
Other income 3.0 0.4% 1.7 .2% 1.2 0.2% 0.6 0.1%
Income (loss) before
taxes and minority
interest (14.7) (2.2%) 20.9 2.7% (30.1) (4.8%) 17.9 3.7%
Income tax expense
(benefit) (6.1) (0.9%) 3.1 0.4% (8.1) (1.3%) 4.7 1.0%
Income (loss) before
minority interest (8.6) (1.3%) 17.8 2.3% (22.0) (3.5%) 13.2 2.7%
Minority interest in
income 1.2 0.2% 1.4 0.2% 3.6 0.6% 2.3 0.5%
Net income (loss) (9.8) (1.4%) 16.4 2.1% (25.6) (4.1%) 10.9 2.3%
Backlog at period end $449.3 $323.3 $470.2 $456.6
</TABLE>
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<PAGE>
The following tables indicate revenues and new business taken by
product line for the years ended December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1996:
Nine
Months
Ended
Year Ended December 31, September 30,
1993 1994 1995 1996
----------------------------- ------------
(dollars in millions)
Revenues by
Product Line
Flat Bottom Tanks $ 240 $ 303 $ 253 $ 206
Pressure Vessels 58 83 85 62
Elevated Tanks 39 55 62 42
Low Temperature/Cryogenic
Tanks and Systems 49 24 28 37
Specialty and Other
Structures 181 133 71 55
Repairs and Modifications 80 81 68 43
Turnarounds 34 84 55 39
-- -- -- --
Total Revenues $ 681 $ 763 $ 622 $ 484
===== ===== ===== =====
Nine
Months
Ended
Year Ended December 31, September 30,
1993 1994 1995 1996
----------------------------- ------------
(dollars in millions)
New Business Taken
by Product Line
Flat Bottom Tanks $ 320 $ 207 $ 196 $ 191
Pressure Vessels 113 80 86 17
Elevated Tanks 55 38 44 36
Low Temperature/Cryogenic
Tanks and Systems 30 62 204 83
Specialty and Other
Structures 153 88 122 51
Repairs and Modifications 71 76 63 59
Turnarounds 41 97 68 37
-- -- -- --
Total New $ 783 $ 648 $ 783 $ 474
===== ===== ===== =====
Business Taken
-48-
<PAGE>
Nine months ended September 30, 1996 versus nine months ended September 30, 1995
Revenues. Revenues increased $19.2 million, or 4.1%, to $483.5
million for the nine-month period ended September 30, 1996 from $464.3 million
during the comparable period in 1995. This increase reflects improvement in
contract activity, primarily in the United States and Central and South America.
To improve short-term operating performance of the Company, management has
focused on improving contract execution and cost reduction. As a consequence,
the Company has become more selective in pursuing contract opportunities which
is reflected in moderate revenue growth. The Company is pursuing a number of
prospects in its principal markets; however, the Company expects market
conditions to remain competitive.
Backlog at September 30, 1996 increased by approximately $63.2
million to $456.6 million compared to backlog at September 30, 1995 of $393.4
million. New business taken during the nine months ended September 30, 1996
decreased by 13.4% to $474.3 million compared to the comparable period last
year.
Gross Profit. Gross profit increased $28.5 million, or 119.7%, to
$52.3 million during the nine months ended September 30, 1996 from $23.8 million
during the comparable period in 1995. As a percentage of revenues the gross
profit percentage increased to 10.8% for the nine months ended September 30,
1996 from 5.1% for the comparable period in 1995. The improvement in gross
profit reflects the results of the Restructuring Program initiatives which have
achieved cost savings of $5.8 million, reduced unabsorbed overhead costs by $6.4
million, and improved contract estimation and associated construction
performance. Prospectively, the Restructuring Program is expected to result in
estimated annual cost savings of approximately $21 million in 1997 and
approximately $23 million in 1998, relative to the Company's 1995 fixed cost
base. The predominant portion of such estimated cost savings is expected to
favorably impact gross profit. In addition, increased revenues have contributed
to the improved gross profit. Gross profit for the nine months ended September
30, 1995 was negatively impacted by $11 million due to significant losses on a
few contracts, as discussed below.
Income from Operations. Income from operations increased $22.9
million from a loss of $1.8 million for the nine months ended September 30, 1995
to $21.1 million for the comparable period in 1996. In addition to the
improvement in gross profit described above, selling and administrative expenses
increased $1.4 million or 4.6% to $30.8 million during the nine months ended
September 30, 1996 from $29.4 million for the comparable period in 1995. The
increased selling and administrative expenses resulted from higher expenses
relating
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<PAGE>
to the Company's upgrading of its information technology system and increased
incentive compensation due to improved operating results, offset by a reduction
in benefit costs of approximately $3 million and other cost reductions. The
decrease in the Company's benefit costs during 1996 as compared to 1995 is the
result of the transition from the Industries benefit plans to the new benefit
plans being established by the Company. The Company's new benefit plans are
expected to be in place for 1997 and the level of 1997 benefit costs (excluding
one-time costs related to the Management Plan) is expected to be consistent with
the 1995 benefit costs.
Interest expense increased $3.0 million, to $3.8 million during the
nine months ended September 30, 1996 from $0.8 million during the comparable
period in 1995. The increase results from the $55 million of long-term debt
assumed by the Company on January 1, 1996 as part of the Praxair acquisition.
Income tax expense increased $6.2 million to $4.7 million during the
nine months ended September 30, 1996 from an income tax benefit of $1.5 million
during the comparable period in 1995. The increase results from a return to
profitable operations in the U.S. and increased profitability in non-U.S.
jurisdictions.
Net income for the nine months ended September 30, 1996 was $10.9
million compared to a net loss of $2.1 million for the nine months ended
September 30, 1995.
1995 versus 1994
Revenues. Revenues decreased $140.9 million, or 18.5%, to $621.9
million in 1995 from $762.8 million in 1994. Decreased revenues reflect the
lower level of new business awarded to the Company in 1994 and the relatively
low backlog at December 31, 1994. As a result of the completion of a large tank
contract in late 1994, revenues from construction of flat bottom tanks declined
by approximately $50 million to $253 million in 1995 from $303 million in 1994.
Revenues from specialty contracts also declined during 1995.
Backlog at December 31, 1995 increased by approximately $147 million
to $470.2 million compared to backlog of $323.3 million at December 31, 1994.
New business taken during 1995 increased by 20.8% to $782.9 million compared to
1994. The increase in new business was primarily attributable to the award of
three major contracts for natural gas peak shaving facilities in the U.S. and a
significant contract to supply components to a government funded research
facility.
Gross Profit. Gross profit decreased by $62.8 mil-
lion to $7.7 million in 1995 from $70.5 million in 1994. Gross
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<PAGE>
margin decreased to 1.2% in 1995 from 9.2% in 1994. Gross profit was reduced by
approximately $17.0 million due to lower revenues and was adversely impacted by
$24.0 million of underabsorbed overhead. In addition, gross profit in 1995 was
negatively impacted by $19.0 million due to significant losses on a few
contracts. These contract losses were a result of inaccurate estimates related
to the scope of work to be performed and contract specifications and unforeseen
weather and logistical considerations.
Income from Operations. The Company incurred a loss from operations
of $30.5 million in 1995 compared to income from operations of $19.4 million in
1994. The decline was primarily attributable to the significant decrease in
gross profit described above. Selling and administrative expenses decreased $2.5
million, or 5.5%, to $43.0 million in 1995 from $45.5 million in 1994. The
decrease in selling and administrative expense resulted from cost reductions
initiated in early 1995.
In the fourth quarter of 1995, the Company recorded a special charge
of $5.2 million comprised of $0.8 million for workforce reduction and $4.4
million for the write-down of an idle facility. The Company recorded a gain on
sale of assets in 1995 of $10.0 million, which included gains of $5.9 million
from the sale of two facilities and $4.1 million from the sale of other excess
property, plant and equipment.
Interest expense increased $0.6 million, to $0.8 million during 1995
from $0.2 million during 1994. The increase resulted from interest on a portion
of the litigation settlement which was included in the 1994 special charge
described below and higher international debt.
Income tax expense decreased by $11.2 million in 1995 to a net tax
benefit of $8.1 million primarily as a result of an operating loss in the U.S.,
which was utilized in the Industries consolidated return.
The Company reported a net loss of $25.6 million in 1995 compared to
$16.4 million of net income in 1994.
1994 versus 1993
Revenues. Revenues increased $82.3 million, or 12.1%, to $762.8
million in 1994 from $680.5 million in 1993. Revenues reflect several major
awards outside of the United States received in the last half of 1993 and 1994
for tanks, spheres and pressure vessels, along with increased demand in 1994
from refinery customers in the United States to assist with their repair and
turnaround requirements.
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<PAGE>
Backlog at December 31, 1994 decreased by approximately $126 million
to $323.3 million compared to backlog of $449.3 million at December 31, 1993.
New business taken during 1994 decreased 17.2% to $648.1 million compared to
1993. This decline is largely attributable to a decrease in major international
contract awards and lower revenues from specialty and other products due to
decreased government spending. As repair and turnaround type contracts tend to
be shorter in duration and more labor-intensive than long-term fixed price or
lump sum contracts, a higher percentage of new business taken was converted to
revenues in 1994 than in the Company's usual contract mix.
Gross Profit. Gross profit increased $20.9 million, or 42.1%, to
$70.5 million in 1994 from $49.6 million in 1993. Gross profit as a percentage
of revenues increased to 9.2% in 1994 from 7.3% in 1993. The improvement largely
reflects the higher construction activity, and the leverage effect of higher
revenues. Additionally, the comparisons of year-to-year performance were also
affected by the strategic actions taken to dispose of under-performing assets
and facilities, such as the 1993 decision to close a fabrication site in
Cordova, Alabama.
Income from Operations. Income from operations increased to $19.4
million compared to a loss from operations in 1994 of $17.4 million. The most
significant items contributing to this improvement related to the increased
gross profit described above and a smaller special charge in 1994 as compared to
1993. Selling and administrative expenses increased $1.3 million, or 2.9%, to
$45.5 million in 1994 from $44.2 million in 1993. The increase was primarily due
to increased international selling activity, particularly in the Asia Pacific
area.
In 1994, the Company recorded a special charge to recognize $17.0
million in expense for a major litigation settlement. Approximately $12.5
million of the litigation settlement costs were paid in 1994 with the balance of
$4.5 million payable over 5 years together with 8% interest thereon.
The gain from sale of assets for 1994 of $11.4 million includes
gains from the sale of the Company's interests in a terminal and a fabrication
facility, as well as gains from the sale of excess property, plant and
equipment.
Net income totaled $16.4 million in 1994 compared to a net loss of
$9.8 million in 1993. In addition to the improved income from operations
described above, income tax expense increased by $9.2 million during 1994 to a
net expense of $3.1 million. This increase was primarily as a result of improved
profitability in the U.S. and the tax benefit
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<PAGE>
corresponding to U.S. losses which were utilized in the Indus-
tries consolidated tax return.
Liquidity and Capital Resources
For the nine months ended September 30, 1996 the Company generated
cash from operations of $20.5 million. The Com-pany's operations used cash of
$26.9 million for the nine months ended September 30, 1995. In the first nine
months of 1996, cash generated was primarily the result of increased net income
and reduced working capital requirements. Lower working capital requirements
were due to decreases in accounts receivable during such period, partly offset
by increased cash requirements of contracts in progress resulting from the
timing of contract billings. In 1995, cash requirements of the operations were
largely attributable to a net loss and increased working capital requirements
caused by a major litigation settlement and a reduction in tax liabilities.
For the year ended December 31, 1995, the Company used $39.2 million
in cash for operations primarily as a result of the net loss in 1995 and
satisfaction of income tax liabilities. In addition, increased accounts
receivable arising from the timing of contracts in progress at the end of the
year contributed to increased working capital requirements. For the year ended
December 31, 1994, the Company generated cash from operations of $38.4 million
which includes a reduction in accounts receivable due to a large payment
received in 1994.
During the period from 1993 through 1995, the Company had annual
capital spending of approximately one times annual depreciation expense to
maintain its competitive position. Capital expenditures for the nine months
ended September 30, 1996 were $8.1 million. Such capital expenditures were used
primarily for field equipment (approximately $4 million), information technology
and systems development (approximately $2 million), shop and other equipment
(approximately $1.5 million) and the remainder for environmental and other
capital expenditures. The Company anticipates that capital expenditures in the
near future will remain at approximately the level of depreciation, except for
certain one time incremental additions related to the Restructuring Program,
although there can be no assurance that such levels will not increase.
The Company was a subsidiary of Industries when Industries was
acquired by Praxair during the first quarter of 1996. On December 19, 1996,
Industries merged into Praxair. As a subsidiary of both Industries and Praxair,
the Company has participated in corporate cash management systems. Liquidity
required for or generated from the business was handled through this system. The
resultant cash generated or used by the Company was netted against the advances
to parent company account.
-53-
<PAGE>
For the nine months ended September 30, 1996, the Company transferred $13.0
million net cash to Industries. For the comparable period in 1995, the Company
received $26.4 million net cash from Industries. Upon consummation of the Common
Share Offering, the Company will not participate in Praxair's cash management
system.
As part of the Praxair acquisition, $55 million of acquisition
related debt was assumed by the Company. The Company has received a commitment
letter for a revolving credit facility which, upon its syndication, is expected
to have a maximum availability of $100 million for three years, to be reduced to
$50 million for two years thereafter (including at all times up to $35 million
for letters of credit). The Company intends to use a portion of the proceeds of
such facility to refinance its long-term debt to Praxair. The terms of the
facility are expected to include various covenants, including financial
covenants that require the Company to maintain minimum levels of tangible net
worth, establish interest coverage and debt coverage ratios and limit capital
expenditures. See "Description of New Revolving Credit Facility."
In addition to liquidity generated through the New Revolving Credit
Facility, the Company intends to focus on improving its working capital position
through aggressive management of the individual components of working capital,
including programs to reduce excess cash, accounts receivable and unbilled
contracts in progress and to maximize available terms from trade suppliers. The
Company is also actively marketing the properties which comprise assets held for
sale.
Management anticipates that by utilizing cash generated from
operations and funds provided under the New Revolving Credit Facility, the
Company will be able to meet its capital expenditure needs for at least the next
24 months. See Note 3 to the Chicago Bridge & Iron Company and Subsidiaries
(Post-Praxair Acquisition) Notes to Consolidated Financial Statements related to
Income Taxes.
The Company also requires significant amounts of performance bonds
and letters of credit, which support the Compa-ny's performance under contracts
to customers. As of September 30, 1996, approximately $70.7 million of
contingent letters of credit or bank guarantees, and $201.9 million of
performance bonds were outstanding. Prior to the Common Share Offering these
obligations were guaranteed by Industries or Praxair. Such credit support will
not extend to new utilization under the Company's credit arrangements and may
not continue with respect to outstanding obligations.
The Company is expected to incur additional general
and administrative expenses estimated to be approximately $1.9
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<PAGE>
million annually in connection with the Company's status as an independent
publicly traded company. In addition, the Company estimates that its expenses
related to employee benefit costs in 1997 will exceed those incurred in 1996 by
approximately $4.0 million (excluding costs relating to the Management Plan).
The decrease in the Company's benefit costs during 1996 as compared to 1995 is
the result of the transition from the Industries benefit plans to the new
benefit plans being established by the Company. The Company's new benefit plans
are expected to be in place for 1997 and the level of 1997 benefit costs is
expected to be consistent with the 1995 benefit costs.
Other than as disclosed herein, there has been no material adverse
change in the financial position or results of operations of the Company since
December 31, 1996. Statements in this discussion and analysis contain
forward-looking information and involve known and unknown risks and
uncertainties which may cause the Company's actual results in future periods to
be materially different from any future performance suggested herein.
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<PAGE>
BUSINESS
General
CB&I is a global engineering and construction company specializing
in the engineering and design, materials procurement, fabrication, erection,
repair and modification of steel tanks and other steel plate structures and
associated systems such as petroleum terminals, refinery pressure vessels, low
temperature and cryogenic storage facilities and elevated water storage tanks.
The Company believes it is the leading provider of field erected steel tanks and
other steel plate structures, associated systems and related services in North
America and one of the leading providers of these specialized products and
services in the world. CB&I seeks to maintain its leading industry position by
focusing on its technological expertise in design, metallurgy and welding, along
with its ability to complete logistically and technically complex metal plate
projects virtually anywhere in the world. CB&I has been continuously engaged in
the engineering and construction industry since its founding in 1889.
Restructuring Program
The Restructuring Program is based on initiatives begun in 1994 and
was significantly refocused and accelerated in 1996 following the appointment of
the Company's new management team. The Restructuring Program was established to
clarify the Company's vision, streamline processes and workflow, establish
meaningful performance measures and develop a more appropriate infrastructure,
including significantly reducing the Company's fixed costs. A central theme of
the Restructuring Program is to apply the Company's core competencies across all
of the Company's operations, to operate as a single global business and to
establish a consistent interface with global customers and improve marketing of
product lines across all geographic areas where the Company offers its products
and services. In the past, the Company had operated as six separate,
decentralized and relatively self-contained business units. The Restructuring
Program is aimed at, among other things, significantly reducing the Company's
fixed costs from levels incurred in 1995 and 1994 and improving operating
results.
During 1996, implementation of the Restructuring Program resulted in
several organizational changes, including the centralization of key functions
such as procurement, equipment and personnel mobilization, and certain financial
functions, while maintaining the ability to perform field construction using the
labor approach best suited for each project. Moreover, several of the Company's
offices and facilities were closed and the number of employees was reduced.
Equipment supply and warehousing costs also have been reduced and
-56-
<PAGE>
administrative and engineering support have been streamlined and consolidated.
The Company has set a target to reduce salaried workforce by approximately 160
positions and as of Septem-ber 30, 1996 approximately 110 positions had been
eliminated.
The Restructuring Program has achieved estimated cost savings of
approximately $6 million in the first nine months of 1996, and is expected to
result in estimated annual cost savings of approximately $21 million in 1997 and
approximately $23 million in 1998, relative to the Company's 1995 fixed cost
base. The benefits of the Restructuring Program have been an integral component
in the Company's recent improvement in operating income.
The following table outlines actions taken in connection with the
Restructuring Program with respect to various facilities:
Location Facility Action Taken
-------- -------- ------------
Fort Erie, Canada Fabrication plant and warehouse Closed
Kankakee, Illinois Fabrication plant and office (1)
Blacktown, Australia Fabrication plant Closed
Cordova, Alabama Fabrication plant Closed
Fontana, California Fabrication plant Closed
New Castle, Delaware Warehouse Closed
Fremont, California Warehouse Closed
Singapore Warehouse Closed
London, England Area office Downsized
Singapore Area office Downsized
Oak Brook, Illinois CBIC headquarters Closed and moved
to Plainfield,
Illinois
- ---------------
(1) As previously announced, the Company plans to discontinue fabrication
operations at the Kankakee facility during the first half of 1997.
Kankakee office functions are expected to be relocated to a leased
facility in the Kankakee area. The benefits of this discontinuance are
included as part of the Restructuring Program.
Although the Company believes that continued implementation of the
Restructuring Program has already resulted in and will continue to result in
savings, there can be no assurance that the Company's estimates of results
already achieved accurately reflect cost savings associated with the
Restructuring Program, that targeted reductions and goals can be achieved or
will continue and that part or all of the Restructuring Program can successfully
be implemented.
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<PAGE>
Business Strategy
The Company is committed to increasing shareholder value by seeking
to build on the success established in the first nine months of 1996 and growing
its business in the global marketplace through a combination of strategic
initiatives including the following:
Focus on Core Business
Prior management of Industries pursued a diversification strategy
during the 1980s and 1990s, which included acquisitions of significant,
unrelated businesses in industrial gases and terminalling. CB&I's new management
team is committed to focusing on its core activities of engineering and design,
fabrication, erection, repair and modification of steel tanks and other steel
plate structures. The Company seeks to leverage its perceived competitive
advantages in design engineering, metallurgy and welding, and its ability to
execute projects virtually anywhere in the world, to actively pursue growth
opportunities in its core business. The Company believes that its ongoing
Restructuring Program already has made it more competitive and will allow it to
bid successfully on a broader scope of projects.
For more than 65 years, the Company has been able to complete
logistically and technically complex metal plate projects in some of the most
remote areas of the world. This ability to mobilize a technically capable team
of engineers, supervisors and craftsmen and to apply the Company's extensive
know-how anywhere in the world differentiates the Company from its competitors
and illustrates the depth and quality of the Company's technical resources which
support its global operations.
Continue Cost Reductions
and Productivity Improvements
CB&I's management believes that the Restructuring Program represents
the foundation for a long-term strategy of reducing the costs of its products
and services, with the goal of establishing and maintaining a position as a low
cost provider in its markets. All functions of the organization -- engineering,
procurement, construction, project management, finance and administrative
support -- will be required to demonstrate improvements in productivity, and
will be provided compensation incentives for achieving such goals. The Company
is focusing on initiatives such as:
- the reorganization of the Company's multiple procurement
departments into a single function, focusing the Company's
considerable worldwide
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expertise in pursuing economies of scale in pur-
chasing raw materials and in leveraging supplier
relationships;
- the redesign of the Company's employee compensation and benefit
packages to reward productivity improvements and provide
incentives which align employee interests with those of
shareholders;
- the implementation of interactive computer aided design ("ICAD")
technology, aimed at improving design, procurement and
fabrication efficiency; and
- the centralized management of the Company's world-wide equipment
fleet, aimed at both operating cost reductions and capital
savings for the Company.
Target Global Growth Markets
The Company intends to aggressively pursue business opportunities in
selected key growth markets, such as China, India, Mexico and the former Soviet
Union, on which prior management placed relatively low priority. CB&I intends to
leverage its significant international experience and technological strengths to
expand into these new geographic areas, where it believes that its ability to
rapidly mobilize project management and skilled craft personnel, combined with
its global material supply and equipment logistics capabilities, provides a key
competitive advantage. Each of these countries is expected to have demand for
products and services of the type offered by the Company. Increasing energy
needs in the developing world also provide significant opportunities for the
Company as energy development, refining and storage become increasingly
important to the development of these countries. The Company is implementing
strategic initiatives to seek to take advantage of these opportunities and
aggressively pursue business in both existing and new geographic markets. The
Company believes that its ability to provide consistent products and services on
a timely basis in a global marketplace will continue to provide it with a
competitive advantage.
Improve Financial Controls and Management
Optimizing the Company's resources will require superior controls
and systems, including those which support cost estimating, bidding and project
execution, all of which are key factors in the financial performance of the
Company. The Company believes that implementation of new systems, which are part
of the Restructuring Program, will improve the management of project
profitability. The new systems will allow for project economics to be evaluated
on a centralized basis and
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under various risk and costing assumptions using global software systems
tailored specifically for the Company's operations. Management intends for
nearly all fixed costs to be allocated to projects and believes that the new
systems provide the capabilities to achieve this goal.
In addition, the Company believes that the development of new
financial controls will improve cash management, return on invested capital, and
its ability to assess risk and returns on contract opportunities.
Pursue Partnering and Strategic Alliances
The Company intends to expand its use of partnering and strategic
alliances with customers and vendors. These relationships can serve as a vehicle
for improvements in quality, productivity and profitability for both parties,
and the Company believes such relationships enhance the predictability of the
Company's revenues. CB&I's existing partnering relationships include several
with major international oil companies. The Company believes that such customers
select CB&I as a preferred supplier to achieve significant cost savings in
building and operating tankage and related systems. The Company seeks to develop
those key strategic alliances in the global marketplace where both parties will
benefit as a result of the alliance.
Industry Overview
The Company competes in the field erected steel plate structures and
related services industry. The primary industries served by the Company and its
competitors are petroleum, petrochemical, chemical, electric and gas utilities,
pulp and paper, and metals and mining, and the major customers include private
owners in these industries as well as governmental entities; engineering,
materials procurement and construction companies servicing these owners and
entities; and other service companies operating in these industries. The
Company's level of activity, as well as the industry's as a whole, depends
primarily on the capital expenditures of its customers for construction. These
capital expenditures are influenced by a variety of factors outside the control
of construction industry participants. For example, in the petroleum and
pet-rochemical industry, influential factors include current and projected oil
and gas prices; exploration, extraction, production and transportation costs;
the discovery rate of new oil and gas reserves; the sale and expiration dates of
leases and concessions; and local and international political and economic
conditions. The Company believes that the following trends, among others, will
influence the industry in the near and long term:
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- the continued industrialization of developing
countries is creating demand for storage facili-
ties for crude oil, refined products and petro-
chemicals. Accordingly, many significant termi-
nal and refinery projects, together with ancil-
lary construction and other associated projects,
are being undertaken in developing countries or
regions with growing energy infrastructure
requirements;
- refineries and petrochemical plants built prior to 1985
typically require more frequent maintenance and modification,
and certain of them are expected to be replaced; and
- recently, relatively high crude oil prices have resulted in
correspondingly strong levels of current and projected capital
expenditures by petroleum and petrochemical companies to explore
for, produce, transport and refine oil and related products.
The Company believes that certain of these trends will result in
projects that meet its bidding criteria and that the Company's global experience
places it in an advantageous position to compete for such projects.
Core Competencies
The Company's core competencies are technological expertise, project
management, global field erection, global procurement relationships and safety
performance. The Company believes that these core competencies enable CB&I to
compete effectively on a global basis.
Technological Expertise
The Company has a history of leadership in technological development
and continues its technology focus in the following areas:
Design Engineering. The Company's design engineers have thorough
knowledge of a broad range of technical standards involving the design, forming
and joining of metal plate structures and their related systems, including
standards established by the American Petroleum Institute, the American National
Standards Institute, the American Society of Testing and Materials, the American
Water Works Association and British Standards. Senior engineers of the Company
serve on numerous code committees where industry standards are developed. Such
engineers have extensive knowledge of and expertise in materials evaluation,
emissions control from storage tanks, fracture
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mechanics, buckling and fatigue analysis, product testing and the design of
stable structures that can be safely erected. For its low temperature and
cryogenic and flat bottom tank turnkey terminal projects, the Company uses
sophisticated computerized design packages to optimize plant layouts and process
flows. These packages deal with integrated plant modeling, three-dimensional
computer-aided design, pipe network flow, interactive piping stress and
structural analysis, site works and scheduling.
In 1996, the Company implemented an ICAD rules-based design system
which has brought significant cost benefits to the engineering of and
procurement for elevated tanks and is also expected to bring significant
corresponding cost benefits to flat bottom tanks, the Company's largest product
line. The Rules Based Product Definition System is a tool which produces designs
and technical documents for the Company's storage tank and elevated water tank
products. It is based on industry and Company-established proprietary rules
programmed into the system by the Company's senior estimating, product and
technical experts.
Construction. Inherent in the Company's competency in field erection
is its longtime experience in constructability of steel plate structures.
Sequences of erection to maintain structural stability, welding sequences to
minimize stresses and distortion and techniques to optimize crew efficiency are
all key to safe and quality construction of the Company's product lines. Rigging
and heavy lifting are also skill-based activities that enable the Company to
perform complex, heavy work in congested work areas.
In many of its projects, the Company utilizes specially designed
custom erection equipment, such as the S-70 derrick, for constructing the
Company's various products. The Company has extensive knowledge of and expertise
in heavy lift planning and rigging, a core skill in performing refinery
turnarounds and in the construction of field erected pressure vessels.
Metallurgy. The Company has actively participated in the development
of low carbon and alloy steels for metal plate applications throughout its
history. Working with steel suppliers and customer technical groups, steel plate
specifications have been developed, tested and implemented for specific
applications which include: fracture toughness for low temperature storage,
hydrogen cracking resistance for refinery pressure vessels, low hardness
corrosion resistance for storage of petroleum products with sulfur content and
improved weldability under field conditions.
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Welding and Quality Assurance. The Company operates an advanced
welding laboratory whose mission has been to insure that welding procedures and
materials provide the proper fusion and hardness for the structures it
constructs. Laboratory studies also enable the Company to design structures
using the latest high-strength and corrosion resistant steels that are suitable
for use in the Company's product lines. The Company is also involved in welding
material evaluation and testing, welding procedure qualification, welding
process evaluation and testing, non-destructive examination, post-weld heat
treatment of both shop constructed and field erected structures, and welding
supervisor training.
A corporate quality assurance group oversees internal and external
audits, industry authorizations, ISO 9001 programs, welder certification to the
American Society of Mechanical Engineers ("ASME") Section IX, Non-Destructive
Examination Inspector Certification to Society Non-Destructive Testing TC-IA
Standards, and development of project-specific as well as Company-wide quality
assurance and quality control programs.
Project Management
A key factor in the Company's success has been its ability to
rapidly mobilize project management and craft personnel, materials, supplies and
equipment virtually anywhere in the world. The Company's strategically located
subsidiaries and regional offices enable it to effectively manage the logistics
of getting equipment, materials, and skilled personnel to projects. Generally, a
high percentage of the Company's skilled craft personnel is local to the
projects. The Company manages its work with advanced scheduling tools and is
currently implementing new project management software on a world-wide basis for
further improvement of project cost management and controls.
Global Field Erection
The Company believes it is a leader in global field erection of
steel tanks and other steel plate structures because of its project management
and technological expertise. In addition, the Company believes that its success
in this area is enhanced by its experienced field supervision. The Company
recruits, develops and maintains ongoing training programs for field supervision
personnel of many nationalities around the world. Supervisory personnel
generally travel to the Company's project locations around the world and are
kept regularly employed, thus aiding the Company in achieving its goal of
consistent and high quality performance on all of its projects. Additionally, a
high percentage of the Company's skilled craft personnel are local to the
project location and the Company
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seeks to draw its pool of future supervisory personnel from its
local pools.
Global Procurement Relationships
The Company has established relationships with suppliers throughout
the world. The Company's operating units engage in the global sourcing and
management of job site delivery of the key components in its products, including
fabricated steel plate, piping and valves, welding materials and rotating
equipment.
Safety
The Company's senior management places a high priority on safety,
with numerous accident prevention programs designed and managed by its corporate
safety group. For each of the last seven years, the Company has improved its
total recordable incident rate from the previous year, as measured by standards
established by the Occupation Safety and Health Administration. These records
have been achieved through prevention based programs, risk evaluation, job
specific safety training, employee behavior management, incident investigation
and job site safety audits, and supervisory incentive programs which include
accident prevention goals.
Product Lines
The Company offers various product lines within its geographic
regions. These product lines are:
Flat Bottom Tanks. The Company has been designing and constructing
flat bottom tanks since the late 1890s. During the first nine months of 1996,
flat bottom tanks accounted for approximately 42% of the Company's revenues.
Some of the Company's first tanks were built of riveted carbon steel ranging in
size from 20 feet to 100 feet in diameter. Today, welded tanks have been
constructed by the Company up to 410 feet in diameter, with a capacity of 1-1/2
million barrels. These above-ground storage tanks continue to be sold primarily
to customers operating in the petroleum, petrochemical and chemical industries
around the world. This industrial customer group includes nearly all the major
oil and chemical companies on every continent. In addition, depending on the
industry and application, flat bottom tanks can be used for storage of crude
oil, refined products such as gasoline, raw water, potable water, chemicals and
a large variety of feedstocks for the manufacturing industry.
The international, industrial marketplace for flat bottom tanks
provides a continued source of sales opportunities for the Company in areas such
as the Middle East, Southeast
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Asia, the Pacific Rim and Central and South America. The worldwide storage tank
market was estimated by the Company, based upon a recent report by Hydrocarbon
Processing Magazine (the "Hydrocarbon Report"), to be approximately $1.5 billion
per year. The Company believes that additional market opportunities exist for
products of such nature in China, India, Mex-ico and the former Soviet Union and
other developing nations throughout the world.
Pressure Vessels. The Company has constructed over 3,500 spheres
including the world's largest sphere at 225 feet in diameter. During the first
nine months of 1996, pressure vessels accounted for approximately 13% of the
Company's revenues. Pressure vessels are built primarily from high strength
carbon steel plates which have been shaped and formed in a fabrication shop to
be welded together at a job site. Pressure vessels, other than spheres, come in
a variety of cylindrical, hemispherical and conical shapes and sizes, some
weighing in excess of 700 tons, with thicknesses in excess of 3 feet. A number
of technological issues such as design, analysis, welding capabilities,
metallurgy, complex fabrication and specialty erection methods all figure
prominently into the marketing of this product line. Existing customers
represent a cross-sec-tion of the petroleum, petrochemical and chemical
industries, where process applications of high pressure and/or temperature are
required. Pressure vessels are used in refineries as storage containers
(spheres) as well as process vessels used to transform crude oil and its various
components. They are also used in the production of synthetic oil from methane
gas. The Company has built and tested vessels in North and South Amer-ica,
Africa, Asia, the Middle East and the Pacific Rim, and the Company believes that
opportunity for growth remains in the Middle East, Southeast Asia, Central/South
America and the Pacific Rim.
Elevated Tanks. The Company has been constructing elevated water
storage tanks since 1894. During the first nine months of 1996, elevated tanks
accounted for approximately 9% of the Company's revenues. Elevated water storage
tanks are constructed primarily of bent, formed and shaped carbon steel plates
welded together on site. They range in size from 25 thousand gallons to three
million gallons in capacity. The Company's estimated share of the U.S. municipal
potable water utilities market, over the three-year period ended December 31,
1995, was an aggregate of approximately 33%, and the market size is estimated by
the Company to have been approximately $120 million in each of such years.
The Company's improved designs and automatic welding capabilities
present additional opportunities for this product line's growth. Shifting
population centers throughout the U.S. as well as increases in global population
present additional
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growth opportunities for the Company with this product line.
See "-- Research and Development."
Specialty and Other Structures. Since the Company's inception, it
has been designing and fabricating special plate structures. During the first
nine months of 1996, specialty and other structures accounted for approximately
11% of the Company's revenues. Examples of these special plate structures
include research and test facilities for testing prototype spacecraft and rocket
engines and vacuum testing satellites before launch; hydro-electric structures
such as penstocks; spiral cases and draft tubes; ship components; and offshore
oil storage structures. These structures are typically made from bent and formed
plate materials (carbon steel, stainless and exotic steel and aluminum) and are
shipped as fabricated components to their final location for field welding and
assembly. The Company has performed design, constructability analysis, complex
fabrication, welding and specialized erection in supplying these special
projects for industrial, utility and governmental customers throughout the
world, including customers in the United States, South Africa and Saudi Arabia.
Low Temperature and Cryogenic Structures and Systems. The Company is
recognized as a highly capable designer and contractor of low temperature
cryogenic structures and systems. During the first nine months of 1996, low
temperature and cryogenic structures and systems accounted for approximately 8%
of the Company's revenues. These structures are used primarily for the storage
of refrigerated gas. The Company specializes in providing turnkey tanks and
systems built from alloy steel or aluminum with special characteristics to
withstand cold temperatures. Applications extend from low temperature (+30
degrees F to -100 degrees F) to cryogenic (-100 degrees F to -423 degrees F).
Customers in the petroleum, chemical, petro-chemical, natural gas, power
generation and agricultural industries use these systems to store and handle
liquid petroleum gas ("LPG"), propane, propylene, butane, butadiene, anhydrous
ammonia, liquid natural gas ("LNG"), methane, ethylene, ethane, oxygen, nitrogen
and hydrogen.
Although data on the global market is difficult to obtain, based on
the Hydrocarbon Report, the Company believes that projects around the world will
provide growth opportunities for sales of low temperature and cryogenic
structures and systems and related products in 1997. The report indicates that
growth in the chemical, petrochemical and gas processing projects should
continue with development especially active in areas such as the Asia/Pacific
region.
Repairs and Modifications. Repair, maintenance and
modification services are performed primarily on flat bottom
tanks and pressure vessels. During the first nine months of
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1996, repairs and modifications accounted for approximately 9% of the Company's
revenues. Demand for repair, maintenance and modification services is driven
primarily by the natural aging of tanks and the need to comply with
environmental regulations. Pressure vessels and their associated systems
function in conditions and environments where they must be serviced on a more
routine basis. This work is often performed as part of a turn-around and is
handled as a different product/service line due to its unique requirements.
Other product lines occasionally require this type of work as well. The Company
has focused on providing these services primarily in the U.S. As other
structures throughout the world age and require repair services, the Company
believes it will have additional growth opportunities in areas that have a large
concentration of steel storage tanks and pressure vessels, such as South
America, the Middle East, Australia, and Asia Pacific.
Customers in the petroleum, chemical, petrochemical and water
industries generally require these types of services. Since the Company has
built a large number of the original structures requiring standard
service/repair, the Company believes it has an advantage over its competitors to
obtain this service and repair work when it becomes available.
Turnarounds. The Company has provided this service since the early
1950s. During the first nine months of 1996, turnarounds accounted for
approximately 8% of the Company's revenues. A turnaround is a logistically
planned shut down of a refinery or other process unit for repair and maintenance
of its equipment and associated systems. The work is usually scheduled on a
multi-shift, seven day per work week basis. Personnel, materials, and equipment
must come together at precisely the right time to accomplish this manpower
intensive operation. The product line depends upon low cycle time and unique
construction procedures. The Company currently offers this service to its
customers in the petroleum, petrochemical and chemical industries located in
North and South America and the Caribbean.
In the international marketplace, areas of growth for this product
line have been identified in South America, Southeast Asia, Africa and the
Middle East.
Geographic Markets
The Company operates in diverse global markets. Approximately 49%
and 48% of its revenues for 1995, and the first nine months of 1996,
respectively, and 37% and 67% of new business taken for the same periods, were
derived from operations outside of the United States. The Company's operations
are conducted through regional sales and operations offices, fabrication
facilities, and warehouses. The Company also owns
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and leases a number of field construction offices and equipment maintenance
centers located throughout the world. The Company believes that it is viewed as
a local contractor in a number of the regions it services by virtue of its
long-term presence and participation in those markets, including Venezuela,
Canada, Saudi Arabia, South Africa and Indonesia. Historical revenue
contributions from the four major geographic regions where the Company operates
have been as follows:
Revenues (in millions) 1993 1994 1995
- ---------------------- ---- ---- ----
North America $400 $416 $318
Central and South America 71 119 54
Europe, Africa, Middle East 112 113 111
Asia Pacific 98 115 139
-- --- ---
$681 $763 $622
==== ==== ====
For a discussion of certain risks associated with international
operations and with currency fluctuations, see "Risk Factors -- Risks of
International Operations."
Customers
The Company serves a wide range of industries where product and
service needs match well with the Company's core competencies in metal plate
forming and joining. The Company believes that its metallurgy and welding
expertise, field erection capability and highly-skilled mobile work force
differentiate the Company from its competitors. These industries include
petroleum, petrochemical, chemical, electric and gas utilities, pulp and paper,
and metals and mining. The Compa-ny's customers include private industrial
owners as well as governmental entities; engineering, procurement and
construction companies servicing these owners and entities; and other service
companies operating in these industries. New business taken by industry category
for the year ended December 31, 1996 was as follows:
Percentage of
new business
Industry New business taken taken
- -------- ------------------ -------------
(dollars in millions)
Petroleum ........................ $ %
Petrochemical .................... %
Chemical ......................... %
Electric and gas utilities ....... %
Pulp and paper ................... %
Metals and mining ................ %
Governmental entities ............ %
Other ............................ %
----- -----
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Total............................. $ 100%
===== =====
The Company believes that its services are particularly suited to
projects requiring timely completion, high quality and technical standards
within its areas of technical expertise and execution in difficult operating
environments at attractive prices. The Company continually seeks new
applications for its products and services within its areas of expertise and
core competencies.
The Company is not dependent on any single customer on an ongoing
basis and the loss of any single customer would not have a material adverse
effect on the business; however, from time to time a particular contract or
customer may account for a significant portion of the Company's backlog.
Contracting Methods
The Company generally uses one of three types of contracting
approaches depending upon the type of work, the degree of workscope definition
and the degree of risk in the project. These methods may be used for competitive
situations or negotiated contracts.
Fixed or Lump Sum Pricing. The Company's expertise in performing its
design and construction services enables it to contract for what typically
constitutes over 75% of its work on a fixed price or lump sum basis, using price
adjustment clauses and where appropriate, cost escalation and contingency
factors in its pricing.
Cost Reimbursable Pricing. In instances where the degree of
definition of the workscope, schedule requirements or the evaluation of risk
does not allow for the use of fixed or lump sum pricing, the Company may choose
to contract only on a cost reimbursable basis. Contracts of this nature may have
cost incentive provisions.
Target Fixed or Lump Sum Pricing. This approach is often used in
connection with partnering arrangements. The Company and the customer establish
a target, based on the par-ties' estimate of the total installed cost of a
project. Cost savings or overruns are then shared by the Company and the
customer, thereby encouraging total alignment of both parties with respect to
cost-effective completion of the project.
Backlog
New business taken represents the value of new project commitments
received by the Company during a given period. Such commitments are included in
backlog until work is
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performed and revenue recognized or until cancellation. Backlog may also
fluctuate with currency movements. The Company's backlog of work yet to be
completed was approximately $456.6 million at September 30, 1996, approximately
$393.4 million at September 30, 1995, $470.2 million at December 31, 1995 and
approximately $323.3 million at December 31, 1994. Approximately 70% of the
backlog as of December 31, 1995 is forecasted to be completed during 1996.
Approximately 78% of the backlog as of December 31, 1996 currently is forecasted
to be completed during 1997.
Competition
Management believes the Company can compete effectively for new
construction projects around the world and that it is a leading competitor in
its markets. Competition is based primarily on performance and the ability to
provide the design, engineering, fabrication, project management and
construction capabilities required to complete projects in a timely and
cost-efficient manner. Contracts are usually awarded on a competitive bid basis.
Price, quality, reputation and timeliness of completion are the principal
competitive factors within the industry, with price being one of the most
important factors. In addition, the Company believes that it is viewed as a
local contractor in a number of the regions it services by virtue of its
long-term presence and participation in those markets, including Venezuela,
Canada, Saudi Arabia, South Africa and Indonesia. This may translate into a
competitive advantage through knowledge of local vendors and suppliers, as well
as of local labor markets and supervisory personnel. Several large companies
offer metal plate products which compete with some, but not all, of those
offered by the Company. Some companies compete with some of the Company's
product lines while also offering other product lines. Local and regional
companies offer competition in one or more geographical areas but not in other
areas where the Company operates. The Company generally does not compete with
major providers of general engineering, procurement and construction services,
such as Fluor Corporation and Bechtel Corporation. Because reliable market share
data are not available, it is difficult to estimate the Company's exact position
in the industry, although the Company believes it ranks among the leaders in the
field.
Research and Development
Throughout its history, the Company has conducted extensive research
programs in a wide variety of areas. The Company has studied stability and
buckling of shell structures, emission control methods for aboveground storage
tanks, advanced automated techniques for the application of polyurethane foam
insulation to storage tanks, and extensive
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testing of the physical properties of the non-metallic insulating materials used
on low temperature and cyrogenic storage tanks. In addition, the Company has
studied water and wastewa-ter treatment systems and advanced mixing systems for
waste treatment digesters. The Company's physical research activities have led
to patented systems for the removal of carbon dioxide during liquefaction of
liquefied natural gas and also for unique freeze processes for juice
concentration, wastewater treatment, air-conditioning load management, and
desalinization.
The Company continues to develop an in-depth knowledge of the many
materials it uses. The Company has acquired knowledge and expertise about the
effects that manufacturing processes, such as forming, welding, heat treating
and machining, have on the properties of metals. This activity has helped to
enhance the Company's ability to design, manufacture and provide field
construction of steel plate structures and related process facilities. The
Company has an ongoing program to develop and improve technically advanced metal
plate welding and erection equipment. This specialized equipment and systems
improves product quality and construction efficiencies.
Expenditures for research and development activities amounted to
approximately $2.5 million, $3.6 million and $4.6 million in 1995, 1994 and
1993, respectively.
Raw Materials
The principal raw materials used by the Company are metal plate and
structural steel. These materials are available from numerous U.S. and
international suppliers. The Company does not anticipate having difficulty in
obtaining adequate amounts of raw materials in the forseeable future.
Employees
As of December 31, 1996, the Company employed approximately 6,050
people. Approximately 50% of the Company's employees are not U.S. citizens,
reflecting the global nature of the Company's business. The Company believes
that as of December 31, 1996, approximately 430 of its employees were union
members. The total number of employees of the Company (and the number of union
members in such group) varies significantly based on the scope, nature and
volume of the work flow at any given time. Included in this group are
approximately 1,500 salaried personnel located around the world who are
primarily engaged in sales, engineering, construction and administrative
activities. Also included are approximately 800 skilled craftsmen in the U.S.
who, while engaged on a job by job basis, tend to build a career with CB&I by
moving from project to project. The remainder of the Company's workforce
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consists of hourly personnel, whose number fluctuates directly in relation to
the amount of business performed by the Company.
Facilities
The Company owns or leases the properties used to conduct its
business. The capacities of these facilities depend upon the composition of
products being fabricated and constructed. As the product composition is
constantly changing, the extent of utilization of these facilities cannot be
accurately stated. The Company believes these facilities are adequate to meet
its current requirements. The following list summarizes the principal
properties:
Location Type of Facility Interest
- -------- ---------------- --------
Houston, Texas Fabrication plant, Owned
warehouse, engineering,
operations and
administrative office
Plainfield, Illinois Engineering, operations Owned
and administrative office
Kankakee, Illinois(1) Fabrication plant, Owned
warehouse and office
Fort Saskatchewan, Warehouse and operations Owned
Canada and administrative office
Dubai, United Arab Engineering, operations Leased
Emirates and administrative office
Puerto Ordaz, Fabrication facility and Leased
Venezuela warehouse
Kwinana, Australia Fabrication facility, Leased
warehouse, and office
Ao Udom, Thailand Fabrication facility Leased
Batangas, Philippines Fabrication facility and Leased
warehouse
Cilegon, Indonesia Fabrication plant and Leased
warehouse
Al Aujam, Saudi Arabia Fabrication plant and Leased
warehouse
Jebel Ali, United Warehouse Leased
Arab Emirates
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Secunda, South Africa Fabrication plant and Leased
warehouse
- ---------------
(1) As previously announced, the Company plans to discontinue fabrication
operations at the Kankakee facility during the first half of 1997.
Kankakee office functions are expected to be relocated to a leased
facility in the Kankakee area. The benefits of this discontinuance are
included as part of the Restructuring Program.
The Company also owns or leases a number of sales, administrative
and field construction offices, warehouses and equipment maintenance centers
strategically located throughout the world.
History
The Company was founded in 1889 as a midwestern bridge building
company. The Company followed the paths of the railroads as new communities
required special structures such as elevated steel water storage tanks.
During the early 1920s, the Company quickly established itself as a
leading supplier to the petroleum industry, building large storage tanks and
special purpose structures. The first floating roof tank, designed to conserve
vapors and to eliminate fire hazards, was successfully tested and introduced by
the Company to the oil industry in 1923. Since 1923, the Company has constructed
over 20,000 floating roof tanks throughout the world. The Company promoted the
use of larger tanks, wider plates, and better joint designs. The Company's
Hortonspheres, designed for the storage of volatile liquids under high pressure,
were first built by the Company during 1923 and were patented in 1924.
By the early 1930s, the Company had begun to focus on the design and
engineering of formed, steel plate structures and on innovative construction
equipment and procedures. Field welding of large tanks was successfully
pioneered by the Company and the Company extended its expertise to other steel
plate products such as penstocks, stacks and pressure vessels. In 1930, the
Company's first fractionating columns were built. The first all-welded steel
penstock in the U.S. was constructed by the Company in 1935.
In the 1940s the Company constructed its first
Watersphere, an elevated tank that stored 100,000 gallons of
water. Structures for the aluminum and chemical industries,
for blast furnaces and for high octane gasoline and synthetic
rubber plants were being built by the Company. The Company's
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welding lab, founded in 1945, has worked closely with Company engineers to
ensure that the Company maintains its technical performance levels.
Internationally, the Company began operations shortly after World
War I. Contracts were taken in Canada and Japan in 1919; China in 1921;
Venezuela, Indonesia and Australia in 1927; and in multiple European locations
throughout the 1920's. By the late 1940's, the Company was operating throughout
Europe, the Middle East, Asia and Latin America.
By the mid 1950s, the Company had built the world's largest
Hortonsphere, a vessel weighing seven million pounds with a diameter of 225
feet. The Company built its first double-walled liquid natural gas tank. The
Company also announced a technological breakthrough with its development of the
Hortonclad, a composite metal having an integral and continuous bond as a result
of research and development in the field of vacuum metallurgy. It was also in
the early 1950s that the Company developed its first automatic girth welding
equipment.
By 1960, the Company had established a process engineering
capability for the design and installation of systems associated with turnkey
refrigeration and storage of ammonia, liquid petroleum gas, liquid natural gas,
and other products requiring storage at low or cyrogenic temperatures.
Techniques developed by the Company in field automatic welding, field stress
relieving, field machining and ultrasonic testing, as applied to the onsite
assembly of heavy wall petroleum processing vessels and nuclear reactors,
allowed the Company's customers to avoid shipping restrictions on size and
weight which had limited plant designs in both industries. The Company actively
built vacuum and testing chambers for the space industry during this decade.
Fabrication and construction projects for the burgeoning nuclear
industry dominated the marketplace of the mid 1970s. Additionally, Saudi Arabia
and the Middle East provided growth opportunity for the Company. In the U.S.,
the Company's first application of horizontal foamed-in-place insulation on a
low-temperature tank was completed, and the Company completed a substantial
amount of tankage for the Trans-Alaskan Pipeline Project. During the late 1970s,
the Company built the two largest oil tanks in the U.S. each with an 800,000
barrel capacity. The Company's largest petroleum storage tank, at 1.5 million
barrels and 410 feet in diameter, is in Yanbu, Saudi Arabia, which the Company
believes to be the largest such tank in the world.
By 1980, the Company had fabricated and erected its
first cryogenic, transonic wind tunnel for a U.S. military
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facility. In that decade, the Company also built the support tower for the
largest (to date) wind powered generator. A roof insulating machine, developed
at the Company's research and development facility, was introduced. During this
time frame, the Company also erected its first two million gallon Waterspheroid.
Internationally, the Company built a 55 thousand gallon per-day solar energy
water desalination test facility in Saudi Arabia. This project marked the first
use of the Company's indirect freeze desalination system.
During the 1990s, the Company has continued to expand its global
presence. The Company established formal partnering agreements and closer
alliances with many customers. The construction of turnkey low temperature and
cryogenic facilities for the liquefaction, storing and sendout of liquid natural
gas, ethylene, ammonia, butane, propane and similar products continued to be a
source of projects. The Company completed various special structures, including
a facility for testing solid fuel rocket motors and a large cavitation channel
for testing the propulsor power and acoustics of large ship models.
Governmental Regulations
General
Many aspects of the Company's operations are subject to government
regulations in the countries in which the Company operates, including those
relating to currency conversion and repatriation, taxation of its earnings and
earnings of its personnel, and its use of local employees and suppliers. In
recent years demand from the worldwide petroleum and petrochem-ical industry has
been the largest component of the Company's revenues, and the Company is
therefore affected by changing taxes, price controls and laws and regulations
relating to the petroleum and petrochemical industries generally. The Compa-ny's
operations are also subject to the risk of changes in national, federal, state
and local laws and policies which may impose restrictions on the Company,
including trade restrictions, which could have a material adverse effect on the
Compa-ny's business, financial condition and results of operations. Other types
of government regulation which could, if enacted or implemented, materially and
adversely affect the Company's operations include expropriation or
nationalization decrees, confiscatory tax systems, primary or secondary boycotts
directed at specific countries or companies, embargoes, import restrictions or
other trade barriers, mandatory sourcing rules and high labor rate and fuel
price regulation. The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new regulations
or changes in or new interpretations of existing regulations.
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Environmental
The Company's operations and properties are affected by numerous
national, federal, state and local environmental protection laws and
regulations, such as those governing discharges into air and water, as well as
handling and disposal of solid and hazardous wastes. The requirements of these
laws and regulations have tended to become increasingly stringent, complex and
costly to comply with. This is true for both the Com-pany's United States
operations and its non-U.S. facilities, at which operations historically have
been conducted generally pursuant to less stringent environmental laws and
regulations than exist in the United States. In addition, the Company may be
subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances. The Company is not aware of any
non-compliance with environmental laws that could have a material adverse effect
on the Com-pany's business or operations. However, while the Company has an
environmental compliance program in place, it cannot guarantee that any
non-compliance, if it exists, would not have a material adverse effect on the
Company. In addition, there can be no assurance that environmental laws,
regulations or their interpretation will not change in the future in a manner
that could materially and adversely affect the Company.
Certain environmental laws, such as CERCLA, provide for strict and
joint and several liability for investigation and remediation of spills and
other releases of hazardous substances. Such laws may apply to conditions at
properties presently or formerly owned or operated by an entity or its
predecessors, as well as to conditions at properties at which wastes or other
contamination attributable to an entity or its predecessors come to be located.
The Company's facilities have operated for many years, and substances which are
or might be considered hazardous were used and disposed of at some locations,
which will or may require the Company to make expenditures for remediation. In
addition, the Company has agreed to indemnify parties to whom it has sold
facilities for certain environmental liabilities arising from acts occurring
before the dates on which those facilities were transferred. However, the
Company does not anticipate incurring material capital expenditures for
environmental controls or for investigation or remediation of environmental
conditions during the current or succeeding fiscal year. Nevertheless, the
Company can give no assurance that it, or entities for which it may be
responsible, will not incur liability in connection with the investigation and
remediation of facilities it currently owns or operates (or formerly owned or
operated) or other locations in a manner that could materially and adversely
affect the Company.
Along with multiple other parties, a subsidiary of
the Company is currently identified as a potentially
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responsible party (a "PRP") under CERCLA and analogous state laws at several
sites as a generator of wastes disposed of at such sites. While CERCLA imposes
joint and several liability on responsible parties, liability for each site is
likely to be apportioned among the parties. In addition, a subsidiary of the
Company is currently identified as a PRP at several sites in connection with its
position as a former corporate shareholder of a wood treating company. While it
is impossible at this time to determine with certainty the outcome of such
matters and although no assurance can be given with respect thereto, based on
information currently available to the Company and based on the Company's
reasonable expectations of the outcome of such matters, the Company does not
believe that its liability, if any, in connection with these sites, either
individually or in the aggregate, will have a material adverse effect on the
Company's business, financial condition and results of operations. See "-- Legal
Proceedings and Insurance."
The Company's business sometimes involves working around and with
volatile and hazardous substances, which exposes it to risks of liability for
personal injury or property damage caused by any release, spill, or other
accident involving such substances that occurs as a result of the conduct of its
business. The Company has been and may continue to be unable to obtain adequate
environmental damage or pollution insurance at a reasonable cost. Although the
Company maintains general liability insurance, this insurance is subject to
coverage limitations, deductibles and exclusions and may exclude coverage for
losses or liabilities relating to pollution damage. Therefore, there can be no
assurance that liabilities that may be incurred by the Company will be covered
by its insurance policies, or if covered, that the dollar amount of such
liabilities will not exceed the Company's policy limits. Even a partially
uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
It is possible that environmental liabilities in addition to those
described above may arise in the future. Although the Company's facilities in
the United States and certain other jurisdictions operate under stringent
environmental laws, certain of its other operations, including those in the
Middle East, South America, and Southeast Asia, have not been so regulated. As a
result, the Company could incur significant future liability should the laws of
the jurisdictions in which the Company operates change to impose additional
environmental remedial obligations. The precise costs associated with these or
other future environmental liabilities are difficult to predict at this time.
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The Company believes that in recent years it has taken a proactive
approach to management of environmental liabilities and minimization of
environmental impacts. The Compa-ny's program includes, among other things,
formal environmental training for employees and an auditing program to assist
the Company's facilities in complying with environmental regulations and
identifying potential environmental liabilities. Furthermore, the Company has
implemented management procedures designed to reduce the generation of hazardous
waste and the on-site use and storage of hazardous chemicals and to prevent
exposure to such substances. The Company believes the continued development and
maintenance of its environmental program will continue to reduce the potential
for unanticipated expenditures for environmental remediation and compliance.
Legal Proceedings and Insurance
A subsidiary of the Company was a minority shareholder from 1934 to
1954 in a company which owned or operated at various times several wood treating
facilities at sites in the United States, some of which are currently under
investigation, monitoring or remediation under various environmental laws. With
respect to some of these sites, the Company has been named as a PRP under CERCLA
and similar state laws. Without admitting any liability, the Company has entered
into a consent decree with the federal government regarding one of these sites
and has had an administrative order issued against it that could impose cleanup
obligations on the Company with respect to another. There can be no assurance
that the Company will not be required to clean up one or more of these sites
pursuant to agency directives or court orders. The Company has been involved in
litigation concerning environmental liabilities, which are currently
undeterminable, in connection with certain of those sites. The Company denies
any liability for each site and believes that the successors to the wood
treating business are responsible for the costs of remediation of the sites.
Without admitting any liability, the Company has reached settlements for
environmental clean-up at most of the sites. In July 1996, a judgment in favor
of the Company was entered in the suit Aluminum Company of America v. Beazer
East, Inc. v. Chicago Bridge & Iron Company, instituted in January 1991 before
the U.S. District Court for the Western District of Pennsylvania. In July 1996,
Beazer East, Inc. filed an appeal which is currently pending before the United
States Court of Appeals for the Third Circuit. Although the Company believes
that it will be successful in such appeal and that such settlements and any
remaining potential liability will not be material, there can be no assurance
that the Company will be successful in upholding the judgment in its favor or
that such settlements and any remaining potential liability will not have a
materially adverse effect on its business, financial condition and results of
operations.
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In 1991, CBI Na-Con, Inc. ("CBI Na-Con"), a subsidiary of the
Company, installed a catalyst cooler bundle at Fina Oil & Chemical Company's
("Fina") Port Arthur, Texas refinery. In July of 1991, Fina determined that the
catalyst cooler bundle was defective and had it replaced. Fina is seeking
approximately $20 million in damages for loss of use of Fina's catalyst cracking
unit and the cost of replacement of the catalyst cooler bundle. On June 28,
1993, Fina filed a complaint against CBI Na-Con before the district Court of
Harris County, Texas in Fina Oil & Chemical Company vs. CBI Na-Con, Inc. et al.
The Company denies that it is liable. While the Company believes that it will
eventually prevail in the lawsuit, there can be no assurance that if the Company
is finally determined to be liable for all or a portion of any damages payable,
that such liability will not have a materially adverse effect on the Company's
business, financial condition and results of operations.
In addition to the above lawsuits, the Company is a defendant in
other lawsuits arising in the normal course of its business. While it is
impossible at this time to determine with certainty the ultimate outcome of
these other lawsuits, and although no assurance can be given with respect
thereto, based on information currently available to the Company and based on
the Company's reasonable expectations of the outcome of such matters, the
Company's management believes that adequate provisions have been made for
probable losses with respect thereto as best as can be determined at this time
and that the ultimate outcome, after provisions therefor, will not have a
material adverse effect, either individually or in the aggregate, on the
Company's business, financial condition and results of operations. The adequacy
of reserves applicable to the potential costs of being engaged in litigation and
potential liabilities resulting from litigation are reviewed as developments in
the litigation warrant. See Note 7 to the Consolidated Financial Statements
included elsewhere in this Prospectus.
Furthermore, construction and heavy equipment involve a high degree
of operational risk. Natural disasters, adverse weather conditions and operator
error can cause personal injury or loss of life, severe damage to and
destruction of property and equipment and suspension of operations. Litigation
arising from such an occurrence may result in the Company being named as a
defendant in lawsuits asserting substantial claims. The Company maintains risk
management, insurance and safety programs that seek to mitigate the effects of
loss or damage. Such programs have generally resulted in favorable loss ratios
and cost savings. See "Risk Factors -- Operating Risks."
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CERTAIN TRANSACTIONS; RELATIONSHIP WITH PRAXAIR
In the first quarter of 1996 Praxair acquired all of the outstanding
common stock of Industries in order to acquire the business of Liquid Carbonic
Industries Corporation. At that time, Praxair announced its intention to divest
the businesses of Industries that were not strategic to Praxair, including the
Company. Industries merged into Praxair on December 19, 1996.
Under the Issuer's Articles of Association, the Selling Shareholder
(or certain of its transferees) will have the right to appoint, remove and
replace two members of the Supervisory Board so long as the Selling Shareholder
(or such trans-feree) owns at least 20% of the outstanding Common Shares, and
the right to appoint, remove and replace one member of the Supervisory Board so
long as the Selling Shareholder (or such transferee) owns at least 10% but less
than 20% of the outstanding Common Shares. On the first day on which the Selling
Shareholder's (or such transferee's) ownership of the outstanding Common Shares
is less than 10%, the Selling Shareholder (or such transferee) will cease to
have any special rights regarding the appointment, removal and replacement of
the Issuer's supervisory directors. At the time of the Common Share Offering,
the designees of Praxair serving on the Supervisory Board will be .
Separation Agreement
At or prior to the Common Share Offering, the Company will also
enter into agreements (collectively, the "Separation Agreement") with Praxair
fixing the Company's on-going responsibility for employee benefit matters, goods
and services, access and retention of records, technology and intellectual
property rights, certain indemnification arrangements and other miscellaneous
matters and providing that Praxair may continue to provide certain credit
guarantees and will provide certain pension related services and the Company
will provide Praxair with certain environmental and pension related services.
Under the Separation Agreement, the Company, Praxair and certain of Praxair's
affiliates will agree to provide certain cross-indem-nities, principally to
place financial responsibility for the Company's business with the Company and
its affiliates and to place financial responsibility for other Praxair
businesses with Praxair and its other affiliates, including, without limitation,
with respect to past, present and future environmental and other potential
liabilities. Under the Separation Agreement, the Company will retain certain
potential liabilities with respect to the operations of three former
subsidiaries, with respect to periods when such entities were subsidiaries of
the Company, up to the Company's self-retained portion of its insurance policies
during such periods. In addition, the
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Separation Agreement will place financial responsibility for the engineering and
construction businesses of Liquid Carbonic Industries Corporation in Argentina
which was transferred to the Company in 1996.
Revenues from Affiliates
The Company has provided in the past and continues to provide
services to Praxair and its affiliates and to Industries and its affiliates for
the construction and expansion of facilities and for certain repair and
maintenance work. During the year ended December 31, 1995, the Company recorded
revenues from affiliates of $40.4 million from such services. Gross profit, net
of overhead costs, was $5.5 million for the year ended December 31, 1995. The
Company believes that these revenues and gross profits approximate those of
similar services provided to independent third parties.
Corporate Services
Industries and Praxair have provided in the past certain support
services to the Company including legal, finance, tax, human resources,
information services, research and development and risk management. These
charges were allocated by Industries and Praxair to the Company based on various
methods which the Company believes reasonably approximate the actual costs
incurred. The allocations recorded by the Company for these corporate services
in the accompanying consolidated income statements were approximately $10.0
million for the year ended December 31, 1995. The amounts allocated by
Industries or Praxair are not necessarily indicative of the actual costs which
may have been incurred had the Company operated as an entity unaffiliated with
Industries or Praxair. However, the Company believes that the allocation is
reasonable and in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 55. Upon consummation of the Common Share Offering,
Praxair will provide certain of these services for an interim period, after
which the Company will perform such services or obtain such services elsewhere.
See "Risk Factors -- New Status as Independent Entity" and "-- Separation
Agreement."
Corporate Reorganization
Prior to the consummation of the Common Share Offering, the Selling
Shareholder and certain of its subsidiaries will consummate the Reorganization
whereby (i) the shares of substantially all of CBIC's non-U.S. subsidiaries will
be transferred by dividend to the Selling Shareholder and contributed to the
Issuer in exchange for additional Common Shares of the Issuer and then
contributed by the Company to CBICBV; and (ii) the Selling Shareholder will
contribute the shares of CBIC
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to the Issuer in exchange for additional Common Shares of the
Issuer.
Tax Disaffiliation Agreement
Prior to the Reorganization, the Issuer and Praxair will enter into
a tax disaffiliation agreement (the "Tax Disaffiliation Agreement") relating to
various tax matters including the allocation of liabilities and credits relating
to periods before the completion of the Reorganization. In particular, the
Issuer will indemnify Praxair for its allocable share of liabilities for
non-income taxes arising with respect to periods prior to the Reorganization and
income taxes arising with respect to periods prior to the Reorganization based
on, among other things, the subsequent disallowance of research and development
credits claimed by the Company for past periods or of other tax benefit items of
the Company for past periods to the extent that such other tax benefit items are
available to reduce the taxes of the Company for any period after the
Reorganization.
Registration Rights Agreement
In addition to the Registration Statement of which this Prospectus
is a part, Praxair will have the right under a registration rights agreement
(the "Registration Rights Agreement") to request additional registrations under
the Securities Act for the sale of all or a portion of the Common Shares held by
the Selling Shareholder (or its transferee), as well as the right to include
such shares in registration statements filed by the Issuer under the Securities
Act for the sale of shares by the Issuer. In the Registration Rights Agreement,
the Issuer has agreed to indemnify Praxair and any transferee in respect of
certain liabilities, including liabilities under the federal securities laws.
The Registration Rights Agreement provides that in certain instances, the
Selling Shareholder's consent is required prior to the Issuer's registering
additional Common Shares (or similar securities) under the Securities Act.
Loans to Executive Officers
On January 7, 1993, an affiliate of the Company made a loan to Mr.
Aldinger. The loan was fully repaid on February 26, 1996. The loan bore interest
at 4.75%. The largest amount outstanding at any time during 1996 (including
principal and interest) was $153,330. The loan was a home mortgage loan made in
connection with Mr. Aldinger's transfer from the Company's London, England
office to Illinois.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table furnishes information, as of immediately prior
to and immediately following the closing of the Common Share Offering, with
respect to the number of Common Shares expected to be beneficially owned by (i)
each supervisory director of the Issuer and each executive officer of CBIC and
CBICBV (the Issuer has no executive officers), (ii) the Selling Shareholder (who
is the sole person owning more than 5% of the outstanding Common Shares) and
(iii) all supervisory directors of the Issuer and executive officers of CBIC and
CBICBV as a group.
<TABLE>
<CAPTION>
Before the Common Share Offering After the Common
Share Offering
--------------
Shares Percent of Shares Percent of
Name and Address of Beneficially Shares Beneficially Shares
Beneficial Owner Owned Outstanding Owned(1) Outstanding(1)
---------------- ----- ----------- -------- --------------
<S> <C> <C> <C> <C>
Chi Bridge Holdings, Inc.,
c/o Praxair, Inc. .............. 100% %
39 Old Ridgebury Road
Danbury, CT 06810-5113
Gerald M. Glenn ................ 0 0% %(3)
President and Chief
Executive Officer of CBIC,
Managing Director of CBICBV
Thomas L. Aldinger ............. 0 0% *(3)
Vice President of CBIC
Stephen M. Duffy ............... 0 0% *(3)
Vice President of CBIC
Timothy J. Wiggins ............. 0 0% *(3)
Vice President of CBIC
Robert H. Wolfe ................ 0 0% *(3)
Vice President, General
Counsel and Secretary of CBIC
Supervisory Director of the Issuer(2) 0 0% *
Supervisory Director of the Issuer(2) 0 0% *
Supervisory Director of the Issuer 0 0% *
All supervisory directors and
executive officers as a
group ( persons)............ 0 0% %
</TABLE>
- --------------------
* Less than 1%
(1) Includes the maximum number of Common Shares expected to be purchased in
the Common Share Offering by the executive officers from the shares
reserved by the Underwriters for sale to officers and employees of the
Company and certain other persons associated with the Company and excludes
Common Shares issuable upon exercise of options to be granted under
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the Company's stock option plans and Common Shares issuable upon exercise
of the over-allotment option granted to the Underwriters.
(2) and are designees and employees of Praxair. Each of
and disclaims beneficial ownership of the Common Shares
held by Chi Bridge Holdings, Inc., a wholly owned subsidiary of Praxair.
(3) Includes Common Shares allocated to such participant's individual account
under the Management Plan.
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MANAGEMENT
Supervisory Board
The general affairs and business of the Issuer and the board which
manages the Issuer (the "Management Board") are supervised by a board appointed
by shareholders (the "Supervisory Board").
The Issuer's Articles of Association (the "Articles of Association")
provide for one or more directors ("Supervisory Directors") to serve on the
Supervisory Board. Under the law of The Netherlands, a Supervisory Director
cannot be a member of the Management Board ("Managing Directors") of the Issuer.
The members of the Supervisory Board are elected at the general shareholders'
meeting by a majority of the votes cast at the meeting. The Supervisory Board is
authorized to make binding nominations of two candidates for each position, with
the candidate receiving the greater number of votes being elected. The
shareholders may override the binding nomination of the Supervisory Board by
vote of two-thirds of the votes cast at the meeting if such two-thirds vote
constitutes more than one-half of the outstanding share capital of the Issuer (a
"Two-thirds Majority of Quorum"). Under the Issuer's Articles of Association,
the Selling Shareholder (or certain of its transferees) will have the right to
appoint, remove and replace two members of the Supervisory Board so long as the
Selling Shareholder (or such transferee) owns at least 20% of the outstanding
Common Shares, and the right to appoint, remove and replace one member of the
Supervisory Board so long as the Selling Shareholder (or such transferee) owns
at least 10% but less than 20% of the outstanding Common Shares. On the first
day on which the Selling Shareholder's (or such transferee's) ownership of the
outstanding Common Shares is less than 10%, the Selling Shareholder (or such
transferee) will cease to have any special rights regarding the appointment,
removal and replacement of the Issuer's supervisory directors. The members of
the Supervisory Board appoint a chairman of the Supervisory Board from among the
members of the Supervisory Board. Resolutions of the Supervisory Board generally
require the approval of a majority of its members. The Supervisory Board meets
upon the request of its Chairman or two or more of its members or upon the
request of the Management Board.
Members of the Supervisory Board must retire no later than at the
ordinary general meeting of shareholders held after a period of three years
following their appointment, but may be re-elected. Members of the Supervisory
Board are elected to serve three-year terms, with approximately one-third of
such members' terms expiring each year. The Issuer currently has
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Supervisory Directors. Pursuant to the Articles of Association, members of
the Supervisory Board may be suspended or dismissed by the general meeting of
shareholders. The Supervisory Board may make a proposal to the general meeting
of shareholders for the suspension or dismissal of one or more of its members.
If such a proposal is made by the Supervisory Board, a simple majority vote of
the shareholders is required to effect a suspension or dismissal. If no such
proposal is made, a Two-thirds Majority of Quorum vote is required to effect a
suspension or dismissal. The members of the Supervisory Board may receive such
compensation as may be authorized by the shareholders.
Management Board
The management of the Issuer is entrusted to the Management Board
under the supervision of the Supervisory Board. Under the Articles of
Association, the Supervisory Board may specify by resolution certain actions by
the Management Board that require the prior approval of the Supervisory Board.
No such resolution has yet been passed. Under the Articles of Association, both
proposals to amend the Articles of Association, and proposals to legally merge
or dissolve the Issuer require the prior approval of the Supervisory Board.
The Articles of Association provide that the Management Board shall
consist of one or more members. The members of the Management Board are elected
for terms of indefinite duration upon a binding nomination of the Supervisory
Board and election at the general shareholders' meeting by a majority of the
votes cast at the meeting. The shareholders may override the binding nomination
of the Supervisory Board by a Two-thirds Majority of Quorum vote.
The general meeting of shareholders may suspend or dismiss one or
more members of the Management Board by a Two-thirds Majority of Quorum vote.
The Supervisory Board may suspend members of the Management Board, but a general
meeting of shareholders must be convened within three months after such
suspension to either resolve upon the dismissal of the member or reject the
suspension. The Articles of Association provide that the Supervisory Board
shall, in the event of absence or inability to act of all the members of the
Management Board, be temporarily responsible for the management of the Issuer.
The Supervisory Board determines the compensation and other terms and conditions
of employment of the members of the Management Board.
At the time of the Common Share Offering, the sole member of the
Issuer's Management Board will be CBICBV, a
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Netherlands private company. CBICBV is the Company's principal holding company
subsidiary for its non-U.S. operations. Under Netherlands law, shareholder
action is required in order to appoint or dismiss a management board member. A
corporate subsidiary of the Issuer will serve as the sole member of its
Management Board in order to avoid the necessity of shareholder action on
appointment and removal of management personnel and to implement a management
structure similar to that of a United States corporation. Pursuant to CBICBV's
Articles of Association, the members of its management board or holders of a
power of attorney will have the authority to act on behalf of CBICBV. The
managing directors of CBICBV, each of whom is an employee or an officer of the
Company or its affiliates, have the authority to act on behalf of CBICBV.
The business address of the members of the Supervisory Board and the
Management Board of the Issuer is Koningslaan 34, 1075 AD, Amsterdam, The
Netherlands.
Directors of the Issuer and Executive Officers of the Company
The following table sets forth certain information regarding the
Issuer's Supervisory Directors and executive officers of CBIC and CBICBV. At the
time of the Common Share Offering, as permitted under the law of The
Netherlands, the Issuer will not have executive officers. CBICBV will serve as
the Issuer's Management Board.
Name Age Position
---- --- --------
Gerald M. Glenn 54 President and Chief Executive
Officer of CBIC, Managing
Director of CBICBV
Thomas L. Aldinger 45 Vice President - Business
Development and Operations of
CBIC
Stephen M. Duffy 47 Vice President - Human
Resources and Administration
of CBIC
Timothy J. Wiggins 40 Vice President - Treasurer and
Chief Financial Officer of
CBIC
Robert H. Wolfe 47 Vice President, General
Counsel and Secretary of CBIC
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Supervisory Director of
the Issuer
Supervisory Director of
the Issuer
Supervisory Director of
the Issuer
Gerald M. Glenn has been the President and Chief Executive Officer
of CBIC since May 1996 and a Managing Director of CBICBV since its inception.
From April 1994 to present Mr. Glenn has been a principal in The Glenn Group
LLC. From November 1986 to April 1994, Mr. Glenn served as Group President -
Fluor Daniel, Inc. Prior to the consummation of the Common Share Offering, Mr.
Glenn will be appointed to serve as a director of the Issuer, with a term
expiring in .
Thomas L. Aldinger has been the Vice President Business Development
and Operations of CBIC since January 1995. Prior to that time from January 1993
to January 1995 Mr. Aldinger served as President of CBI Services, Inc. and from
January 1991 to January 1993 Mr. Aldinger served as Vice President and Area
General Manager for Europe, Africa and the Middle East of CBIC. Mr. Aldinger has
been continuously employed by the Company since 1974.
Stephen M. Duffy has been Vice President - Human Resources and
Administration of CBIC since June 1996. Mr. Duffy was Vice President - Human
Resources and Administration of Industries from November 1991 through May 1996.
Timothy J. Wiggins has been Vice President - Treasurer and Chief
Financial Officer of CBIC since September 1996. From August 1993 to September
1996, Mr. Wiggins was Executive Vice President - Finance and Administration,
Chief Financial Officer and Secretary and a director of Fruehauf Trailer
Corporation ("Fruehauf"), a publicly-held manufacturer of truck trailers.
Fruehauf filed a petition under the Federal bankruptcy laws in October 1996.
From May 1993 to August 1993, Mr. Wiggins was employed by Glass & Associates,
Inc., a turn-around and management consulting firm. From 1988 to March 1993, Mr.
Wiggins served Autodie Corporation, a publicly-held manufacturer of large-scale
stamping dies and molds primarily for the automotive industry, in various
executive positions. Mr. Wiggins was promoted to Chief Executive Officer of
Autodie Corporation shortly after Autodie Corporation filed a petition under the
Federal bankruptcy laws.
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Robert H. Wolfe has been the Vice President, General Counsel and
Secretary of CBIC since November 1996. Before that time, from June 1996 to
November 1996, Mr. Wolfe served as a private consultant to Rust Engineering &
Construction Inc. ("Rust"). He served as Vice President, General Counsel and
Secretary to Rust from November 1993 to June 1996 and as Associate General
Counsel for that company from July 1988 to Novem-ber 1993.
has been a Supervisory Director of the
Issuer since and has a term expiring in .
has been a Supervisory Director of the
Issuer since and has a term expiring in .
has been a Supervisory Director of the
Issuer since and has a term expiring in .
1996 Executive Officer Compensation
The following table sets forth certain information regarding
compensation paid to CBIC's Chief Executive Officer and to each of the four
other most highly compensated executive officers of CBIC (the "named executive
officers"). Neither the Issuer nor CBICBV paid compensation to executive
officers in 1996.
SUMMARY COMPENSATION TABLE
Principal All Other
Position Year Salary (1) Bonus (2) Compensation
Gerald M. Glenn 1996 $230,770 $
President and Chief
Executive Officer
Lewis E. Akin 1996 $ 43,750
Former President and
Chief Executive Officer
Thomas L. Aldinger 1996 $166,200 $ $15,638 (3)
Vice President -
Business Development
and Operations
Timothy Wiggins 1996 $ 59,230 $
Vice President -
Treasurer and Chief
Financial Officer
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Stephen M. Duffy 1996 $ 89,230 $ $1,906 (3)
Vice President - Human
Resources and
Administration
Robert H. Wolfe 1996 $ 20,200 $
Vice President,
Secretary and
General Counsel
(1) Salary paid in 1996 for actual period of employment by the Company.
Mr. Akin terminated employment on January 12, 1996. Mr. Aldinger was
employed in his position during all of 1996. Messrs. Glenn, Wiggins,
Duffy and Wolfe commenced employment with the Company on the follow-
ing respective dates: Mr. Glenn - May 27, 1996; Mr. Wiggins - Sep-
tember 16, 1996; Mr. Duffy - June 1, 1996; and Mr. Wolfe -
November 18, 1996.
(2) Bonus amounts include payments under the Company's Senior Management
Incentive Program effective only during 1996 and under the Company's 1996
Management Incentive Compensation Program which was replaced by the Bonus
Plan (as defined below).
(3) The compensation reported for Messrs. Aldinger and Duffy is the dol-
lar value of "split dollar" life insurance benefits provided by CB&I
with respect to Mr. Aldinger and by a subsidiary of Praxair which is
not a subsidiary of the Issuer with respect to Mr. Duffy.
Compensation and Benefits
The Company's overall compensation and benefit strategy is to
provide programs which are competitive within its industry. The Company believes
that this strategy will give the Company the opportunity to attract and retain
the highly-skilled managerial, supervisory, technical, sales and marketing
personnel that are key to the Company's success. The overall compensation and
benefit packages offered by the Company are intended to link the interests of
executive officers and employees with those of shareholders through the use of
equity-based plans with a long-term perspective, as well as short-term programs
which allow employees and executive officers to share in the rewards of improved
performance. The following is a brief description of the components of the
Company's compensation and benefits program.
Executive Compensation
The Company's executive compensation program is designed to support
the achievement of corporate performance goals; to attract, retain and motivate
key executives; and to
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enhance shareholder value. The program utilizes a combination of competitive
base salaries, short term cash incentives (annual bonuses), long-term
stock-based incentives and other competitive benefit plans.
Annual Incentive Compensation. The Company has adopted an Annual
Incentive Compensation Plan (the "Bonus Plan"), to take effect in fiscal 1997.
The Bonus Plan is an annual short-term incentive plan covering a group
consisting of the executive officers of the Company and its principal operating
subsidiaries and other designated key management employees. The Bonus Plan would
be based on the annual operating plan of the Company, arrived at as a result of
discussion and analysis of the business plans within the major divisions of the
Company. Payment of bonuses would be based on attaining a specific goal of
operating income, and would be paid following the end of the fiscal year. The
operating income goal would be set from year to year, at the beginning of each
year (subject to modifications relating to extraordinary events), upon
management recommendation and approval by the Issuer's Supervisory Board.
A target bonus will be established for each participating employee
at the beginning of each year based on position, responsibilities and grade
level. The bonus may be earned from two sources -- achievement of the corporate
operating income goal and a discretionary portion. A percentage of target bonus
opportunity is allocated to each bonus source. The discretionary bonus is
determined by the management's evaluation of individual performance and in the
case of the CEO, the Compensation Committee of the Supervisory Board of the
Issuer.
Long-Term Compensation. CBIC has adopted a long-term incentive
compensation plan (the "Incentive Plan") for its executive officers and other
management employees which is a so-called "omnibus" plan. The Company believes
that through the use of long-term, stock-based incentive compensation plans it
is possible to create alignment between executive compensation and long-term
improvements in shareholder value. The objective of the Incentive Plan is to
provide an opportunity and incentive to a group of management employees to
achieve above market levels of compensation based on long-term growth in the
value of the Company, which at the same time is aligned with the financial
interests of shareholders.
The Incentive Plan offers the flexibility to the Company to provide
the incentive of such long-term compensation in any of the following forms:
non-qualified options to purchase Common Shares; qualified "incentive" options
to purchase Common
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Shares; restricted Common Shares; "performance shares," paying out a variable
number of Common Shares depending on goal achievement, and "performance units,"
which would be cash payments based on either the value of the Common Shares or
appreciation in the price of the Common Shares upon achievement of specific
financial goals. However, management's current intention generally is to use the
Incentive Plan only to make grants of non-qualified options with an exercise
price of the fair market value of the Common Shares at grant date. In addition,
the Incentive Plan will specifically provide that only non-qualified options
will be granted from it during the Incentive Plan's first year. Selection of
participating employees and the number of options to be granted would be
approved by the Compensation Committee of the Issuer's Supervisory Board, upon
recommendations from management.
The number of options granted to participants would be targeted to
an appropriate percentage of such participant's compensation by his or her
position or grade level, as determined by comparative market data. Options would
become exer-cisable upon attainment of performance measures approved by the
Compensation Committee, but in no event earlier than three years from date of
grant.
In line with comparative market data for comparable plans, the
Issuer intends to reserve Common Shares of the Company for the Incentive Plan
equal to 10% of the number of Common Shares issued and outstanding at the time
of the Common Share Offering. The Issuer expects that options exercisable for
approximately 4% of the number of Common Shares outstanding will be granted at
or immediately prior to the date of the Common Share Offering. The Incentive
Plan would have a life of five years for the purpose of making grants or awards,
unless the number of shares reserved for such plan are used up before the
expiration of that period, in which case shareholder approval would be required
in order to reserve additional Common Shares for the Incentive Plan. The vesting
and exercise periods for options granted would be in addition to such five year
period.
The Issuer shall consider sponsoring incentive plans for those
executive officers and other management employees of its other subsidiaries who
are not eligible to participate under the CBIC sponsored plan.
Special Stock-Based, Long-Term Compensation Related to the Com-
mon Share Offering
In early 1997, the Company intends to establish the
Management Plan. The Management Plan is not qualified under
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Section 401(a) of the Code and each participant's account shall be treated as a
separate account under Section 404(a)(5) of the Code. The designation of the
Management Plan's participants, the amount of Company contributions to the
Management Plan and the amount allocated to the individual participants will be
determined by the Issuer's Supervisory Board. The allocation to the
participant's individual accounts will occur concurrently with the Company's
contributions. Management Plan Shares will vest as determined by the Issuer's
Supervisory Board. Upon vesting, the distribution of the balance held in the
individual participant's account can be distributed at the election of the
participant. Forfeitures of Management Plan Shares under the provisions of the
Management Plan will be reallocated to the other Management Plan participants.
The number of initial participants is expected to be 40 to 60.
As an incentive to increasing the long-term value of the Company,
Mr. Glenn has an agreement with Praxair, and Messrs. Wiggins, Aldinger, Wolfe
and Duffy have agreements with CB&I, whereby each will respectively receive
special compensation related to the sale of the Common Shares pursuant to the
Common Share Offering. Each of such officers, along with a group of
approximately 35 to 55 other key management employees, will be participants in
the Management Plan. In fulfillment of Praxair's commitment, on or immediately
before the consummation of the Common Share Offering, the Company has agreed to
make a contribution to the Management Plan in the form of Common Shares having a
value of approximately $ (approximately Common Shares, assuming an initial
public offering price of $ per share (the mid-point of the price range as set
forth on the cover page of this Prospectus)). Accordingly, the Company will
record a pretax charge of approximately $ (assuming an initial public offering
price of $ per share (the mid-point of the price range as set forth on the cover
page of this Prospectus)) at the time of the contribution to the Management
Plan. This initial contribution of Management Plan Shares will vest three years
(and with respect to one participant, two years) after the date of the Common
Share Offering.
Other Executive Compensation Programs
In addition to the prospective annual short-term incentive
compensation programs and long-term incentive compensation programs described
above, CBIC sponsors or will sponsor one or more of the following additional
compensation programs in which management employees, including all of the named
executive officers, would participate, including a deferred compensation plan, a
tax-qualified defined contribution plan and an excess benefits plan.
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CBIC adopted, effective January 1, 1997, a restated tax-qualified
defined contribution pension plan for eligible employees (the "New 401(k)
Plan"), including, but not limited to, the named executive officers. Such plan
consists of a typical voluntary pre-tax salary deferral feature under Section
401(k) of the Code; a dollar-for-dollar Company matching contribution applicable
to such employee deferrals, up to 3% of a participating employee's considered
earnings; a basic additional Company contribution of 5% of each participating
employ-ee's considered earnings; and an additional discretionary Company
profit-sharing contribution.
The New 401(k) Plan substantially replaces the former 401(k) plan
(the "CBI 401(k) Pay Deferral Plan") and the tax qualified defined benefit
pension plan in which the employees of CBIC have previously participated (the
"CBI Pension Plan"). The New 401(k) Plan provides that the Company may, at the
discretion of management, make certain of its matching contributions in a
uniform manner in the form of either cash or Common Shares.
Since December 31, 1996, no employees of the Company participate in
the CBI Pension Plan who were not already participants as of December 31, 1996.
No further benefits will accrue under the provisions of the CBI Pension Plan's
normal benefit formulas for employees participating as of December 31, 1996.
Instead, benefits accrued as of that date will be computed and increased at a
rate of 5% per year (not compounded) or fraction thereof of continuing service,
to a maximum of three additional years. The number of years of credited service,
as of December 31, 1996, for the following named executive officers, who are the
only such officers who have or will have benefits accrued under the Pension
Plan, are: Thomas L. Aldinger, 22.9 years; and Stephen M. Duffy, 5.1 years.
The following table shows approximate annual pensions payable
to salaried employees, including participating executive officers, assuming
normal retirement at age 65 and that the current social security tax base
remains unchanged:
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PENSION PLAN TABLE
Years of Service at Retirement
------------------------------
Average
Annual
Earnings 15 20 25 30 35 40
- -------- -- -- -- -- -- --
$ 100,000 $ 21,540 $ 28,720 $ 35,900 $ 43,080 $ 50,260 $ 57,440
200,000 42,540 56,720 70,900 85,080 99,260 113,440
300,000 63,540 84,720 105,900 127,080 148,260 169,440
400,000 84,540 112,720 140,900 169,080 197,260 225,440
500,000 105,540 140,720 175,900 211,080 246,260 281,440
600,000 126,540 168,720 210,900 253,080 295,260 337,440
700,000 147,540 196,720 245,900 295,080 344,260 393,440
800,000 168,540 224,720 280,900 337,080 393,260 449,440
900,000 189,540 252,720 315,900 379,080 442,260 505,440
1,000,000 210,540 280,720 350,900 421,080 491,260 561,440
In conjunction with the adoption of the New 401(k) Plan, CBIC has
adopted an "excess" benefit plan. Under such a plan, CBIC will determine the
amount of benefits which it would have contributed to the New 401(k) Plan on
behalf of designated management employees, except as limited by the Code. Under
the excess benefit plan, CBIC will pay retirement benefits in excess of the
amounts permitted under the limitations of contributions under the Code. It also
allows affected participants to elect to voluntarily defer more than the $9,500
limitation on employee contributions under the New 401(k) Plan. Such benefits
are payable to a participant upon retirement, other specified terminations of
employment, or upon other specified events. The amount of such benefits payable
will be determined by attributing an imputed rate of interest or earnings on the
equivalent amount of excess plan contributions not made to the qualified plan.
The obligations to provide such benefits will constitute general obligations of
CBIC.
Supplemental Executive Death Benefits Plan. CBIC has adopted a plan
for selected management employees to provide additional benefits upon pre- or
post-retirement death to a participant's named beneficiary. Such plan is in
addition to any group life insurance plan provided generally to all employees,
and may be provided through CBIC's general assets, CBIC-owned insurance
policies, or "split-dollar" life insurance policies. The amount of such benefits
provided is significantly greater than that provided under such group life
insurance plan. The taxability of such benefits, or payments on premiums
therefor, to a participant or his or her beneficiaries, and the tax
deductibility of such amounts by the Company, will be determined by the
selection of the actual means by which the
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Company paid such benefits, which has not been determined at this time.
Employee Share Purchase Plan
The Issuer believes that a key element of its future success will be
broad-based stock ownership by all its employees, and providing incentives to
become and remain shareholders. The Issuer intends to adopt a broad-based
employee share purchase plan (the "Share Purchase Plan"), in which certain
employees of the Company, including the named executive officers, would be
eligible to participate. Pursuant to the Share Purchase Plan, each employee
electing to participate would be granted an option to purchase common shares of
the Issuer upon a specified future date at 85% of the fair market value of such
shares on the date of purchase. During specified periods preceding such purchase
date, a percentage of the participating employees' after-tax pay, as such
employee elects, would be withheld and placed on account to apply to the
purchase of as many shares as such funds allow at the discounted purchase price.
Common Shares so purchased would be registered in the name of the employee
participant.
Pursuant to the Code, the Share Purchase Plan would not permit any
participant to purchase Common Shares under the proposed plan and all other
share purchase plans (if any) in excess of $25,000 of market value per year,
determined at the time each option to purchase is granted.
The Company anticipates that it will reserve a total of Common
Shares for purchase pursuant to the Share Purchase Plan, with such plan to
expire no later than .
Termination and Employment Agreements
CBIC and Messrs. Wiggins, Wolfe, Aldinger and Duffy have entered
into agreements each providing that, in the event of a termination of their
respective employment with the Company (other than by reason of the employee's
willful misconduct or gross negligence) or a significant reduction in their
respective responsibilities, salary or benefits or a substantive change in the
respective location of their employment within the two-year period following a
change of control of the Company, each will receive a special lump-sum payment
following separation. A change of control for purposes of such agreements is
deemed to occur if, other than in connection with the Common Share Offering, (i)
any person or group of persons other than Praxair, Inc. or one of its
subsidiaries becomes the beneficial owner of 25% or more of the total voting
power of the Company's or any such subsidiary's outstanding securities,
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(ii) upon consummation of any merger or other business combination of the
Company or any such subsidiary with or into another person pursuant to which the
shareholders of the Company or such subsidiary do not own, upon consummation of
such combination, more than 50% of the voting power and value of the stock of
the surviving person or (iii) if, during any period of two years or less, a
majority of the members of the Issuer's Supervisory Board changes and new
members were not nominated by at least 75% of the directors then still in office
who were directors at the beginning of such period.
In addition, the Company has entered into employment arrangements
with Messrs. Glenn, Wiggins and Wolfe. Such arrangements establish base salaries
but do not establish any required length of employment. The arrangements provide
for, among other things, participation in Company bonus programs, lump sum
payments in the event of termination (or a significant reduction in levels of
responsibility) within two years of a sale of the Company and for special
stock-based compensation relating to an initial public offering of Common
Shares. See "-- Compensation and Benefits -- Special Stock-Based, Long-Term
Compensation Related to the Common Share Offering."
Compensation of Directors
The Issuer intends to compensate Supervisory Directors who are not
officers of the Company or designees of the Selling Shareholder by an annual
retainer of $20,000 per year, paid in quarterly installments, and $1,500 for
attendance at each Board meeting. Directors who are chairpersons of committees
shall receive an additional retainer of $3,000. Those who serve on Board
Committees shall receive $1,000 for each committee meeting attended. Supervisory
Directors may elect to receive their compensation in Common Shares and may elect
to defer their compensation. The Issuer may elect to include Supervisory
Directors in the Incentive Plan at a future date.
Compensation Committee Interlocks and Insider Participation
For 1996, compensation decisions were made by or in accordance with
the entire Board of Directors of CBIC, the members of which are E.G. Hotard,
G.M. Glenn, T.J. Wiggins, R.F.X. Fusaro, J.S. Sawyer, B.A. Harris, J.R. Vipond,
S.C. Cunningham and W.F. McClure, Jr. For 1997, compensation decisions for
employees of CBIC will be made by the Board of Directors of CBIC and for
employees of CBICBV by its management board.
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DESCRIPTION OF NEW REVOLVING CREDIT FACILITY
The Company has received a commitment letter from The Chase
Manhattan Bank ("Chase") pursuant to which Chase has committed (subject to due
diligence, final documentation and various other conditions) to provide $30.0
million of, and to use its best efforts to syndicate the balance of, the maximum
committed amount to be available under a five year senior, unsecured competitive
advance and revolving credit facility (the "New Revolving Credit Facility").
Maximum availability under the New Revolving Credit Facility will be $100.0
million for the first three years and $50.0 million thereafter. The borrowers
will include the Issuer and certain wholly-owned subsidiaries, and substantially
all material subsidiaries will unconditionally guarantee (to the extent not
prohibited by applicable law) the borrowers' obligations thereunder. It is
expected that the Company will, upon effectiveness of such facility, borrow
approximately $55.0 million thereunder to repay indebtedness owed to Praxair.
The unused available committed amounts under the New Revolving
Credit Facility will be available for general corporate purposes, including
working capital, letter of credit and other requirements of the Company. Amounts
may be borrowed, repaid and reborrowed, subject to availability and applicable
conditions to borrowing. Revolving credit loans are expected to bear interest at
a rate based upon the lenders' alternate base rate or a spread ranging from % to
% (based on the Company's debt coverage ratio) over LIBOR. Letters of credit may
be issued, subject to a $35.0 million sublimit, on either a committed or
competitive bid basis and expire one year after issuance unless otherwise
provided. It is expected that the Credit Facility will terminate on the fifth
anniversary of the date of the execution of final documentation unless
terminated sooner.
It is anticipated that the New Revolving Credit Facility will
contain various covenants, including financial covenants that will require the
Company to maintain a minimum level of net worth, an interest coverage ratio and
a debt coverage ratio and restrict the Company's capital expenditures, and other
covenants that will limit mergers, certain asset sales, the incurrence of
indebtedness by subsidiaries (excluding performance letters of credit and
performance bonds), the granting of liens, dividends and other payments in
respect of capital stock and indebtedness, the making of investments, the
issuance of stock by subsidiaries and future transactions with affiliates.
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It is anticipated that the New Revolving Credit Facility will
contain customary events of default, including failure to pay principal or
interest, any breach of representations when made, any default under covenants
(subject to grace periods), bankruptcy events, cross defaults to other
indebtedness exceeding a specified amount, a change of control of the Issuer,
CBIC or CBICBV, unsatisfied judgments, ERISA events or the invalidity of the
subsidiary guarantees.
Assuming the Company obtains definitive commitment letters from the
other lenders with respect to the New Revolving Credit Facility, the Company's
ability to borrow thereunder would be subject to, among other conditions,
consummation of the Reorganization and the Offering and the execution and
delivery of definitive financing agreements containing terms acceptable to the
lenders. There can be no assurance as to when or whether the New Revolving
Credit Facility will be entered into or as to whether the New Revolving Credit
Facility will contain the terms and conditions referred to above, and such New
Revolving Credit Facility may contain terms and conditions more favorable or
less favorable to the Company than referred to above. If the Company is not able
to agree with the lenders on the terms of the New Revolving Credit Facility, the
Company would need to seek other sources of financing for its working capital
needs.
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DESCRIPTION OF SHARE CAPITAL
The Issuer was organized under the law of The Nether-lands as a
public company with limited liability ("naamloze vennootschap") by Deed of
Association dated November 22, 1996. The Issuer is registered in the trade
register of Amsterdam under No. 286.441. Set forth below is a summary of certain
provisions, including all material provisions relating to the Common Shares,
contained in the Articles of Association and the law of The Netherlands. Such
summary does not purport to be a complete statement of the Articles of
Association and the law of The Netherlands and is qualified in its entirety by
reference to the Articles of Association which are filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
The authorized share capital of the Issuer is NLG 500,000 consisting
of 50,000,000 Common Shares, each with a par value of NLG .01. As of November
22, 1996, 10,000,000 Common Shares were outstanding, all of which were owned by
the Selling Shareholder. Immediately prior to the consummation of the Common
Share Offering, an amendment to the Issuer's Articles of Association will
increase the Issuer's authorized share capital to NLG , consisting of Common
Shares. In connection with the Reorganization, additional Common Shares will be
issued by the Issuer to the Selling Shareholder. Upon consummation of the Common
Share Offering Common Shares will be outstanding. Common Shares may be issued
either in registered or bearer form, except that New York Shares may only be
issued in registered form.
maintains the New York Registry and
acts as transfer agent and registrar for the New York Shares (the "New York
Transfer Agent and Registrar").
acts as transfer agent and paying agent for the Bearer Shares
(as defined below) and the Common Shares in the Amsterdam Register (as defined
below) and as registrar for the Common Shares in the Amsterdam Register (the
"Dutch Transfer and Paying Agent").
All of the New York Shares sold in the Common Share Offering will
initially be represented by a single global certificate held through the
Depository Trust Company ("DTC") and registered in the name of Cede & Co., the
nominee of DTC. Beneficial interests in the New York Shares represented by the
global certificate or otherwise held through DTC will be represented, and
transfers of such beneficial interests will be effected, through accounts of
financial institutions acting on behalf of beneficial owners as direct and
indirect participants in DTC. Investors may hold beneficial interests in New
York
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Shares directly through DTC if they are a participant in such system, or
indirectly through organizations that are participants in such system.
Common Shares in bearer form (the "Bearer Shares"), at the
discretion of the Supervisory Board, may be represented either by share
certificates issued in the form of a main part with a dividend sheet consisting
of a set of dividend coupons ("K-certificates") or by share certificates in the
form of a main part with a simplified dividend sheet ("CF-certificates"). The
CF-certificates may only be transferred through the book-entry transfer system
maintained by NECIGEF (Nederlands Centraal Instituut voor Giraal
Effectenverkeer, the Netherlands Central Institute for Giro Securities). For the
time being, the Issuer intends only to issue CF-certificates. Investors may hold
interests in the Bearer Shares through NECIGEF, Euroclear and Cedel, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems. Common Shares may also be registered in The
Netherlands in book-entry form ("Amsterdam Register") for any number of Common
Shares.
Common Shares
After the consummation of the Common Share Offering, there will be
Common Shares outstanding. Each shareholder of record (or if applicable, a
beneficiary of a life interest to whom the voting rights have been transferred)
is entitled to one vote for each Common Share held on every matter submitted to
a vote of shareholders. In the event of the liquidation, dissolution or winding
up of the Issuer, holders of Common Shares are entitled to receive, on a pro
rata basis, all assets of the Issuer remaining available for distribution to the
holders of Common Shares. The Articles of Association make no provision for
cumulative voting and, as a result, the holders of a majority of the Issuer's
voting power will have the power, subject to the Supervisory Board's right to
make binding nominations, to elect all members of the Supervisory Board and the
Management Board. See "-- Summary of Certain Provisions of the Articles of
Association and Other Matters -- Election and Tenure of Managing Directors and
Supervising Directors; Power to Represent and Bind the Issuer."
Summary of Certain Provisions of the Articles of Association
and Other Matters
Dividends
Pursuant to the Articles of Association, the Manage-
ment Board, with the approval of the Supervisory Board, may
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establish reserves out of the Issuer's annual profits. The portion of the
Issuer's annual profits that remains after the establishment of reserves is at
the disposal of the general meeting of shareholders. Out of the Issuer's share
premium reserve and other reserves available for shareholder distributions under
the law of The Netherlands, the general meeting of shareholders may declare
distributions upon the proposal of the Management Board (after approval by the
Supervisory Board). Pursuant to a resolution of the Supervisory Board (provided
that the Supervisory Board is authorized to issue such shares), distributions
approved by the general meeting of shareholders may be fully or partially made
in the form of common shares of the Issuer. The Issuer may not pay dividends if
the payment would reduce shareholders' equity below the aggregate par value of
the Common Shares outstanding, plus the reserves statutorily required to be
maintained. Although under Dutch law, dividends are generally paid annually, the
Management Board, with the approval of the Supervisory Board, may, subject to
certain statutory provisions, distribute one or more interim dividends before
the accounts for any year have been approved and adopted at a general meeting of
shareholders. Rights to cash dividends and distributions that have not been
collected within five years after the date on which they became due and payable
shall revert to the Issuer.
At the date of its inception on November 22, 1996, the Issuer had no
retained earnings available to pay dividends under the law of The Netherlands.
Since its inception in 1996, the Issuer has not paid dividends on
Common Shares. The Issuer currently anticipates that it will declare a $
quarterly cash dividend on each outstanding Common Share, payable initially for
the first quarter commencing subsequent to the date of this Prospectus. The
Issuer currently intends to declare regular quarterly cash dividends; however,
there can be no assurance that any such dividends will be declared or paid. The
payment of dividends in the future will be subject to the discretion of the
Issuer's shareholders, its Management Board and its Supervisory Board and will
depend upon general business conditions, legal restrictions on the payment of
dividends and other factors. The Issuer expects that it would pay any such
dividends in U.S. dollars. Cash dividends to holders of New York Shares will be
paid to the New York Transfer Agent and Registrar, who will, if necessary,
convert such dividends into U.S. dollars at the rate of exchange on the date
such dividends are paid, for disbursement to such holders. Cash dividends
payable to holders of Bearer Shares will be paid in the currency in which such
dividends are declared to [ ] (the "Dutch Transfer and Paying Agent"), who will,
if necessary, convert such dividends
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into Dutch guilders, for disbursement to such holders. See "Dividend Policy." In
certain cases, however, cash dividends may be paid directly to the holders of
K-certificates.
Shareholder Meetings and Voting Rights
Each holder of Bearer Shares and each other registered shareholder
has the right to attend general meetings of shareholders, either in person or
represented by a person holding a written proxy, to address shareholder
meetings, and to exercise voting rights, subject to the provisions of the
Articles of Association. Ordinary general meetings of shareholders of the Issuer
will be held in The Netherlands at least annually, within six months after the
close of each financial year. Extraordinary general meetings of shareholders may
be held as often as the Management Board or the Supervisory Board deem
necessary, or as otherwise provided for pursuant to the law of The Netherlands.
Unless otherwise required by the Articles of Association or the law
of The Netherlands, resolutions of general meetings of shareholders occurring in
The Netherlands require the approval of a majority of the votes cast at a
meeting. Resolutions of general meetings of shareholders occurring outside The
Netherlands are valid if the entire share capital is present or represented
(unless voting rights have been transferred to holders of life interests). There
are no laws currently in effect in The Netherlands or provisions in the Articles
of Association of the Issuer limiting the rights of non-resident investors to
hold or vote Common Shares.
The Issuer will give notice by mail to registered holders of Common
Shares of each meeting of shareholders. Such notice will be given no later than
the fifteenth day prior to the day of the meeting and will include a statement
of the business to be considered. The New York Transfer Agent and Registrar will
provide notice of general meetings of shareholders to, and compile voting
instructions from, holders of Common Shares held directly or indirectly through
the New York Transfer Agent and Registrar. The Issuer also will give notice of
each meeting of shareholders by notice published by advertisement, which shall
be published in at least one national daily newspaper distributed throughout The
Netherlands and in the Officiele Prijscourant van de Vereniging Voor de
Effectenhandel (the official newspaper of the Amsterdam Stock Exchange), and, if
required, elsewhere.
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Election and Tenure of Managing Directors
and Supervising Directors; Power to
Represent and Bind the Issuer ___________
The Management Board is entrusted with the management of the Issuer.
The Supervisory Board supervises the Management Board. The Management Board will
have one or more members and the Supervisory Board will have one or more
members. Supervisory Board and Management Board vacancies will be filled by a
vote of shareholders at the first general meeting after such vacancy occurs or
is created. The Supervisory Board and the Management Board members are elected
from binding nominations made by the Supervisory Board. At least two persons
must be nominated for each vacancy. Under the law of The Netherlands and the
Articles of Association, the shareholders may deprive the nominations of their
binding effect by a resolution passed by Two-thirds Majority of Quorum vote.
Under the Issuer's Articles of Association, the Selling Shareholder
(or certain of its transferees) will have the right to appoint, remove and
replace two members of the Supervisory Board so long as the Selling Shareholder
(or such trans-feree) owns at least 20% of the outstanding Common Shares, and
the right to appoint, remove and replace one member of the Supervisory Board so
long as the Selling Shareholder (or such transferee) owns at least 10% but less
than 20% of the outstanding Common Shares. On the first day on which the Selling
Shareholder's (or such transferee's) ownership of the outstanding Common Shares
is less than 10%, the Selling Shareholder (or such transferee) will cease to
have any special rights regarding the appointment, removal and replacement of
the Issuer's supervisory directors.
Supervisory Directors and Managing Directors serve until the
expiration of their respective terms of office or their resignation, death or
removal, with or without cause, by the shareholders or, in the case of
Supervisory Directors, upon reaching the mandatory retirement age of 72.
The executive power of the Issuer resides in the members of the
Management Board acting together and in each member acting individually. Each
managing director, acting alone, is authorized to represent the Issuer. The
Issuer may execute (i) a power of attorney granting certain members of the
Management Board and/or certain officers of the Issuer the power to bind the
Issuer individually on certain administrative day-to-day matters and (ii) a
power of attorney to the Issuer's transfer agent and registrar to acknowledge
transfers of the Common Shares.
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Approval of Annual Accounts and Discharge of
Management Liability
Each year, the Management Board is responsible for the preparation
of annual accounts. The annual accounts must be approved and signed by the
Supervisory Board and then submitted to a general meeting of shareholders for
adoption within six months after the end of the Issuer's financial year, unless
the general meeting of shareholders has extended this period due to special
circumstances.
Adoption of the Issuer's annual accounts by the general meeting of
shareholders discharges the members of the Management Board and the Supervisory
Board from liability in respect of the exercise of their duties during the
financial year concerned, unless an explicit reservation is made by the general
meeting of shareholders and without prejudice to the provisions of the law of
The Netherlands relating to liability of members of supervisory boards and
management boards upon bankruptcy of a company pursuant to Articles 138 and 149
of Book 2 of the Civil Code of The Netherlands. Under the law of The
Netherlands, this discharge from liability does not extend to matters not
disclosed to shareholders.
Liquidation Rights
In the event of the dissolution, liquidation or winding up of the
Issuer, the assets remaining after payment of all debts and liquidation expenses
will be distributed among registered holders of Common Shares on a pro rata
basis.
Issue of Shares; Preemptive Rights
Prior to the Common Share Offering, the Issuer's shareholders have
approved the issuance of up to an aggregate of authorized but unissued Common
Shares upon exercise of options or otherwise in connection with the Company's
benefit plans. The Issuer's shareholders are also expected to authorize, prior
to the Common Share Offering, the Supervisory Board to issue such additional
authorized but unissued Common Shares as the Supervisory Board shall determine.
Under the law of The Netherlands, such authorization can only be granted for a
maximum period of five years and the current authorization will expire in ,
2002, subject to future extension(s). Under the Articles of Association, each
holder of Common Shares shall generally have a preemptive right to subscribe
with regard to any issue of Common Shares pro rata to the shareholder's existing
holdings of Common Shares, except for certain issuances to employees, issuances
for noncash consideration and issuances exempted from such requirement by the
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Supervisory Board when the Supervisory Board is so empowered by shareholders. A
resolution expected to be adopted by shareholders in , 1997 provides the
Supervisory Board with an irrevocable five-year authorization to limit or
exclude preemptive rights.
Repurchase of Common Shares
Subject to certain restrictions contained in the law of The
Netherlands and the Articles of Association, the shareholders, prior to the
consummation of the Common Share Offering, are expected to have delegated to the
Management Board the authority to cause the Issuer to acquire its own fully paid
shares in an amount not to exceed 10% of the outstanding shares at any time in
open market purchases at any price not to exceed $ or its equivalent in other
currencies. Such authorization, which may not be granted for more than 18
months, is currently valid through , 1998.
Capital Reduction
Upon proposal by the Management Board (after approval by the
Supervisory Board) the general meeting of shareholders may reduce the issued
share capital by cancellation of Common Shares held by the Issuer, subject to
certain statutory provisions.
Amendment of the Articles of Association
The Articles of Association may be amended at a general meeting of
shareholders if the proposal is stated in the convocation notice for the general
meeting and a complete copy of the proposed amendment is filed at the Issuer's
office so that it may be inspected prior to the meeting and the amendment is
approved by a majority of the votes cast at a general meeting of shareholders.
Proposals to amend the Articles of Association, to legally merge the Issuer, or
to dissolve the Issuer require prior approval by the Supervisory Board.
Notwithstanding the foregoing, no such amendment shall become effective until
approved by the Ministry of Justice of The Netherlands.
Disclosure of Holdings
Under the law of The Netherlands, if Common Shares are admitted to
official quotation or listing on the Amsterdam Stock Exchange or on any other
stock exchange in the European Economic Area, holders and certain beneficial
owners of Common Shares must promptly notify the Issuer and the Securities Board
of The Netherlands if their shareholding in the Company reaches, exceeds or
falls below 5%, 10%, 25%, 50% or 66-2/3% of
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the outstanding Common Shares. For this purpose shareholding includes either or
both of economic interests or voting rights. Failure to comply constitutes a
criminal offense and could result in civil sanctions, including suspension of
voting rights.
Transfer Agent, Registrar and Paying Agent
The New York Transfer Agent and Registrar for the
Common Shares is . The Dutch Transfer and Paying Agent
for the Common Shares is .
Liability of Directors and Officers
Prior to completion of the Common Share Offering, certain of the
Issuer's directors and executive officers will enter into an indemnity agreement
with the Issuer. The agreements provide, to the fullest extent permitted by the
law of The Netherlands, that the Issuer will indemnify the directors and
executive officers against any costs and expenses, judgments, settlements and
fines incurred in connection with any claim involving a director or an executive
officer by reason of his or her position as director or officer. A form of
indemnity agreement containing such standards of conduct is included as an
exhibit to the Company's Registration Statement on Form S-1 (the "Registration
Statement") of which this Prospectus is a part.
The Articles of Association provide that the Issuer will, to the
fullest extent permitted by the law of The Nether-lands, as amended from time to
time, indemnify, and may advance expenses to, each of its now acting and former
board members, officers, employees and agents, whenever any such person is made
a party, or threatened to be made a party, in any action, suit or proceeding by
reason of his or her service with the Issuer. The Articles of Association also
provide that the Issuer may purchase and maintain directors' and officers'
liability insurance.
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SHARE CERTIFICATES AND TRANSFER
General
The Common Shares are available in either registered or bearer form
except that the New York Shares are available in registered form only. Share
Registers are maintained in New York, New York (the "New York Registry") by the
New York Transfer Agent and Registrar and in The Netherlands by or on behalf of
the Issuer. All of the New York Shares to be sold in the Offering will be
initially represented by a single global certificate held through DTC and
registered with the New York Transfer Agent and Registrar in the name of Cede &
Co., the nominee of DTC. The Common Shares will trade on the New York Stock
Exchange; however, only the New York Shares may be traded on such exchange. The
Common Shares will also trade on the Amsterdam Stock Exchange but only in the
form of Bearer Shares.
Persons who are not DTC participants may beneficially own New York
Shares held by DTC only through direct or indirect participants in DTC. So long
as Cede & Co., as the nominee of DTC, is the registered owner of New York
Shares, Cede & Co. for all purposes will be considered the shareholder of such
New York Shares. Accordingly, any person owning a beneficial interest in New
York Shares must rely on the procedures of DTC and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a shareholder. The Issuer understands
that, under existing industry practice, in the event that an owner of a
beneficial interest in New York Shares desires to take any action that Cede &
Co., as the shareholder, is entitled to take, Cede & Co. would authorize the
participants to take such action, and the participants would authorize
beneficial owners holding interests through such participants to take such
action or would otherwise act upon the instructions of beneficial owners holding
interests through them. New York Shares may be transferred on the books of the
Issuer at the office of the New York Transfer Agent and Registrar. Certificates
representing New York Shares may be exchanged at such office for certificates
representing New York Shares of other authorized denominations. Under Dutch law,
the transfer of registered shares requires a written instrument of transfer and
written acknowledgment by the Issuer of such transfer.
Common Shares registered in The Netherlands are booked in the
Amsterdam Register for any number of Common Shares. Bearer Shares, at the
discretion of the Supervisory Board, will be represented by K-certificates or
CF-certifi-cates. CF-certificates must remain deposited with an authorized
custodian and may only be transferred through the book-
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entry transfer system maintained by NECIGEF. For the time being, the Issuer
intends only to issue CF-certificates. The Common Shares trade on the Amsterdam
Stock Exchange under the symbol "CBI". Only Bearer Shares may be traded on the
Amsterdam Stock Exchange. Common Shares booked in the Amsterdam Register may be
converted into Bearer Shares or into New York Shares in accordance with the
procedures more fully described below.
Global Clearance and Settlement
Although DTC, Euroclear and Cedel have agreed to the procedures
provided below in order to facilitate transfers of Shares among participants of
DTC, Euroclear and Cedel, they are under no obligation to perform or continue to
perform such procedures and such procedures may be modified or discontinued at
any time. The Company will not have any responsibility for the performance by
DTC, Euroclear or Cedel or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
DTC, Euroclear and Cedel have advised the Issuer as follows:
DTC
DTC is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. DTC participants
include securities brokers and dealers, bank, trust companies and clearing
corporations and may include certain other organizations such as the
Underwriters. Indirect access to the DTC system also is available to indirect
DTC participants such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a DTC participant, either
directly or indirectly.
Because DTC can only act on behalf of DTC participants, who in turn
act on behalf of indirect DTC participants and certain banks, the ability of an
owner of a beneficial interest in the New York Shares to pledge such interest to
persons or entities that do not participate in the DTC system, or
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otherwise take actions in respect of such interest, may be limited by the lack
of a definitive certificate for such interest. The laws of some jurisdictions
require that certain persons take physical delivery of securities in definitive
form. Consequently, the ability to transfer beneficial interests in the New York
Shares to such persons may be limited. In addition, beneficial owners of New
York Shares through the DTC system will receive dividend payments only through
DTC participants.
NECIGEF
NECIGEF is an independent central institution whose objects are the
safekeeping and administration of securities and the operation of a security
giro on behalf of its participants. NECIGEF was established following the Wet
Giraal Effectenverkeer (Securities Giro Administration and Transfer Act)
published in The Netherlands in 1977, and is under the supervision of the Dutch
Minister of Finance. Participants in NECIGEF are banks and brokers registered as
credit institutions. Under the operation of the Securities Giro Administration
and Transfer Act, book-entry transfers are made between the collective
securities deposits held by NECIGEF (immobilized).
Euroclear and Cedel
Euroclear and Cedel hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel provide to their participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Euroclear and Cedel interface with United States domestic securities markets.
Euroclear and Cedel participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations and include certain of the Underwriters. Indirect access to
Euroclear or Cedel is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Euroclear or Cedel participant either directly or indirectly.
Initial Settlement
Investors electing to hold their New York Shares
through DTC will follow the settlement practices applicable to
U.S. corporate common shares. The securities custody accounts
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of investors will be credited with their holdings against pay-
ment of U.S. dollars in same-day funds on the settlement date.
Investors electing to hold their Bearer Shares through an account
with NECIGEF ("NECIGEF Holders"), Euroclear accounts ("Euroclear Holders") or
Cedel accounts ("Cedel Holders") will follow the settlement procedures
applicable to settlement of common shares in the respective clearing system.
Such Bearer Shares will be credited to the securities custody accounts of
NECIGEF Holders on the settlement date against payment in same-day funds, of
Euroclear Holders on the business day following the settlement date against
payment for value on the settlement date and of Cedel Holders on the settlement
date against payment in same-day funds. All such payments will be made in Dutch
guilders.
Secondary Market Trading
For purposes of secondary market trading, the Common Shares will be
priced in dollars on the New York Stock Exchange and in guilders on the
Amsterdam Stock Exchange.
Because the purchaser determines the place of delivery, it is
important to establish at the time of trading of any New York Shares where both
the purchaser's and seller's accounts are located to ensure that settlement can
be made on the desired value date.
Trading between DTC participants. Secondary market trading between
DTC participants is settled using the procedures applicable to U.S. corporate
common shares in same-day funds.
Trading between Euroclear and/or Cedel participants. Secondary
market trading between Euroclear participants and/or Cedel participants is
settled using the procedures applicable to common shares in same-day funds.
Trading between NECIGEF Participants. Secondary market trading
between NECIGEF participants is settled using the procedures applicable to
Bearer Shares in same-day funds.
Transfers of Shares from DTC to NECIGEF (including Euroclear and
Cedel). Upon a request to the New York Transfer Agent and Registrar to transfer
or exchange New York Shares for Bearer Shares or Common Shares booked on the
Amsterdam Register, the New York Transfer Agent and Registrar will cancel
certificates representing the appropriate number of New York Shares (including
New York Shares registered in the name of Cede & Co. if such New York Shares are
held in DTC) and
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appropriately adjust its register. The New York Transfer Agent and Registrar
will then instruct the Dutch Transfer and Paying Agent to deliver a Bearer Share
certificate representing the same number of Common Shares or to cause the Common
Shares to be booked in the Amsterdam Register. Bearer Share certificates in the
form of CF-certificates must remain deposited with an authorized custodian and
may only be transferred through the book-entry system of NECIGEF. If the
transferee/owner elects to hold directly through NECIGEF or indirectly through
Euroclear and Cedel, the Dutch Transfer and Paying Agent will notify the
respective custodians of NECIGEF, Euroclear or Cedel, as the case may be.
Participants of NECIGEF, Euroclear and Cedel should submit instructions
accordingly to receive delivery of Bearer Shares in accordance with the
respective systems' procedures.
Transfers from NECIGEF (including Euroclear and Cedel) to DTC. Upon
a request to the Dutch Transfer and Paying Agent to transfer or exchange Bearer
Shares for New York Shares, the Dutch Transfer and Paying Agent will cancel
certificates representing the appropriate number of Bearer Shares (including
shares held by the custodian through NECIGEF and indirectly Euroclear or Cedel
if such shares are held in the clearing systems). Holders should instruct their
custodian in NECIGEF to deliver Bearer Shares to the Dutch Transfer and Paying
Agent. If the transferor or exchanging holder holds directly through a
participant in NECIGEF or through Euroclear and Cedel, as the case may be, such
participant should submit instructions to effect transfer of the shares in
accordance with their procedures and the Dutch Transfer and Paying Agent will
instruct the New York Transfer Agent and Registrar to issue a certificate
representing New York Shares to the appropriate transferee/registered owner. The
New York Transfer Agent and Registrar will then issue a new certificate
registered in the name of the transferee/registered owner or Cede & Co., if the
transferee/registered owner elects to hold through DTC and to appropriately
adjust its register. If the transferee/registered owner elects to hold through
DTC, the New York Custodian will also notify DTC of the increase of the number
of New York Shares held through DTC and instruct DTC to have the exchanged or
transferred Shares credited to the appropriate account.
Under Dutch law, the transfer of registered Common Shares requires a
written instrument of transfer and written acknowledgment by the Issuer of such
transfer. In order to facilitate such transfers, the Issuer has provided the New
York Transfer Agent and Registrar and the Dutch Transfer and Paying Agent with
powers of attorney to enable execution and acknowledgment of the appropriate
documents to comply with Dutch law.
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Because of time-zone differences, the mechanics of registering
exchanges and transfers between the New York Transfer Agent and Registrar and
the Dutch Transfer Agent described above as well as the need for DTC, NECIGEF
and Euroclear and Cedel accountholders to comply with the respective systems'
rules and procedures, including their established deadlines, exchanges and
transfers of Common Shares between the New York Transfer Agent and Registrar and
the Dutch Transfer and Paying Agent may not be credited to the relevant account
at DTC, NECIGEF or Euroclear and Cedel, as the case may be, until two business
days following delivery of the instructions to transfer the Common Shares to the
respective system. Settlement between a holder of New York Shares transferred to
a transferee who will hold Bearer Shares or Common Shares booked on the
Amsterdam Register or a holder of Bearer Shares or Common Shares booked on the
Amsterdam Register transferred to a trans-feree who will hold New York Shares
cannot be made on a delivery versus payments basis. The arrangements for
transfer of payments must be established separately from the arrangements for
transfer of securities, the latter being effected on a free delivery basis. The
customary arrangements for delivery versus payments between DTC participants,
NECIGEF participants and Euroclear and Cedel accountholders are not affected.
Persons wishing to obtain physical delivery of share certificates in
respect of their Common Shares must make arrangements with the NECIGEF,
Euroclear or Cedel participant through which Bearer Shares are held or with
NECIGEF, Euroclear or Cedel, as the case may be, and pay all related costs and
taxes incurred. Similar arrangements will also need to be made with DTC or DTC
participants through which New York Shares are held and all related costs and
taxes incurred paid to obtain physical delivery of share certificates for New
York Shares. Delivery of share certificates in either case normally takes
between 30 and 45 days after the settlement date.
A fee of $.05 per share will be charged by the New York Transfer
Agent and Registrar for the exchange of New York Shares for Bearer Shares or for
Common Shares booked on the Amsterdam Register (and for the reverse).
Bearer Shares have been accepted for clearance through Euroclear and
Cedel under common code number . The International Securities Identification
Number for the Common Shares is . The CUSIP number and ISIN number for New York
Shares are and , respectively.
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TAXATION
The following is a summary of certain tax consequences in the United
States and in The Netherlands of the acquisition, ownership and disposition of
Common Shares under current law. It does not, however, discuss every aspect of
such taxation that may be relevant to a particular taxpayer under special
circumstances or who is subject to special treatment under applicable law, nor
does it address the income taxes imposed by any political subdivision of the
United States or The Netherlands or any tax imposed by any other jurisdiction.
Such discussion assumes that the Company is organized and its business is
conducted in the manner outlined in this Prospectus. The laws upon which such
discussion is based are subject to change, perhaps with retroactive effect.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE COMMON SHARES.
Netherlands Taxes
The following is a summary of the material Nether-lands tax
consequences to an owner of Common Shares who is not, or is not deemed to be, a
resident of The Netherlands for purposes of the relevant tax codes (a
"nonresident shareholder"). This discussion is based upon the advice of Loeff
Claeys Verbeke, Netherlands tax advisors of the Company. No assurance can be
given that tax authorities or courts in The Netherlands will agree with the
conclusions expressed herein.
Netherlands Dividend Withholding Tax
Dividend distributions by the Issuer are generally subject to
dividend withholding tax at a rate of 25%. These dividend distributions include
dividends in cash or in kind, constructive dividends, certain repayments of
capital qualified as dividends and liquidation proceeds in excess of, according
to Netherlands tax law, recognized paid-in capital. Stock dividends are also
subject to Netherlands dividend withholding tax unless they are distributed out
of the Issuer's paid-in capital as recognized for Netherlands tax purposes.
A nonresident shareholder may be eligible, however, for a reduction
or a refund of Netherlands dividend withholding tax under a tax convention,
which is in effect between the country of residence of the shareholder and The
Netherlands or based upon international conventions or regulations (e.g.,
European Community directives), provided certain conditions are met. The
Netherlands has concluded such tax conventions with,
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among others, most European countries (including the United Kingdom), the United
States, Canada and Japan.
Under most of these conventions (including the tax convention with
the United States) the recipient nonresident shareholder may benefit from a
reduced dividend withholding rate of 15% or less, unless the recipient
nonresident shareholder has a permanent establishment or a permanent
representative or a fixed base in The Netherlands to which or to whom the Common
Shares are attributable (in which case varying rates may apply).
Under the Tax Convention of December 18, 1992, concluded between The
Netherlands and the United States (the "U.S. Tax Treaty"), dividends paid by the
Issuer to a resident of the United States (other than an exempt organization or
exempt pension trust, as discussed below, or an individual who performs
independent personal services from a fixed base situated in The Netherlands if
the holding in respect of which the dividends are paid pertains to such fixed
base) are generally eligible for a reduction of the 25% Netherlands dividend
withholding tax to 15% or, in the case of certain U.S. corporate shareholders
beneficially owning the dividends and directly owning at least 10% of the voting
power of the Issuer, 5%, provided that such shareholder does not have an
enterprise or an interest in an enterprise that is, in whole or in part, carried
on through a permanent establishment or permanent representative in The
Netherlands and to which enterprise or part of an enterprise the Common Shares
are attributable. The U.S. Tax Treaty provides for a complete exemption for
dividends received by exempt pension trusts and exempt organizations, as defined
therein. Except in the case of exempt organizations, such reduced dividend
withholding rate (or exemption from withholding) can be applied at the source
upon payment of the dividends, provided that the proper forms have been filed in
advance of the payment. Exempt organizations remain subject to the statutory
withholding rate of 25% and are required to file for a refund of such
withholding.
A person may not claim the benefits of the U.S. Tax Treaty unless
(i) it is a resident of the United States, as defined therein and (ii) such
person's entitlement to such benefits is not limited by the provisions of
article 26 ("limitation on benefits") of the U.S. Tax Treaty.
No Netherlands dividend withholding tax applies on the sale or other
disposition of Common Shares to persons other than the Company or its direct and
indirect subsidiaries.
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Netherlands Income Tax and Corporate Income Tax
In general, a nonresident shareholder will not be subject to
Netherlands income tax (other than the dividend withholding tax described above)
with respect to dividends distributed by the Issuer on the Common Shares or with
respect to any gain derived from the sale or other disposition of Common Shares,
provided that:
(i) such shareholder is neither resident nor deemed
to be resident in The Netherlands;
(ii) such shareholder does not carry on a business in The
Netherlands through a permanent establishment or a permanent
representative or a fixed base to which or to whom the Common
Shares are attributable; and
(iii) such shareholder does not have a substantial interest or a
deemed substantial interest, as defined under the laws of The
Netherlands, in the Issuer, or if such shareholder does have
such an interest, it forms part of the assets of a business.
In general, a nonresident shareholder has a substantial interest in
the Issuer if such shareholder, alone or together with his or her spouse, owns,
directly or indirectly, at least 5% of the issued capital of any class of shares
in the capital of the Issuer. There are various situations in which a
nonresident shareholder may have a deemed substantial interest in the Issuer,
e.g., a deemed substantial interest may exist if the nonresident person has
option rights over at least 5% of the issued capital of any class of shares in
the capital of the Issuer. The above does not cover all possible situations
where a substantial interest or a deemed substantial interest may exist. If
there is any doubt whether the "substantial interest" regulations may apply,
each prospective investor should consult his or her tax advisor regarding the
tax consequences.
As a general rule, under a tax convention which is in effect between
the country of residence of the nonresident shareholder and The Netherlands,
such nonresident shareholder may benefit from treaty protection against
Netherlands income tax under the "substantial interest" regulations on any gains
from the alienation of Common Shares, depending on the contents of the specific
tax convention and provided that certain conditions are met.
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Netherlands Net Wealth Tax
A nonresident shareholder who is an individual is not subject to
Netherlands net wealth tax with respect to the Common Shares, provided that the
nonresident shareholder does not carry on a business in The Netherlands through
a permanent establishment or a permanent representative to which or to whom the
shares are attributable. Corporations are not subject to Netherlands net wealth
tax.
Netherlands Gift and Inheritance Tax
No Netherlands gift or inheritance tax arises as a result of a gift
of the Common Shares by, or the transfer of the Common Shares at the death of, a
shareholder who is neither resident nor deemed to be resident of The
Netherlands, unless the Common Shares are attributable to a permanent
establishment or a permanent representative of the shareholder in The
Nether-lands. An individual of Netherlands nationality is deemed to be a
resident of The Netherlands, for the purposes of Nether-lands gift and
inheritance tax, if he or she has been a Nether-lands resident at any time
during the ten years preceding the time of the gift or death. A person not
possessing Netherlands nationality is deemed to be a resident of The
Netherlands, only for the purposes of Netherlands gift tax, if he or she has
been residing in The Netherlands at any time during the 12 months preceding the
time of the gift.
United States Federal Income Taxes
The following is a summary of the material United States federal
income tax consequences of the acquisition, ownership and disposition of Common
Shares under present United States law which is expected to be generally
applicable. It does not, however, discuss every aspect of United States federal
income taxation that may be relevant to a particular taxpayer under special
circumstances or who is subject to special treatment under United States federal
income tax laws. Except as noted to the contrary, statements of legal conclusion
regarding tax effects in this section are based upon an opinion which the
Company has received from Cahill Gordon & Reindel, United States counsel to the
Company. No assurance can be given that the Internal Revenue Service or the
courts in the United States will agree with the conclusions expressed herein.
Dividends
The gross amount of distributions (including any Netherlands
withholding tax thereon) received with respect to one or more Common Shares by a
citizen or resident of the
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United States, by a corporation which is organized in the United States or by a
person who is otherwise subject to United States federal income tax on a net
income basis with respect to such Common Shares (a "U.S. Holder") are dividends
taxable in the United States as ordinary income to the extent of the current and
accumulated earnings and profits of the Issuer, as determined under U.S. federal
income tax principles. These dividends are not eligible for the dividends
received deduction which is generally allowed to United States corporate
shareholders on dividends which are received from a U.S.
corporation.
Distributions in excess of the current and accumulated earnings and
profits of the Issuer will be treated first as nontaxable returns of capital to
the extent of such U.S. Holder's adjusted tax basis in the Common Shares, and
any such distribution in excess of such basis will constitute gain, which gain
will be capital gain if the Common Shares are held as capital assets.
The amount of income recognized upon the receipt of guilders as a
dividend will be the U.S. dollar value of the guilders on the date of
distribution, regardless of whether the U.S. Holder converts the payment into
U.S. dollars. Gain or loss, if any, recognized by a U.S. Holder on the sale or
disposition of guilders will be ordinary income or loss.
Subject to certain conditions and limitations, Neth-erlands taxes
withheld in accordance with the U.S. Tax Treaty will be treated as a foreign tax
that U.S. Holders may elect to deduct in computing their U.S. federal taxable
income or credit against their U.S. federal income tax liability. Additional
withholding tax, if any, in excess of the rate applicable under the U.S. Tax
Treaty generally will not be eligible for credit against the U.S. Holder's U.S.
federal income tax liability. For foreign tax credit purposes, dividends paid by
the Issuer (except in very limited situations) will be foreign source "passive
income" or, in the case of certain U.S. Holders, "financial services income."
For foreign tax credit purposes, it is likely that, following the
Offering, 50% or more of the Common Shares will be treated as directly or
indirectly owned by U.S. persons. If so and if ten percent or more of the
Issuer's earnings and profits, as calculated under U.S. federal income tax
principles, for any taxable year were attributable to sources within the United
States, a portion of any dividends paid by the Issuer could be recharacterized
as U.S. source income for foreign tax credit purposes. In such a case, it may
not be possible for U.S. Holders to claim the full amount of any
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Netherlands withholding tax as a credit against their U.S. fed-
eral income tax liability.
Sale or Other Disposition of Common Shares
A U.S. Holder will generally recognize gain or loss for United
States federal income tax purposes upon the sale or other disposition of Common
Shares in an amount equal to the difference between the amount realized from
such sale or other disposition and the U.S. Holder's tax basis for such Common
Shares. Such gain or loss will be a capital gain or loss if the Common Shares
are held as a capital asset and will be long-term capital gain or loss if such
U.S. Holder's holding period for the Common Shares is more than one year. Under
most circumstances, any gain from the sale or other disposition of the Common
Shares will be treated as U.S. source income for foreign tax credit purposes.
Gain that is recognized upon a sale or other disposition of Common
Shares by a person who is not a U.S. Holder with respect to such Common Shares
will not be subject to income tax in the United States unless such person is an
individual who is present in the United States for 183 days or more during his
or her taxable year in which such sale or other disposition occurred and either
the income from the disposition is attributable to an office or other fixed
place of business maintained by such individual in the United States or such
individual has a tax home, as defined in Section 911(d)(3) of the Code, in the
United States during such taxable year.
Foreign Personal Holding Company Classification
The Issuer or any of its non-U.S. subsidiaries could be classified
as a foreign personal holding company ("FPHC") if in any taxable year five or
fewer individuals who are U.S. citizens or residents own (directly or
constructively through certain attribution rules) more than 50% of the voting
power or the value of the outstanding Common Shares. Classification as an FPHC
would generally result in each U.S. shareholder who held Common Shares on the
last day of the taxable year of the Issuer having to include in gross income as
a dividend such shareholder's pro rata portion of undistributed income of the
Issuer and of any non-U.S. subsidiaries that are also FPHCs. The Issuer has been
advised by an officer of Praxair that Praxair's shares are held primarily by
large institutional investors, such as banks, insurance companies, pension funds
and corporate investors, and that, to the best of his knowledge and belief, five
or fewer United States citizens or residents do not own more than 50% of the
vote or value of the shares of Praxair. Based upon such information, the Issuer
believes that
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at the time of the Common Share Offering, it will not be an
FPHC.
Controlled Foreign Corporation Classification
Given the Selling Shareholder's continued ownership, the Company may
be classified as a controlled foreign corporation if any other United States
person acquires 10% or more of the shares of the Issuer (including ownership
through the attribution rules of Section 958 of the Code) and the sum of the
percentage ownership by all such persons and the percentage ownership by the
Selling Shareholder (and its affiliates) exceeds 50% (by voting power or value)
of the Issuer's stock. In that event, all U.S. Holders of 10% or more of the
Common Shares will be subject to taxation under Subpart F of the Code, including
possible taxation of such U.S. Holders based on certain income of the Issuer
even in the absence of distributions of such income by the Issuer.
Back-up Withholding and Information Reporting
Information reporting may apply to certain dividends on the Common
Shares and to the proceeds of sale of the Common Shares paid to U.S. Holders
other than certain exempt recipients (such as corporations). A 31% back-up
withholding tax (which is a refundable credit against the otherwise applicable
tax) may apply to such payments if the U.S. Holder fails to provide an accurate
taxpayer identification number or certification of exempt status.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Common Share Offering, the
Issuer will have outstanding Common Shares, including
Common Shares owned by the Selling Shareholder ( if the Underwriters'
over-allotment option is exercised in full) and shares reserved for issuance
upon exercise of outstanding stock options. Of these shares, the Common Shares
sold in the Common Share Offering ( if the Underwriters' over-allotment option
is exercised in full) will be freely tradeable without restrictions or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" (as that term is defined in Rule 144 under the Securities Act ("Rule
144")) of the Company, which will be subject to the resale limitations of Rule
144 under the Securities Act.
The Common Shares that the Selling Shareholder will hold upon
completion of the Common Share Offering ( if the Underwriters' over-allotment
option is exercised in full), up to Common Shares that may be issu-able to
directors of the Issuer, the Management Plan Shares as described under
"Management -- Compensation and Benefits -- Special Stock-Based, Long-Term
Compensation Related to the Common Share Offering" and any Common Shares
purchased by affiliates may be sold by the respective holders thereof only
pursuant to an effective registration statement under the Securities Act,
pursuant to Rule 144 under the Securities Act or in accordance with an exemption
under the Securities Act.
In general, under Rule 144 as currently in effect, a person
(including the "affiliate") who beneficially owns shares that are "restricted
securities" as to which at least two years have elapsed since the later of the
date of acquisition of such securities from the issuer or the acquisition from
an affiliate of the issuer, and any affiliate who owns shares that are not
"restricted securities," is entitled to sell, within any three-month period, a
number of shares that does not exceed (together with sale by other persons
required to be aggregated) the greater of 1% of the then outstanding Common
Shares (approximately shares following completion of the Common Share Offering)
or the average weekly trading volume in the Common Shares in composite trading
on all exchanges during the four calendar weeks preceding such sale. A person
(or persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company and who has beneficially owned restricted securities as to which at
least three years have elapsed since the later of the date of the acquisition of
such securities from the issuer or the acquisition from an affiliate of the
issuer is entitled to sell such shares under Rule 144 without regard to the
volume
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limitations described above. The foregoing summary of Rule 144
is not intended to be a complete description thereof.
The Issuer has granted registration rights to Praxair pursuant to
which Praxair has certain rights to demand registrations of the Common Shares
held by the Selling Shareholder (or its transferee) at the Issuer's expense as
well as the right to include such shares in registration statements filed by the
Issuer.
Prior to the Common Share Offering, there has been no public market
for the Common Shares, and no prediction can be made as to the effect, if any,
that market sales of Common Shares, or the availability of such shares for sale,
will have on the market price of the Common Shares prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Shares in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Shares. In connection with the Common
Share Offering, subject to certain exceptions, the Issuer, the Selling
Shareholder and each of its directors and executive officers have agreed not to
sell, grant any option to sell or otherwise dispose of, directly or indirectly,
any Common Shares or securities convertible into or exercisable for Common
Shares or warrants or other rights to purchase Common Shares or permit the
registration of Common Shares for a period of 180 days after the date of this
Prospectus without the prior consent of Credit Suisse First Boston Corporation.
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UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated , 1997 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom Credit Suisse First
Boston Corporation, Goldman, Sachs & Co., Smith Barney Inc. and UBS Securities
LLC are acting as representatives (the "Representatives"), have severally but
not jointly agreed to purchase from the Selling Shareholder the following
respective numbers of U.S. Shares:
Number of
Underwriter U.S. Shares
----------- -----------
Credit Suisse First Boston Corporation.............
Goldman, Sachs & Co. ..............................
Smith Barney Inc. .................................
UBS Securities LLC ................................
-----------
Total......................................... ___________
The U.S. Underwriting Agreement provides that the obligations of the
U.S. Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The Issuer and the Selling Shareholder have entered into a
Subscription Agreement (the "Subscription Agreement") with the Managers of the
International Offering (the "Managers") providing for the concurrent offer and
sale of the International Shares outside the United States and Canada. The
closing of the U.S. Offering is a condition to the closing of the International
Offering and vice versa.
The Selling Shareholder has granted to the U.S. Underwriters and the
Managers an option, exercisable by Credit Suisse First Boston Corporation,
expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to additional shares at the initial public offering
price, less the underwriting discounts and commissions, all as set forth on the
cover page of this Prospectus. Such option may be exercised only to cover
over-allotments, if
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any, in the sale of the Common Shares offered hereby. To the extent that this
option to purchase is exercised, each U.S. Underwriter and each Manager will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of shares being sold to the U.S. Underwriters and the Managers
as the number of U.S. Shares set forth next to such U.S. Underwriter's name in
the preceding table and as the number set forth next to such Manager's name in
the corresponding table in the prospectus relating to the International Offering
bears to the sum of the total number of Common Shares in such tables.
The Company and the Selling Shareholder have been advised by the
Representatives that the U.S. Underwriters propose to offer the U.S. Shares in
the United States and Canada to the public initially at the offering price set
forth in the cover page of this Prospectus and, through the Representatives, to
certain dealers at such price less a concession of $ per share, and the U.S.
Underwriters and such dealers may allow a discount of $ per share on sales to
certain other dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
Representatives.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Common Share Offerings, changes in
the public offering price, concession and discount to dealers will be made only
upon the mutual agreement of Credit Suisse First Boston Corporation, as
representative of the U.S. Underwriters, and Credit Suisse First Boston Limited
("CSFBL"), on behalf of the Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S.
Underwriters has agreed that, as part of the distribution of the U.S. Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any Common Shares or distribute any prospectus
relating to the Common Shares to any person outside the United States or Canada
or to any other dealer who does not so agree. Each of the Managers has agreed or
will agree that, as part of the distribution of the International Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any Common Shares or distribute any prospectus
relating to the Common Shares in the United States or Canada or to any other
dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the U.S. Underwriters
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and the Managers pursuant to the Intersyndicate Agreement. As used herein,
"United States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension, profit
sharing or other trust or other entity (including any such entity acting as an
investment adviser with discretionary authority) whose office most directly
involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between
the U.S. Underwriters and the Managers of such number of Common Shares as may be
mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by Credit Suisse
First Boston Corporation, as representative of the U.S. Underwriters, and CSFBL,
on behalf of the Managers, but not exceeding the selling concession applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement, the number of Common
Shares initially available for sale by the U.S. Underwriters or by the Managers
may be more or less than the amount appearing on the cover page of this
Prospectus. Neither the U.S. Underwriters nor the Managers are obligated to
purchase from the other any unsold Common Shares.
The Company, certain of its officers and directors, the Selling
Shareholder and certain other shareholders have agreed (subject to certain
exceptions) that they will not offer, sell, contract to sell, announce an
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file or cause to be filed with the Securities and Exchange Commission a
registration statement under the Securities Act relating to, any Common Shares
or securities or other rights convertible into or exchangeable or exercisable
for any Common Shares, without the prior written consent of Credit Suisse First
Boston Corporation, for a period of 180 days after the date of this Prospectus.
The Company and the Selling Shareholder have agreed to indemnify the
U.S. Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the U.S.
Underwriters and the Managers may be required to make in respect thereof.
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At the request of the Company, the U.S. Underwriters and the
Managers have reserved up to Common Shares for sale at the initial offering
price to certain directors, officers and employees (current or former) of the
Company and its subsidiaries. The number of Common Shares available to the
general public will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares that are not so purchased by such persons at the
closing of the Common Share Offerings will be offered by the U.S. Underwriters
and the Managers to the general public on the same terms as the other shares
offered by this Prospectus.
The Representatives and the Managers have informed the Company and
the Selling Shareholder that they do not expect discretionary sales by the U.S.
Underwriters and the Managers to exceed 5% of the number of Common Shares
offered hereby.
The Issuer intends to apply to list the Common Shares on the New
York Stock Exchange. The Issuer intends to apply to list the Common Shares in
bearer form on the Official Market of the Amsterdam Stock Exchange. To satisfy
one of the requirements for listing of the Common Shares on the New York Stock
Exchange, the Underwriters have undertaken to sell lots of 100 or more Common
Shares to a sufficient number of persons to establish a minimum of 2,000 round
lot beneficial holders after the Common Share Offering.
Prior to the Common Share Offerings, there has been no public market
for the Common Shares. The initial public offering price for the Shares will be
determined by negotiations among the Company, the Selling Shareholder and the
Representatives. In determining such price, consideration will be given to
various factors, including market conditions for initial public offerings, the
history of and prospects for the Company's business, the Company's past and
present operations, its past and present earnings and current financial
position, an assessment of the Company's management, the market of securities of
companies in businesses similar to those of the Company, the general condition
of the securities markets and other relevant factors. There can be no assurance
that the initial public offering price will correspond to the price at which the
Common Shares will trade in the public market subsequent to the Common Share
Offerings or that an active trading market for the Common Shares will develop
and continue after the Common Share Offerings.
Certain of the U.S. Underwriters and Managers have from time to time
performed, and continue to perform financial advisory, investment banking and
commercial banking services to
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the Company or Praxair, for which customary compensation has
been received.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Shares in Canada is being made only
on a private placement basis exempt from the requirements that the Issuer
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Shares are effected. Accordingly, any resale
of the Common Shares in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Common Shares.
Representations of Purchasers
Each purchaser of Common Shares in Canada who receives a purchase
confirmation will be deemed to represent to the Issuer, the Selling Shareholder
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Common Shares without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
Rights of Action and Enforcement
The securities being offered are those of a foreign issuer and
Ontario purchasers will not receive the contractual right of action prescribed
by section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts
named herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of the
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issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada.
Notice of British Columbia Residents
A purchaser of Common Shares to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Shares acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Issuer. Only
one such report must be filed in respect of Common Shares acquired on the same
date and under the same prospectus exemption.
LEGAL MATTERS
Certain legal matters in connection with the offering made hereby
will be passed upon for the Issuer by Cahill Gordon & Reindel, a partnership
including a professional corporation, New York, New York. The validity of the
Common Shares offered hereby is being passed upon for the Issuer by Loeff Claeys
Verbeke, Amsterdam, The Netherlands. Certain legal matters in connection with
the Common Shares being offered hereby will be passed upon for the Underwriters
by Dewey Ballantine, New York, New York. Cahill Gordon & Reindel has also
provided certain legal services to Praxair and its affiliates in connection with
the Common Share Offering and has represented and will continue to represent
Praxair and its affiliates in various other matters.
EXPERTS
The financial statements of the Company, as of December 31, 1995 and
1994 and for each of the three fiscal years in the period ended December 31,
1995, and the balance sheet of Chicago Bridge & Iron Company N.V. as of November
22, 1996, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
audit-ing in giving said reports.
Arthur Andersen LLP is located at 33 West Monroe Street, Chicago, IL
60603.
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AVAILABLE INFORMATION
The Issuer has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-1 under the Securities
Act, with respect to the Common Shares offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved.
After consummation of the Common Share Offering, the Issuer will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and, in accordance therewith, will file reports, proxy and
information statements and other information with the Commission. Such reports,
proxy and information statements and other information and the Registration
Statement and exhibits and schedules thereto filed by the Issuer with the
Commission can be inspected and copied at the Public Reference section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, 15th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference section of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (http://www.sec.gov).
The Issuer will also comply with its obligations under the law of
The Netherlands to prepare annual financial statements complying with
Netherlands corporate law and deposit the same at the Commercial Register of the
Chamber of Commerce and Industry in Amsterdam, The Netherlands.
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
The Issuer is a Netherlands company and a substantial portion of its
assets are located outside the United States. In addition, certain members of
the Management and Supervisory Boards of the Issuer are residents of countries
other than the United States. The Company has been advised by its Netherlands
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counsel, Loeff Claeys Verbeke, that as a result, it may not be possible for
investors to effect service of process within the United States upon such
persons or to enforce against such persons or the Issuer judgments of courts of
the United States predicated upon civil liabilities under the United States
federal securities laws. Since there is no treaty between the United States and
The Netherlands providing for the reciprocal recognition and enforcement of
judgments, United States judgments are not automatically enforceable in The
Netherlands. However, a final judgment for the payment of money obtained in a
United States court and not rendered by default, which is not subject to appeal
or any other means of contestation and is enforceable in the United States,
would in principle be upheld and be regarded by a Netherlands court of competent
jurisdiction as conclusive evidence when asked to render a judgment in
accordance with such final judgment by a United States court, without
substantive re-examination or relitigation on the merits of the subject matter
thereof, provided that such judgment has been rendered by a court of competent
jurisdiction, in accordance with rules of proper procedure, that it has not been
rendered in proceedings of a penal or revenue nature and that its content and
possible enforcement are not contrary to public policy or public order of The
Netherlands. Notwithstanding the foregoing, there can be no assurance that
United States investors will be able to enforce against the Issuer, or members
of the Management or Supervisory Boards, or certain experts named herein who are
residents of either The Netherlands or countries other than the United States,
any judgments in civil and commercial matters, including judgments under the
federal securities laws. In addition, there is doubt as to whether a
Nether-lands court would impose civil liability on the Issuer or on the members
of the Management or Supervisory Boards in an original action predicated solely
upon the federal securities laws of the United States brought in a court of
competent jurisdiction in The Netherlands against the Issuer or such members.
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CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements (Pre-Praxair Acquisition):
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Income Statements for the Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Interim Unaudited Consolidated Financial Statements (Post-Praxair Acquisition,
except where noted):
Consolidated Balance Sheet as of September 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . F-25
Consolidated Income Statements for the Nine Months Ended September 30, 1996
(unaudited) and September 30, 1995 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Consolidated Statement of Changes in Shareholder's Equity for the Nine Months Ended September 30, 1996
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996
(unaudited) and September 30, 1995 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Chicago Bridge & Iron Company:
We have audited the accompanying consolidated balance sheets of CHICAGO BRIDGE &
IRON COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chicago Bridge & Iron Company
and Subsidiaries as of December 31, 1995 and 1994, and the results of its
operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
December 16, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
-----------------------------
ASSETS 1995 1994
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,850 $ 16,090
Accounts receivable 106,634 101,966
Contracts in progress with earned revenues 70,918 64,624
exceeding related progress billings
Assets held for sale 5,157 -
Deferred income taxes 7,369 14,003
Other current assets 14,617 13,300
-------- --------
Total current assets 217,545 209,983
Property and equipment 100,496 116,676
Assets held for sale 2,235 2,103
Deferred income taxes 28,405 22,903
Other non-current assets 7,444 8,247
-------- ---------
Total assets $356,125 $359,912
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Notes payable $ 1,777 $ 776
Accounts payable 20,389 23,948
Accrued liabilities 37,379 37,595
Contracts in progress with progress billings 47,660 41,579
exceeding related earned revenues
Income taxes payable - 7,272
-------- --------
Total current liabilities 107,205 111,170
Non-current liabilities 56,811 59,346
Minority interest in subsidiaries 5,602 6,295
-------- -------
Total liabilities 169,618 176,811
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 authorized shares; 1 1
1,000 issued and outstanding in 1995 and 1994
Additional paid-in capital 185,493 185,493
Retained earnings 159,672 185,278
Advances to Parent Company (142,786) (173,797)
Cumulative translation adjustment (15,873) (13,874)
Total shareholder's equity 186,507 183,101
-------- --------
Total liabilities and shareholder's equity $356,125 $359,912
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-3
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED INCOME STATEMENTS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $621,938 $762,803 $680,541
Cost of revenues 614,230 692,266 630,978
Gross profit 7,708 70,537 49,563
Selling and administrative expenses 43,023 45,503 44,193
Special charges 5,230 16,990 22,900
Gain on sale of assets (10,030) (11,360) (118)
Income (loss) from operations (30,515) 19,404 (17,412)
Interest expense (799) (180) (298)
Other income 1,191 1,652 3,056
Income (loss) before taxes and minority interest (30,123) 20,876 (14,654)
Income tax expense (benefit) (8,093) 3,074 (6,080)
Income (loss) before minority interest (22,030) 17,802 (8,574)
Minority interest in income 3,576 1,359 1,247
Net income (loss) ($25,606) $16,443 ($9,821)
======== ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(in thousands)
Additional Advances Cumulative Total
Common Paid-in Retained to Parent Translation Shareholder's
Stock Capital Earnings Company Adjustment Equity
----------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $1 $185,493 $178,656 $(129,313) $(12,810) $222,027
Net loss - - (9,821) - - (9,821)
Translation adjustment - - - - 5 5
Advances (to) / from Parent Company - - - 5,020 - 5,020
-------- ----------- ------------ ------------ ------------- -----------
Balance at December 31, 1993 1 185,493 168,835 (124,293) (12,805) 217,231
Net income - - 16,443 - - 16,443
Translation adjustment - - - - (1,069) (1,069)
Advances (to) / from Parent Company - - - (49,504) - (49,504)
-------- ----------- ------------ ------------ ------------- -------------
Balance at December 31, 1994 1 185,493 185,278 (173,797) (13,874) 183,101
Net loss - - (25,606) - - (25,606)
Translation adjustment - - - - (1,999) (1,999)
Advances (to) / from Parent Company - - - 31,011 - 31,011
-------- ----------- ------------ ------------ ------------- -------------
Balance at December 31, 1995 $1 $185,493 $159,672 $(142,786) $(15,873) $186,507
======== ========= ========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $(25,606) $16,443 $(9,821)
Adjustments to reconcile net income to net cash provided by
operating activities:
Special Charge 1,850 - 6,000
Depreciation 16,077 15,569 16,178
(Increase)/decrease in deferred income taxes 1,132 1,079 (12,565)
Gain on sale of fixed assets (10,030) (4,360) (118)
Change in working capital accounts (see below) (22,574) 9,716 (31)
----------- ----------- -------------
Net Cash Provided by / (Used in) Operating Activities (39,151) 38,447 (357)
----------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets and investments 16,434 29,889 9,446
Capital expenditures (14,880) (18,772) (19,232)
Increase/(decrease) in equity in unconsolidated affiliates 1,352 (2,720) (3,017)
Increase in other 993 5,654 1,039
----------- ----------- -------------
Net Cash Provided by / (Used in) Investing Activities 3,899 14,051 (11,764)
----------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance (to)/from Parent Company 31,011 (49,504) 5,020
Increase/(decrease) in notes payable 1,001 (238) (2,358)
----------- ----------- -------------
Net Cash Provided by / (Used in) Financing Activities 32,012 (49,742) 2,662
----------- ----------- -------------
Increase/(decrease) in cash & cash equivalents (3,240) 2,756 (9,459)
Cash and cash equivalents, beginning of the year 16,090 13,334 22,793
=========== =========== =============
Cash and cash equivalents, end of the year $12,850 $16,090 $13,334
=========== =========== =============
CHANGE IN WORKING CAPITAL ACCOUNTS:
(Increase)/decrease in receivables, net $(4,770) $27,628 $(11,595)
(Increase)/decrease in contracts in progress, net (213) (10,416) 19,482
(Increase)/decrease in other current assets 1,731 (2,259) (131)
Decrease in accounts payable & accrued liabilities (6,310) (1,753) (2,741)
Increase/(decrease) in income tax payable/prepaid income taxes (10,320) 2,535 (6,060)
Increase/(decrease) other (2,692) (6,019) 1,014
----------- ----------- -------------
Total $(22,574) $9,716 $(31)
----------- ----------- -------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $829 $30 $298
Cash paid for income taxes $2,936 $7,137 $8,701
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-6
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(in thousands)
1. Organization and Nature of Operations:
Chicago Bridge & Iron Company and Subsidiaries ("the Company") is a global
engineering and construction company specializing in the engineering and design,
procurement, fabrication, erection, repair and modification of steel tanks,
other steel plate structures and associated systems such as petroleum terminals,
refinery pressure vessels, low temperature and cryogenic storage facilities and
elevated water storage tanks. The Company believes it is the leading provider of
field erected steel tanks and other steel plate structures, associated systems
and related services in North America and one of the leading providers of these
specialized products and services in the world. The Company seeks to maintain
its leading industry position by focusing on using its technological expertise
in design, metallurgy and welding, along with its ability to complete
logistically and technically complex metal plate projects virtually anywhere in
the world. The Company has been continuously engaged in the engineering and
construction industry since its founding in 1889.
The worldwide petroleum and petrochemical industry has been the largest sector
of the Company's revenues. Numerous factors influence capital expenditure
decisions in this industry which are beyond the control of the Company.
Therefore, no assurance can be given that the Company's business, financial
condition and results of operations will not be adversely effected because of
reduced activity in the petroleum and petrochemical industry.
During the periods and as of the dates for which the financial statements are
presented, the Company is a wholly owned subsidiary of Chi Bridge Holdings,
Inc., which in turn was a wholly owned subsidiary of CBI Industries, Inc.
("Industries"). On January 12, 1996, pursuant to the merger agreement dated
December 22, 1995, Industries became a subsidiary of Praxair, Inc. ("Praxair").
This merger transaction was reflected in the Company's consolidated financial
statements as a purchase effective January 1, 1996 ("Merger Date"). Accordingly,
the historical information provided for the periods prior to January 1, 1996
("Pre-Praxair Acquisition") will not be comparable to subsequent financial
information ("Post-Praxair Acquisition"). In December 1996, Praxair intends to
merge Industries into and with Praxair, with no consequences to the Company's
financial statements.
The accompanying financial statements include selected entities which are
involved in the engineering and construction specialities of the Company and do
not include certain service related subsidiaries which are involved in unrelated
businesses. The assets, liabilities, revenues and expenses attributable to these
entities are recorded net in the Advance to Parent Company caption of
shareholder's equity. These service related subsidiaries are being held for sale
by Praxair.
The fair value assigned to the Company as of the Merger Date was $150,000,
excluding any bank or assumed debt ("Merger Value"). This Merger Value
approximates the portion of the total Industries purchase price that relates to
the Company. The allocation of this Merger Value to the fair value of individual
assets and liabilities is based on preliminary estimates of fair value and may
be revised at a later date. The preliminary allocation of this fair value
resulted in the following opening balance sheet:
F-7
<PAGE>
<TABLE>
<CAPTION>
Historical Purchase Opening
Balance Sheet Accounting Balance Sheet
December 31, 1995 Adjustments January 1, 1996
(Pre-Praxair) Increase/(Decrease) (Post-Praxair)
------------------- ------------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $12,850 $ $12,850
-
Accounts receivable 106,634 4,095 (A) 110,729
Contracts in progress 70,918 - 70,918
Assets held for sale 5,157 4,374 (B) 9,531
Deferred income taxes 7,369 (5,507) (C) 1,862
Other current assets 14,617 (192) (A) 14,425
------------------- ---------------- ------------------
Total current assets 217,545 2,770 220,315
Property and equipment 100,496 4,307 (B) 104,803
Assets held for sale 2,235 7,527 (B) 9,762
Deferred income taxes 28,405 (28,405) (C) -
Goodwill - 19,515 (D) 19,515
Other non-current assets 7,444 3,238 (A) 10,682
------------------- ---------------- ------------------
Total Assets $356,125 $8,952 $365,077
======== ====== ========
LIABILITIES & SHAREHOLDER'S EQUITY
LIABILITIES
Contracts in progress $47,660 $3,153 (A) $50,813
Other current liabilities 59,545 5,048 (E) 64,593
Long-term debt to Parent Company - 55,000 (F) 55,000
Other non-current liabilities 62,413 37,258 (E) 99,671
------------------- ---------------- ------------------
Total liabilities 169,618 100,459 270,077
SHAREHOLDER'S EQUITY
Common stock 1 - 1
Additional paid-in capital 185,493 52,292 (A) 237,785
Retained earnings 159,672 (159,672) (G) -
Advances to Parent Company (142,786) - (142,786)
Cumulative translation adjustment (15,873) 15,873 (G) -
------------------- ---------------- ------------------
Total shareholder's equity $186,507 (91,507) $95,000
Total liabilities & shareholder's equity $356,125 $8,952 $365,077
======== ====== ========
</TABLE>
Description of Purchase Accounting Adjustments:
(A) To record other estimated fair value and purchase accounting adjustments.
(B) To record estimated fair value of property, equipment and assets held for
sale and to reclassify certain assets from property to assets held for
sale.
(C) To write off $36,231 of U.S. deferred tax assets not realizable on a
stand-alone company basis and to reclassify $2,319 of foreign deferred
tax liabilities.
(D) To record goodwill which will be amortized over 40 years.
(E) Relates primarily to recognition of the unamortized portion of actuarial
gains and losses and other adjustments relating to the Company's defined
benefit and postretirement plans and the recognition of severance for
personnel reductions.
(F) To record the assumption of Praxair acquisition related debt in the
Company's financial statements.
(G) To eliminate historical retained earnings and cumulative translation
adjustment.
F-8
<PAGE>
2. Significant Accounting Policies:
Basis of Consolidation
The consolidated financial statements include all significant subsidiaries where
control exists and are attributable to the Company's continuing operations.
Significant intercompany balances and transactions are eliminated in
consolidation. Investments in non-majority owned affiliates are accounted for by
the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities. Management is also
required to make judgments regarding the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
Revenues are recognized on the percentage of completion method. Earned revenue
is based on the percentage that incurred costs-to-date bear to total estimated
costs after giving effect to the most recent estimates of total cost. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the year in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed upon claim and
change order revenue, if any. Losses expected to be incurred on jobs in process,
after consideration of estimated minimum recoveries from claims and change
orders, are charged to income as soon as such losses are known. Progress
billings in accounts receivable are currently due and exclude retentions until
such amounts are due in accordance with contract terms. Cost of revenues include
direct contract costs such as material and construction labor, and indirect
costs which are attributable to contract activity.
Foreign Currency Translation and Exchange
The primary effects of foreign currency translation adjustments are recognized
in shareholders' equity as cumulative translation adjustment. Charges for
foreign currency exchange losses are included in the determination of income,
and were $974, $674 and $1,003 in 1995, 1994 and 1993, respectively.
Cash Equivalents
Cash equivalents are considered to be all highly liquid securities with original
maturities of three months or less.
F-9
<PAGE>
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-line
basis over their estimated useful lives: buildings and improvements, 10 to 40
years; plant and field equipment, 3 to 20 years. Renewals and betterments which
substantially extend the useful life of an asset are capitalized and
depreciated. Depreciation expense was $16,077, $15,569 and $16,178 for the years
ended December 31, 1995, 1994 and 1993, respectively.
The Company expects that there will be no material effect on its financial
position or results of operations resulting from the January 1, 1996 adoption of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
Assets Held for Sale
The Company separately classified several assets held for sale as of December
31, 1995 and 1994. These assets are valued at estimated realizable value and
were classified as current and non-current based on their expected selling date.
Financial Instruments
The Company uses various methods and assumptions to estimate the fair value of
each class of financial instrument. Due to their nature, the carrying value of
cash and temporary cash investments, accounts receivable and accounts payable
approximates fair value. The Company's other financial instruments are not
significant. For the years ended December 31, 1995, 1994 and 1993, the Company
recorded interest expense on notes payable and certain other liabilities.
Forward Contracts
The Company periodically uses forward contracts to hedge foreign currency assets
and foreign currency payments that the Company is committed to make in
connection with the normal course of its business. Gains or losses on forward
contracts designated to hedge a foreign currency transaction are included in the
measurement of income. At December 31, 1995, the Company had forward contracts,
which mature throughout 1996, for foreign currencies totaling $4,900. The fair
value of forward contracts approximated their carrying value in the financial
statements at December 31, 1995. The counterparties to the Company's forward
contracts are major financial institutions, which the Company continually
evaluates as to their creditworthiness. The Company has never experienced, nor
does it anticipate, nonperformance by any of its counterparties.
Research and Development
Expenditures for research and development activities, which are charged to
income as incurred, amounted to $2,474, $3,624 and $4,553 in 1995, 1994 and
1993, respectively.
F-10
<PAGE>
Pending Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation," which encourages, but does not
require, companies to recognize compensation expense for grants of common stock,
stock options and other equity instruments to employees based on new fair value
accounting rules. The Company does not expect to adopt the new rules and will
continue to apply the existing accounting rules contained in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Statement No. 123 requires companies to comply with certain disclosures about
stock-based employee compensation arrangements regardless of the method used to
account for them.
3. Transactions with Industries:
Related-party transactions with Industries not disclosed elsewhere in the
financial statements are as follows:
Revenues from Affiliates
The Company provides services to affiliates of Industries for the construction
and expansion of facilities and for certain repair and maintenance work. During
the years ended December 31, 1995, 1994 and 1993, the Company recorded revenues
from affiliates of $40,374, $104,045 and $42,843, respectively. Gross profit,
net of overhead costs, were $5,516, $9,422 and $6,358 for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company believes these
revenues and gross profits approximate those of similar services provided to
independent third parties.
Advances to Parent Company
Advances to Parent Company represent advances to Industries and its affiliates
from operating cash flows generated by the Company, net of cash received from
Industries and its affiliates to fund operating and investing activities.
The Advances to Parent Company have been included as a component of
shareholder's equity as such amounts are generally not due and payable, and as
the Advances to Parent Company will be eliminated as a part of the Company's
reorganization, as discussed in Note 12.
Corporate Services
Industries provided certain support services to the Company including legal,
finance, tax, human resources, information services, research and development
and risk management. These charges are allocated by Industries to the Company
based on various methods which reasonably approximate the actual costs incurred.
The allocations recorded by the Company for these corporate services in the
accompanying consolidated income statements were approximately $10,008, $11,599
and $11,303 for the years ended December 31, 1995, 1994 and 1993, respectively.
The amounts allocated by Industries are not necessarily indicative of the actual
costs which may have been incurred had the Company operated
F-11
<PAGE>
as an entity unaffiliated with Industries. However, the Company believes that
the allocation is reasonable and in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 55.
4. Uncompleted Contracts:
Contract terms generally provide for progress billings based on completion of
certain phases of the work. The excess of revenues recognized for construction
contracts over progress billings on uncompleted contracts is reported as a
current asset and the excess of progress billings over revenues recognized on
uncompleted contracts is reported as a current liability as follows:
1995 1994
------------- ---------
Revenues recognized on uncompleted
contracts
$ 654,619 $ 785,703
Billings on uncompleted contracts 631,361 762,658
----------- ----------
$ 23,258 $ 23,045
====== ======
Shown on balance sheet as:
Contracts in progress with earned
revenues exceeding related
progress billings $ 70,918 $ 64,624
Contracts in progress with progress billings
exceeding related earned revenues 47,660 41,579
----------- ----------
$ 23,258 $ 23,045
====== ======
5. Leases:
Certain facilities and equipment are rented under operating leases that expire
at various dates through 2015. Rental expense on operating leases was $3,589,
$3,472 and $5,512 in 1995, 1994 and 1993, respectively. Future rental
commitments during the years ending in 1996 through 2000 and thereafter are
$3,476, $1,873, $1,122, $885, $597 and $1,061, respectively.
6. Supplemental Balance Sheet Detail:
The activity recorded in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
Deductions -
Balance, write-off of trade Balance,
beginning of Charges to receivables, end of
the year expense net of recoveries the year
-------- ------- ----------------- --------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1995 $2,862 $5,656 $(2,175) $6,343
For the year ended
December 31, 1994 3,039 2,071 (2,248) 2,862
For the year ended
December 31, 1993 1,872 2,189 (1,022) 3,039
</TABLE>
F-12
<PAGE>
The components of property and equipment are:
1995 1994
----------- --------
Land and improvements $ 10,373 $ 21,739
Buildings and improvements 39,704 46,367
Plant and field equipment 164,964 189,057
----------- ----------
Total property and equipment 215,041 257,163
Accumulated depreciation (114,545) (140,487)
----------- ----------
Net property and equipment $ 100,496 $ 116,676
======= =======
The components of accrued liabilities are:
1995 1994
----------- --------
Insurance and litigation reserves $ 11,700 $ 11,356
Payroll, vacation and bonuses 9,461 7,133
Accrued accounts payable 6,182 5,406
Other 10,036 13,700
---------- ----------
$ 37,379 $ 37,595
====== ======
The components of non-current liabilities are:
1995 1994
----------- --------
Insurance and litigation reserves $ 27,403 $ 25,504
Postretirement health care liability 22,583 24,986
Other 6,825 8,856
------------ ------------
$ 56,811 $ 59,346
====== ======
7. Commitments and Contingent Liabilities:
Environmental Matters
A subsidiary of the Company was a minority shareholder from 1934 to 1954 in a
company which owned or operated at various times several wood treating
facilities at sites in the United States, some of which are currently under
investigation, monitoring or remediation under various environmental laws. With
respect to some of these sites, the Company has been named a potentially
responsible party ("PRP") under CERCLA and similar state laws. Without admitting
any liability, the Company has entered into a consent decree with the federal
government regarding one of these sites and has had an administrative order
issued against it with respect to another. There can be no assurance that the
Company will not be required to clean up one or more of these sites pursuant to
agency directives or court orders. The Company has been involved in litigation
concerning environmental liabilities, which are currently
F-13
<PAGE>
indeterminable, in connection with certain of those sites. The Company denies
any liability for each site and believes that the successors to the wood
treating business are responsible for the costs of remediation of the sites.
Without admitting any liability, the Company has reached settlements for
environmental clean-up at most of the sites. In July 1996, a judgment in favor
of the Company was entered in the suit Aluminum Company of America vs. Beazer
East, Inc. vs. Chicago Bridge & Iron Company, instituted in January 1991 before
the U.S. District Court for the Western District of Pennsylvania. In July 1996,
Beazer East, Inc. filed an appeal which is currently pending before the United
States Court of Appeals for the Third Circuit. Although the Company believes
that it will be successful in such appeal and that such settlements and any
remaining potential liability will not be material, there can be no assurance
that the Company will be successful in upholding the judgment in its favor or
that such settlements and any remaining potential liability will not have a
materially adverse effect on its business, financial condition or results of
operations.
The Company's facilities have operated for many years and substances which are
or might be considered hazardous were used and disposed of at some locations,
which will or may require the Company to make expenditures for remediation. In
addition, the Company has agreed to indemnify parties to whom it has sold
facilities for certain environmental liabilities arising from acts occurring
before the dates those facilities were transferred. The Company believes that
any potential liability for these matters will not have a materially adverse
effect on its business, financial condition or results of operations.
Along with multiple other parties, a subsidiary of the Company is currently a
PRP under CERCLA and analogous state laws at several sites as a generator of
wastes disposed of at such sites. While CERCLA imposes joint and several
liability on responsible parties, liability for each site is likely to be
apportioned among the parties. The Company does not believe that its liability,
if any, in connection with these sites, either individually or in the aggregate,
will have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company does not anticipate incurring material capital expenditures for
environmental controls or for investigation or remediation of environmental
conditions during the current or succeeding fiscal year. Nevertheless, the
Company can give no assurance that it, or entities for which it may be
responsible, will not incur liability in connection with the investigation and
remediation of facilities it currently (or formerly) owns or operates or other
locations in a manner that could materially and adversely affect the Company.
Other Contingencies
In 1991, CBI Na-Con, Inc. ("CBI Na-Con"), a subsidiary of the Company, installed
a catalyst cooler bundle at Fina Oil & Chemical Company's ("Fina") Port Arthur,
Texas Refinery. In July 1991, Fina alleges that the catalyst cooler bundle was
defective and had it replaced. Fina is seeking approximately $20,000 in damages
for loss of use of Fina's catalyst cracking unit and the cost of replacement of
the catalyst cooler bundle. On June 28, 1993, Fina filed a complaint against CBI
Na-Con before the District Court of Harris County, Texas in Fina Oil & Chemical
Company vs. CBI Na-Con, Inc. et al. The Company denies that it is liable. While
the Company believes that it will eventually prevail in the lawsuit, there can
be no assurance that if the Company is finally determined to be liable, any such
liability will not have a materially adverse effect on its business, financial
condition or results of operations.
F-14
<PAGE>
The Company is a defendant in a number of other lawsuits arising in the normal
course of its business. While it is impossible at this time to determine with
certainty the ultimate outcome of these lawsuits, the Company's management
believes that adequate provision has been made for probable losses with respect
thereto as best as can be determined at this time and that the ultimate outcome,
after provisions therefore, will not have a material adverse effect on the
Company's business, financial condition and results of operations. The adequacy
of reserves applicable to the potential costs of being engaged in litigation and
potential liabilities resulting from litigation are reviewed as developments in
the litigation warrant.
The Company is jointly and severally liable for certain liabilities of
partnerships and joint ventures. The Company has also given certain guarantees,
principally in connection with the performance of contracts and repayment of
obligations by its subsidiaries and other ventures in which the Company has
financial interests. As collateral for these guarantees, the Company is
contingently liable in the amount of $56,456 at December 31, 1995.
The Company has elected to retain portions of anticipated losses through the use
of deductibles and self-insured retentions for its exposures related to third
party liability and workers' compensation. Liabilities in excess of these
amounts are the responsibilities of an insurance carrier. To the extent the
Company self-insures for these exposures, reserves have been provided for based
on management's best estimates with input from the Company's legal and insurance
advisors. Changes in assumptions, as well as changes in actual experience, could
cause these estimates to change in the near term. The Company's management
believes that the aggregate liability, if any, for these matters will not be
material to its financial position or the results of operations. At December 31,
1995 and 1994, the Company's insurance reserves included liabilities for certain
service related subsidiaries which have been excluded from the Company's results
of operations, in exchange for a fee paid by those entities. It is the Company's
intention to restructure the insurance program subsequent to September 30, 1996,
to exclude the service related subsidiaries.
8. Employee Benefit Programs:
Health and Welfare Programs
The Company participates in various health and welfare programs for active
employees that are sponsored by Industries. These programs include medical, life
insurance and disability. The Company reimburses Industries for its
proportionate cost of these programs based on historical experience and relative
headcount. The Company recorded expense related to the reimbursement of these
costs of approximately $10,731, $11,310 and $12,830 in the years ended December
31, 1995, 1994 and 1993, respectively. The costs are charged to cost of revenues
and selling and administrative expenses based on the number of employees in each
of these categories. The Company believes its allocation of the proportionate
cost is reasonable. Effective January 1, 1997, the Company intends to terminate
participation in the Industries-sponsored plans and initiate its own plans.
F-15
<PAGE>
Stock Benefit Programs
The Company participated in an employee stock ownership plan, a restricted stock
award plan, employee stock purchase plans and a stock option plan sponsored by
Industries. The Company reimbursed Industries for its proportionate cost of
these programs based on an estimate of the proportionate costs attributable to
its employees. The Company recorded expense related to the reimbursement of
these costs of approximately $7,296, $6,400 and $6,284 in the years ended
December 31, 1995, 1994 and 1993, respectively. The Company believes its
allocation of the proportionate cost was reasonable. As a result of the
acquisition of Industries by Praxair, these stock programs were terminated.
Pension and Defined Contribution Plans
The Company participates in a defined benefit plan sponsored by Industries (the
"CBI Pension Plan"), three defined benefit plans sponsored by the Company's
Canadian subsidiary, and makes contributions to union sponsored multi-employer
pension plans. The CBI Pension Plan, which is the principal non-contributory
defined benefit plan, covers most U.S. salaried employees. The Company's
Canadian pension plans cover field, hourly, and salaried employees. The Company
made contributions of $2,863, $4,641 and $3,284 in the years ended December 31,
1995, 1994 and 1993, respectively, to the union sponsored multi-employer pension
plans. Benefits under these defined benefit plans are based on years of service
and compensation levels.
The Company's net pension expense amounted to $2,692, $3,575 and $2,765 in 1995,
1994 and 1993, respectively. The Company reimburses Industries for its
proportionate cost of these programs and funds pension costs as required.
Separate calculations for the Company of the components of net pension cost and
funded status are not available for the U.S. plan. The following tables reflect
the components of net pension cost and the funded status of the Industries
pension plans, which include the Company and the Company's Canadian pension
plans:
<TABLE>
<CAPTION>
Net Pension Cost
1995 1994 1993
------------------ ----------------- --------------------
US Canada US Canada US Canada
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 4,326 $ 291 $ 5,096 $ 368 $ 3,756 $ 504
Interest cost 6,803 1,218 6,467 1,223 5,384 1,273
Actual return on assets (15,420) (1,515) (1,262) (1,742) (5,177) (1,606)
Net amortization and deferral 9,523 (239) (2,961) (472) 1,840 (358)
--------- --------- --------- --------- --------- ---------
Net defined benefit pension plans
expense $ 5,232 $ (245) $ 7,340 $ (623) $ 5,803 $ (187)
===== ===== ===== ===== ===== =====
Amount allocated to Company $ 2,937 $ (245) $ 4,198 $ (623) $ 2,952 $ (187)
===== ===== ===== ===== ===== =====
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
Funded Status 1995 1994
---------------------- ----------------------
US Canada US Canada
<S> <C> <C> <C> <C>
Accumulated benefit obligation including vested benefits of
$85,378 in 1995 and $68,378 in 1994 $(80,495) $(15,611) $(63,112) $(14,083)
Additional benefits based on projected salary levels (24,867) (2,682) (19,266) (3,085)
--------- --------- --------- ---------
Projected benefit obligation (105,362) (18,293) (82,378) (17,168)
Market value of plan assets 73,622 23,718 52,012 24,612
--------- --------- --------- ---------
Projected benefit obligation over plan assets (31,740) 5,425 (30,366) 7,444
Unrecognized loss 24,648 3,042 18,511 1,818
Unrecognized net transition asset (545) (3,622) (606) (4,887)
Unrecognized prior service cost 4,516 495 4,940 545
Additional minimum liability (3,753) - (3,579) -
--------- --------- --------- ---------
Pension asset/(liability) $ (6,874) $ 5,340 $ (11,100) $ 4,920
===== ===== ===== =====
Amount allocated to Company $ (3,003) $ 5,340 $ (3,173) $ 4,920
===== ===== ===== =====
</TABLE>
The principal defined benefit plan assets consist of long-term investments,
including equity and fixed income securities and cash. The significant
assumptions used in determining pension expense and the related pension
obligations were: discount rate of 7.25%, 8.5% and 7.5% in 1995, 1994 and 1993,
respectively; increase in compensation levels of 4.5% in 1995, 1994 and 1993,
respectively; and long-term rate of return on plan assets of 9.0% in 1995, 1994
and 1993, respectively.
The Company is the sponsor for several defined contribution plans which cover
salaried and hourly employees for which the Company does not provide matching
contributions. The cost of these plans to the Company was insignificant in 1995,
1994 and 1993.
Effective January 1, 1997, the Company intends to adopt a new tax-qualified
defined contribution plan ("New 401(k) Plan") for eligible employees. The
Company expects that this plan would consist of a voluntary pre-tax salary
deferral feature under Sections 401(k) of the Internal Revenue Code, a Company
matching contribution, and an additional Company profit-sharing contribution to
be determined annually by the Company. The New 401(k) Plan will substantially
replace the current Industries-sponsored pension and 401(k) plans.
Benefit accruals under the CBI Pension Plan for current Company employees will
cease to accrue under the normal benefit formula of the plan for participants as
of December 31, 1996. However, it is anticipated that the Company will continue
to participate in the CBI Pension Plan as a contributing employer after December
31, 1996. The Company's obligation to fund portion of the accumulated benefit
obligation for its active employees in excess of plan assets was fixed at
$17,270 as of January 1, 1997, is payable to Praxair over a twelve-year period
beginning December 31, 1997, with interest at 7.5%.
Of the three previously mentioned Canadian plans, one was terminated in December
1994. Since that time, all members who elected to transfer their balance have
been paid out, while the remaining members continue to have benefits under the
plan. The second plan is in the process of being terminated. Curtailment gains
and losses for these plans were insignificant.
F-17
<PAGE>
Postretirement Health Care and Life Insurance Benefits
The Company participates in a health care and life insurance benefit program
sponsored by Industries. This program provides certain separate health care and
life insurance benefits for employees retiring under the principal
non-contributory defined benefit pension plan of Industries. Retiree health care
benefits are provided under an established formula which limits costs based on
prior years of service of retired employees. This plan may be changed or
terminated by Industries at any time.
The Company's net cost of providing postretirement benefits for retirees was
$2,258, $2,326 and $2,462 in 1995, 1994 and 1993, respectively. The Company
reimburses Industries for its proportionate cost of this program. Separate
calculations of the components of the net postretirement benefit cost for the
Company and the Company's funded status are not available. The following tables
reflect the components of the net cost of postretirement benefits and the funded
status for the entire Industries plan, which includes the Company:
Net Periodic Postretirement Benefit Cost 1995 1994 1993
----------- -------- -----------
Service cost $ 563 $ 683 $ 568
Interest cost 2,572 2,582 2,688
Actual return on assets 46 - -
Net amortization and deferral - (23) (45)
---------- -------- -----------
Postretirement health care and life
insurance benefits cost $ 3,181 $ 3,242 $ 3,211
====== ====== ======
Amount allocated to the Company $2,258 $2,326 $2,462
====== ====== ======
Net Postretirement Liability 1995 1994
----------- --- --------
Accumulated postretirement benefit obligation
applicable to:
Retirees $ (25,136) $ (24,553)
Active employees (11,042) (11,535)
---------- ----------
Projected benefit obligation (36,178) (36,088)
---------- ----------
Plan assets - -
Unrecognized (gain)/loss 2,757 (1,272)
Unrecognized prior service costs 530 577
---------- ----------
Postretirement health care and life
insurance benefits (liability) $ (32,891) $ (36,783)
====== ======
Amount allocated to the Company $(24,069) $(27,367)
====== ======
F-18
<PAGE>
The significant assumptions used in determining other postretirement benefit
expense were: discount rate of 7.25%, 8.5% and 7.5% in 1995, 1994 and 1993,
respectively; and long-term rate of return on plan assets of 9.0% in 1995 and
1994; and 10.0% in 1993.
Effective January 1, 1997, the Company intends to terminate its participation in
the program sponsored by Industries and initiate a similar program for its
active employees. The Company has a $21,400 obligation related to retired
employees of the Company payable to Praxair over a twelve-year period starting
December 31, 1997, with interest at 7.5%.
9. Income Taxes:
The Company's results are included in the consolidated Federal income tax return
filed by Industries. The consolidated amount of current and deferred tax expense
is allocated among the members of the Industries group using the pro-rata
method, which assumes the Company's taxes would be filed as a part of
Industries' consolidated return. If the Company's tax provision for the year
ended December 31, 1995 had been computed as if the Company filed a separate
return, the provision would have been a benefit of $678.
The sources of income/(loss) before income taxes and minority interest are:
1995 1994 1993
--------- ---------- -----------
U.S. $(25,387) $(395) $(22,919)
Non-U.S. (4,736) 21,271 8,265
--------- ---------- -----------
$(30,123) $20,876 $(14,654)
======= ======= =======
The provision/(benefit) for income taxes consisted of:
1995 1994 1993
--------- ---------- -----------
Current income taxes-
U.S. $(6,678) $(913) $(4,286)
Non-U.S. 1,586 6,399 3,430
---------- ---------- ----------
(5,092) 5,486 (856)
---------- ---------- ----------
Deferred income taxes-
U.S. (1,469) (1,109) (3,522)
Non-U.S. (1,532) (1,303) (1,702)
---------- ---------- ----------
(3,001) (2,412) (5,224)
---------- ---------- ----------
Total provision/(benefit) $(8,093) $3,074 $(6,080)
===== ===== =====
F-19
<PAGE>
The components of the deferred income tax provision/(benefit) are:
1995 1994 1993
--------- --------- -------
Depreciation expense $(586) $(1,225) $26
Non-U.S. activity (619) (1,966) (150)
Employee and retiree benefits (255) (540) 101
Special charges 250 4,069 (2,376)
Insurance (2,583) (909) (772)
Other, net 792 (1,841) (2,053)
---------- ---------- ----------
$(3,001) $(2,412) $(5,224)
===== ===== =====
A reconciliation of income taxes at the U.S. statutory rate and the provision/
(benefit) for income taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- -------
<S> <C> <C> <C>
Income/(loss) before income taxes and
minority interest $(30,123) $20,876 $(14,654)
---------- ---------- ----------
Tax provision/(benefit) at U.S. statutory
rate $(10,543) $7,307 $(5,129)
State income taxes 82 389 40
Non-U.S. tax rate differential and losses
without tax benefit 1,610 (4,933) 819
Other, net 758 311 (1,810)
---------- ---------- ----------
Provision/(benefit) for income taxes $(8,093) $3,074 $(6,080)
---------- ---------- ----------
Effective tax rates (26.9)% 14.7% (41.5)%
======= ======= =======
</TABLE>
The principal temporary differences included in non-current deferred income
taxes reported on the balance sheets are:
1995 1994
--------- -------
Depreciation expense $( 8,810) $(9,595)
Non-U.S. activity 10,541 8,652
Employee and retiree benefits 9,384 9,901
Special charges 2,781 2,520
Insurance 10,654 7,922
Other, net 3,855 3,503
---------- ----------
$28,405 $22,903
======= =======
F-20
<PAGE>
Current deferred tax assets at December 31, 1995 of $7,369 consist of temporary
differences resulting from insurance, $4,089; employee and retiree benefits,
$2,141; and other items, net $1,139.
Realization of recognized tax assets is dependent on generating sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that all of the tax assets will be realized on a
consolidated Industries basis. The amount of the tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced. The Company has not recorded any additional U.S.
deferred income taxes on indefinitely reinvested undistributed earnings of
non-U.S. subsidiaries and affiliates at December 31, 1995. If any such
undistributed earnings were distributed, foreign tax credits should become
available under current law to significantly reduce or eliminate any resulting
U.S. income tax liability.
10. Operations by Geographic Segment:
The Company operates in four major geographic business segments: North America;
Central and South America; Europe, Africa, Middle East; and Asia Pacific Area.
No customer accounted for more than 10% of revenues. Export sales, to unrelated
customers outside of the United States, were less than 10% of revenues in each
period reported. Transfers between geographic areas are not material. Corporate
costs were allocated to the segments based on their relative revenues, assets or
work force.
Revenues, income/(loss) from operations and assets by geographic area are:
1995 1994 1993
--------- --------- ----------
Revenues
North America $ 317,698 $ 416,138 $ 399,446
Central and South America 54,605 118,616 71,344
Europe, Africa, Middle East 110,775 112,973 111,789
Asia Pacific Area 138,860 115,076 97,962
---------- --------- ---------
$621,938 $ 762,803 $ 680,541
======== ======== ========
Income/(loss) from operations
North America $(45,708) $ (11,579) $ (34,787)
Central and South America 9,866 11,368 8,508
Europe, Africa, Middle East (2,427) 856 (1,784)
Asia Pacific Area 7,754 18,759 10,651
---------- --------- ---------
$ (30,515) $ 19,404 $ (17,412)
======== ======= ========
Assets
North America $ 197,034 $ 216,584 $ 232,742
Central and South America 17,043 21,332 31,296
Europe, Africa, Middle East 53,521 63,677 76,617
Asia Pacific Area 88,527 58,319 68,281
--------- --------- ---------
$ 356,125 $ 359,912 $ 408,936
======== ======== ========
F-21
<PAGE>
11. Special Charges and Gain on Sale of Assets:
Special Charges
1995 1994 1993
---- ---- ----
Litigation $ - $16,990 $15,000
Restructuring 5,230 - 7,900
---------- ---------- ----------
Total $5,230 $16,990 $22,900
===== ======= =======
In the fourth quarter of 1995, the Company recorded a special charge of $5,230
for restructuring costs, including $1,850 in non-cash provisions for the
write-down of a facility which has been closed and $3,380 in cash provisions for
workforce reductions of $750 and idle facility costs of $2,630. The closed
facility has been classified as assets held for sale at December 31, 1995.
Workforce reductions consisted of approximately 80 hourly and salaried personnel
from a manufacturing facility. Substantially all of the cash portion of the
reserves established for these restructuring costs was expended during 1996.
In 1994, the Company recorded a special charge of $16,990 to recognize expense
related to a major litigation settlement against the Company. Approximately
$12,500 of the litigation settlement costs were paid in 1994 with the balance of
$4,500 payable over 5 years together with 8% interest thereon.
In the fourth quarter of 1993, the Company recorded a special charge of $22,900.
Included within this special charge was $15,000 in expense related to two major
litigation settlements against the Company. Also included within the special
charge were non-cash provisions totaling $6,000 for the write-down of excess,
non-performing assets to their estimated net realizable value and $1,900 for
idle facility costs. The reserve established for idle facilities costs were
expended during 1994.
Gain on Sale of Assets
1995 1994 1993
---- ---- ----
Gain on the sale of property,
plant and equipment $10,030 $4,360 $118
Gain from affiliated entity
transactions - 7,000 -
------- ------ ----
Total $10,030 $11,360 $118
======= ======= ====
The gain on the sale of property, plant and equipment recorded in 1995 includes
the gain on certain under-utilized facilities sold as a result of the
Restructuring Program.
In 1994, the Company recognized $7,000 in gains from affiliated entity
transactions. These gains primarily represent the gains from the sale of the
Company's minority interest in a terminal in which the Company participated in
the construction thereof and also the sale of the Company's interest in a
fabrication facility.
F-22
<PAGE>
12. Subsequent Events:
In November 1996, Chi Bridge Holdings Inc. (the "Selling Shareholder"), a
subsidiary of Praxair, formed its wholly-owned subsidiary, Chicago Bridge & Iron
Company N.V. (the "Issuer"), a corporation organized under the laws of the
Netherlands. In December 1996, the Issuer filed a registration statement with
the Securities and Exchange Commission for an initial public offering of a
majority of the Issuer's common shares (the "Offering"). Praxair and its
affiliates will own the balance of the Issuer's shares. The net proceeds of the
Offering will remain with Praxair or its affiliates and the Issuer will not
receive any of the proceeds from the sale of its common shares.
Prior to the consummation of the Offering, the Selling Shareholder and certain
of its subsidiaries will consummate a Reorganization whereby (i) the shares of
substantially all of the Company's non-U.S. subsidiaries will be transferred by
dividend to the Selling Shareholder and contributed to the Issuer in exchange
for additional common shares of the Issuer and then contributed by the Issuer to
Chicago Bridge & Iron Company B.V.; and (ii) the Selling Shareholder will
contribute the shares of the Company to the Issuer in exchange for additional
common shares of the Issuer. This Reorganization will not affect the carrying
amounts of the Company's assets and liabilities, nor result in any distribution
of the Company's cash or other assets to the Selling Shareholder.
Impact of Operating as a Stand-Alone Entity
The accompanying financial statements reflect the Company's costs of doing
business, including expenses incurred by Industries on the Company's behalf in
accordance with SEC Staff Accounting Bulletin No. 55. However, the Company
estimates it would have incurred increased expenses as a stand-alone company as
well as other incremental public company expenses. These additional costs would
have increased pretax loss by approximately $1,900 for the year ended December
31, 1995.
F-23
<PAGE>
13. Quarterly Operating Results (unaudited)
The following table sets forth selected unaudited consolidated statement of
income information for the Company on a quarterly basis for the three months
ended March 31, June 30 and September 30, 1996 and the years ended December 31,
1995 and 1994:
Post-Praxair Acquisition Three Months Ended 1996
- ------------------------
March 31 June 30 Sept 30
------------ -------------- ---------------
Revenues $ 139,721 $ 160,789 $ 183,021
Gross profit 16,037 18,744 17,498
Special charges (1) 0 0 0
Income (loss) from operations 5,647 6,955 8,539
Net income (loss) 2,370 3,187 5,373
<TABLE>
<CAPTION>
Pre-Praxair Acquisition Three Months Ended 1995
- -----------------------
March 31 June 30 Sept 30 Dec 31
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 160,584 $ 156,385 $ 147,341 $ 157,628
Gross profit 10,333 9,018 4,394 (16,037)
Special charges (1) 0 0 0 (5,230)
Income (loss) from operations 1,223 (32) (2,965) (28,741)
Net income (loss) 1,164 2,022 (5,262) (23,530)
Three Months Ended 1994
March 31 June 30 Sept 30 Dec 31
--------------- --------------- --------------- ----------------
Revenues $ 161,151 $ 190,942 $ 192,821 $ 217,889
Gross profit 19,721 18,505 12,070 20,241
Special charges (1) 0 0 (16,990) 0
Income (loss) from operations 10,780 9,624 (14,898) 13,898
Net income (loss) 7,286 6,677 (10,713) 13,193
</TABLE>
(1) As discussed in the Notes to Consolidated Financial Statements for the
three years ended December 31, 1995, the Company recorded special charges
in 1995 and 1994 for a major litigation settlement and restructuring
expenses.
F-24
<PAGE>
THE FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSOR
ARE NOT COMPARABLE IN CERTAIN RESPECTS (NOTE 1)
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(POST-PRAXAIR ACQUISITION)
(Unaudited)
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
September 30,
ASSETS 1996
Current Assets:
Cash and cash equivalents $ 20,013
Accounts receivable, net of allowance for
doubtful accounts of $2,816 96,449
Contracts in progress with earned revenues
exceeding related progress billings 93,147
Assets held for sale 8,559
Other current assets 8,100
--------
Total current assets 226,268
--------
Property and equipment 98,972
Assets held for sale 5,309
Goodwill 19,149
Other non-current assets 9,840
--------
Total assets $359,538
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Notes payable $ 1,218
Accounts payable 25,335
Accrued liabilities 36,699
Contracts in progress with progress billings
exceeding related earned revenues 49,673
Other current liabilities 5,192
--------
Total current liabilities 118,117
--------
Deferred income taxes 1,614
Debt to Parent Company 55,000
Other non-current liabilities 85,687
Minority interest in subsidiaries 6,806
--------
Total liabilities 267,224
========
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 authorized
shares; 1
1,000 issued and outstanding
Additional paid-in capital 237,785
Retained earnings 10,930
Advances to Parent Company (155,758)
Cumulative translation adjustment (644)
-------
Total shareholder's equity 92,314
-------
Total liabilities and shareholder's equity $359,538
========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-25
<PAGE>
THE FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSOR
ARE NOT COMPARABLE IN CERTAIN RESPECTS (NOTE 1)
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(Unaudited)
CONSOLIDATED INCOME STATEMENTS
(in thousands)
<TABLE>
<CAPTION>
Post-Praxair Pre-Praxair
Acquisition Acquisition
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Revenues $483,531 $464,311
Cost of revenues 431,252 440,503
Gross profit 52,279 23,808
Selling and administrative expenses 30,784 29,427
Loss (gain) on sale of assets 354 (3,844)
Income (loss) from operations 21,141 (1,775)
Interest expense 3,787) (835)
Other income 581 1,245
Income (loss) before taxes and minority interest 17,935 (1,365)
Income tax expense (benefit) 4,674 (1,467)
Income before minority interest 13,261 102
Minority interest in income 2,331 2,179
Net income (loss) $10,930 $(2,077)
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-26
<PAGE>
<TABLE>
<CAPTION>
THE FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSOR
ARE NOT COMPARABLE IN CERTAIN RESPECTS (NOTE 1)
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(POST-PRAXAIR ACQUISITION)
(Unaudited)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(in thousands)
Additional Advances Cumulative Total
Common Paid-in Retained to Parent Translation Shareholder's
Stock Capital Earnings Company Adjustment Equity
---------- ------------ ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1 $185,493 $159,672 $(142,786) $(15,873) $186,507
Praxair acquisition adjustments - 52,292 (159,672) - 15,873 (91,507)
--------- ------- -------- --------- ------ -------
Balance at January 1, 1996 1 237,785 - (142,786) - 95,000
Net income (loss) - - 10,930 - - 10,930
Translation adjustment - - - - (644) (644)
Advances (to) / from Parent Company - - - (12,972) - (12,972)
--------- -------- -------- --------- -------- -------
Balance at September 30, 1996 $1 $237,785 $ 10,930 $(155,758) $(644) $92,314
======== ======== ======== ========= ======== =======
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
THE FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSOR
ARE NOT COMPARABLE IN CERTAIN RESPECTS (NOTE 1)
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Post-Praxair Pre-Praxair
Acquisition Acquisition
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $10,930 $(2,077)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,605 10,977
(Gain)/loss on sale of fixed assets 354 (3,844)
Change in working capital accounts (see below) (3,354) (32,006)
---------------- ----------------
Net Cash Provided by / (Used in) Operating Activities 20,535 (26,950)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets 6,583 7,712
Capital expenditures (8,075) (11,945)
Increase/(decrease) in equity in unconsolidated affiliates (222) 1,216
Increase/(decrease) in other 1,873 (769)
---------------- ----------------
Net Cash Provided by / (Used in) Investing Activities 159 (3,786)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance (to)/from Parent Company (12,972) 26,431
Decrease in notes payable, long-term debt (559) (655)
---------------- ----------------
Net Cash Provided by / (Used in) Financing Activities (13,531) 25,776
---------------- ----------------
Increase/(decrease) in cash & cash equivalents 7,163 (4,960)
Cash and cash equivalents, beginning of the year 12,850 16,090
---------------- ----------------
Cash and cash equivalents, end of the period $20,013 $11,130
================ ================
CHANGE IN WORKING CAPITAL ACCOUNTS:
Decrease in receivables, net $14,421 $10,377
Increase in contracts in progress, net (23,369) (11,794)
(Increase)/decrease in other current assets 4,435 (841)
Decrease in accounts payable & accrued liabilities (6,747) (29,171)
Increase/(decrease) in other current liabilities 7,527 (4,644)
Decrease in deferred tax assets/liabilities 8 4,090
Increase/(decrease) in other 371 (23)
---------------- ----------------
Total $(3,354) $(32,006)
================ ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $245 $769
Cash paid for income taxes $2,341 $2,880
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-28
<PAGE>
THE FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSOR
ARE NOT COMPARABLE IN CERTAIN RESPECTS (NOTE 1)
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(POST-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 1996 and 1995
(in Thousands)
1. Organization and Significant Accounting Policies:
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements for Chicago Bridge
& Iron Company and Subsidiaries ("the Company") include all adjustments
necessary for a fair presentation of the results for the interim periods
presented. These adjustments consist of only normal and recurring adjustments.
The results of operations for interim periods are not necessarily indicative of
results of operations for the full year. These unaudited interim consolidated
financial statements should be read in conjunction with the full year 1995, 1994
and 1993 consolidated financial statements and notes thereto included elsewhere
in this registration statement.
The accompanying financial statements include selected entities which are
involved in the engineering and construction specialities of the Company and do
not include certain service related subsidiaries which are involved in unrelated
businesses. The assets, liabilities, revenues and expenses attributable to these
entities are recorded net in the Advance to Parent Company caption of
shareholder's equity. These service related subsidiaries are being held for sale
by Praxair.
Praxair Acquisition
The Company is a wholly owned subsidiary of Chi Bridge Holdings, Inc., which in
turn was a wholly owned subsidiary of CBI Industries, Inc. ("Industries"). On
January 12, 1996, pursuant to the merger agreement dated December 22, 1995 (the
"Merger"), Industries became a subsidiary of Praxair, Inc. ("Praxair"). This
Merger transaction was reflected in the Company's consolidated financial
statements as a purchase effective January 1, 1996 ("Merger Date"). Accordingly,
the historical information provided for periods prior to January 1, 1996
("Pre-Praxair Acquisition") is not comparable to subsequent financial
information ("Post-Praxair Acquisition"). Effective December 19, 1996,
Industries was merged with and into Praxair, with no consequences to the
Company's financial statements.
F-29
<PAGE>
The Merger and the related application of purchase accounting resulted in
changes to the capitalization and the historical basis of various assets of the
Company's Pre-Praxair Acquisition financial statements. The effect of such
changes significantly effects comparability of the financial position and
results of operations in the Company's Pre-Praxair Acquisition and Post-Praxair
Acquisition financial statements. A vertical black line has been used to
separate the Pre-Praxair Acquisition and the Post-Praxair Acquisition
information.
The fair value assigned to the Company as of the Merger Date was $150,000,
excluding any bank or assumed debt ("Merger Value"). This Merger Value
approximates the portion of the total purchase price that relates to the
Company. The allocation of this Merger Value to the fair value of individual
assets and liabilities is based on preliminary estimates of fair value and may
be revised at a later date. The preliminary allocation of this fair value
resulted in the write-up of property and equipment, the recognition of
restructuring reserves, the recognition of liabilities for pension and other
postretirement plans, and the recognition of a deferred tax asset valuation
allowance. The fair value of the Company's other assets and liabilities were
approximately equal to their historical carrying value. Effective January 1,
1996, the Company assumed $55,000 of acquisition-related debt. The excess of
purchase price over the fair value of net assets acquired represents goodwill
and is being amortized over 40 years. Refer to the Notes to the 1995
Consolidated Financial Statements included elsewhere in this registration
statement for further discussion of the purchase accounting adjustments.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121--"Accounting for the Impairment of Long-Lived Assets" effective January 1,
1996. In accordance with the requirements of SFAS No. 121, the Company
continually evaluates whether events or circumstances have occurred that may
indicate the carrying value of its long-lived assets may not be recoverable.
When factors indicate that the asset should be evaluated for possible
impairment, the Company uses an estimate of the related future undiscounted cash
flows over the remaining useful life of the asset in measuring whether the asset
is recoverable. The Company has not recognized any material impairment losses
for the nine-months ended September 30, 1996, nor does management believe any
material impairment of long-lived assets exists as of September 30, 1996.
2. Debt:
In conjunction with Praxair's acquisition of Industries effective January 1,
1996, the Company assumed $55,000 of acquisition-related debt ("Debt to Parent
Company"). In contemplation of the public equity offering, the Company expects
to enter into a long-term credit agreement with a financial institution (or
group of financial institutions) in order to repay the Debt to Parent Company
and provide working capital. Until that time, the Company's cash requirements
will be funded by Praxair. Subsequent to September 30,
F-30
<PAGE>
1996, the Company's long-term debt balance will increase when the Company
requires cash and decrease when a cash surplus is available to reduce the
long-term debt balance. The Debt to Parent Company has a maturity date no
earlier than January 1, 1998 and the Company will pay interest at 7% until
the debt is repaid. Interest recorded for the nine months ended September 30,
1996 was $2,888.
3. Income Taxes:
The consolidated amount of current and deferred tax expense was allocated among
the members of the Industries group using the pro-rata method, which assumed the
Company's taxes would be filed as a part of Industries' or Praxair's
consolidated tax return.
The Company had a net deferred tax asset in the United States of $38,093 at
December 31, 1995. This net deferred tax asset is reduced in purchase accounting
to $1,862 by a valuation allowance. The Company has a net deferred tax liability
in other countries of $2,319 at December 31, 1995.
4. Operations by Geographic Segment:
The Company operates in four major geographic business segments: North America;
Central and South America; Europe, Africa, Middle East; and Asia Pacific Area.
No customer accounted for more than 10% of revenues. Export sales, to unrelated
customers outside of the United States, were less than 10% of revenues in each
period reported. Transfers between geographic areas are not material. Corporate
costs were allocated to the segments based on their relative revenues, assets or
work force.
F-31
<PAGE>
Revenues and income/(loss) from operations by geographic area are:
For the nine months
ended September 30,
1996 1995
---- ----
Revenues
North America $250,247 $236,784
Central and South America 62,249 42,936
Europe, Africa, Middle East 82,693 85,922
Asia Pacific Area 88,342 98,669
-------- --------
$483,531 $464,311
======== ========
Income/(loss) from operations
North America $(1,597) $(18,428)
Central and South America 5,460 8,084
Europe, Africa, Middle East 5,515 587
Asia Pacific Area 11,763 7,982
-------- ---------
$21,141 $ (1,775)
======== ========
5. Subsequent Events:
In November 1996, Chi Bridge Holdings Inc. (the "Selling Shareholder"), a
subsidiary of Praxair, formed its wholly-owned subsidiary, Chicago Bridge & Iron
Company N.V. (the "Issuer"), a corporation organized under the laws of the
Netherlands. In December 1996, the Issuer filed a registration statement with
the Securities and Exchange Commission for an initial public offering of a
majority of the Issuer's common shares (the "Offering"). Praxair and its
affiliates will own the balance of the Issuer's shares. The net proceeds of the
Offering will remain with Praxair or its affiliates and the Issuer will not
receive any of the proceeds from the sale of its common shares.
Prior to the consummation of the Offering, the Selling Shareholder and certain
of its subsidiaries will consummate a Reorganization whereby (i) the shares of
substantially all of the Company's non-U.S. subsidiaries will be transferred by
dividend to the Selling Shareholder and contributed to the Issuer in exchange
for additional common shares of the Issuer and then contributed by the Issuer to
Chicago Bridge & Iron Company B.V.; and (ii) the Selling Shareholder will
contribute the shares of the Company to the Issuer in exchange for additional
common shares of the Issuer. This Reorganization will not affect the carrying
amounts of the Company's assets and liabilities, nor result in any distribution
of the Company's cash or other assets to the Selling Shareholder.
F-32
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
INDEX
Page
Report of Independent Public Accountants ............................ F-34
Balance Sheet as of November 22, 1996 ............................... F-35
Notes to Balance Sheet .............................................. F-36
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Chicago Bridge & Iron Company N.V.:
We have audited the accompanying balance sheet of Chicago Bridge & Iron Company
N.V. (a Netherlands corporation) as of November 22, 1996. This balance sheet is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Chicago Bridge & Iron Company N.V.
as of November 22, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
December 16, 1996
F-34
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
BALANCE SHEET
As of November 22, 1996
(in thousands, except share data)
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $59
---
Total Assets . . . . . . . . . . . . . . $59
===
LIABILITIES & SHAREHOLDER'S EQUITY
SHAREHOLDER'S EQUITY:
Common Stock (NLG .01 par value, 50,000,000 shares
authorized; 10,000,000 issued and outstanding) . . . . $59
---
Total Shareholder's Equity . . . . . . . $59
===
The accompanying notes are an integral part of this balance sheet.
F-35
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
Notes to Balance Sheet
November 22, 1996
(in thousands)
1. ORGANIZATION:
In November 1996, Chi Bridge Holdings Inc. (the "Selling Shareholder"), a
subsidiary of Praxair, Inc. ("Praxair"), formed its wholly-owned subsidiary
Chicago Bridge & Iron Company N.V. (the "Issuer"), a corporation organized under
the laws of the Netherlands.
2. SIGNIFICANT ACCOUNTING POLICIES:
The Issuer employs accounting policies that are in accordance with generally
accepted accounting policies in the United States. The functional currency for
the Issuer is the U.S. dollar. The translation from Dutch Guilders ("NLG") to
U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date.
3. SUBSEQUENT EVENTS:
In December 1996, the Issuer filed a registration statement with the Securities
and Exchange Commission for an initial public offering of a majority of the
Issuer's common shares (the "Offering"). Praxair and its affiliates will own the
balance of the Issuer's shares. The net proceeds of the Offering will remain
with Praxair or its affiliates and the Issuer will not receive any of the
proceeds from the sale of its common shares.
Prior to the consummation of the Offering, the Selling Shareholder and certain
of its subsidiaries will consummate a Reorganization whereby (i) the shares of
substantially all of the non-U.S. subsidiaries of Chicago Bridge & Iron Company
and Subsidiaries will be transferred by dividend to the Selling Shareholder and
contributed to the Issuer in exchange for additional common shares of the Issuer
and then contributed by the Issuer to Chicago Bridge & Iron Company B.V.; and
(ii) the Selling Shareholder will contribute the shares of Chicago Bridge & Iron
Company and Subsidiaries to the Issuer in exchange for additional common shares
of the Issuer. This Reorganization will not affect the carrying amounts of
Chicago Bridge & Iron Company and Subsidiaries' assets and liabilities, nor
result in any distribution of the Company's cash or other assets to the Selling
Shareholder.
F-36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesperson, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, the Selling Shareholder or any
Underwriter. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the Securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus Chicago Bridge & Iron Company N.V.
nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct
as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Company since such
date.
-----------------
TABLE OF CONTENTS
Page
Prospectus Summary................................
Risk Factors...................................... ______ Common Shares
The Company....................................... (NLG 0.01)
Dividend Policy...................................
Dilution..........................................
Use of Proceeds...................................
Capitalization....................................
Selected Historical and Pro Forma
Consolidated Financial and Other Data...........
Unaudited Pro Forma Consolidated
Income Statements...............................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................
Business.......................................... PROSPECTUS
Certain Transactions; Relationship With
Praxair.........................................
Description of New Revolving Credit
Facility........................................
Principal and Selling Shareholders................
Management........................................
Description of Share Capital......................
Share Certificates and Transfer...................
Taxation.......................................... Credit Suisse First Boston
Shares Eligible for Future Sale................... Goldman, Sachs & Co.
Underwriting...................................... Smith Barney Inc.
Notice to Canadian Residents...................... UBS Securities
Legal Matters.....................................
Experts...........................................
Available Information.............................
Service of Process and Enforcement of
Civil Liabilities...............................
Index to Financial Statements..................... F-1
--------------
Until , (25 days after the commencement of the Common Share Offering) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
</TABLE>
<PAGE>
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
SUBJECT TO COMPLETION, DATED FEBRUARY , 1997
,000,000 Shares
CHICAGO BRIDGE & IRON COMPANY N.V.
(A company incorporated in The Netherlands
with its registered seat in Amsterdam)
Common Shares
(NLG 0.01 par value)
-----------------
All of the Common Shares, NLG 0.01 par value (the "Common Shares"), of Chicago
Bridge & Iron Company N.V. (the "Issuer") offered hereby are being sold by Chi
Bridge Holdings, Inc. (the "Selling Shareholder"), a subsidiary of Praxair, Inc.
The Issuer will not receive any of the proceeds from the sale of shares offered
hereby . Of the Common Shares being offered, shares are initially being offered
outside the United States and Canada (the "International Shares") by the
Managers (the "International Offering") and shares are initially being
concurrently offered in the United States and Canada (the "U.S. Shares") by the
U.S. Underwriters (the "U.S. Offering" and, together with the International
Offering, the "Common Share Offering"). Prior to the Common Share Offering, the
Issuer was an indirect wholly owned subsidiary of Praxair, Inc. Upon completion
of the Common Share Offering, the Issuer will no longer be a subsidiary of
Praxair, Inc., and Praxair, Inc. and its subsidiaries (collectively, "Praxair")
will own approximately % ( % if the Underwriters exercise their over-allotment
option in full) of the then oustanding Common Shares. The offering price and
underwriting discounts and commissions of the International Offering and the
U.S. Offering are identical.
Prior to the offering, there has been no public market for the Common Shares. It
is anticipated that the initial public offering price will be between $ and $
per share. For information relating to the factors considered in determining the
initial offering price to the public, see "Subscription and Sale."
The Issuer intends to apply to list the Common Shares in
bearer form on the Official Market of the Amsterdam Exchanges
N.V. (the "Amsterdam Stock Exchange") under the symbol "CBI".
The Issuer intends to apply to list the Common Shares on the
New York Stock Exchange under the symbol "CBI," subject to
notice of issuance. See "Share Certificates and Transfer."
<PAGE>
-2-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
For a discussion of certain factors that should be considered in
connection with an investment in the Common Shares, see "Risk Factors" beginning
on page 16.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds
Price to Discounts and to Selling
the Public Commissions Shareholder(1)
- --------------------------------------------------------------------------------
Per Share(2)........ $ $ $
Total(3)............ $ $ $
================================================================================
(1) Before deduction of expenses payable by the Issuer estimated at $ .
(2) The price per share in Dutch guilders is NLG .
(3) The Selling Shareholder has granted the Managers and the U.S. Underwriters
an option, exercisable by Credit Suisse First Boston Corporation for 30
days from the date of this Prospectus, to purchase a maximum of additional
shares to cover over-allotment of shares. If such option is exercised in
full, the total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ and Proceeds to Selling Shareholder will be $ .
The International Shares are offered by the several Managers when, as and if
delivered to and accepted by the Managers and subject to their right to reject
orders in whole or in part. It is expected that the International Shares will be
ready for delivery on or about , 1997, against payment in immediately available
funds in U.S. dollars through the book-entry facilities of The Depository Trust
Company and against payment therefor in immediately available funds in Dutch
guilders through NECIGEF, Euroclear and Cedel S.A.
<PAGE>
-3-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
Credit Suisse First Boston
Goldman Sachs International
Smith Barney Inc.
UBS Limited
The date of this Prospectus is , 1997.
<PAGE>
-4-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
[Inside Front Cover]
[photos to come]
The Issuer, having made all reasonable inquiries, confirms that this
Prospectus contains all information with regard to the Issuer and the Common
Shares which is material in the context of the offer of the Common Shares, that
the information contained in this Prospectus is true and accurate in all
material respects and is not misleading, that the opinions and intentions
expressed herein are honestly held and that there are no facts the omission of
which would make misleading in any material respect any statement herein whether
of fact or opinion. The Issuer accepts responsibility accordingly.
No dealer, salesperson or other person has been authorized to give
any information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, the Selling Shareholder or any
Manager. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy and of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus nor any sales made hereunder shall,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of the Company since such date.
IN CONNECTION WITH THIS OFFERING, CREDIT SUISSE FIRST
BOSTON CORPORATION ON BEHALF OF U.S. UNDERWRITERS AND THE MAN-
AGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICE OF THE COMMON SHARES AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
<PAGE>
-5-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE AMSTERDAM STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME AND WILL IN ANY EVENT BE DISCONTINUED 30 DAYS AFTER THE SETTLEMENT OF
THIS OFFERING.
---------------
<PAGE>
-6-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
-----------------
TABLE OF CONTENTS
Page Page
PROSPECTUS SUMMARY................. CERTAIN TRANSACTIONS;
RISK FACTORS....................... RELATIONSHIP WITH PRAXAIR............
THE COMPANY........................ PRINCIPAL AND SELLING SHAREHOLDERS.....
DIVIDEND POLICY.................... MANAGEMENT.............................
DILUTION........................... DESCRIPTION OF NEW REVOLVING
USE OF PROCEEDS.................... CREDIT FACILITY......................
CAPITALIZATION..................... DESCRIPTION OF SHARE CAPITAL...........
SELECTED HISTORICAL AND PRO FORMA SHARE CERTIFICATES AND TRANSFER........
CONSOLIDATED FINANCIAL AND TAXATION...............................
OTHER DATA....................... SHARES ELIGIBLE FOR FUTURE SALE........
UNAUDITED PRO FORMA CONSOLIDATED SUBSCRIPTION AND SALE..................
INCOME STATEMENTS................ LEGAL MATTERS..........................
MANAGEMENT'S DISCUSSION AND EXPERTS................................
ANALYSIS OF FINANCIAL CONDITION AVAILABLE INFORMATION..................
AND RESULTS OF OPERATIONS........ SERVICE OF PROCESS AND ENFORCE-
BUSINESS........................... MENT OF CIVIL LIABILITIES............
INDEX TO FINANCIAL STATEMENTS.......... F-1
------------------------------------------
<PAGE>
-7-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
SUBSCRIPTION AND SALE
The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated , 1997 (the "Subscription Agreement"), severally
and not jointly, agreed to purchase from the Selling Shareholder the following
respective numbers of International Shares as set forth opposite their names:
Number of
Manager International Shares
Credit Suisse First Boston
(Europe) Limited .............................
Goldman Sachs International ....................
Smith Barney Inc. ..............................
UBS Limited ....................................
------------
Total ....................................
============
The Subscription Agreement provides that the obligations of the
Managers are such that, subject to certain conditions precedent, the Managers
will be obligated to purchase all the International Shares (other than those
share covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.
The Issuer and the Selling Shareholder have entered into an
Underwriting Agreement with the U.S. Underwriters of the U.S. Offering (the
"U.S. Underwriters") providing for the concurrent offer and sale of the U.S.
Shares in the United States and Canada. The closing of the U.S. Offering is a
condition to the closing of the International Offering and vice versa.
The Selling Shareholder has granted to the Managers and the U.S.
Underwriters an option, exercisable by Credit Suisse First Boston Corporation,
the representative of the U.S. Underwriters, expiring at the close of business
on the 30th day after the date of this Prospectus, to purchase up to
<PAGE>
-8-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
additional shares at the initial public offering price, less the underwriting
discounts and commission, all as set forth on the cover page of this Prospectus.
Such option may be exercised only to cover over-allotments, if any, in the sale
of the Common Shares offered hereby. To the extent that this option to purchase
is exercised, each Manager and each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
additional shares being sold to the Managers and the U.S. Underwriters as the
number of International Shares set forth next to such Manager's name in the
preceding table and as the number set forth next to such U.S. Underwriter's name
in the corresponding table in the Prospectus relating to the U.S. Offering bears
to the sum of the total number of Common Shares in such tables.
The Company and the Selling Shareholder have been advised by Credit
Suisse First Boston (Europe) Limited, on behalf of the Managers, that the
Managers propose to offer the International Shares outside the United States and
Canada to the public initially at the offering price set forth on the cover page
of this Prospectus and, through the Managers, to certain dealers at such price
less a commission of $ per share and that the Managers and such dealers may
reallow a commission of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and commission and
reallowance may be changed by the Managers.
The offering price and the aggregate underwriting discounts and
commissions per share and per share commission and discount to dealers for the
International Offering and the concurrent U.S. Offering will be identical except
that, in accordance with customary practice with respect to initial public
offerings on the Amsterdam Stock Exchange, institutions admitted to the
AEX-Effectenbeurs N.V. who are not Managers may, in the International Offering,
be allowed a concession not in excess of NLG per share. Pursuant to an Agreement
between the U.S. Underwriters and Managers (the "Intersyndicate Agreement")
relating to the Common Share Offerings, changes in the offering price,
commission and reallowance to dealers will be made only upon the mutual
agreement of Credit Suisse First Boston (Europe) Limited, on behalf of the
Managers, and Credit Suisse First Boston Corporation, as representative of the
U.S. Underwriters.
<PAGE>
-9-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
Pursuant to the Intersyndicate Agreement, each of the Managers has
agreed that, as part of the distribution of the International Shares and subject
to certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any Common Shares or distribute any prospectus relating
to the Common Shares to any person in the United States or Canada or to any
other dealer who does not so agree. Each of the U.S. Underwriters has agreed
that, as part of the distribution of the U.S. Shares and subject to certain
exceptions, it has not offered or sold and may not offer or sell, directly or
indirectly, any Common Shares or distribute any prospectus relating to the
Common Shares to any person outside the United States and Canada or to any other
dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the Managers and the U.S.
Underwriters pursuant to the Intersyndicate Agreement. As used herein, "United
States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension,
profit-sharing or other trust or other entity (including any such entity acting
as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between
the Managers and the U.S. Underwriters of such number of Common Shares as may be
mutually agreed upon. The price of any shares so sold will be the public
offering price less such amount agreed upon by Credit Suisse First Boston
(Europe) Limited, on behalf of the Managers, and Credit Suisse First Boston
Corporation, as representative of the U.S. Underwriters, but not exceeding the
selling concession applicable to such shares. To the extent there are sales
between the Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement, the number of shares of Common Shares initially available for sale by
the Managers or by the U.S. Underwriters may be more or less than the amount
appearing on the cover page of this Prospectus. Neither the Managers nor the
U.S.
<PAGE>
-10-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
Underwriters are obligated to purchase from the other any unsold Common Shares.
Each of the Managers and the U.S. Underwriters severally represents
and agrees that (i) it has not offered or sold, and prior to the date six months
after the date of issue of the Common Shares will not offer or sell any Common
Shares to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Common Shares in, form or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue and pass on in the United Kingdom any document received by it in
connection with the issue of the Common Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
The Company, its officers and directors, the Selling Shareholder and
certain other shareholders have agreed (subject to certain exceptions) that they
will not offer, sell, contract to sell, announce an intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file or cause to be filed with
the Securities and Exchange Commission a registration statement under the
Securities Act relating to, any Common Shares or securities or other rights
convertible into or exchangeable or exercisable for Common Shares, without the
prior written consent of Credit Suisse First Boston Corporation, for a period of
180 days after the date of this Prospectus.
The Company and the Selling Shareholder have agreed to indemnify the
Managers and the U.S. Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
Managers and the U.S. Underwriters may be required to make in respect thereof.
<PAGE>
-11-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
At the request of the Company, the Managers and the U.S.
Underwriters have reserved up to Common Shares for sale at the initial offering
price to certain directors, officers and employees (current and former) of the
Company and its subsidiaries. The number of Common Shares available to the
general public will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares that are not so purchased by such persons at the
closing of the Common Share Offerings will be offered by the Managers and the
U.S. Underwriters to the general public on the same terms as the other shares
offered by this Prospectus.
The Managers and the Representatives of the U.S. Underwriters have
informed the Company and the Selling Shareholder that they do not expect
discretionary sales by the Managers and the U.S. Underwriters to exceed 5% of
the Common Shares offered hereby.
The Issuer intends to apply to list the Common Shares in bearer form
on the Official Market of the Amsterdam Stock Exchange. The Issuer intends to
apply to list the Common Shares on the New York Stock Exchange.
Prior to the Common Share Offerings, there has been no public market
for the Common Shares. The initial public offering price for the Common Shares
will be determined by negotiations among the Company, the Selling Shareholder
and the [Representatives]. In determining such price, consideration will be
given to various factors, including market conditions for initial public
offerings, the history of and prospects for the Company's business, the
Company's past and present operations, its past and present earnings and current
financial position, an assessment of the Company's management, the market of
securities of companies in businesses similar to those of the Company, the
general condition of the securities markets and other relevant factors. There
can be no assurance that the initial public offering price will correspond to
the price at which the Common Shares will trade in the public market subsequent
to the Common Share Offerings or that an active trading market for the Common
Shares will develop and continue after the Common Share Offerings.
Certain of the Managers and the U.S. Underwriters
have from time to time performed, and continue to perform,
<PAGE>
-12-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
financial advisory, investment banking and commercial banking services to the
Company or Praxair, for which customary compensation has been received.
<PAGE>
-13-
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
[Back Cover]
The back cover of the International Prospectus will be blank.
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
SEC registration fee........................................ $ 45,455
NASD filing fee............................................. 15,500
New York Stock Exchange listing fees........................ *
Amsterdam Stock Exchange listing fees....................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent fees and expenses............................ *
Blue Sky fees and expenses
(including counsel fees).................................. *
Miscellaneous............................................... *
Total................................................. $ *
--------
========
- --------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
Chicago Bridge & Iron Company N.V. ("the Issuer") is
a Netherlands corporation.
The Articles of Association of the Issuer, as amended, provide for
indemnification of directors and officers to the fullest extent permitted by the
law of The Netherlands.
The form of Underwriting Agreement to be filed as Exhibit 1.1 to
this Registration Statement will contain certain provisions for indemnification
of directors and officers of the Company and the Underwriters against civil
liabilities under the Securities Act.
The Issuer intends to enter into indemnification agreements with
certain of its directors providing for indemnification to the fullest extent
permitted by the law of The Netherlands. These agreements provide for specific
procedures to better assure the directors' rights to indemnification, including
procedures for directors to submit claims, for determination of directors'
entitlement to indemnification (including the allocation of the burden of proof
and selection of a reviewing party), and for enforcement of directors'
indemnification rights. The Company will also obtain officers' and
II-1
<PAGE>
directors' liability insurance in amounts that it believes are
reasonable under the circumstances.
Article 25 of the Articles of Association of the registrant also
provides that, to the fullest extent permitted by the law of The Netherlands,
directors of the Issuer will not be personally liable for monetary damages for
breach of a direc-tor's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for any transaction
from which the director derived an improper personal benefit or (iv) for
personal liability which is imposed by the law of The Netherlands, as from time
to time amended.
Item 15. Recent Sales of Unregistered Securities.
Since its inception on November 22, 1996, the Issuer has made the
following sales of unregistered securities:
On November 22, 1996, upon its formation, the Issuer issued
10,000,000 Common Shares to Chi Bridge Holdings, Inc. in exchange for a capital
contribution of NLG 100,000 (approximately $59,150, calculated on the basis of
the exchange rate published in The Wall Street Journal on November 22, 1996).
All of the securities described above were issued without
registration under the Securities Act of 1933, as amended, in reliance upon the
exemption provided by Section 4(2) of that Act. No underwriting commissions were
paid in connection with such issuance.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following Exhibits are numbered in accordance with the
Exhibit Table of Item 601 of Regulation S-K.
1. Form of Underwriting Agreement.*
3. Articles of Association of the Issuer (English
translation).}
4.1 Specimen Stock Certificate.*
5. Form of Opinion of Loeff Claeys Verbeke as to the
validity of the Common Shares being offered,
including consent.*
II-2
<PAGE>
8.1 Form of Opinion of Cahill Gordon & Reindel as to
certain U.S. tax matters relative to the Common
Shares, including consent.*
8.2 Form of Opinion of Loeff Claeys Verbeke as to cer-
tain Netherlands tax matters relative to the Common
Shares, including consent.*
10.1 Form of Indemnification Agreement between the
Issuer and its Supervisory Directors.*
10.2 The Company's Employee Share Purchase Plan.*
10.3 The Company's Annual Incentive Bonus Plan.*
10.4 The Company's Omnibus Plan.*
10.5 The Company's Deferred Compensation Plan.*
10.6 The Company's 401(k) Retirement Plan.*
10.7 The Company's Excess Benefit Plan.*
10.8 The Company's Supplemental Executive Death Benefit
Plan.*
10.9 Form of Employment Agreements including Special Stock-Based,
Long-Term Compensation Related to the Common Share Offering
between the Company and certain executive officers.*
10.10 Form of Termination Agreement between the Company
and certain executive officers.*
11. Computation of earnings per share.*
21. List of subsidiaries of the Issuer.*
23.1 Consent of Independent Public Accountants.
23.2 Consents of Loeff Claeys Verbeke (certain consents included as
part of Exhibits 5* and 8.2*).
23.3 Consent of Cahill Gordon & Reindel (included as
part of Exhibit 8.1).*
II-3
<PAGE>
24. Powers of Attorney.}
27. Schedule of Summary Financial Information.}
- ----------------------
* To be filed by amendment.
} Previously filed.
(b) Financial Statement Schedules
Schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
1. To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Issuer pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than payment by the Issuer of
expenses incurred or paid by a director, officer or controlling person of the
Issuer in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
3. That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of
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<PAGE>
Prospectus filed by the Issuer pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
4. That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
5. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Danbury, State of Connecticut, on February 10, 1997.
CHICAGO BRIDGE & IRON COMPANY N.V.
By: /s/ Robert F.X. Fusaro
------------------------
Robert F.X. Fusaro
Managing Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert F.X. Fusaro Managing Director February 10, 1997
- ----------------------
Robert F.X. Fusaro
/s/ James S. Sawyer Managing Director February 10, 1997
- ----------------------
James S. Sawyer
Registrant's Agent for
Service in the United States
/s/ Robert H. Wolfe February 10, 1997
- ----------------------------
Robert H. Wolfe
II-6
<PAGE>
Exhibit Index
1. Form of Underwriting Agreement.*
3. Articles of Association of the Issuer (including
English translation)}
4.1 Specimen Stock Certificate.*
5. Form of Opinion of Loeff Claeys Verbeke as to the
validity of the Common Shares being offered,
including consent.*
8.1 Form of Opinion of Cahill Gordon & Reindel as to
certain U.S. tax matters relative to the Common
Shares, including consent.*
8.2 Form of Opinion of Loeff Claeys Verbeke as to cer-
tain Netherlands tax matters relative to the Common
Shares, including consent.*
10.1 Form of Indemnification Agreement between the
Issuer and its Supervisory Directors.*
10.2 The Company's Employee Share Purchase Plan.*
10.3 The Company's Annual Incentive Bonus Plan.*
10.4 The Company's Omnibus Plan.*
10.5 The Company's Deferred Compensation Plan.*
10.6 The Company's 401(k) Retirement Plan.*
10.7 The Company's Excess Benefit Plan.*
10.8 The Company's Supplemental Executive Death Benefit
Plan.*
10.9 Form of Employment Agreements including Special Stock-Based,
Long-Term Compensation Related to the Common Share Offering
between the Company and certain executive officers.*
10.10 Form of Termination Agreement between the Company
and certain executive officers.*
11. Computation of earnings per share.*
<PAGE>
21. List of subsidiaries of the Issuer.*
23.1 Consent of Independent Public Accountants.
23.2 Consents of Loeff Claeys Verbeke (certain consents included as
part of Exhibits 5* and 8.2*).
23.3 Consent of Cahill Gordon & Reindel (included as
part of Exhibit 8.1).*
24. Powers of Attorney.}
27. Schedule of Summary Financial Information.}
- ----------------------
* To be filed by amendment.
} Previously filed.
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
dated December 16, 1996 (and to all references to our Firm) included in or made
part of this Registration Statement on Form S-1.
Arthur Andersen LLP
Chicago, Illinois
February 10, 1997
Exhibit 23.2
To: Chicago Bridge & Iron Company N.V.
P.O. Box 74658
1070 BR Amsterdam
Amsterdam, 10 February 1997
Dear Sirs:
Re: Chicago Bridge & Iron Company N.V.
Offer of Common Shares
I, on behalf of Loeff Claeys Verbeke, hereby consent to the use of our
name and the description of our advice under the heading "Service of Process and
Enforcement of Civil Liabilities" in the Registration Statement and in the
prospectus included therein, and to the filing of this letter as an exhibit to
the Registration Statement. In giving such consent, Loeff Claeys Verbeke does
not thereby admit that it is within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Yours faithfully,
/s/ N.R. van de Vijver
N.R. van de Vijver
