<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 1-12815
CHICAGO BRIDGE & IRON COMPANY N.V.
Incorporated in The Netherlands IRS Identification Number: NONE
Principle Executive Office:
Koningslaan 34
1075 AD Amsterdam
The Netherlands
31-20-5789588
(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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- ------
The number of shares outstanding of a single class of common stock as of
September 30, 1997 - 12,517,552
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
----
<S> <C>
Consolidated Financial Statements
Statements of Income
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996 3
Balance Sheets
September 30, 1997 and December 31, 1996 4
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
PART II. OTHER INFORMATION 13
SIGNATURE PAGE 14
</TABLE>
2
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 166,755 $ 183,021 $ 477,500 $ 483,531
Cost of revenues 158,204 163,436 434,082 430,523
----------- ----------- ----------- -----------
Gross profit 8,551 19,585 43,418 53,008
Selling and
administrative expenses 11,096 10,748 33,436 32,248
Management Plan charge - - 16,662 -
Other operating
(income) expense (4,053) 298 (4,356) (381)
----------- ----------- ----------- -----------
Income (loss) from
operations 1,508 8,539 (2,324) 21,141
Interest expense (506) (1,235) (3,131) (3,787)
Other income 369 433 1,233 581
----------- ----------- ----------- -----------
Income (loss) before
taxes and minority
interest 1,371 7,737 (4,222) 17,935
Income tax expense
(benefit) 384 2,016 (2,990) 4,674
----------- ----------- ----------- -----------
Income (loss) before
minority interest 987 5,721 (1,232) 13,261
Minority interest in
income (loss) (125) 348 (143) 2,331
----------- ----------- ----------- -----------
Net income (loss) $ 1,112 $ 5,373 $ (1,089) $ 10,930
=========== =========== =========== ===========
Net income (loss) per
common share (1) $ 0.09 N/A(2) $ (0.09) N/A(2)
Weighted average
common shares
outstanding (1) 12,517,552 N/A 12,517,552 N/A
Dividends on
common shares
Amount $ 751 N/A $ 1,502 N/A
Per share $ 0.06 N/A $ 0.12 N/A
</TABLE>
(1) Net income (loss) per common share and the weighted average common shares
outstanding for 1997 are presented as if the Offering and the
Reorganization, hereinafter defined, had occurred at the beginning of the
year.
(2) Net income (loss) per common share is not presented for 1996 as the
Reorganization had not taken place. Giving effect to the Offering and the
Reorganization as if each had occurred at the first day of the year,
net income per common share would have been $0.43 for the three months
ended September 30, 1996 and $0.87 for the nine months ended September
30, 1996.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
3
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
<S> <C> <C>
Current assets
Cash and cash equivalents $ 17,751 $ 11,864
Accounts receivable, net of allowance
for doubtful accounts of $2,273 in 1997
and $3,047 in 1996 131,925 101,675
Contracts in progress with earned revenues
exceeding related progress billings 56,646 79,782
Assets held for sale 4,522 5,374
Other current assets 7,176 7,364
-------- --------
Total current assets 218,020 206,059
-------- --------
Assets held for sale - 5,118
Property and equipment 121,598 107,875
Goodwill 18,661 19,027
Other non-current assets 14,210 13,417
-------- --------
Total assets $372,489 $351,496
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 1,292 $ 3,114
Accounts payable 38,041 24,804
Accrued liabilities 45,620 44,513
Contracts in progress with progress billings
exceeding related earned revenues 58,532 34,727
Payable to former Parent Company - 6,008
Income taxes payable 2,892 4,440
-------- --------
Total current liabilities 146,377 117,606
-------- --------
Long-term debt 42,000 53,907
Minority interest in subsidiaries 5,642 7,428
Other non-current liabilities 77,873 81,809
-------- --------
Total liabilities 271,892 260,750
-------- --------
Shareholders' equity
Common stock; NLG .01 par value,
50,000,000 authorized shares; 12,517,552
issued and outstanding shares 74 -
Common stock; $1 par value, 1,000 authorized
shares; 1,000 issued and outstanding shares - 1
Additional paid-in capital 94,606 79,958
Retained earnings 8,971 11,562
Cumulative translation adjustment (3,054) (775)
-------- --------
Total shareholders' equity 100,597 90,746
-------- --------
Total liabilities and shareholders' equity $372,489 $351,496
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
4
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (1,089) $ 10,930
Adjustments to reconcile net income to net
cash provided by operating activities
Management Plan charge 16,662 -
Depreciation and amortization 12,882 12,605
Increase in prepaid income taxes (7,061) -
(Gain)/loss on sale of fixed assets (1,095) 354
Change in operating assets and
liabilities (see below) 22,514 (1,703)
-------- --------
Net cash provided by operating activities 42,813 22,186
-------- --------
Cash flows from capital investment activities
Proceeds from sale of fixed assets and assets
held for sale 11,030 6,583
Capital expenditures (26,717) (8,075)
-------- --------
Net cash used in capital investment activities (15,687) (1,492)
-------- --------
Cash flows from financing and shareholder activities
Payment to former Parent Company (6,008) (12,972)
Decrease in notes payable (1,822) (559)
Net repayment of long-term debt to former
Parent Company (53,907) -
Net borrowings under Revolving Credit Facility 42,000 -
Dividends paid (1,502) -
-------- --------
Net cash used in financing and
shareholder activities (21,239) (13,531)
-------- --------
Increase in cash and cash equivalents 5,887 7,163
Cash and cash equivalents, beginning of the period 11,864 12,850
-------- --------
Cash and cash equivalents, end of the period $ 17,751 $ 20,013
======== ========
Change in operating assets and liabilities
(Increase)/decrease in receivables, net $(30,250) $ 14,421
(Increase)/decrease in contracts in progress, net 46,941 (23,369)
Decrease in other current assets 188 4,435
Increase in accounts payable & accrued liabilities 11,419 780
Decrease in income taxes payable (1,548) -
Other, net (4,236) 2,030
-------- --------
Total $ 22,514 $ (1,703)
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
5
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(in thousands, except share data)
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements for Chicago Bridge
& Iron Company N.V. and Subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited
interim consolidated financial statements should be read in conjunction with
the full year consolidated financial statements and notes thereto included in
the Company's Registration Statement, filed on Form S-1 (No. 333-18065), as
amended.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and cash
flows for the period then ended have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year.
Common Share Offering
In December 1996, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of a majority
of the Company's common shares (the "Offering"). In March 1997, the Company
completed the Offering of 11,045,941 shares of Common Stock at $18.00 per
share. The Company did not receive any proceeds from the Offering, but
incurred $2,000 of the offering costs. These shares of Common Stock are traded
on the New York and Amsterdam Stock Exchanges.
Reorganization
At December 31, 1996, Chicago Bridge & Iron Company and Subsidiaries ("CB&I")
was a wholly owned subsidiary of Chi Bridge Holdings, Inc. ("Holdings"), which
in turn was a wholly owned subsidiary of Praxair, Inc. ("Praxair"). In March
1997, Holdings effected a reorganization (the "Reorganization") whereby
Holdings transferred the business of CB&I to Chicago Bridge & Iron Company N.V.
("CB&I N.V."), a corporation organized under the laws of The Netherlands. This
Reorganization did not affect the carrying amounts of CB&I's assets and
liabilities, nor result in any distribution of their cash or other assets to
Praxair. The consolidated balance sheet as of September 30, 1997, reflects the
Reorganization. CB&I N.V.'s only transaction for the year ended December 31,
1996, was a $59 original investment in exchange for common shares and
additional paid-in capital. The consolidated balance sheet as of December 31,
1996, and the
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consolidated income statement and statement of cash flows for the period ended
September 30, 1996, include the amounts of CB&I prior to the Reorganization.
2. LONG-TERM DEBT
Through April 2, 1997, the Company's cash requirements were funded by Praxair
through the long-term debt account. Interest was payable to Praxair at 7% per
annum. Also, approximately $22,000 of letters of credit were outstanding at
September 30, 1997, related to the Company's insurance program, and are
guaranteed by Praxair. In addition, the Company had $3,075 of letters of
credit outstanding related to the Company's insurance program.
On April 2, 1997, the Company, The Chase Manhattan Bank and a syndicate of
other banks entered into a five year senior, unsecured competitive advance and
revolving credit facility (the "New Revolving Credit Facility"). Maximum
availability under the New Revolving Credit Facility is $100,000 for the first
three years and $50,000 thereafter. The Company initially borrowed $75,000
thereunder to repay the long-term debt to Praxair as of April 2, 1997. The
unused available committed amounts under the New Revolving Credit Facility will
be available for general corporate purposes, including working capital, letters
of credit and other requirements of the Company. Revolving credit loans are
available at interest rates based upon the lenders' alternate base rate or a
spread ranging from 0.325% to 0.875% (based on the Company's debt coverage
ratio) over LIBOR or on a competitive bid basis. At September 30, 1997, the
weighted average interest rate was 6.31%. Letters of credit may be issued,
subject to a $35,000 sublimit, on either a committed or competitive bid basis
and expire one year after issuance, unless otherwise provided. The New
Revolving Credit Facility will terminate on April 2, 2002.
The New Revolving Credit Facility contains certain restrictive covenants
regarding tangible net worth, interest coverage and leverage ratios, and
capital expenditures, among other restrictions. The New Revolving Credit
Facility was amended to increase the restriction on capital expenditures for
1997 from $22.5 million to $33.0 million.
On September 30, 1997, the Company deposited $11,000 in an irrevocable trust.
These funds were invested in a U.S. Treasury Fund maturing on October 3, 1997,
to be applied to borrowings under the New Revolving Credit Facility on that
date; accordingly, long-term debt at September 30, 1997, was reduced by this
amount to $42,000.
3. INCOME TAXES
Prior to the Reorganization, the consolidated amount of current and deferred
tax expense was allocated among the members of the Praxair group using the
pro-rata method, which assumed the Company's taxes would be filed as part of
Praxair's consolidated return. In conjunction with the Offering, the Company
became a stand-alone entity and, therefore, subsequent to March 26, 1997, the
consolidated amount of current and deferred tax expense will be calculated
using a separate return approach. The separate return approach is not expected
to result in significant adjustments to the tax accounts.
The Company had a net deferred tax asset before valuation allowance of $33,902
and $27,544 at September 30, 1997, and December 31, 1996, respectively. The
increase in the deferred tax
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assets is a result of the tax benefit associated with the Management Plan
charge (Note 4). The net deferred tax asset at September 30, 1997, and
December 31, 1996, was reduced by a valuation allowance of $27,155.
4. THE MANAGEMENT PLAN
The Company established the Chicago Bridge & Iron Management Defined
Contribution Plan (the "Management Plan") in early 1997. The Management Plan
is not qualified under Section 401(a) of the Internal Revenue Code ("the Code")
and each participant's account shall be treated as a separate account under
Section 404(a) (5) of the Code. The number of initial participants was
seventy-one. 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 were determined by the Company's Management Board. The
allocation to the participant's individual accounts occurs concurrently with
the Company's contributions. Management Plan shares will vest as determined by
the vesting provisions of the plan. 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.
Upon consummation of the Offering, the Company made a contribution to the
Management Plan in the form of 925,670 Common Shares having a value of $16,662.
Accordingly, the Company recorded expense of $16,662 ("Management Plan
charge") in the three months ended March 31, 1997.
5. STOCK OPTIONS
In conjunction with the Offering, the Company reserved 1,251,755 Common Shares
for issuance under the long-term incentive compensation plan (the "Incentive
Plan") adopted by the Company's Delaware subsidiary, Chicago Bridge & Iron
Company ("Bridge"). In conjunction with the Offering, Bridge granted 513,348
options to purchase Common Shares (the "Options") at an exercise price equal to
the initial offering price of $18.00 per common share. The Options are
exercisable after April 2, 2000, at the earliest subject to achievement of a
cumulative earnings per share for the three year period from 1997 through 1999
of at least $6.25 per Common Share (excluding the $16,662 Management Plan
charge discussed in Note 4 above), or if not achieved, on any succeeding April
2 if such goal, compounded an additional 15% per year, is achieved as of the
end of the fiscal year then ended preceding such April 2 date, and if never so
achieved, then automatically after nine years from their date of grant. The
Incentive Plan has a life of five years for the purpose of making grants or
awards. As of September 30, 1997, net of forfeitures, 746,102 Common Shares
remained available for issuance under the Incentive Plan.
To value the Options, the Company applied the intrinsic value approach under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation." Accordingly, no compensation expense has been
recognized for the stock option plans.
8
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6. COMMITMENTS AND CONTINGENT LIABILITIES
See Part II - Legal Proceedings for an update of Aluminum Company of America v.
Beazer East, Inc. v. Chicago Bridge & Iron Company. As a result of the
September 2, 1997, favorable judgment, the Company recognized $3.4 million of
other operating income for the three months ended September 30, 1997.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
Revenues for the third quarter of 1997 were $166.8 million compared with $183.0
million in the third quarter of 1996. For the first nine months of 1997,
revenues of $477.5 million were 1.2% lower than the $483.5 million earned in
the first nine months of 1996. Revenues for the nine months of 1997 were lower
than the comparable period of 1996 due to a decline in volume at CB&I
Constructors (headquartered in Houston) and CBI Services. This decline was
substantially offset by higher earned revenues in the Asia Pacific, and Europe,
Africa and Middle East areas. Revenues earned outside of North America for the
first nine months of 1997 were approximately 55% of the total revenues compared
with 48% for the comparable period of 1996.
New business taken for the quarter ended September 30, 1997, was $173.1
million, a 24% increase over the third quarter of 1996. For the nine months
ended September 30, 1997, new business taken of $561.1 million was 18% greater
than the $474.3 million reported in the first nine months of 1996. Over 60% of
the new business taken during the nine months was for contracts awarded outside
of North America.
Backlog at September 30, 1997, increased $102.4 million or 22.4% to $559.0
million, compared with a backlog of $456.6 million at September 30, 1996, and
was $73.3 million or 15.1% higher than the $485.7 million backlog reported at
December 31, 1996. At September 30, 1997, over 55% of backlog was for work to
be performed outside of North America.
Gross profit for the three months ended September 30, 1997, amounted to $8.6
million or 5.1% of revenues compared with $19.6 million or 10.7% in the prior
year quarter. For the nine-month period, gross profit decreased by $9.6 million
to $43.4 million or 9.1% of revenues compared with $53.0 million or 11.0% for
the comparable period of 1996.
Selling and administrative expenses increased to $33.4 million (7.0% of
revenues) from $32.2 million (6.7% of revenues) in the nine months of 1996.
The increase in selling and administrative expense is a result of increased
administrative expenses required as an independent company.
As reported earlier this year, the Company recorded a one-time, non-cash
Management Plan charge of $16.7 million ($10.1 million net of tax) related to
the contribution of common shares to a management compensation program
in connection with the Company's recent initial public offering. The objective
of this plan is to align executive compensation with shareholder value. Other
operating income for the three months ended September 30, 1997, was favorably
impacted by non-recurring income of approximately $4.1 million from the
resolution of disputed liabilities and recognition of income related to a
favorable appeals court decision. The third quarter of 1997 was also
positively impacted by an $0.8 million reduction in the cost of revenues for
the capitalization of tools previously expensed during the first half of 1997.
In addition, nine-month
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1997 other operating income includes a $1.1 million gain from the sale of
assets, primarily from the sale of the Cordova, Alabama, manufacturing
facility, partially offset by $0.8 million increase in litigation reserves.
Income from operations for the third quarter of 1997 was $1.5 million compared
with $8.5 million in the third quarter of 1996. For the first nine months of
1997 the loss from operations was $2.3 million. Excluding the one-time,
non-cash Management Plan charge, income from operations was $14.3 million for
the nine months ended September 30, 1997, compared with $21.1 million in the
nine months ended September 30, 1996.
Third quarter 1997 income from operations was negatively impacted by an
operating loss at CB&I Constructors. This loss resulted from start-up problems
associated with the expansion of the Houston fabricating facility and
implementation of new integrated computerized systems being piloted at Houston.
These factors have resulted in additional costs and delays in some materials
reaching construction sites, thereby resulting in lower operating income and
postponing the recognition of revenue. Based on third quarter 1997 results and
more in-depth examination of contracts, the Company recognized it will incur
additional costs to complete existing contracts. The Company anticipates CB&I
Constructors' will operate near break-even in the fourth quarter. In light of
the third quarter 1997 results and considering the increasingly competitive
market conditions in North America, the Company expects U.S. operations will be
less profitable for 1998 than originally anticipated.
Interest expense was $3.1 million for the nine months of 1997 compared with
$3.8 million in the comparable period of 1996. This decrease is due to lower
debt levels, lower interest rates and $0.3 million of capitalized interest
costs. Other income consists primarily of interest earned on cash balances at
foreign subsidiaries.
For the nine months ended September 30, 1997, income tax expense decreased $7.7
million to a net income tax benefit of $3.0 million compared with income tax
expense of $4.7 million in the comparable period of the prior year. The
decrease in income tax expense between periods is mostly attributable to the
decrease in the taxable income as a result of the one-time, non-cash Management
Plan charge. Excluding the Management Plan charge, income tax expense would
have been $3.6 million for the first nine months of 1997.
Minority interest in income decreased for both the three and nine months ended
September 30, 1997, compared with the same periods of 1996. This was mainly
due to lower contract volume and profitability of the Company's less than 100%
owned consolidated entities operating in Asia and the Middle East.
Net income for the three months ended September 30, 1997, was $1.1 million or
$0.09 per share compared with $5.4 million for the same period last year. For
the nine months ended September 30, 1997, net income was $9.0 million or $0.72
per share, excluding the effect of the one-time, non-cash Management Plan
charge. Including the one-time, non-cash Management Plan charge, the Company
reported a net loss of $1.1 million or $0.09 per share for the nine-month
period ended September 30, 1997, compared with net income of $10.9 million for
the same period of 1996. Giving effect to the Offering and the Reorganization
as if each had occurred at the first day of the year, net income per share for
the three months and nine months ended September 30, 1996, would have been
$0.43 and $0.87, respectively.
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FINANCIAL CONDITION
For the nine months ended September 30, 1997, the Company generated cash from
operations of $42.8 million. A significant contributor to this positive
operating cash flow was $29.9 million reduction of contract working capital
(accounts receivable plus net contracts in progress less accounts payable).
Capital expenditures for the nine months ended September 30, 1997, were $26.7
million. These expenditures included $15.4 million for the expansion and
improvement of facilities, $7.4 million for field equipment, and $3.9 million
for information systems and other capital expenditures. During the nine months
of 1997, the Company realized $11.0 million in proceeds from the sale of
assets, primarily from the sale of excess manufacturing facilities.
The Company was a subsidiary of CBI Industries, Inc. ("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. As part of the Praxair acquisition, $55 million
of acquisition related indebtedness was assumed by the Company. During 1996
and throughout the first quarter of 1997, Praxair had received from or advanced
funds to the Company to fund its working capital and capital expenditure
requirements. In early 1997, the Company entered into a revolving credit
facility with a syndicate of banks which has a maximum availability of $100
million for three years, to be reduced to $50 million for two years thereafter
(including up to $35 million for letters of credit). In April 1997, the
Company borrowed $75 million under this credit facility to refinance its
long-term debt to Praxair and to fund its own corporate cash management system.
During the second and third quarter, the Company reduced long-term debt, ending
the third quarter with $18 million in cash and $42 million of long-term debt.
Furthermore, in the ordinary course of business, the Company obtains
performance bonds and letters of credit from insurance companies and banks,
which support the Company's performance obligations under contracts to
customers. As of September 30, 1997, there were no material changes to these
obligations compared with the amount at December 31, 1996. However, the
Company intends to replace the $22 million of letters of credit related to the
Company's insurance program, and which are guaranteed by Praxair, by December
31, 1997.
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 working capital and capital expenditure needs for at least the
next 24 months.
The information contained herein includes certain forward-looking statements,
including funding of working capital and capital expenditures, that involve a
number of risks and uncertainties. Actual events or results may differ
materially from the Company's expectations. In addition to matters described
herein, operating risks, risks associated with fixed price contracts, risks
associated with percentage-of-completion accounting, fluctuating revenues and
cash flow and competitive pressures, as well as risk factors listed from time
to time in the Company's reports filed with the Securities and Exchange
Commission (including, but not limited to its Registration Statement on Form
S-1 [No. 333-18065], as amended), may affect the actual results achieved by the
Company.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 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 site. 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 cleanup 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. On September
2, 1997, the U.S. Court of Appeals for the Third Circuit affirmed the judgment
in favor of CB&I. The Company believes that it is unlikely there will be any
further appeals, but if so, it is reasonably likely that it will be successful
in any further appeal and that the costs associated with settlements and any
remaining potential liability will not be material and that other responsible
parties will be available to pay their share of remediation costs and
settlement obligations with respect to the sites. However, there can be no
assurance that the Company will be successful in upholding the judgment in its
favor, that other parties will fulfill their remedial and settlement
obligations or that the settlements and any remaining potential liability will
not have a materially adverse effect on its business, financial condition and
results of operations. The Company believes that an estimate of the possible
loss or range of possible loss relating to such matters cannot be made.
There have been no other material developments in the legal proceedings
described in the Company's Registration Statement on Form S-1 (No. 333-18065),
as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
18. Preferability Letter
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a current report on Form 8-K during the three
months ended September 30, 1997. The Company did file a current
report on Form 8-K on October 14, 1997.
13
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chicago Bridge & Iron Company N.V.
/s/ Timothy J. Wiggins
--------------------------------------
By: Chicago Bridge & Iron Company B.V.
Its: Managing Director
Timothy J. Wiggins
Managing Director
(Principal Financial Officer)
Date: November 10, 1997
14
<PAGE> 1
EXHIBIT 18
November 10, 1997
Chicago Bridge & Iron Company N.V.
1501 North Division Street
Plainfield, Illinois 60544
Re: Form 10-Q Report for the quarter ended September 30, 1997
Gentlemen:
This letter is written to meet the requirements of Regulation S-X calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, effective as of January 1, 1997, the Company
changed its capitalization policy by reducing the dollar threshold for
capitalizing small tools. According to the management of the Company, this
change was made to improve the matching of costs and revenues and to allow the
Company to better control and monitor these construction assets.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our opinion stated
below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under
the circumstances in this particular case. In arriving at this opinion, we
have relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period subsequent to December 31, 1996. Further we have not examined
and do not express any opinion with respect to your financial statements for
the nine months ended September 30, 1997.
Very truly yours,
ARTHUR ANDERSEN LLP
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997, AND THE INCOME STATEMENT FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
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<ALLOWANCES> 2,273
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