<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-18065
10,500,000 Shares
CHICAGO BRIDGE & IRON COMPANY N.V.
LOGO(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 Praxair, Inc. (the "Selling Shareholder"). The Issuer will not
receive any of the proceeds from the sale of shares offered hereby. Of the
Common Shares being offered, 8,400,000 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 2,100,000 shares are initially
being concurrently offered outside the United States and Canada (the
"International Shares") by the Managers (the "International Offering"
and, together with the U.S. Offering, the "Common Share Offering").
Prior to the Common Share Offering, the Issuer was a 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. will continue to own approximately 9%
(and, if the Underwriters exercise their over-allotment option
in full, none) 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.
For information relating to the factors considered in determining the
initial public offering price to the public, see "Underwriting."
The Common Shares have been approved for listing on the New York Stock Exchange
under the symbol "CBI," subject to notice of issuance. The Common Shares in
bearer form have been approved for listing on the Official Market of
the AEX-Effectenbeurs nv (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 12.
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.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions Shareholder(1)
-------- ------------- --------------
<S> <C> <C> <C>
Per Share(2).......................... $18.00 $0.92 $17.08
Total(3).............................. $189,000,000 $9,686,250 $179,313,750
</TABLE>
(1) Before deducting expenses payable by the Issuer and the Selling
Shareholder estimated at $2,000,000 and $950,000, respectively.
(2) The price per Common Share in Dutch guilders will be the Dutch guilder
equivalent of the U.S. dollar price per Common Share based on the noon
buying rate in New York City for cable transfers into Dutch guilders as
certified for customs purposes by the Federal Reserve Bank of New York on
the pricing date.
(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 1,091,882
additional Common Shares to cover over-allotments of shares. If such
option is exercised in full, the total Price to Public will be
$208,653,876, Underwriting Discounts and Commissions will be $10,693,511
and Proceeds to Selling Shareholder will be $197,960,365.
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 April 2, 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.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
UBS SECURITIES
Prospectus dated March 26, 1997.
<PAGE>
[DESCRIPTION OF PHOTOS ON INSIDE FRONT COVER]
[COMPANY LOGO]
[PHOTO OF FLAT BOTTOM TANKS]
Text: CB&I installs tanks on a turnkey basis complete with foundations,
earthwork, coatings, insulation, piping and all mechanical and electrical
controls.
[PHOTO OF EGG SHAPED DIGESTERS]
Text: Transporting egg shaped digesters constructed by CB&I for field
installations.
[PHOTO OF PRESSURE SPHERE]
Text: CB&I builds pressure spheres which store large volumes of liquids and
gases under a wide range of pressure and temperature conditions.
[PHOTO OF NEW CRACKING UNIT CONSTRUCTION]
Text: Erection gear end procedures developed by CB&I provide for precise
assembly of vessel components to meet required tolerances.
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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 Chicago
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 Praxair, 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 Underwriters'
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. Based on its
knowledge of and experience in its industry, 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 1996, the Company generated revenues of $663.7 million, and its project
backlog as of December 31, 1996 was $485.7 million. The Company's operating
income improved to $31.3 million in 1996 from a loss of $30.5 million in 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.
Approximately 60% of the Company's revenues during 1996 were attributable to
petroleum and petrochemical industry-related projects. The Company operates on
a global basis and has the supporting infrastructure to compete in key
geographic markets worldwide. In 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 assembled 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
3
<PAGE>
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 team achieved
estimated cost savings of approximately $10 million in 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 cost
base. The benefits of the Restructuring Program have been an integral component
in the Company's recent improvement in operating income.
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 147 had been eliminated as of December 31, 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, Praxair and
the Company have agreed to compensate approximately 40 to 60 officers and key
management employees of the Company for their services in connection with the
further development and implementation of the Restructuring Program and the
Company's initial public offering. As a result, on or immediately before the
consummation of the Common Share Offering, the Company will adopt the CB&I
Management Defined Contribution Plan (the "Management Plan") and upon
consummation of the Common Share Offering, contribute to the Management Plan
925,670 Common Shares (the "Management Plan Shares"), representing
approximately 7% of the total number of Common Shares outstanding upon
consummation of the Common Share Offering. The Management Plan Shares will vest
three years (and with respect to one participant, two years) after the date of
the Common Share Offering.
4
<PAGE>
BUSINESS STRATEGY
The Company is committed to increasing shareholder value by seeking to build
on the success established in 1996 and growing its business in the global
marketplace through a combination of strategic initiatives including the
following:
. FOCUS ON CORE BUSINESS. 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. Prior
management of the Company's parent pursued a diversification strategy
during the 1980s and 1990s, which included acquisitions of significant,
unrelated businesses. 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.
. CONTINUE COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. 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 products
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 productivity, 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 Company believes it will
improve the management of project profitability through the on-going
implementation of new systems which enhance cost estimating, bidding,
capital utilization and project execution. Under the new systems, project
economics will be 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 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. CB&I's existing
partnering relationships include several with major international 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
preferred supplier to achieve significant cost savings in building and
operating tankage and related systems.
CORPORATE STRUCTURE
Prior to the Company's reorganization described below (the "Reorganization"),
the Company's operations were conducted by Chicago Bridge & Iron Company, a
Delaware corporation ("Old CBIC"), and its subsidiaries. After the
Reorganization, the primary holding company for the Company's U.S. operating
subsidiaries will be a wholly owned Delaware subsidiary of the Issuer ("New
CBIC") formed by a wholly owned subsidiary of the Selling Shareholder ("Bridge
Holdings") and which will become a wholly owned subsidiary of the Issuer in the
Reorganization, and the Company's primary holding company for non-United States
subsidiaries will be Chicago Bridge & Iron Company B.V. ("CBICBV"), a wholly
owned
5
<PAGE>
subsidiary of the Issuer organized under the laws of The Netherlands with its
registered seat in Amsterdam. In the Reorganization (i) the shares of
substantially all of Old CBIC's non-U.S. subsidiaries will be transferred by
dividend to its parent corporation, Bridge Holdings, and contributed to CBICBV
in exchange for newly issued common shares of CBICBV; (ii) the shares of
substantially all of Old CBIC's U.S. subsidiaries will be transferred by
dividend to Bridge Holdings and contributed to New CBIC in exchange for newly
issued common stock of New CBIC; (iii) Bridge Holdings will contribute the
shares held by it of each of New CBIC and CBICBV to the Issuer in exchange for
additional Common Shares of the Issuer; and (iv) New CBIC will assume any
remaining assets and liabilities of Old CBIC. After the Reorganization and
prior to the consummation of the Common Share Offering, Bridge Holdings will be
merged into the Selling Shareholder such that the Selling Shareholder will then
directly own all of the then outstanding Common Shares of the Issuer. Upon
consummation of the Reorganization, both New CBIC and CBICBV will be wholly
owned direct subsidiaries of the Issuer, as set out in the diagram below.
Chart of Post-Reorganization and Post-Offering Structure./(1)/
- --------
(1) If the Underwriters' over-allotment option is exercised in full, the
Selling Shareholder will own no Common Shares, Public Shareholders will own
approximately 93% of the outstanding Common Shares and the Management Plan
will hold approximately 7% of the outstanding Common Shares.
The Issuer, with its corporate seat in Amsterdam, The Netherlands, maintains
its registered office and the principal office of CBICBV at Koningslaan 32-36,
1075 AD Amsterdam, The Netherlands, and their mailing address is P.O. Box
74658, 1070 BR Amsterdam, The Netherlands, and their telephone number at such
address is 31-20-664-4461. The executive office of New CBIC is located at 1501
North Division Street, Plainfield, Illinois 60544, and its telephone number at
that address is (815) 439-6000.
6
<PAGE>
THE OFFERING
<TABLE>
<C> <C> <S>
U.S. Offering..................... 8,400,000 Shares
International Offering............ 2,100,000 Shares
----------
Total........................... 10,500,000 Shares
==========
Common Shares to be Outstanding
After the Common Share
Offering(1)...................... 12,517,552 Shares
</TABLE>
Use of Proceeds.............. The Company will not receive any of the proceeds
from the sale of shares offered hereby.
Listing of Shares............
The Common Shares of New York Registry ("New
York Shares") have been approved for listing on
the New York Stock Exchange (the "NYSE"),
subject to notice of issuance. The Common Shares
in bearer form (the "Bearer Shares") have been
approved for listing on 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.
Bearer Shares will also be delivered to
purchasers' book entry accounts at Nederlands
Centraal Instituut voor Giraal Effectenverkeer
B.V. ("NECIGEF"), Morgan Guaranty Trust Company
of New York, Brussels office, as operator of the
Euroclear System ("Euroclear") and Cedel Bank,
societe anonyme ("Cedel") against payment in
Dutch guilders in same-day funds. Thereafter,
trading of New York Shares effected at the 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 contained in the
agreements governing the Company's indebtedness,
the Issuer currently expects to initially pay a
quarterly dividend of $0.06 per share. The
Issuer's first dividend is expected to be
payable on June 30, 1997 to shareholders of
record at the close of business on June 20,
1997. The declaration of any dividend, including
the amount thereof, generally will be at the
discretion of the Issuer's supervisory and
management boards and, in the
7
<PAGE>
case of annual dividends, the general
shareholders meeting, and will depend on the
Issuer's then financial condition, results of
operations and capital requirements, and such
other factors as such boards or the general
shareholders meeting deem relevant. See
"Dividend Policy."
- --------
(1) Includes 925,670 Common Shares to 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 1,251,755 Common Shares reserved for issuance under the Incentive
Plan (as defined), of which 500,702 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. See "Management--
Compensation and Benefits--Executive Compensation--Long-Term Compensation"
and "Management--Compensation and Benefits--Special Stock-Based, Long-Term
Compensation 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 12, which provides a discussion of the risks involved in an
investment in the Common Shares.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT 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 (including without limitation "Operations by
Geographic Segment" found on pages F-19 and F-38 hereof and "Quarterly
Operating Results (unaudited)" found on page F-21 and "Quarterly Operating
Results" found on page F-41 hereof) 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, 1996 give effect to the Common Share Offering
and the Reorganization 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 Income Statement." 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 Common Share Offering and the
Reorganization been completed as of the beginning of the period indicated, or
to project the Company's results of operations at any future date or for any
future period.
9
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL INFORMATION (1) PRO FORMA (2)
------------------------------------------------------------- -------------
POST-PRAXAIR
PRE-PRAXAIR ACQUISITION ACQUISITION
-------------------------------------------- ------------
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $799,196 $680,541 $762,803 $621,938 $663,721 $663,721
Cost of revenues........ 678,129 630,978 692,266 614,230 590,030 590,030
-------- -------- -------- -------- -------- ----------
Gross profit........... 121,067 49,563 70,537 7,708 73,691 73,691
Selling and
administrative
expenses............... 44,006 44,193 45,503 43,023 42,921 44,821
Special charges......... -- 22,900 (3) 16,990 (4) 5,230 (5) -- --
Gain on the sale of
assets(6).............. (1,062) (118) (11,360) (10,030) (493) (493)
-------- -------- -------- -------- -------- ----------
Income (loss) from
operations............ 78,123 (17,412) 19,404 (30,515) 31,263 29,363
Interest expense........ (1,275) (298) (180) (799) (5,002) (5,002)
Other income............ 4,405 3,056 1,652 1,191 990 990
-------- -------- -------- -------- -------- ----------
Income (loss) before
taxes and minority
interest.............. 81,253 (14,654) 20,876 (30,123) 27,251 25,351
Income tax expense
(benefit).............. 21,882 (6,080) 3,074 (8,093) 7,789 7,037
-------- -------- -------- -------- -------- ----------
Income (loss) before
minority interest..... 59,371 (8,574) 17,802 (22,030) 19,462 18,314
Minority interest in
income................. (2,041) (1,247) (1,359) (3,576) (2,900) (2,900)
-------- -------- -------- -------- -------- ----------
Net income (loss)...... $ 57,330 $ (9,821) $ 16,443 $(25,606) $ 16,562 $ 15,414
======== ======== ======== ======== ======== ==========
Income (loss) per common
share(2)............... N/A N/A N/A N/A N/A $ 1.23
==========
Weighted average number
of common shares
outstanding............ N/A N/A N/A N/A N/A 12,517,552
==========
BALANCE SHEET DATA:
Total assets............ $410,492 $408,936 $359,912 $356,125 $351,496 N/A
Total long-term debt.... 1,000 -- -- -- 53,907 N/A
Total shareholder's
equity................. 222,027 217,231 183,101 186,507 90,746 N/A
CASH FLOW DATA:
Cash flow from operating
activities............. $ 37,571 $ (357) $ 38,447 $(39,151) $ 25,159 N/A
Cash flow from investing
activities............. (37,438) (11,764) 14,051 3,899 (11,348) N/A
Cash flow from financing
activities............. 1,030 2,662 (49,742) 32,012 (14,797) N/A
OTHER FINANCIAL DATA:
Depreciation and
amortization........... $ 12,821 $ 16,178 $ 15,569 $ 16,077 $ 17,281 $ 17,281
EBITDA(7)............... 89,882 21,548 40,603 (19,238) 48,051 46,151
Capital expenditures.... 44,465 19,232 18,772 14,880 20,425 20,425
OTHER DATA:
Number of employees:
Salaried............... 2,036 1,861 1,800 1,663 1,516 1,516
Hourly and craft....... 5,227 4,408 4,852 3,483 4,432 4,432
New business taken(8)... $732,415 $782,606 $648,082 $782,878 $687,227 $687,227
Backlog(8).............. 364,326 449,303 323,343 470,174 485,704 485,704
</TABLE>
10
<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 Common Share Offering and the
Reorganization as if each had occurred on the first day of the period
indicated. See "Unaudited Pro Forma Consolidated Income Statement."
(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.
(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) Gain on the sale of assets primarily represents gains on the sale of
property, plant and equipment. The gain recorded in 1995 primarily 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 the sale of the Company's interest in a
fabrication facility.
(7) EBITDA is defined as income (loss) from operations less gains on the sale
of assets, plus special charges, plus depreciation and amortization
expenses. 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."
(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.
11
<PAGE>
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 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 Company'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."
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FLUCTUATING REVENUES AND CASH FLOW
The Company is dependent upon major construction projects in cyclical
industries, including the petroleum, petrochemical, 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 Company. The selection of, timing of or failure to obtain
projects, the delay in awards of projects, the cancellation of 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 Company's cash flows. In addition, quarterly
results may fluctuate depending on factors including those described above
which may affect the realization by the Company of its backlog. 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."
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE
The Issuer is a holding company and conducts no business operations of its
own. The principal asset of the Issuer is the outstanding stock of its
subsidiaries. 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 earnings and cash
flows are attributable to, such subsidiaries and joint ventures. As a result,
the Issuer's liquidity, and its ability to pay its expenses and meet its
obligations and to pay cash dividends on the Common Shares, are substantially
dependent upon its ability to obtain a flow of funds from such subsidiaries
and joint ventures. There can be no assurance that such subsidiaries and joint
ventures will generate sufficient earnings and cash flows to pay dividends or
otherwise distribute funds to the Issuer to enable the Issuer to meet its
obligations and pay its expenses and dividends. 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. These restrictions, along with restrictions imposed by the terms of
the New Revolving Credit Facility (as defined under the caption "Description
of New Revolving Credit Facility") and other credit arrangements entered into
by the
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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 63% of its new
business taken in 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
interpretations of existing regulations. See "Business--Governmental
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 may enter, 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
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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 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 the Company's revenues, and
accounted for approximately 60% of revenues in 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 principal factor in determining which qualified
contractor is awarded a contract.
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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
Company'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."
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 Company'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 NETHERLANDS
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 may be 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 Netherlands. 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."
OTHER MATTERS RELATED TO COMPANIES INCORPORATED IN THE NETHERLANDS
As a Netherlands "naamloze vennootschap" (N.V.), the Issuer will be subject
to certain requirements not generally applicable to corporations organized in
United States jurisdictions. Among other things, the issuance of shares by an
N.V. 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
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shareholders to another corporate body. The Issuer's shareholders are expected
to authorize, prior to the Common Share Offering, the Issuer's Supervisory
Board (as defined below under "Management") 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 above-mentioned
authorization is expected to expire on or about the date that is five years
from the date of this Prospectus, 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 preemptive rights with respect to, inter
alia, Common Shares which are issued against payment other than in cash nor
with respect to shares issued to employees of the Issuer and its subsidiaries.
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 a wholly owned subsidiary
of Praxair, and prior thereto a 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-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, which totalled approximately $72.7 million of contingent letters
of credit or bank guarantees and $212.3 million of performance bonds as of
December 31, 1996. To the extent the Company cannot obtain new utilization
under such arrangements, the Company may be required to utilize letters of
credit under the New Revolving Credit Facility, if available. Prior to the
consummation of the Common Share Offering, certain stand-by letters of credit
required in connection with the Company's insurance requirements were provided
by or on behalf of Praxair. As of December 31, 1996, such letters of credit
totalled approximately $22 million. The Company will be required to obtain new
letters of credit and indemnify and compensate Praxair with respect to letters
of credit and guarantees provided by Praxair which are not replaced by those
obtained by the Company. Furthermore, the Company has generated significant
revenue from services provided to Praxair, Industries and their 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 VENTURES AND LESS THAN 100% OWNED OPERATIONS
The Company conducts a significant portion of its operations through joint
ventures and less than 100% owned affiliates, all of which the Company
manages. In 1996, the Company recorded $0.9 million in income from
unconsolidated affiliates, and $112.6 million in revenues from consolidated
entities less than 100% owned by the Company, which represented approximately
18% of the Company's total
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consolidated revenues in 1996. At any given time, the revenues or new business
taken of a particular joint venture or less than 100% owned affiliate could be
significant. The Company's joint venture partners and the minority owners of
such affiliates 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 or affiliate if the joint venture, other agreements or governing
law so provide. Although the Company generally manages the operations of its
joint ventures and less than 100% owned affiliates in the same manner as it
manages the operations of its wholly owned affiliates, the Company may be
required to consider the interests of its joint venture partners and the
minority owners of such affiliates in connection with decisions concerning the
operations of the joint ventures and affiliates. The expenses of managing the
operation of each joint venture and affiliate are allocated to such joint
venture or affiliate. All such joint ventures and affiliates are organized as
corporate entities, and the equity holders of such entities, as shareholders,
generally are not subject to liability with respect to the activities of the
joint ventures and affiliates. The Company generally is not liable to any
joint venture or affiliate for activities undertaken on behalf of such joint
venture or affiliate in accordance with authority granted by the joint venture
or affiliate. Although each joint venture and affiliate 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 or minority owner of an affiliate may be
unable to meet its economic or other obligations and that the Company may be
required or choose to fulfill those obligations. See also "--Risks Associated
with Holding Company Structure."
SELLING SHAREHOLDER INFLUENCE OVER THE COMPANY
Upon consummation of the merger of Bridge Holdings into the Selling
Shareholder, the Selling Shareholder will own directly 100% of the outstanding
Common Shares. Upon completion of the Common Share Offering and the
contribution to the Management Plan, the Selling Shareholder will own
approximately 9% (and, if the Underwriters' over-allotment option is exercised
in full, none) of the then outstanding Common Shares. As a result, the Selling
Shareholder may 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. The Registration Rights
Agreement (as defined) 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. 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 and the contribution to the
Management Plan, the Issuer will have 12,517,552 outstanding Common Shares,
including 1,091,882 Common Shares owned by the Selling Shareholder (none if
the Underwriters' over-allotment option is exercised in full) and including
the 925,670 Management Plan Shares as described under "Management--
Compensation and Benefits--Special Stock-Based, Long-Term Compensation Related
to the Common Share Offering". The 10,500,000 Common Shares (11,591,882 if the
Underwriters' over-allotment option is exercised in full) offered hereby will
be eligible for sale in the public market after the completion of the 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
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Corporation. Upon the expiration, or waiver, of the restrictions contained in
such underwriting agreements, 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 transferees)
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 will be determined solely by negotiations among the Issuer,
the Selling Shareholder and the representatives of the Underwriters and will
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 of the
Underwriters 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 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 $11.90 in their investment. Additional dilution may occur
following the exercise by directors, 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.
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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 classified as an
FPHC if in any taxable year (i) 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 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, the Company would be classified as a controlled
foreign corporation if any 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 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."
20
<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.
Based on its knowledge of and experience in its industry, 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, with its corporate seat at Amsterdam, The Netherlands, is a
corporation organized under the laws of The Netherlands, was incorporated in
November 1996 and maintains its registered office 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
New 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.
21
<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 $0.24 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 (as defined below under
"Management") and the Supervisory Board of the Issuer from time to time,
subject to, in the case of annual dividends, 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
such boards or the general meeting of shareholders 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 June 30, 1997 to shareholders of record at the close of business on
June 20, 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, in the case of the Issuer, 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 Issuer'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 Issuer 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 Netherlands may
be reduced by virtue of an applicable income tax convention in effect between
The Netherlands and the country of residence of the recipient of the
dividends. See "Taxation--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 Issuer'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 limits, 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."
22
<PAGE>
DILUTION
Dilution is the reduction in the value of a purchaser'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 December 31, 1996 was $71.8 million or $6.19 per share and, after giving
effect to the Common Share Offering (including the deduction of estimated
offering expenses payable by the Issuer and the contribution of Common Shares
to the Management Plan), was $76.4 million or $6.10 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
(consisting of goodwill). Without taking into account any other changes in
such consolidated net tangible book value after December 31, 1996, other than
to give effect to the sale of the Common Shares offered hereby, purchasers of
Common Shares in the Common Share Offering would experience immediate dilution
of $11.90 per share, which is equal to the difference between the initial
public offering price and the net tangible book value per Common Share as of
December 31, 1996. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial public offering price per share............................. $18.00
Net tangible book value per share as of December 31, 1996 after
giving effect to the Common Share Offering......................... 6.10
------
Dilution per share to purchasers in the Common Share Offering(1).... $11.90
======
</TABLE>
- --------
(1) Includes 925,670 Common Shares to 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, and excludes
1,251,755 Common Shares reserved for issuance under the Incentive Plan, of
which 500,702 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 will be approximately $179 million, after
deducting underwriting discounts and commissions but before estimated offering
expenses payable by the Selling Shareholder. The Company will not receive any
of the proceeds from the sale of Common Shares in the Common Share Offering.
23
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the cash, consolidated short-term debt and
capitalization of the Company at December 31, 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.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
ACTUAL (1) AS ADJUSTED (2)
---------- ---------------
<S> <C> <C>
Cash and cash equivalents........................... $ 11,923 $ 9,923 (3)
======== ========
Short-term notes payable............................ $ 3,114 $ 3,114
-------- --------
Long-term debt to Praxair........................... 53,907 53,907 (4)
-------- --------
Shareholders' Equity:
Common stock, NLG .01 par value, 50,000,000
authorized, 11,591,882 actual shares issued and
outstanding;
12,517,552 as adjusted shares issued and
outstanding (5).................................. 65 74
Additional paid-in capital........................ 79,953 94,606 (3)
Retained earnings................................. 11,562 1,498
Cumulative translation adjustment................. (775) (775)
-------- --------
Total shareholders' equity...................... 90,805 95,403 (6)
-------- --------
Total capitalization.......................... $147,826 $152,424
======== ========
</TABLE>
- --------
(1) Reflects amounts after giving effect to the Reorganization.
(2) Reflects amounts after giving effect to the Reorganization, the Common
Share Offering and the contribution of 925,670 Common Shares to the
Management Plan valued at $16.7 million (which would result in an increase
to Common Stock and Additional paid-in capital) and a related pre-tax
charge of $16.7 million (which would result in an estimated $10.1 million
reduction in Retained earnings, net of tax effect).
(3) The Issuer will not receive any proceeds from the Common Share Offering
but will pay a portion of the offering costs, which portion will not
exceed $2.0 million.
(4) The Company intends to refinance its long-term debt to Praxair with
indebtedness incurred under the New Revolving Credit Facility. As of March
24, 1997, the aggregate amount of such indebtedness outstanding to Praxair
was approximately $77 million.
(5) Excludes Common Shares issuable upon exercise of options to be granted
under the Company's stock option plan.
(6) The $4.6 million net increase in Total shareholders' equity and Total
capitalization reflects the $6.6 million increase resulting from the tax
benefit associated with the contribution to the Management Plan, offset by
the $2.0 million of offering costs to be paid by the Issuer, as described
in footnotes 2 and 3 above.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following table sets forth Selected Consolidated Financial and Other
Data for the periods and as of the dates indicated. The selected consolidated
income statement data for each of the years in the three-year period ended
December 31, 1996 and the selected consolidated balance sheet data as of
December 31, 1996, 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 consolidated income
statement data for the year ended December 31, 1993 have been derived from the
Company's audited financial statements. The selected consolidated income
statement data for the year ended December 31, 1992 and the selected
consolidated balance sheet data as of December 31, 1993 and 1992 have been
derived from the Company's unaudited financial statements.
The selected 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 (including without limitation "Operations by Geographic Segment" found
on pages F-19 and F-38 hereof and "Quarterly Operating Results (unaudited)"
found on page F-21 and "Quarterly Operating Results" found on page F-41
hereof) and other financial information included elsewhere in this Prospectus.
25
<PAGE>
<TABLE>
<CAPTION>
POST-PRAXAIR
PRE-PRAXAIR ACQUISITION (1) ACQUISITION
-------------------------------------------- ------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $799,196 $680,541 $762,803 $621,938 $663,721
Cost of revenues........ 678,129 630,978 692,266 614,230 590,030
-------- -------- -------- -------- --------
Gross profit........... 121,067 49,563 70,537 7,708 73,691
Selling and
administrative
expenses............... 44,006 44,193 45,503 43,023 42,921
Special charges......... -- 22,900 (2) 16,990 (3) 5,230 (4) --
Gain on the sale of
assets(5).............. (1,062) (118) (11,360) (10,030) (493)
-------- -------- -------- -------- --------
Income (loss) from
operations............ 78,123 (17,412) 19,404 (30,515) 31,263
Interest expense........ (1,275) (298) (180) (799) (5,002)
Other income............ 4,405 3,056 1,652 1,191 990
-------- -------- -------- -------- --------
Income (loss) before
taxes and minority
interest.............. 81,253 (14,654) 20,876 (30,123) 27,251
Income tax expense
(benefit).............. 21,882 (6,080) 3,074 (8,093) 7,789
-------- -------- -------- -------- --------
Income (loss) before
minority interest..... 59,371 (8,574) 17,802 (22,030) 19,462
Minority interest in
income................. (2,041) (1,247) (1,359) (3,576) (2,900)
-------- -------- -------- -------- --------
Net income (loss)...... $ 57,330 $ (9,821) $ 16,443 $(25,606) $ 16,562
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets............ $410,492 $408,936 $359,912 $356,125 $351,496
Total long-term debt.... 1,000 -- -- -- 53,907
Total shareholder's
equity................. 222,027 217,231 183,101 186,507 90,746
CASH FLOW DATA:
Cash flow from operating
activities............. $ 37,571 $ (357) $ 38,447 $(39,151) $ 25,159
Cash flow from investing
activities............. (37,438) (11,764) 14,051 3,899 (11,348)
Cash flow from financing
activities............. 1,030 2,662 (49,742) 32,012 (14,797)
OTHER FINANCIAL DATA:
Depreciation and
amortization........... $ 12,821 $ 16,178 $ 15,569 $ 16,077 $ 17,281
EBITDA(6)............... 89,882 21,548 40,603 (19,238) 48,051
Capital expenditures.... 44,465 19,232 18,772 14,880 20,425
OTHER DATA:
Number of employees:
Salaried............... 2,036 1,861 1,800 1,663 1,516
Hourly and craft....... 5,227 4,408 4,852 3,483 4,432
New business taken(7)... $732,415 $782,606 $648,082 $782,878 $687,227
Backlog(7).............. 364,326 449,303 323,343 470,174 485,704
</TABLE>
26
<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) 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.
(3) 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."
(4) 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.
(5) Gain on the sale of assets primarily represents gains on the sale of
property, plant and equipment. The gain recorded in 1995 primarily 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 the sale of the Company's interest in
a fabrication facility.
(6) EBITDA is defined as income (loss) from operations less gains on the sale
of assets, plus special charges, plus depreciation and amortization
expenses. 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."
(7) 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.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following Unaudited Pro Forma Consolidated Income Statement for the year
ended December 31, 1996 gives effect to the Common Share Offering and the
Reorganization as if each had occurred at the beginning of the period
indicated. The Unaudited Pro Forma Consolidated Income Statement is 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," upon 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 $16.7 million.
Accordingly, the Company will record a pretax charge of $16.7 million 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 Unaudited
Pro Forma Consolidated Income Statement for the year ended December 31, 1996.
The Unaudited Pro Forma Consolidated Income Statement is 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
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
Common Share Offering and the Reorganization been completed as of the
beginning of the period 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."
28
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------
PRO FORMA AS
HISTORICAL ADJUSTMENTS ADJUSTED(3)
---------- ----------- -----------
<S> <C> <C> <C>
Revenues............................... $663,721 $ -- $663,721
Cost of revenues....................... 590,030 -- 590,030
-------- ------- ----------
Gross profit......................... 73,691 -- 73,691
Selling and administrative expenses.... 42,921 1,900 (1) 44,821
Gain on sale of assets................. (493) -- (493)
-------- ------- ----------
Income from operations............... 31,263 (1,900) 29,363
Interest expense....................... (5,002) -- (5,002)
Other income........................... 990 -- 990
-------- ------- ----------
Income before taxes and minority
interest............................ 27,251 (1,900) 25,351
Income tax expense (benefit)........... 7,789 (752)(2) 7,037
-------- ------- ----------
Income before minority interest...... 19,462 (1,148) 18,314
Minority interest in income............ (2,900) -- (2,900)
-------- ------- ----------
Net income........................... $ 16,562 $(1,148) $ 15,414
======== ======= ==========
Pro forma net income per common share.. $ 1.23
==========
Pro forma weighted average number of
common shares outstanding............. 12,517,552(4)
==========
</TABLE>
- --------
(1) Reflects an increase of $1.9 million 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 benefit costs
during 1996 of approximately $4 million 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 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--Liquidity and Capital Resources."
(4) Includes 925,670 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 1,251,755 Common Shares reserved for issuance under the Incentive
Plan (as defined), of which 500,702 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. See "Management--
Compensation and Benefits--Executive Compensation--Long-Term Compensation"
and "Management--Compensation and Benefits--Special Stock-Based, Long-Term
Compensation Related to the Common Share Offering."
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and accompanying notes.
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
Old 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 which 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 147
had been eliminated as of December 31, 1996. The Company believes that the
benefits of the Restructuring Program have contributed significantly to the
improvement in operating profitability in 1996 relative to 1995.
Management Plan. Praxair and the Company have agreed 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. Upon consummation of the Common Share
Offering, the Company has agreed to contribute to the Management Plan in the
form of Common Shares having a value of $16.7 million (925,670 Common Shares,
representing approximately 7% of the total number of Common Shares outstanding
upon consummation of the Common Share Offering). 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 $16.7 million 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 full-time to the
Restructuring Program (during 1996, most of these employees returned to
operating duties). In 1995, Industries had also
30
<PAGE>
become involved in defending itself against the ultimately successful takeover
by Praxair. These factors along with contract 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.
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 using the percentage of
completion method. Contract revenues are accrued based generally on the
percentage that costs to date bear to total estimated costs. The cumulative
impact of revisions in total cost 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 and
the related percentages of revenues for the years ended December 31, 1994,
1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
-------------- -------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $762.8 100.0% $621.9 100.0% $663.7 100.0%
Cost of revenues........ 692.3 90.8% 614.2 98.8% 590.0 88.9%
------ ------ ------ ------ ------ ------
Gross profit........... 70.5 9.2% 7.7 1.2% 73.7 11.1%
Selling and
administrative
expenses............... 45.5 6.0% 43.0 6.9% 42.9 6.5%
Special charges......... 17.0 2.2% 5.2 0.8% -- --
Gain on sale of assets.. (11.4) (1.5%) (10.0) (1.6%) (0.5) (0.1%)
------ ------ ------ ------ ------ ------
Income (loss) from
operations............ 19.4 2.5% (30.5) (4.9%) 31.3 4.7%
Interest expense........ (0.2) (0.0%) (0.8) (0.1%) (5.0) (0.8%)
Other income............ 1.7 0.2% 1.2 0.2% 1.0 0.2%
------ ------ ------ ------ ------ ------
Income (loss) before
taxes and minority
interest.............. 20.9 2.7% (30.1) (4.8%) 27.3 4.1%
Income tax expense
(benefit).............. 3.1 0.4% (8.1) (1.3%) 7.8 1.2%
------ ------ ------ ------ ------ ------
Income (loss) before
minority interest..... 17.8 2.3% (22.0) (3.5%) 19.5 2.9%
Minority interest in
income................. (1.4) (0.2%) (3.6) (0.6%) (2.9) (0.4%)
------ ------ ------ ------ ------ ------
Net income (loss)...... $ 16.4 2.1% $(25.6) (4.1%) $ 16.6 2.5%
====== ====== ====== ====== ====== ======
Backlog at period end... $323.3 $470.2 $485.7
====== ====== ======
</TABLE>
31
<PAGE>
The following tables indicate revenues and new business taken by product
line for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES BY PRODUCT LINE
Flat Bottom Tanks...................................... $ 303 $ 253 $ 248
Pressure Vessels....................................... 83 85 82
Low Temperature/Cryogenic Tanks and Systems............ 23 28 60
Elevated Tanks......................................... 55 60 42
Specialty and Other Structures......................... 133 73 117
Repairs and Modifications.............................. 82 68 70
Turnarounds............................................ 84 55 45
------- ------- -------
Total................................................ $ 763 $ 622 $ 664
======= ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
NEW BUSINESS TAKEN BY PRODUCT LINE
Flat Bottom Tanks...................................... $ 207 $ 196 $ 278
Pressure Vessels....................................... 80 86 67
Low Temperature/Cryogenic Tanks and Systems............ 62 204 91
Elevated Tanks......................................... 38 44 46
Specialty and Other Structures......................... 88 122 107
Repairs and Modifications.............................. 76 63 57
Turnarounds............................................ 97 68 41
------- ------- -------
Total................................................ $ 648 $ 783 $ 687
======= ======= =======
</TABLE>
1996 versus 1995
Revenues. Revenues increased $41.8 million, or 6.7%, to $663.7 million in
1996 from $621.9 million in 1995. This increase reflects improvement in
contract activity, primarily in the United States and Central and South
America. Revenues for low temperature and specialty product lines increased,
reflecting contracts for several liquid natural gas ("LNG") storage facilities
and other significant contracts for a wastewater project and a government
research facility. To improve profitability of the Company, during 1996
management focused on improving contract execution and cost reductions. As a
result, management was more selective in pursuing contract opportunities,
which is reflected in the level of new business taken and in the moderate
revenue growth in 1996, and is expected to be reflected in the Company's 1997
results. However, the Company expects to more actively pursue new business
prospects in its principal markets as its Restructuring Program nears
completion.
Backlog at December 31, 1996 increased by approximately $15.5 million to
$485.7 million compared to the backlog at December 31, 1995 of $470.2 million.
New business taken during 1996 decreased by 12.2% to $687.2 million compared
to $782.9 million in 1995 which included approximately $150 million for three
LNG storage facility contracts. During 1996, new contract awards increased
significantly internationally in Asia, the Middle East and South America while
awards decreased in the U.S.
Gross Profit. Gross profit increased $66.0 million to $73.7 million during
1996 from $7.7 million in 1995. Gross profit as a percentage of revenues
("gross margin") increased to 11.1% for 1996 from 1.2% in 1995. The
improvement in gross profit and gross margin in 1996 reflects the results of
the Restructuring Program initiatives which have achieved cost savings of
approximately $10 million, reduced unabsorbed
32
<PAGE>
overhead costs by $10.6 million, improved contract estimation and associated
construction performance and reduced benefit costs, as discussed below.
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 cost base. In addition, gross
profit increased with higher revenues. Gross profit for 1995 was negatively
impacted by approximately $19 million due to the effect of significant losses
on a few contracts, as discussed below.
Income from Operations. Income from operations was $31.3 million in 1996, or
4.7% of revenues, versus a loss of $30.5 million in 1995. The improvement in
income from operations was primarily attributable to the improvement in gross
profit and gross margin described above. Selling and administrative expenses
decreased slightly to $42.9 million from $43.0 million in 1995. Selling and
administrative expenses included higher expenses relating to the Company's
upgrading of its information technology systems and increased incentive
compensation due to improved results, offset by a reduction in benefit costs
and other cost savings. Benefit cost reductions of approximately $4 million
and pension curtailment gains of approximately $1.9 million reduced 1996 cost
of revenues sold and selling and administrative expenses by $4.9 million and
$1.0 million, respectively. 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 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.
Income from operations in 1995 was also impacted by gains from the sale of
assets of $10.0 million and a special charge of $5.2 million.
Interest expense increased $4.2 million, to $5.0 million during 1996 from
$0.8 million in 1995. The increase is primarily a result of $55.0 million of
long-term debt assumed by the Company on January 1, 1996 as part of the
Praxair acquisition.
Income tax expense increased $15.9 million to $7.8 million during 1996 from
an income tax benefit of $8.1 million during 1995. This increase results from
the return to profitable operations in the U.S. and increased profitability in
non-U.S. jurisdictions.
Net income for 1996 was $16.6 million compared to a net loss of $25.6
million in 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 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 $146.9 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 LNG
storage facility contracts in the U.S. and a significant contract to supply
components to a government research facility.
Gross Profit. Gross profit decreased by $62.8 million to $7.7 million in
1995 from $70.5 million in 1994. Gross margin decreased to 1.2% in 1995 from
9.2% in 1994. Gross profit was reduced by approximately $17 million due to
lower revenues and was adversely impacted by $23.6 million of underabsorbed
overhead. In addition, gross profit in 1995 was negatively impacted by
approximately $19 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.
33
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1996, the Company generated cash from
operations of $25.2 million. The Company's operations used cash of $39.2
million for the year ended December 31, 1995. In 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 satisfaction of income tax liabilities.
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 year ended December 31,
1996 were $20.4 million. Such capital expenditures were used primarily for
field equipment (approximately $11 million), information technology and
systems development (approximately $4 million), shop and other equipment
(approximately $2 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. In 1996, the Company transferred $16.1
million net cash to Praxair. In 1995, the Company received $31.0 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, $55.0 million of acquisition related
indebtedness was assumed by the Company. Since then, Praxair has advanced
additional funds to the Company to fund its working
34
<PAGE>
capital and capital expenditure requirements. As of March 24, 1997, the
aggregate amount of such indebtedness outstanding to Praxair was approximately
$77 million. Such indebtedness bears interest at a rate of 7% per annum, which
rate will increase to 7.5% per annum when Praxair ceases to own a majority of
the Company's outstanding shares, and is payable on demand by Praxair on or
after January 1, 1998. The Company has entered into a revolving credit
facility with a syndicate of banks which has a maximum availability of $100.0
million for three years, to be reduced to $50.0 million for two years
thereafter (including up to $35.0 million for letters of credit). The Company
intends to use a substantial portion of the credit availability of such
facility to refinance its long-term debt to Praxair. The terms of the facility
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."
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 December 31, 1996, approximately $72.7 million of contingent
letters of credit or bank guarantees, and $212.3 million of performance bonds
were outstanding. Prior to the Common Share Offering these obligations were
guaranteed by Industries or Praxair. After the Common Share Offering, it is
expected that the Company will obtain such instruments without credit support
from Praxair. In addition, approximately $22 million of letters of credit were
outstanding on behalf of Praxair at December 31, 1996 relating to the
Company's insurance program. It is expected that the Company will replace
these letters of credit with new ones issued on its own behalf. To the extent
Praxair continues to be obligated to financial institutions under the letters
of credit and guarantees of performance bonds, the Company will indemnify
Praxair and compensate it in the form of a guarantee fee. See "Certain
Transactions; Relationship with Praxair."
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 in an amount equal to $10.5 million as of
December 31, 1996.
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 Company is expected to incur additional general and administrative
expenses estimated to be $1.9 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 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.
35
<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.
Based on its knowledge of and experience in its industry, 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 assembly 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
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 December 31, 1996 approximately 147 positions had been
eliminated.
The Restructuring Program has achieved estimated cost savings of
approximately $10 million in 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 cost base. The benefits of the
Restructuring Program have been an integral component in the Company's recent
improvement in operating income.
36
<PAGE>
The following table outlines actions taken in connection with the
Restructuring Program with respect to various facilities:
<TABLE>
<CAPTION>
LOCATION FACILITY ACTION TAKEN
-------- -------- ------------
<S> <C> <C>
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..... Old CBIC headquarters Closed and moved
to Plainfield, Illinois
</TABLE>
- --------
(1) 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.
BUSINESS STRATEGY
The Company is committed to increasing shareholder value by seeking to build
on the success established in 1996 and growing its business in the global
marketplace through a combination of strategic initiatives including the
following:
Focus on Core Business
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. Prior management of the Company's parent pursued a
diversification strategy during the 1980s and 1990s, which included
acquisitions of significant, unrelated businesses. 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 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
37
<PAGE>
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 expertise
in pursuing economies of scale in purchasing 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 worldwide 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. The developing world is
expected to have growing demand for the type of products and services offered
by the Company as energy development, refining and storage become increasingly
important to their economic progress. 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 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.
38
<PAGE>
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 petrochemical 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:
--the continued industrialization of developing countries is creating
demand for storage facilities for crude oil, refined products and
petrochemicals. Accordingly, many significant terminal and refinery
projects, together with ancillary 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
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.
39
<PAGE>
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.
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 a project.
Generally, a high percentage of the Company's skilled craft personnel is local
to the project. The Company manages its work with advanced scheduling tools
and is currently implementing new project management software on a worldwide
basis for further improvement of project cost management and controls.
Global Field Erection
Based on its knowledge of and experience in its industry, 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
40
<PAGE>
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 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 1996, flat bottom tanks accounted
for approximately 37% 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 1.5 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 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, Mexico 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 1996, pressure
vessels accounted for approximately 12% 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
41
<PAGE>
weighing in excess of 700 tons, with thicknesses in excess of six inches. 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-section 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
America, 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.
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 1996, low temperature and cryogenic
structures and systems accounted for approximately 9% 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, petrochemical, natural gas, power generation and
agricultural industries use these systems to store and handle liquid petroleum
gas ("LPG"), propane, propylene, butane, butadiene, anhydrous ammonia, LNG,
methane, ethylene, ethane, oxygen, nitrogen and hydrogen.
Although data on the global market is difficult to obtain, the Company
believes, based on the Hydrocarbon Report, 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.
Elevated Tanks. The Company has been constructing elevated water storage
tanks since 1894. During 1996, elevated tanks accounted for approximately 6%
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, 1996, 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 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 1996, specialty and
other structures accounted for approximately 18% 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.
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<PAGE>
Repairs and Modifications. Repair, maintenance and modification services are
performed primarily on flat bottom tanks and pressure vessels. During 1996,
repairs and modifications accounted for approximately 11% 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 turnaround 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 1996, turnarounds accounted for approximately 7% 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 53% of its
revenues for each of 1995 and 1996, and 40% and 63% 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 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:
<TABLE>
<CAPTION>
REVENUES 1994 1995 1996
-------- ---- ---- ----
(DOLLARS
IN MILLIONS)
<S> <C> <C> <C>
North America................................................... $416 $318 $329
Central and South America....................................... 119 54 91
Europe, Africa, Middle East..................................... 113 111 110
Asia Pacific Area............................................... 115 139 134
---- ---- ----
$763 $622 $664
==== ==== ====
</TABLE>
For a discussion of certain risks associated with international operations
and with currency fluctuations, see "Risk Factors--Risks of International
Operations."
43
<PAGE>
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 Company'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:
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NEW BUSINESS TAKEN TOTAL
-------- --------------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Petroleum................................... $362.7 52.8%
Petrochemical............................... 108.3 15.8%
Governmental entities....................... 65.1 9.5%
Chemical.................................... 51.1 7.4%
Metals and mining........................... 49.6 7.2%
Electric and gas utilities.................. 9.6 1.4%
Pulp and paper.............................. 3.4 0.5%
Other....................................... 37.4 5.4%
------ -----
Total..................................... $687.2 100.0%
====== =====
</TABLE>
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 typically contract 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 parties' 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.
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<PAGE>
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. Backlog
may also fluctuate with currency movements. The Company's backlog was
approximately $485.7 million at December 31, 1996, approximately $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 was 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 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 wastewater
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 $0.7 million, $2.5 million and $3.6 million in 1996, 1995 and
1994, respectively.
45
<PAGE>
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 5,950 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 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:
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY INTEREST
-------- ---------------- --------
<S> <C> <C>
Houston, Texas................ Fabrication plant, warehouse,
engineering, operations and
administrative office Owned
Plainfield, Illinois.......... Engineering, operations and
administrative office Owned
Kankakee, Illinois (1)........ Fabrication plant, warehouse and
office Owned
Fort Saskatchewan, Canada..... Warehouse and operations and
administrative office Owned
Dubai, United Arab Emirates... Engineering, operations and
administrative office Leased
Puerto Ordaz, Venezuela....... Fabrication facility and warehouse Leased
Kwinana, Australia............ Fabrication facility, warehouse, and
office Leased
Ao Udom, Thailand............. Fabrication facility Leased
Batangas, Philippines......... Fabrication facility and warehouse Leased
Cilegon, Indonesia............ Fabrication plant and warehouse Leased
Al Aujam, Saudi Arabia........ Fabrication plant and warehouse Leased
Jebel Ali, United Arab
Emirates..................... Warehouse Leased
Secunda, South Africa......... Fabrication plant and warehouse Leased
</TABLE>
- --------
(1) 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.
46
<PAGE>
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 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 1920s. By the late 1940s, 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.
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<PAGE>
By 1980, the Company had fabricated and erected its first cryogenic,
transonic wind tunnel for a U.S. military 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 55,000 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 petrochemical 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
Company'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 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 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.
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 Company'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 Company'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
48
<PAGE>
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 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. The Company believes that an estimate
of the possible loss or range of possible loss relating to such matters cannot
be made. 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 belief as to the reasonable likelihood of the outcomes 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.
The Company believes that in recent years it has taken a proactive approach
to management of environmental liabilities and minimization of environmental
impacts. The Company'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
49
<PAGE>
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 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. The Company believes
that an estimate of the possible loss or range of possible loss relating to
such matters cannot be made. Although the Company believes that it is
reasonably likely 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.
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 v. CBI Na-Con,
Inc. et al. The Company denies that it is liable. The Company believes that an
estimate of the possible loss or range of possible loss cannot be made. While
the Company believes that the claims are without merit and/or the Company has
valid defenses to such claims and that it is reasonably likely to prevail in
defending against such claims, 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. The Company believes
that an estimate of the possible loss or range of possible loss relating to
such matters cannot be made. 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 belief as to the
reasonable likelihood of the outcomes 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 each of the Consolidated Financial
Statements included elsewhere in this Prospectus.
50
<PAGE>
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."
51
<PAGE>
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.
SEPARATION AGREEMENT
The Company has entered 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 letters of credit which
benefit the Company and will provide certain pension related services and the
Company will provide Praxair with certain environmental and pension related
services. Pursuant to the Separation Agreement, subject to certain exceptions,
the Company will assume and be solely responsible for all known and unknown
past, present and future claims and liabilities of any nature, including
without limitation relating to environmental, health, safety, personal injury,
contractual and product liability matters (collectively, "Liabilities")
arising out of the operations of the Company, its subsidiaries, any other
entities in which any of them hold or held any ownership interest and, as to
liabilities arising prior to the Reorganization, Old CBIC (the "CBI
Companies"), and the Company will indemnify Praxair and its subsidiaries and
affiliates from all such Liabilities. Pursuant to the Separation Agreement,
subject to certain exceptions, Praxair will assume and be solely responsible
for all Liabilities arising out of the operations of Praxair, its subsidiaries
and any other entities in which any of them hold or held any ownership
interest (other than the CBI Companies), and Praxair will indemnify the
Company and its subsidiaries and affiliates from all such 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 through
January 31, 1997, up to the Company's self-retained portion of its insurance
policies during such periods. In addition, the Separation Agreement will place
financial responsibility with the Company for the engineering and construction
businesses of Liquid Carbonic Industries Corporation in Argentina upon its
transfer to the Company.
Under the Separation Agreement, the Company has agreed to use its best
efforts to eliminate, on or before December 31, 1997, Praxair's obligations
under the credit guarantees given by Praxair and letters of credit obtained by
Praxair which benefit the Company. Until December 31, 1997, the Company will
pay Praxair a fee of 1% per annum of the amount of such guarantees
outstanding. Effective January 1, 1998, such fee will equal 2% per annum of
such amount.
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, 1996, the Company
recorded revenues from affiliates of $13.4 million from such services. Gross
profit relating to such revenues, net of overhead costs, was $2.3 million for
the year ended December 31, 1996. 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 and risk management. Charges for these
52
<PAGE>
services 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 $4.7 million
for the year ended December 31, 1996. 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. 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 effect the Reorganization
whereby (i) the shares of substantially all of Old CBIC's non-U.S.
subsidiaries will be transferred by dividend to its parent corporation, Bridge
Holdings, and contributed to CBICBV in exchange for newly issued common shares
of CBICBV; (ii) the shares of substantially all of Old CBIC's U.S.
subsidiaries will be transferred by dividend to Bridge Holdings and
contributed to New CBIC in exchange for newly issued common stock of New CBIC;
(iii) Bridge Holdings will contribute the shares held by it of each of New
CBIC and CBICBV to the Issuer in exchange for additional Common Shares of the
Issuer; and (iv) New CBIC will assume any remaining assets and liabilities of
Old CBIC. After the Reorganization and prior to the consummation of the Common
Share Offering, Bridge Holdings will be merged into the Selling Shareholder
such that the Selling Shareholder will then directly own all of the then
outstanding Common Shares of the Issuer.
TAX DISAFFILIATION AGREEMENT
The Company and Praxair have entered 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 Company 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.
BENEFITS DISAFFILIATION AGREEMENT
The Company and Praxair have entered into an employee benefits
disaffiliation agreement (the "Benefits Agreement") effective upon
consummation of the Common Share Offering, relating to various employee
benefits matters including the allocation and assumption by the parties of
existing liabilities, and cross-indemnifications relating to such allocation
and assumption of liabilities. Among other matters, the Benefits Agreement
relates to defined benefit pension plan and retiree health care and life
insurance obligations. The principal non-contributory tax qualified defined
benefit pension plan in which employees of Old CBIC previously participated
(the "CBI Pension Plan") covered most U.S. salaried employees. Old CBIC's
portion of the net pension cost for the CBI Pension Plan was $4.4 million in
1996. Regular benefit accruals under the CBI Pension Plan for current Company
employees were discontinued as of December 31, 1996, except for certain
increases described under "Other Executive Compensation Programs." The
Company's obligations with respect to various CBI Pension Plan funding
requirements and expenses were fixed at $17.3 million as of December 31, 1996,
by agreement between Old CBIC and Praxair. This obligation is payable by the
Company ratably to Praxair over a twelve year period beginning December 1,
1997, with interest at 7.5%.
Effective January 1, 1997, Old CBIC terminated its participation in the post
retirement health care and
life insurance benefit plans sponsored by Praxair. The Company's obligations
with respect to existing
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<PAGE>
retirees under these plans was fixed at $21.4 million as of December 31, 1996,
by agreement between Old CBIC and Praxair. This obligation is payable ratably
to Praxair over a twelve year period beginning December 1, 1997, with interest
at 7.5%. The future obligation for active Old CBIC employees under these
plans, which amounted to $8.5 million as of December 31, 1996, has been
assumed by the Company.
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 an unspecified number of
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
transferees (the "Registrable Securities"), as well as the right to include
such shares in all registration statements filed by the Issuer under the
Securities Act for the sale of shares solely for cash by the Issuer (other
than certain registration statements relating to the registration of shares
for employee plans (other than the Management Plan) or for dividend
reinvestment plans). 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. Requests
for additional registrations of Registrable Securities must cover Registrable
Securities in the amount of 5% of the Common Shares then outstanding which are
not Management Plan Shares or any lesser percentage if such percentage
represents all outstanding Registrable Securities. The Registration Rights
Agreement also provides that for a period of three years from the date the
Common Share Offering is consummated, if the number of Registrable Securities
which have not yet been registered pursuant to such agreement exceeds 10% of
the outstanding Common Shares which are not Management Plan Shares, the
Selling Shareholder's consent is required prior to the Issuer's registering
additional Common Shares (or similar securities) under the Securities Act. The
right to cause the Company to register Registrable Securities pursuant to the
Registration Rights Agreement is generally assignable to transferees of
Registrable Securities who acquire 10% of the Registrable Securities.
LOANS TO EXECUTIVE OFFICERS AND OTHER TRANSACTIONS WITH MANAGEMENT
On January 7, 1993, an affiliate of the Company made a loan to Thomas L.
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 $153,310. The loan was a home mortgage
loan made in connection with Mr. Aldinger's transfer from the Company's
London, England office to Illinois.
Glenn Group LLC, a consulting company in which Gerald M. Glenn is a
principal, received fees of $172,500 from Praxair in 1996 for consulting
services rendered prior to his employment by the Company.
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<PAGE>
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 and percentage of Common Shares expected to be beneficially
owned by (i) each current nominee for supervisory director of the Issuer and
each executive officer of New 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 current nominees for
supervisory director of the Issuer and all executive officers of New CBIC and
CBICBV as a group. Concurrently with the consummation of the Common Share
Offering, all nominees for supervisory director indicated below are expected
to be appointed to the Issuer's Supervisory Board.
<TABLE>
<CAPTION>
AFTER THE COMMON
BEFORE THE COMMON SHARE OFFERING 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>
Praxair, Inc............ 11,591,882 100% 1,091,882 8.7%
39 Old Ridgebury Road
Danbury, CT 06810-5113
Gerald M. Glenn......... 0 0% 462,835 3.7%
Nominee for Chairman of
the Supervisory Board
of the Issuer,
President and Chief
Executive Officer of
New CBIC, Managing
Director of CBICBV
Thomas L. Aldinger...... 0 0% 110,298 *
Vice President of New
CBIC
Stephen M. Duffy........ 0 0% 18,383 *
Vice President of New
CBIC
Timothy J. Wiggins...... 0 0% 110,298 *
Vice President of New
CBIC, Managing Director
of CBICBV
Robert H. Wolfe......... 0 0% 36,766 *
Vice President, General
Counsel and Secretary
of New CBIC
Jerry H. Ballengee...... 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
J. Dennis Bonney........ 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
J. Charles Jennett...... 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
Vincent L. Kontny....... 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
Gary L. Neale........... 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
L. Donald Simpson....... 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
Marsha C. Williams...... 0 0% 0 0%
Nominee for Supervisory
Director of the Issuer
All current nominees for
supervisory director
listed above and all
executive officers as a
group (14 persons)..... 0 0% 762,963 6.1%
</TABLE>
- --------
* Less than 1%
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<PAGE>
(1) Excludes (i) Common Shares which may be purchased in the Common Share
Offering by the nominees for director and the executive officers from the
shares reserved by the Underwriters for sale to directors, officers and
employees of the Company and certain other persons associated with the
Company, (ii) Common Shares issuable upon exercise of options to be
granted under the Company's stock option plans and (iii) Common Shares
issuable upon exercise of the over-allotment option granted to the
Underwriters. Includes Common Shares allocated to the executive officers'
individual accounts under the Management Plan.
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<PAGE>
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 the
general meeting of shareholders (the "Supervisory Board").
The Issuer's Articles of Association (the "Articles of Association") provide
for at least six and no more than 12 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 general meeting of 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"). 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 the votes cast. 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. 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
general meeting of 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. Such suspension
may be discontinued by the general meeting of shareholders at any time. If
within three months after such suspension no decision has been taken on
termination of the suspension or on dismissal of the relevant member, the
suspension will cease. The
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<PAGE>
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.
Upon consummation of the Common Share Offering, the sole member of the
Issuer's Management Board will be CBICBV, a 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 the Issuer's 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 32-36, 1075 AD, Amsterdam, The
Netherlands and the mailing address is P.O. Box 74658, 1070 BR Amsterdam, The
Netherlands.
DIRECTORS OF THE ISSUER AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Issuer's
current nominees for supervisory director and the executive officers of New
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.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gerald M. Glenn................ 54 Nominee for Chairman of the Supervisory
Board of the Issuer; President and Chief
Executive Officer of New CBIC; Managing
Director of CBICBV
Thomas L. Aldinger............. 45 Vice President--Business Development and
Operations of New CBIC; Managing Director
of CBICBV
Stephen M. Duffy............... 47 Vice President--Human Resources and
Administration of New CBIC
Timothy J. Wiggins............. 40 Vice President--Treasurer and Chief
Financial Officer of New CBIC; Managing
Director
of CBICBV
Robert H. Wolfe................ 47 Vice President, General Counsel and
Secretary of New CBIC; Secretary of CBICBV
Jerry H. Ballengee............. 59 Nominee for Supervisory Director of the
Issuer
J. Dennis Bonney............... 66 Nominee for Supervisory Director of the
Issuer
J. Charles Jennett............. 56 Nominee for Supervisory Director of the
Issuer
Vincent L. Kontny.............. 59 Nominee for Supervisory Director of the
Issuer
Gary L. Neale.................. 57 Nominee for Supervisory Director of the
Issuer
L. Donald Simpson.............. 61 Nominee for Supervisory Director of the
Issuer
Marsha C. Williams............. 45 Nominee for Supervisory Director of the
Issuer
</TABLE>
58
<PAGE>
Gerald M. Glenn has been the President and Chief Executive Officer of Old
CBIC since May 1996, will hold the same position at New CBIC and has been a
Managing Director of CBICBV since its inception. Mr. Glenn has been nominated
to serve as Chairman of the Supervisory Board. 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. Mr. Glenn's term
as a Supervisory Director will expire in 2000.
Thomas L. Aldinger has been the Vice President--Business Development and
Operations of Old CBIC since January 1995, will hold the same position at New
CBIC and has been a Managing Director of CBICBV since its inception. 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 Old CBIC. Mr. Aldinger has been continuously employed by the
Company since 1974.
Stephen M. Duffy has been Vice President--Human Resources and Administration
of Old CBIC since June 1996 and will hold the same position at New CBIC. 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 Old CBIC since September 1996, will hold the same position at New
CBIC and has been a Managing Director of CBICBV since its inception. 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 turnaround 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.
Robert H. Wolfe has been the Vice President, General Counsel and Secretary
of Old CBIC since November 1996 and will hold the same position at New CBIC.
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
November 1993.
Jerry H. Ballengee is a nominee to the Supervisory Board of the Issuer. He
has served as President and Chief Operating Officer of Union Camp Corporation
since July 1994 and has served in various other executive capacities and as a
member of the Board of Directors of Union Camp Corporation since 1988. He is
also a member of the Boards of Directors of Goulds Pumps, Inc. and United
Cities Gas Company. Mr. Ballengee's term as a Supervisory Director will expire
in 1998.
J. Dennis Bonney is a nominee to the Supervisory Board of the Issuer. He
served as Vice Chairman of the Board of Chevron Corporation from 1987 to 1995.
He currently serves as Chairman of the Board of Aeromovel USA, and has also
been a Director since 1996 of Alumax Inc. and United Meridian Corporation. Mr.
Bonney's term as a Supervisory Director will expire in 2000.
J. Charles Jennett is a nominee to the Supervisory Board of the Issuer. He
has served as President of Texas A&M International University since 1996. He
was Provost and Vice President of Academic Affairs at Clemson University from
1992 through 1996. Mr. Jennett's term as Supervisory Director will expire in
1999.
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<PAGE>
Vincent L. Kontny is a nominee to the Supervisory Board of the Issuer. Mr.
Kontny was President and Chief Operating Officer of Fluor Corporation from
1992 until September 1994. Mr. Kontny is currently the owner and CEO of the
Double Shoe Cattle Company. He has held this position at Double Shoe Cattle
Company since 1992. Mr. Kontny's term as a Supervisory Director will expire in
2000.
Gary L. Neale is a nominee to the Supervisory Board of the Issuer. He is
currently President, CEO and Chairman of the Board of NIPSCO Industries, Inc.,
whose primary business is the operation of Northern Indiana Public Service
Company, a gas and electric utility company. Mr. Neale has served as a
director of NIPSCO Industries, Inc. since 1991, a director of Northern Indiana
Public Service Company since 1989, and a director of Modine Manufacturing
Company since 1977. Mr. Neale's term as a Supervisory Director will expire in
1999.
L. Donald Simpson is a nominee to the Supervisory Board of the Issuer. Since
December 1996 Mr. Simpson has served as Executive Vice President of Great
Lakes Chemical Corporation. Prior thereto, beginning in 1992, Mr. Simpson
served in various executive capacities at Great Lakes Chemical Corporation.
Mr. Simpson's term as a Supervisory Director will expire in 1998.
Marsha C. Williams is a nominee to the Supervisory Board of the Issuer.
Since October 1993, she has served as Treasurer of Amoco Corporation, where
she was in the Mergers, Acquisitions and Negotiations Department from December
1992 through September 1993 and was a Senior Financial Manager in the
Treasurer's Department from November 1989 through December 1992. Ms. Williams'
term as Supervisory Director will expire in 1999.
1996 EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information regarding compensation
paid to Old CBIC's Chief Executive Officer and to each of the four other most
highly compensated executive officers of Old CBIC (the "named executive
officers"). Neither the Issuer nor CBICBV paid compensation to executive
officers in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
PRINCIPAL ALL OTHER
POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3)
--------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Gerald M. Glenn....................... 1996 $230,770 $469,500 $ 26,094
President and Chief Executive Officer
Lewis E. Akin......................... 1996 $ 43,750 -- $957,635(4)
Former President and Chief Executive
Officer
Thomas L. Aldinger.................... 1996 $166,200 $315,075 $261,258(4)
Vice President--Business Development
and Operations
Timothy J. Wiggins.................... 1996 $ 59,230 $ 50,000 $ 55,026
Vice President--Treasurer and Chief
Financial Officer
Stephen M. Duffy...................... 1996 $ 89,230 $219,129 $ 10,362(4)
Vice President--Human Resources
and Administration
Robert H. Wolfe....................... 1996 $ 16,827 $ 25,000 --
Vice President, General Counsel
and Secretary
</TABLE>
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<PAGE>
- --------
(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 following respective
dates: Mr. Glenn--May 27, 1996; Mr. Wiggins--September 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 includes items such as excess group life
insurance, auto and moving expenses and club dues paid by the Company and
for Messrs. Aldinger and Duffy also includes the dollar 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.
(4) The compensation reported includes payments under various compensation
plans and other employment arrangements in effect at the time Industries
was acquired by Praxair which became payable because of such acquisition
totalling $954,816, $240,619 and $7,586 for Messrs. Akin, Aldinger and
Duffy, respectively.
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. Plans sponsored
by Old CBIC, upon consummation of the Reorganization, will be sponsored by New
CBIC.
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 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 is 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 is based on attaining a specific goal of operating income,
and is payable 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's
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.
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<PAGE>
Long-Term Compensation. Old CBIC adopted a long-term incentive compensation
plan (the "Incentive Plan") for its executive officers, other management
employees and Supervisory Directors 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 and non-employee directors 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 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. 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 are subject to the approval of the
Compensation Committee of the Issuer's Supervisory Board.
The exercise price of all options granted under the Incentive Plan shall not
be less than one hundred percent (100%) of the fair market value (as defined
in the Incentive Plan) of the stock subject to the option on the date the
option is granted. An option shall be exercisable in accordance with the terms
set forth in the individual award agreement, provided that, no option shall be
exercisable prior to the third anniversary of the date of the grant. The
expiration date of each option shall be established by the Compensation
Committee, but shall not exceed 10 years from the date of the grant.
Awards of restricted stock shall be subject to a period of restriction
during which the transfer of such shares of restricted stock shall be limited.
Such restrictions shall lapse based on the passage of time, the achievement of
performance goals, or the occurrence of other events as determined by the
Compensation Committee, in accordance with the terms of each restricted stock
award agreement.
Each performance unit shall have an initial value that is established by the
Compensation Committee at the time of grant, and each performance share shall
have an initial value equal to the fair market value (as defined in the
Incentive Plan) of a share of Company Common Stock on the date the award is
granted. Holders of performance units and shares shall be entitled to receive
a payout on the number and value of performance units and shares, based on the
achievement during the performance period of specified performance goals.
In the event of a change in control (as defined in the Incentive Plan),
unless otherwise prohibited under applicable law, all options shall become
immediately exercisable, the restriction period imposed on any restricted
stock award shall lapse and the payout opportunities attainable under all
outstanding awards of restricted stock, performance units and performance
shares shall be deemed to have been fully earned for the entire performance
period.
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.
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. It
is expected that the initial options granted would be exercisable after 1999
subject to achievement of a cumulative earnings per share for the three year
period from 1997 through 1999 of at least $6.25 per
62
<PAGE>
Common Share (excluding the pretax charge of $16.7 million relating to the
implementation of the Management Plan). The Issuer expects that all of such
options which have not previously vested would vest automatically nine years
from their date of grant. 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.
Special Stock-Based, Long-Term Compensation Related to the Common Share
Offering
The Company intends to establish the Management Plan prior to the
consummation of the Common Share Offering. The Management Plan is not
qualified under 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, in the amounts of approximately 462,835, 110,298, 110,298,
36,766 and 18,383 Common Shares, respectively. 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,
upon 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 $16.7 million (925,670 Common Shares). Accordingly, the Company will
record a pretax charge of $16.7 million 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 annual short-term incentive compensation programs and
long-term incentive compensation programs described above, Old CBIC sponsors
and New CBIC will sponsor, the following additional compensation programs in
which management employees, including all of the named executive officers are
eligible to participate.
Old 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 pretax 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 employee'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 CBI Pension Plan. The New 401(k) Plan
provides that the Company may, at the discretion of management, make certain
of its matching contributions or additional discretionary profit sharing
contributions in a uniform manner in the form of either cash or Common Shares.
63
<PAGE>
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 CBI 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:
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE AT RETIREMENT
ANNUAL ----------------------------------------------------------------
EARNINGS 15 20 25 30 35 40
- ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
- --------
(1) The pension amounts indicated are subject to an offset adjustment for each
individual for primary social security benefits and a portion of the value
of benefits under the now terminated CBI Salaried Employee Stock Ownership
Plan (1987) previously sponsored by Industries.
In conjunction with the adoption of the New 401(k) Plan, Old CBIC adopted an
"excess" benefit plan. Under such a plan, the Company will determine the
amount of matching and discretionary contributions 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,
retirement benefits in excess of the amounts permitted under the limitations
on contributions under the Code will be paid. 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 New CBIC.
Supplemental Executive Death Benefits Plan. Old CBIC 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 New CBIC's general assets, New 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 Company pays such benefits, which
has not been determined at this time.
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<PAGE>
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 in an 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 Share Purchase
Plan is intended to qualify under Section 423 of the Code.
The Company anticipates that it will reserve a total of 250,000 Common
Shares for purchase pursuant to the Share Purchase Plan, with such plan to
expire no later than the date that is on or about five years from the date of
this Prospectus.
TERMINATION AND EMPLOYMENT AGREEMENTS
Old CBIC and Messrs. Wiggins, Wolfe, Aldinger and Duffy have entered into
change of control severance 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 equal to $1,000,000,
$750,000, $1,500,000, and $240,000, respectively. In addition, upon a
termination for any reason (other than by reason of the employee's willful
misconduct or gross negligence) during the six month period prior to a change
of control, each employee will be entitled to receive a special lump-sum
payment (in the amount previously set forth) minus the gross amount of any
severance payments otherwise paid to such employee, within ten days following
a change of control. Each employee who receives a special lump-sum payment is
also entitled to receive outplacement services at the expense of the Company.
The agreements provide that the Company will pay an amount necessary to
reimburse each employee, on an after-tax basis, for any excise tax due under
Section 4999 of the Code, as a result of any such payment being treated as a
"parachute payment" under Section 280G of the Code. The receipt by each
employee of any of the amounts payable pursuant to the agreements is
contingent upon the employee's execution of a release of claims in favor of
the Company. 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, (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 to serve the Company as President and Chief
Executive Officer, Vice President--Treasurer and
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<PAGE>
Chief Financial Officer, and Vice President--General Counsel and Secretary,
respectively. Pursuant to these arrangements, Mr. Glenn's base salary is
$400,000 per year, Mr. Wiggins' base salary is $220,000 per year, and Mr.
Wolfe's base salary is $175,000 per year. Such arrangements do not establish
any required term of employment. The arrangements provide for, among other
things, participation in Company bonus and incentive compensation 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 a
special stock-based compensation award 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." Each such employee is
also entitled to participate in the Company's relocation program and to
receive either an automobile allowance of $500 per month or the use of a
Company-owned vehicle.
COMPENSATION OF DIRECTORS
The Issuer intends to compensate Supervisory Directors who are not officers
of the Company by an annual retainer of $20,000 per year, paid in quarterly
installments, and $1,500 for attendance at each Board meeting as well as an
annual grant of options to purchase 500 Common Shares at an exercise price
equal to the fair market value of the Common Shares at the time of grant.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1996, compensation decisions were made by or in accordance with the
entire Board of Directors of Old CBIC, the members of which were 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 New CBIC will be made by the Board of Directors of New CBIC
and for employees of CBICBV by its management board.
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<PAGE>
DESCRIPTION OF NEW REVOLVING CREDIT FACILITY
The Company, The Chase Manhattan Bank ("Chase") and a syndicate of other
banks have 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 $100.0 million for the
first three years and $50.0 million thereafter. The borrowers 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. The Company expects,
concurrently with the consummation of the Common Share Offering, to borrow all
funds necessary thereunder to repay indebtedness owed to Praxair on the date
the Common Share Offering is consummated. As of March 24, 1997, the amount of
such indebtedness outstanding was approximately $77 million.
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 would be 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. 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. The New Revolving Credit
Facility will terminate on the fifth anniversary of the date of its execution
unless terminated sooner.
The New Revolving Credit Facility contains various covenants, including
financial covenants (the terms of which are set out in the credit agreement
governing such facility) that, among other things, (1) require the Company to
maintain a minimum level of consolidated tangible net worth equal to its
consolidated net worth as of December 31, 1996 minus $10.0 million plus 50% of
its consolidated net income for each fiscal year during which its consolidated
net income is positive, a consolidated EBITDA to interest expense ratio of at
least 5.00 to 1 for any period of four consecutive fiscal quarters and a
consolidated leverage ratio (a) for any period of four consecutive fiscal
quarters ending on or prior to March 31, 1998 not greater than 2.75 to 1 and
(b) for any period of four consecutive fiscal quarters ending thereafter not
greater than 2.50 to 1 and (2) restrict the Company's capital expenditures to
$22.5 million in 1997 and $20.0 million (plus the lesser of (x) the difference
between the amount permitted to be expended in the prior year and the amount
actually expended and (y) $5.0 million), in each fiscal year thereafter, and
other covenants that limit mergers, certain asset sales, the incurrence of
indebtedness by subsidiaries (excluding 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. The restriction
on dividends permits, so long as no default is continuing at the time thereof
or giving effect thereto, the payment of cash dividends in an aggregate amount
not to exceed (a) prior to December 31, 1997, $5.0 million and (b) during any
fiscal year of the Company thereafter, $5.0 million plus 10% of the Company's
consolidated net income for the immediately preceding fiscal year.
The New Revolving Credit Facility contains 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, New CBIC or CBICBV, unsatisfied judgments,
ERISA events or the invalidity of the subsidiary guarantees.
The Company's ability to initially borrow under the New Revolving Credit
Facility is subject to, among other conditions, consummation of the
Reorganization and the Common Share Offering, the repayment simultaneously
with the initial borrowing of all indebtedness owed to Praxair and the absence
of outstanding indebtedness of the Company and its subsidiaries (other than
indebtedness existing on the date the New Revolving Credit Facility was
executed and performance bonds and letters of credit securing ordinary course
performance obligations).
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<PAGE>
DESCRIPTION OF SHARE CAPITAL
The Issuer was organized under the law of The Netherlands as a public
company with limited liability ("naamloze vennootschap") by Deed of
Incorporation 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
Bridge Holdings. In connection with the Reorganization, additional Common
Shares will be issued by the Issuer to Bridge Holdings. Upon consummation of
the Common Share Offering 12,517,552 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.
Harris Trust and Savings Bank will maintain the New York Registry and act as
transfer agent and registrar for the New York Shares (the "New York Transfer
Agent and Registrar"). Kas-Associatie N.V. will act as transfer agent and
paying agent for the Bearer Shares 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
Shares directly through DTC if they are a participant in such system, or
indirectly through organizations that are participants in such system.
The Bearer Shares, at the discretion of the Management Board, subject to the
approval 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 shareholders' register kept in Amsterdam,
The Netherlands ("Amsterdam Register") for any number of Common Shares.
COMMON SHARES
After the consummation of the Common Share Offering, there will be
12,517,552 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 dissolution
and liquidation of the Issuer, holders of
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<PAGE>
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 Management Board, with the
approval of the Supervisory Board, may 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. 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
in anticipation of the final dividend. 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 $0.06
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 (in the case of annual dividends), 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 to the Dutch Transfer and Paying Agent, who will, if
necessary, convert such dividends 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 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
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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 nonresident
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 of the Amsterdam
Stock Exchange (the official newspaper of the Amsterdam Stock Exchange), and,
if required, elsewhere.
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 at least six and
no more than 12 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.
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 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.
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 five 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
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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 and liquidation of the Issuer, the assets
remaining after payment of all debts and liquidation expenses will be
distributed among 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 1,501,755 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 above-mentioned
authorization is expected to expire on or about five years from the date of
this Prospectus, 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, issuances to persons who
exercise a previously acquired right to subscribe for Common Shares and
issuances exempted from such requirement by the Supervisory Board when the
Supervisory Board is so empowered by shareholders. A resolution expected to be
adopted by shareholders on or about the date of this Prospectus provides the
Supervisory Board with an irrevocable five-year authorization to limit or
exclude preemptive rights.
Repurchase of Common Shares
The shareholders, prior to the consummation of the Common Share Offering,
are expected to have delegated to the Management Board the authority, subject
to certain restrictions contained in the law of The Netherlands and the
Articles of Association, to cause the Issuer to acquire its own fully paid
Common Shares in an amount not to exceed 10% of the outstanding shares at any
time in open market purchases. Such authorization, which may not be granted
for more than 18 months, is expected to be adopted through the date on or
about 18 months from the date of this Prospectus.
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.
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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 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 Harris
Trust and Savings Bank. The Dutch Transfer and Paying Agent for the Common
Shares is Kas-Associatie N.V.
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 Netherlands, 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 Management Board, subject to the approval of the Supervisory Board, will
be represented by K-certificates or CF-certificates. CF-certificates must
remain deposited with an authorized custodian and may only be transferred
through the book-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 Common 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 Issuer 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.
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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, banks, 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 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 of investors will be credited with their holdings
against payment 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.
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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 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 Transfer Agent 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 Common 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 transferee 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 007512759. The International Securities
Identification Number ("ISIN") for the Bearer Shares is NL0000344554. The
CUSIP number and the ISIN for New York Shares are N19808 10 9 and USN19808 10
93, respectively.
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 Netherlands 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.
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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, 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.
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;
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(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.
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
Netherlands. An individual of Netherlands nationality is deemed to be a
resident of The Netherlands, for the purposes of Netherlands gift and
inheritance tax, if he or she has been a Netherlands 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.
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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 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, Netherlands 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 Netherlands
withholding tax as a credit against their U.S. federal 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.
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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 at the time of the Common Share
Offering, it will not be an FPHC.
Controlled Foreign Corporation Classification
The Company would be classified as a controlled foreign corporation if any
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 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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Common Share Offering and the contribution to the
Management Plan, the Issuer will have 12,517,552 outstanding Common Shares,
including 1,091,882 Common Shares owned by the Selling Shareholder (none if
the Underwriters' over-allotment option is exercised in full) and 500,702
shares reserved for issuance upon exercise of outstanding stock options. Of
these shares, the 10,500,000 Common Shares sold in the Common Share Offering
(11,591,882 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 1,091,882 Common Shares that the Selling Shareholder will hold upon
completion of the Common Share Offering (none if the Underwriters' over-
allotment option is exercised in full), up to 1,251,755 Common Shares that may
be issuable to directors of the Issuer or employees of the Company under the
Incentive Plan, the 925,670 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.
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In general, under Rule 144, a person (including the "affiliate") who
beneficially owns shares that are "restricted securities" as to which at least
one year (assuming effectiveness of Securities and Exchange Commission Release
No. 33-7390 (the "Rule 144 Release")) has 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 125,176 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 two years (assuming effectiveness of the Rule
144 Release) 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 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 March 26, 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:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
----------- -----------
<S> <C>
Credit Suisse First Boston Corporation........................... 1,495,000
Goldman, Sachs & Co. ............................................ 1,495,000
Smith Barney Inc. ............................................... 1,495,000
UBS Securities LLC............................................... 1,495,000
Dean Witter Reynolds Inc. ....................................... 340,000
Donaldson, Lufkin & Jenrette Securities Corporation.............. 340,000
Everen Securities, Inc. ......................................... 180,000
First Analysis Securities Corporation............................ 180,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............... 340,000
National Securities Corporation.................................. 180,000
Oppenheimer & Co., Inc. ......................................... 340,000
Schroder Wertheim & Co. Incorporated............................. 340,000
Van Kasper & Company............................................. 180,000
---------
Total........................................................ 8,400,000
=========
</TABLE>
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 1,091,882 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 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 $0.55 per share, and the
U.S. Underwriters and such dealers
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may allow a discount of $0.10 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 Offering, 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
(Europe) 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
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.
At the request of the Company, the U.S. Underwriters and the Managers have
reserved up to 525,000 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
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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 Common Shares have been approved for listing on the New York Stock
Exchange subject to notice of issuance. The Common Shares in bearer form have
been approved for listing 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 Offering, 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 Offering or that an active trading market for the Common
Shares will develop and continue after the Common Share Offering.
The Representatives, on behalf of the U.S. Underwriters and Managers, may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the
Securities Act of 1934 (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Common Shares in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim
a selling concession from a syndicate member when the Common Shares originally
sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Shares to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on The New York Stock
Exchange, the Amsterdam Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
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 for the Company or Praxair, for which customary
compensation has been received.
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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 requirement that the Issuer and the
Selling Shareholder 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.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the Selling Shareholder may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the 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.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Shares should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Shares in their particular circumstances and with respect to the eligibility
of the Common Shares for investment by the purchaser under relevant Canadian
legislation.
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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. Both Cahill Gordon &
Reindel and Loeff Claeys Verbeke have also provided certain legal services to
Praxair and its affiliates in connection with the Common Share Offering and
have 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, 1996, 1995 and
1994 and for each of the three fiscal years in the period ended December 31,
1996, and the balance sheet of Chicago Bridge & Iron Company N.V. as of
December 31, 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 reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
Arthur Andersen LLP's address is 33 West Monroe Street, Chicago, IL 60603 in
the United States and Arthur Andersen & Co.'s address is P.O. Box 75381, 1070
AJ Amsterdam, The Netherlands.
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.
86
<PAGE>
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
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 enforceable in The Netherlands.
However, a final judgment for the payment of money obtained in a United States
court, 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 The Netherlands or other countries outside 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
Netherlands 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.
87
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS (POST-PRAXAIR ACQUISITION):
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheet as of December 31, 1996....................... F-3
Consolidated Income Statement for the Year Ended December 31, 1996....... F-4
Consolidated Statement of Changes in Shareholder's Equity for the Year
Ended
December 31, 1996....................................................... F-5
Consolidated Statement of Cash Flows for the Year Ended December 31,
1996.................................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
CONSOLIDATED FINANCIAL STATEMENTS (PRE-PRAXAIR ACQUISITION):
Report of Independent Public Accountants................................. F-22
Consolidated Balance Sheets as of December 31, 1995 and 1994............. F-23
Consolidated Income Statements for the Years Ended December 31, 1995 and
1994.................................................................... F-24
Consolidated Statements of Changes in Shareholder's Equity for the Years
Ended
December 31, 1995 and 1994.............................................. F-25
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995 and 1994........................................................... F-26
Notes to Consolidated Financial Statements............................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Chicago Bridge & Iron Company:
We have audited the accompanying consolidated balance sheet of CHICAGO
BRIDGE & IRON COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December
31, 1996 and the related consolidated statements of income, changes in
shareholder's equity and cash flows for the year then ended. 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 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 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 audit provides 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, 1996 and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 7, 1997
F-2
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 11,864
Accounts receivable............................................. 96,782
Receivable from Affiliates...................................... 4,893
Contracts in progress with earned revenues exceeding related
progress billings.............................................. 79,782
Assets held for sale............................................ 5,374
Other current assets............................................ 7,364
--------
Total current assets.......................................... 206,059
--------
Assets held for sale.............................................. 5,118
Property and equipment............................................ 107,875
Goodwill.......................................................... 19,027
Other non-current assets.......................................... 13,417
--------
Total assets.................................................. $351,496
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Notes payable................................................... $ 3,114
Accounts payable................................................ 24,804
Accrued liabilities............................................. 44,513
Contracts in progress with progress billings exceeding related
earned revenues................................................ 34,727
Payable to Parent Company....................................... 6,008
Income taxes payable............................................ 4,440
--------
Total current liabilities..................................... 117,606
--------
Debt to Parent Company............................................ 53,907
Minority interest in subsidiaries................................. 7,428
Other non-current liabilities..................................... 81,809
--------
Total liabilities............................................. 260,750
--------
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 authorized shares; 1,000 is-
sued and outstanding in 1996................................... 1
Additional paid-in capital...................................... 79,958
Retained earnings............................................... 11,562
Cumulative translation adjustment............................... (775)
--------
Total shareholder's equity.................................... 90,746
--------
Total liabilities and shareholder's equity.................... $351,496
========
</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
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenues
Third party customers............................................. $650,337
Affiliates of Praxair............................................. 13,384
--------
Total revenues................................................... 663,721
Cost of revenues
Third party customers............................................. $578,933
Affiliates of Praxair............................................. 11,097
--------
Total cost of revenues........................................... 590,030
--------
Gross profit..................................................... 73,691
Selling and administrative expenses................................ 42,921
Gain on sale of assets............................................. (493)
--------
Income from operations........................................... 31,263
Interest expense................................................... (5,002)
Other income....................................................... 990
--------
Income before taxes and minority interest........................ 27,251
Income tax expense................................................. 7,789
--------
Income before minority interest.................................. 19,462
Minority interest in income........................................ (2,900)
--------
Net income....................................................... $ 16,562
========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-4
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
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 ad-
justments.............. -- 52,292 (159,672) -- 15,873 (91,507)
---- --------- --------- --------- -------- --------
BALANCE AT JANUARY 1,
1996................... 1 237,785 -- (142,786) -- 95,000
Net income.............. -- -- 16,562 -- -- 16,562
Advances to Parent
Company................ -- -- -- (15,041) -- (15,041)
Return of capital
dividend to Parent
Company................ -- (157,827) -- 157,827 -- --
Cash dividend payable to
Parent Company......... -- -- (5,000) -- -- (5,000)
Translation adjustment.. -- -- -- -- (775) (775)
---- --------- --------- --------- -------- --------
BALANCE AT DECEMBER 31,
1996................... $ 1 $ 79,958 $ 11,562 $ -- $ (775) $ 90,746
==== ========= ========= ========= ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-5
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................. $ 16,562
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 17,281
Decrease in deferred income taxes........................ 4,251
Gain on sale of fixed assets............................. (493)
Change in operating assets and liabilities (see below)..... (12,442)
--------
Net Cash Provided by Operating Activities................ 25,159
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets and investments......... 9,077
Capital expenditures....................................... (20,425)
--------
Net Cash Used in Investing Activities.................... (11,348)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance to Parent Company.................................. (15,041)
Increase in notes payable.................................. 1,337
Repayment of Debt to Parent Company........................ (1,093)
--------
Net Cash Used in Financing Activities.................... (14,797)
--------
Decrease in cash & cash equivalents.......................... (986)
Cash and cash equivalents, beginning of the year............. 12,850
--------
Cash and cash equivalents, end of the year................... $ 11,864
========
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Decrease in receivables, net............................... $ 9,213
Increase in contracts in progress, net..................... (24,950)
Decrease in other current assets........................... 8,689
Decrease in accounts payable & accrued liabilities......... (5,740)
Increase in payable to Parent Company...................... 1,088
Increase in income tax payable............................. 404
Increase other............................................. (1,146)
--------
Total.................................................... $(12,442)
========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................................... $ 3,902
Cash paid for income taxes............................... $ 3,536
SUPPLEMENTAL NON-CASH DISCLOSURE:
Return of capital dividend to Parent Company............. $157,827
</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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(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, materials 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. Based on its knowledge of
and experience in its industry, 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, accounting for approximately 60% of revenues
in 1996. 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 or
changing taxes, price controls and laws and regulations related to the
petroleum and petrochemical industry.
During the periods and as of the dates for which the financial statements
are presented, the Company was 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 to 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").
Effective December 19, 1996, Industries was merged with and into Praxair, with
no consequences to the Company's financial statements.
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 the respective fair values. The
allocation of this fair value resulted in the following opening balance sheet:
F-7
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING OPENING
BALANCE SHEET ADJUSTMENTS BALANCE SHEET
DECEMBER 31, 1995 INCREASE/ JANUARY 1, 1996
(PRE-PRAXAIR) (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
--------- --------- ---------
Total current liabilities.. 107,205 8,201 115,406
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 which may not be
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>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
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 using the percentage of completion method. Contract
revenues are accrued based generally on the percentage that costs-to-date bear
to total estimated costs. The cumulative impact of revisions in total cost
estimates during the progress of work is reflected in the period in which
these changes become known. Contract 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. A significant portion 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. 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 shareholder's equity as cumulative translation adjustment.
Charges for foreign currency exchange losses are included in the determination
of income, and were $587 in 1996.
Cash Equivalents
Cash equivalents are considered to be all highly liquid securities with
original maturities of three months or less.
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 $16,793 for the year
ended December 31, 1996.
F-9
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." This adoption did not
cause a material effect on the company's financial position or results of
operations.
Goodwill
The excess of cost over the fair value of tangible net assets of the Company
is recorded as goodwill on the balance sheet and is amortized on a straight-
line basis over 40 years. Amortization expense and accumulated amortization
was $488 in 1996. The carrying value of goodwill is reviewed periodically
based on the undiscounted cash flows of the entity acquired over the remaining
amortization period. If this review indicates that goodwill is not
recoverable, the Company's carrying value of the goodwill is reduced by the
estimated shortfall of undiscounted cash flows.
Assets Held for Sale
The Company separately classified several assets held for sale as of
December 31, 1996. 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 year ended December 31, 1996, the Company recorded
interest expense on the Debt to Parent Company, notes payable and certain
other interest bearing obligations.
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, 1996, the Company had a forward
contract, which will mature in 1997, for foreign currencies totaling $4,005.
The fair value of the forward contract approximated its carrying value in the
financial statements at December 31, 1996. 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 $730 in 1996.
F-10
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
3. TRANSACTIONS WITH PARENT COMPANY:
Related-party transactions with Industries or Praxair (the "Parent Company")
not disclosed elsewhere in the financial statements are as follows:
Revenues from Affiliates
The Company provides services to affiliates of the Parent Company for the
construction and expansion of facilities and for certain repair and
maintenance work. The balance due for these services is reflected as
Receivable from Affiliates. During the year ended December 31, 1996, the
Company recorded revenues from affiliates of $13,384. Gross profit, net of
overhead costs, was $2,287 for the year ended December 31, 1996. 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 the Parent Company and its
affiliates from operating cash flows generated by the Company, net of cash
received from the Parent Company and its affiliates to fund operating and
investing activities. On December 31, 1996, the Company declared a dividend to
Praxair for the September 30, 1996 balance of the Advance to Parent Company.
Advance activity subsequent to September 30, 1996 was included in the Debt to
Parent Company account.
Debt to Parent Company
In conjunction with Praxair's acquisition of Industries effective January 1,
1996, the Company assumed $55,000 of acquisition related debt payable to
Praxair. Subsequent to September 30, 1996, the Company's long-term debt
balance increases when the Company requires cash and decreases when a cash
surplus is available to reduce the long-term debt balance. The debt matures no
earlier than January 1, 1998 and the Company pays interest at 7% per annum on
a quarterly basis. Interest expense for the year ended December 31, 1996 was
$3,850. In addition, approximately $22,000 of letters of credit were
outstanding on behalf of Praxair at December 31, 1996 relating to the
Company's insurance program.
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 to
provide liquidity to support letters of credit and working capital
requirements.
Payable to Parent Company
Payable to Parent Company includes a $5,000 dividend to Praxair payable in
the first quarter of 1997 and interest accrued on the Debt to Parent Company,
net of an income tax receivable from the Parent Company.
Corporate Services
The Parent Company provided certain support services to the Company through
June 30, 1996, including legal, finance, tax, human resources, information
services and risk management. Charges for these services were allocated by the
Parent Company to the Company based on various methods which reasonably
approximate the actual costs incurred. The allocations recorded by the Company
for these
F-11
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
corporate services in the accompanying consolidated income statements were
approximately $4,732 for the year ended December 31, 1996. Subsequent to June
30, 1996, the Company performed substantially all of these support services
internally. The amounts allocated by the Parent Company are not necessarily
indicative of the actual costs which may have been incurred had the Company
operated as an entity unaffiliated with the Parent Company. 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:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Revenues recognized on uncompleted contracts..................... $680,223
Billings on uncompleted contracts................................ 635,168
--------
$ 45,055
========
Shown on balance sheet as:
Contracts in progress with earned revenues exceeding related
progress billings............................................... $ 79,782
Contracts in progress with progress billings exceeding related
earned revenues................................................. (34,727)
--------
$ 45,055
========
</TABLE>
5. LEASES:
Certain facilities and equipment are rented under operating leases that
expire at various dates through 2006. Rental expense on operating leases was
$3,372 in 1996. Future rental commitments during the years ending in 1997
through 2001 and thereafter are $3,731, $1,817, $1,554, $1,209, $937, and
$2,578, respectively.
6. SUPPLEMENTAL BALANCE SHEET DETAIL:
The activity recorded in the allowance for doubtful accounts was as follows:
<TABLE>
<CAPTION>
DEDUCTIONS-
WRITE-OFF OF
BALANCE, PURCHASE BALANCE AT CHARGES TRADE BALANCE,
BEGINNING ACCOUNTING JANUARY 1, TO RECEIVABLES, END OF
OF THE YEAR ADJUSTMENTS 1996 EXPENSE NET OF RECOVERIES THE YEAR
----------- ----------- ---------- ------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996...... $6,343 $(2,000) $4,343 $2,313 $(3,609) $3,047
</TABLE>
F-12
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
The components of property and equipment are:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Land and improvements.............................................. $ 11,954
Buildings and improvements......................................... 30,460
Plant and field equipment.......................................... 81,159
--------
Total property and equipment..................................... 123,573
Accumulated depreciation........................................... (15,698)
--------
Net property and equipment....................................... $107,875
========
The components of accrued liabilities are:
<CAPTION>
1996
--------
<S> <C>
Payroll, vacation and bonuses...................................... $ 11,533
Self-insurance reserves............................................ 10,000
Postretirement benefit obligation.................................. 1,783
Pension obligation................................................. 1,439
Other.............................................................. 19,758
--------
$ 44,513
========
The components of non-current liabilities are:
<CAPTION>
1996
--------
<S> <C>
Self-insurance reserves............................................ $ 27,608
Postretirement benefit obligation.................................. 28,148
Pension obligation................................................. 15,831
Other.............................................................. 10,222
--------
$ 81,809
========
</TABLE>
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 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
F-13
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
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. The Company believes that an estimate of the possible loss or
range of possible loss relating to such matters cannot be made. Although the
Company believes that it is reasonably likely 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
currently 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 is
aware of no manifestation by a potential claimant of awareness by such
claimant of a possible claim or assessment and does not consider it to be
probable that a claim will be asserted which claim is reasonably possible to
have an unfavorable outcome, in each case, which would be material to the
Company with respect to the matters addressed in this paragraph. 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 believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be
made. 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 belief as to the reasonable likelihood of the outcomes of such
matters, the Company does not believe that its potential liability in
connection with these sites, either individually or in the aggregate, will
have a material adverse effect on its 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 determined 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 v. CBI Na-Con, Inc. et al. The
Company denies that it is liable. The Company believes that an estimate of the
possible loss or range of possible
F-14
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
loss cannot be made. While the Company believes that the claims are without
merit and/or the Company has valid defenses to such claims and that it is
reasonably likely to prevail in defending against such claims, 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.
The Company is a defendant in a number of other lawsuits arising in the
normal course of its business. The Company believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be
made. While it is impossible at this time to determine with certainty the
ultimate outcome of these 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 belief as to the reasonable likelihood of the outcomes
of such matters, 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, 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.
The Company is jointly and severally liable for certain liabilities of
partnerships and joint ventures. The Company has also given certain
performance guarantees arising in the ordinary course of business for its
subsidiaries and unconsolidated affiliates.
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 reasonably possible losses, if any, for
these matters, to the extent not otherwise disclosed and net of recorded
reserves, will not be material to its financial position or its results of
operations.
8. EMPLOYEE BENEFIT PROGRAMS:
Health and Welfare Programs
The Company participated in various health and welfare programs for active
employees that were sponsored by the Parent Company. These programs include
medical, life insurance and disability. The Company reimbursed the Parent
Company 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 $8,349 for the year ended
December 31, 1996. The costs were charged to cost of revenues and selling and
administrative expense based on the number of employees in each of these
categories. The Company believes its allocation of the proportionate cost is
reasonable. Subsequent to December 31, 1996, the Company terminated its
participation in the Parent Company-sponsored plans and initiated its own
plans.
Pension and Defined Contribution Plans
The Company participates in a defined benefit plan sponsored by the Parent
Company (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.
F-15
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
The CBI Pension Plan, which is the principal non-contributory tax qualified
defined benefit plan, covered most U.S. salaried employees. The Company's
portion of the net pension cost for the CBI Pension Plan was $4,414 in 1996.
Benefit accruals under the CBI Pension Plan for current Company employees were
discontinued as of December 31, 1996. The Company's obligation to fund its
portion of the accumulated benefit obligation for its participants in excess
of plan assets was fixed at $17,270 as of December 31, 1996, as agreed to by
the Company and Praxair. This obligation is payable ratably to Praxair over a
twelve-year period beginning December 1, 1997 with interest at 7.5%.
The Company's three Canadian pension plans cover field, hourly, and salaried
employees. The following tables reflect the components of net pension cost and
the funded status of the Company's Canadian pension plans:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Net Pension Cost
Service cost..................................................... $ 301
Interest cost.................................................... 1,287
Actual return on assets.......................................... (1,840)
Net amortization and deferral.................................... 0
Curtailment gain................................................. (1,899)
--------
Net defined benefit pension plans income......................... $ (2,151)
========
<CAPTION>
1996
--------
<S> <C>
Funded Status
Accumulated benefit obligation (including vested benefits of
$14,056)........................................................ $(14,172)
Additional benefits based on projected salary levels............. (2,563)
--------
Projected benefit obligation..................................... (16,735)
Market value of plan assets...................................... 28,091
--------
Plan assets over projected benefit obligation.................... 11,356
Unrecognized gains............................................... (1,075)
--------
Pension asset.................................................... $ 10,281
========
</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 the 1996 pension expense and the related
pension obligations were: discount rate of 7.5%; increase in compensation
levels of 6.0%; and long-term rate of return on plan assets of 7.5%. Of these
three 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. The Company recorded $1,899 in
curtailment gains related to the termination of these plans.
The Company made contributions of $2,467 in the year ended December 31, 1996
to the union sponsored multi-employer pension plans. Benefits under these
defined benefit plans are based on years of service and compensation levels.
F-16
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
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 1996.
Effective January 1, 1997, the Company adopted a new tax-qualified defined
contribution plan ("New 401(k) Plan") for eligible employees. The New 401(k)
Plan consists 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 substantially replaces the current Parent
Company-sponsored pension and 401(k) plans.
Postretirement Health Care and Life Insurance Benefits
The Company participates in a health care and life insurance benefit program
sponsored by the Parent Company. This program provides certain separate health
care and life insurance benefits for employees retiring under the principal
non-contributory defined benefit pension plan of the Parent Company. 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 the Parent Company at any time.
The Company reimbursed the Parent Company for its proportionate cost of this
program. The following table reflects the components of the net cost of
postretirement benefits allocated to the Company:
<TABLE>
<CAPTION>
1996 1996
ACTIVES RETIREES
------- --------
<S> <C> <C>
Net Periodic Postretirement Benefit Cost
Service cost.............................................. $375 $ --
Interest cost............................................. 582 1,318
Actual return on assets................................... -- --
---- ------
Postretirement health care and life insurance benefits
cost..................................................... $957 $1,318
==== ======
</TABLE>
The significant assumption used in determining the 1996 other postretirement
benefit expense was a discount rate of 7.0%.
Effective January 1, 1997, the Company terminated its participation in the
program sponsored by the Parent Company. The Company's obligation with respect
to existing retirees under the program was fixed at $21,400 as of December 31,
1996, as agreed to by the Company and Praxair. This obligation is payable
ratably to Praxair over a twelve-year period beginning December 1, 1997 with
interest at 7.5%. The future obligation for the Company's active employees
under this program, which amounted to $8,531 as of December 31, 1996, has been
assumed by the Company. The following table reflects the funded status
allocated to the Company for active employees:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Net Postretirement Liability
Accumulated postretirement benefit obligation--Active employees... $(7,781)
Unrecognized gain................................................. (750)
-------
Postretirement health care and life insurance benefits
(liability)...................................................... $(8,531)
=======
</TABLE>
F-17
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
9. INCOME TAXES:
The consolidated amount of current and deferred tax expense was allocated
among the members of the Parent Company group using the pro-rata method, which
assumed the Company's taxes would be filed as a part of Parent Company's
consolidated return.
The sources of income before income taxes and minority interest are:
<TABLE>
<S> <C>
U.S. ............................................................... $ 2,919
Non-U.S. ........................................................... 24,332
-------
$27,251
=======
The provision for income taxes consisted of:
Current income taxes--
U.S. ............................................................. $(1,295)
Non-U.S. ......................................................... 4,833
-------
3,538
-------
Deferred income taxes--
U.S. ............................................................. 3,087
Non-U.S. ......................................................... 1,164
-------
4,251
-------
Total provision..................................................... $ 7,789
=======
A reconciliation of income taxes at the U.S. statutory rate and the
provision for income taxes follows:
Tax provision at U.S. statutory rate................................ $ 9,538
State income taxes.................................................. 50
Non-U.S. tax rate differential...................................... (2,519)
Other, net.......................................................... 720
-------
Provision for income taxes.......................................... $ 7,789
-------
Effective tax rates............................................... 28.6%
=======
</TABLE>
F-18
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
The principal temporary differences included in deferred income taxes
reported on the December 31, 1996 balance sheet are:
<TABLE>
<S> <C>
Current Deferred Taxes
Insurance....................................................... $ 4,070
Employee Benefits............................................... 2,162
Contracts....................................................... 1,378
Other........................................................... 865
--------
8,475
Valuation Allowance............................................. (8,475)
Non-current Deferred Taxes
Employee Benefits............................................... 8,722
Insurance....................................................... 11,417
Other........................................................... 2,342
--------
22,481
Valuation Allowance............................................. (18,680)
Depreciation.................................................... (8,749)
--------
Net Deferred Tax Liabilities...................................... $ (4,948)
========
</TABLE>
The Company has established a valuation allowance of $27,155 for its
domestic deferred tax assets as realization is dependent on sustained U.S.
taxable income. 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, 1996. 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, the Middle East; and the
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. Transfers between geographic areas are not material. Corporate
costs were allocated to the segments based on their relative revenues, assets
or work force.
F-19
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
Revenues, income from operations and assets by geographic area are:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Revenues
North America...................................................... $328,836
Central and South America.......................................... 90,877
Europe, Africa, Middle East........................................ 109,522
Asia Pacific Area.................................................. 134,486
--------
$663,721
========
Income from operations
North America...................................................... $ 9,469
Central and South America.......................................... 6,530
Europe, Africa, Middle East........................................ 4,298
Asia Pacific Area.................................................. 10,966
--------
$ 31,263
========
Assets
North America...................................................... $165,651
Central and South America.......................................... 31,756
Europe, Africa, Middle East........................................ 90,389
Asia Pacific Area.................................................. 63,700
--------
$351,496
========
</TABLE>
11. SUBSEQUENT EVENTS:
In November 1996, Chi Bridge Holdings, Inc. ("Bridge Holdings"), 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, Bridge Holdings and certain of
its subsidiaries will consummate a reorganization. Pursuant to the
reorganization, (i) the shares of substantially all of Chicago Bridge & Iron
Company's ("Old CBIC") non-U.S. subsidiaries will be transferred by dividend
to its parent corporation, Bridge Holdings, and contributed to Chicago Bridge
& Iron Company B.V. ("CBICBV") in exchange for newly issued common shares of
CBICBV; (ii) the shares of substantially all of Old CBIC's U.S. subsidiaries
will be transferred by dividend to Bridge Holdings and contributed to a wholly
owned subsidiary of Bridge Holdings ("New CBIC"), which will become a wholly
owned subsidiary of the Issuer after the reorganization, in exchange for newly
issued common stock of New CBIC; (iii) Bridge Holdings will contribute the
shares held by it of each of New CBIC and CBICBV to the Issuer in exchange for
additional Common Shares of the Issuer; and (iv) New CBIC will assume any
remaining assets and liabilities of Old CBIC. After the reorganization and
prior to the consummation of the Common Share Offering, Bridge Holdings will
be merged into Praxair such that Praxair will then directly own all of the
then outstanding 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 Praxair.
F-20
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
CB&I Management Plan
The Company established the CB&I Management 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
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.
Upon consummation of the Offering, the Company will make a contribution to
the Management Plan in the form of common shares having a value of
approximately $16,700. Accordingly, the Company will record a pretax charge of
approximately $16,700 at the time of the contribution to the Management Plan.
Impact of Operating as a Stand-Alone Entity
The accompanying financial statements reflect the Company's costs of doing
business, including expenses incurred by the Parent Company 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 decreased pretax income by approximately $1,900 for the year
ended December 31, 1996.
12. QUARTERLY OPERATING RESULTS (UNAUDITED):
The following table sets forth selected unaudited consolidated income
statement information for the Company on a quarterly basis for the year ended
December 31, 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues................................ $139,721 $160,789 $183,021 $180,190
Gross profit............................ 15,733 17,690 19,585 20,683
Income from operations.................. 5,647 6,955 8,539 10,122
Net income.............................. 2,370 3,187 5,373 5,632
</TABLE>
F-21
<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 two 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 two years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
December 16, 1996
F-22
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 12,850 $ 16,090
Accounts receivable.................................... 106,634 101,966
Contracts in progress with earned revenues exceeding
related progress billings............................. 70,918 64,624
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 exceeding
related earned revenues .............................. 47,660 41,579
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;
1,000 issued and outstanding in 1995 and 1994......... 1 1
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-23
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues
Third party customers...................................... $581,564 $658,758
Affiliates of Praxair...................................... 40,374 104,045
-------- --------
Total revenues............................................ 621,938 762,803
Cost of revenues
Third party customers...................................... $579,372 $597,643
Affiliates of Praxair...................................... 34,858 94,623
-------- --------
Total cost of revenues.................................... 614,230 692,266
-------- --------
Gross profit.............................................. 7,708 70,537
Selling and administrative expenses......................... 43,023 45,503
Special charges............................................. 5,230 16,990
Gain on sale of assets...................................... (10,030) (11,360)
-------- --------
Income (loss) from operations............................. (30,515) 19,404
Interest expense............................................ (799) (180)
Other income................................................ 1,191 1,652
-------- --------
Income (loss) before taxes and minority interest.......... (30,123) 20,876
Income tax expense (benefit)................................ (8,093) 3,074
-------- --------
Income (loss) before minority interest.................... (22,030) 17,802
Minority interest in income................................. (3,576) (1,359)
-------- --------
Net income (loss)......................................... $(25,606) $ 16,443
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-24
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
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,
1993................... $ 1 $185,493 $168,845 $(124,293) $(12,805) $217,241
Net income.............. -- -- 16,433 -- -- 16,433
Translation adjustment.. -- -- -- -- (1,069) (1,069)
Advances to 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 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-25
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $(25,606) $16,443
Adjustments to reconcile net income to net cash provided
by operating activities:
Special Charge.......................................... 1,850 --
Depreciation............................................ 16,077 15,569
Decrease in deferred income taxes....................... 1,132 1,079
Gain on sale of fixed assets............................ (10,030) (4,360)
Change in operating assets and liabilities (see below).... (22,574) 9,716
-------- -------
Net Cash Provided by/(Used in) Operating Activities..... (39,151) 38,447
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets and investments........ 16,434 29,889
Capital expenditures...................................... (14,880) (18,772)
Increase/(decrease) in equity in unconsolidated
affiliates............................................... 1,352 (2,720)
Increase in other......................................... 993 5,654
-------- -------
Net Cash Provided by Investing Activities............... 3,899 14,051
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance (to)/from Parent Company.......................... 31,011 (49,504)
Increase/(decrease) in notes payable...................... 1,001 (238)
-------- -------
Net Cash Provided by/(Used in) Financing Activities..... 32,012 (49,742)
-------- -------
Increase/(decrease) in cash & cash equivalents.............. (3,240) 2,756
Cash and cash equivalents, beginning of the year............ 16,090 13,334
-------- -------
Cash and cash equivalents, end of the year.................. $ 12,850 $16,090
======== =======
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Increase in receivables, net.............................. $ (4,770) $27,628
Increase in contracts in progress, net.................... (213) (10,416)
(Increase)/decrease in other current assets............... 1,731 (2,259)
Decrease in accounts payable & accrued liabilities........ (6,310) (1,753)
Increase/(decrease) in income tax payable/prepaid income
taxes.................................................... (10,320) 2,535
Decrease other............................................ (2,692) (6,019)
-------- -------
Total................................................... $(22,574) $ 9,716
======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 829 $ 30
Cash paid for income taxes................................ $ 2,936 $ 7,137
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-26
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(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, materials 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. Based on its knowledge of
and experience in its industry, 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 or changing taxes, price controls and laws and
regulations related to the petroleum and petrochemical industry.
During the periods and as of the dates for which the financial statements
are presented, the Company was 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 to 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 specialties 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.
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.
F-27
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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 using the percentage of completion method. Contract
revenues are accrued based generally on the percentage that costs-to-date bear
to total estimated costs. The cumulative impact of revisions in total cost
estimates during the progress of work is reflected in the period in which
these changes become known. Contract 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. A significant portion of the Company's work is
performed on a lump sum or fixed price basis. The balance of projects
primarily are performed on variations of cost reimbursable and target, fixed
or lump sum price approaches. 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 shareholder's equity as cumulative translation adjustment.
Charges for foreign currency exchange losses are included in the determination
of income, and were $974 and $674 in 1995 and 1994, respectively.
Cash Equivalents
Cash equivalents are considered to be all highly liquid securities with
original maturities of three months or less.
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 and $15,569 for
the years ended December 31, 1995 and 1994, 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 Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
F-28
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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 and 1994, the Company
recorded interest expense on notes payable and certain other interest bearing
obligations.
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 and $3,624 in 1995 and 1994,
respectively.
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:
F-29
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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 and 1994, the
Company recorded revenues from affiliates of $40,374 and $104,045,
respectively. Gross profit, net of overhead costs, were $5,516 and $9,422 for
the years ended December 31, 1995 and 1994, 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 and risk management.
Charges for these services were 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 and
$11,599 for the years ended December 31, 1995 and 1994, respectively. The
amounts allocated by Industries are not necessarily indicative of the actual
costs which may have been incurred had the Company operated 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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
F-30
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
5. LEASES:
Certain facilities and equipment are rented under operating leases that
expire at various dates through 2006. Rental expense on operating leases was
$3,589 and $3,472 in 1995 and 1994, 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--
WRITE-
BALANCE, OFF OF TRADE BALANCE,
BEGINNING CHARGES RECEIVABLES, END OF
OF THE YEAR TO EXPENSE NET OF RECOVERIES THE YEAR
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
For the year ended De-
cember 31, 1995........ $2,862 $5,656 $(2,175) $6,343
For the year ended De-
cember 31, 1994........ 3,039 2,071 (2,248) 2,862
</TABLE>
The components of property and equipment are:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
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:
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Self-insurance 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:
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Self-insurance reserves................................ $ 27,403 $ 25,504
Postretirement benefit obligation...................... 22,583 24,986
Other.................................................. 6,825 8,856
--------- ---------
$ 56,811 $ 59,346
========= =========
</TABLE>
F-31
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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 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 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. The Company believes
that an estimate of the possible loss or range of possible loss relating to
such matters cannot be made. Although the Company believes that it is
reasonably likely 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
currently 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 is
aware of no manifestation by a potential claimant of an awareness by such
claimant of a possible claim or assessment and does not consider it to be
probable that a claim will be asserted which claim is reasonably possible to
have an unfavorable outcome, in each case, which would be material to the
Company with respect to the matters addressed in this paragraph. 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 believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be
made. 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 belief as to the reasonable likelihood of the outcomes 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 its business, financial condition or results
of operations.
F-32
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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 determined 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 v. CBI Na-Con, Inc. et al. The
Company denies that it is liable.The Company believes that an estimate of the
possible loss or range of possible loss cannot be made. While the Company
believes that the claims are without merit and/or the Company has valid
defenses to such claims and that it is reasonably likely to prevail in
defending against such claims, 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.
The Company is a defendant in a number of other lawsuits arising in the
normal course of its business. The Company believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be
made. While it is impossible at this time to determine with certainty the
ultimate outcome of these 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 belief as to the reasonable likelihood of the
outcomes of such matters, 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, 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.
The Company is jointly and severally liable for certain liabilities of
partnerships and joint ventures. The Company has also given certain
performance guarantees, arising from the ordinary course of business for its
subsidiaries and unconsolidated affiliates.
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 reasonably possible losses, if any, for
these matters, to the extent not otherwise disclosed and net of recorded
reserves will not be material to its financial position or its results of
operations.
F-33
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
8. EMPLOYEE BENEFIT PROGRAMS:
Health and Welfare Programs
The Company participated in various health and welfare programs for active
employees that were sponsored by Industries. These programs include medical,
life insurance and disability. The Company reimbursed 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 $8,585 and $9,048 in the years ended December
31, 1995 and 1994, respectively. The costs were 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.
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 and $6,400 in the
years ended December 31, 1995 and 1994, 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 tax qualified 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 and $4,641 in the
years ended December 31, 1995 and 1994, 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, and $3,575 in 1995 and
1994, 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>
1995 1994
----------------- ----------------
US CANADA US CANADA
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Pension Cost
Service cost............................. $ 4,326 $ 291 $ 5,096 $ 368
Interest cost............................ 6,803 1,218 6,467 1,223
Actual return on assets.................. (15,420) (1,515) (1,262) (1,742)
Net amortization and deferral............ 9,523 (239) (2,961) (472)
-------- ------- ------- -------
Net defined benefit pension plans
expense................................. $ 5,232 $ (245) $ 7,340 $ (623)
======== ======= ======= =======
Amount allocated to Company.............. $ 2,937 $ (245) $ 4,198 $ (623)
======== ======= ======= =======
</TABLE>
F-34
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------------------- ------------------
US CANADA US CANADA
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Funded Status
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% and 8.5% in 1995 and 1994,
respectively; increase in compensation levels of 4.5% in 1995 and 1994; and
long-term rate of return on plan assets of 9.0% in 1995 and 1994.
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 and 1994.
Effective January 1, 1997, the Company adopted a new tax-qualified defined
contribution plan ("New 401(k) Plan") for eligible employees. The New 401(k)
Plan consists 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 substantially replaces the current
Industries-sponsored pension and 401(k) plans.
Benefit accruals under the CBI Pension Plan for current Company employees
were discontinued as of December 31, 1996. The Company's obligation to fund
its portion of the accumulated benefit obligation for its participants in
excess of plan assets was fixed at $17,270 as of December 31, 1996, as agreed
to by the Company and Praxair. This obligation is payable ratably to Praxair
over a twelve-year period beginning December 1, 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-35
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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 was $2,258 and
$2,326 in 1995 and 1994, respectively. The Company reimbursed 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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net Periodic Postretirement Benefit Cost
Service cost.............................................. $ 563 $ 683
Interest cost............................................. 2,572 2,582
Actual return on assets................................... 46 --
Net amortization and deferral............................. -- (23)
-------- --------
Postretirement health care and life insurance benefits
cost..................................................... $ 3,181 $ 3,242
======== ========
Amount allocated to the Company........................... $ 2,258 $ 2,326
======== ========
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net Postretirement Liability
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 liability... $(32,891) $(36,783)
======== ========
Amount allocated to the Company........................... $(24,069) $(27,367)
======== ========
</TABLE>
The significant assumptions used in determining other postretirement benefit
expense were: discount rate of 7.25% and 8.5% in 1995 and 1994, respectively;
and long-term rate of return on plan assets of 9.0% in 1995 and 1994.
Effective January 1, 1997, the Company terminated its participation in the
program sponsored by Industries. The Company's obligation with respect to
existing retirees under the program was fixed at $21,400 as of December 31,
1996, as agreed to by the Company and Praxair. This obligation is payable
ratably to Praxair over a twelve-year period beginning December 1, 1997 with
interest at 7.5%. The future obligation for the Company's active employees
under this program has been assumed by the Company.
F-36
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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.
The sources of income/(loss) before income taxes and minority interest are:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
U.S. .................................................... $(25,387) $ (395)
Non-U.S. ................................................ (4,736) 21,271
-------- -------
$(30,123) $20,876
======== =======
The provision/(benefit) for income taxes consisted of:
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Current income taxes--
U.S. .................................................. $ (6,678) $ (913)
Non-U.S. .............................................. 1,586 6,399
-------- -------
(5,092) 5,486
-------- -------
Deferred income taxes--
U.S. .................................................. (1,469) (1,109)
Non-U.S. .............................................. (1,532) (1,303)
-------- -------
(3,001) (2,412)
-------- -------
Total provision/(benefit)................................ $ (8,093) $ 3,074
======== =======
The components of the deferred income tax provision/(benefit) are:
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Depreciation expense..................................... $ (586) $(1,225)
Non-U.S. activity........................................ (619) (1,966)
Employee and retiree benefits............................ (255) (540)
Special charges.......................................... 250 4,069
Insurance................................................ (2,583) (909)
Other, net............................................... 792 (1,841)
-------- -------
$ (3,001) $(2,412)
======== =======
</TABLE>
F-37
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
A reconciliation of income taxes at the U.S. statutory rate and the
provision/(benefit) for income taxes follows:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Income/(loss) before income taxes and minority
interest............................................... $(30,123) $20,876
-------- -------
Tax provision/(benefit) at U.S. statutory rate.......... $(10,543) $ 7,307
State income taxes...................................... 82 389
Non-U.S. tax rate differential and losses without tax
benefit................................................ 1,610 (4,933)
Other, net.............................................. 758 311
-------- -------
Provision/(benefit) for income taxes.................... $ (8,093) $ 3,074
======== =======
Effective tax rates................................... (26.9)% 14.7%
======== =======
The principal temporary differences included in non-current deferred income
taxes reported on the balance sheets are:
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
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
======== =======
</TABLE>
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, the Middle East; and the
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-38
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
Revenues, income/(loss) from operations and assets by geographic area are:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revenues
North America........................................... $317,698 $416,138
Central and South America............................... 54,605 118,616
Europe, Africa, Middle East............................. 110,775 112,973
Asia Pacific Area....................................... 138,860 115,076
-------- --------
$621,938 $762,803
======== ========
Income/(loss) from operations
North America........................................... $(37,623) $(11,579)
Central and South America............................... 8,511 11,368
Europe, Africa, Middle East............................. (5,527) 856
Asia Pacific Area....................................... 4,124 18,759
-------- --------
$(30,515) $ 19,404
======== ========
Assets
North America........................................... $190,187 $216,584
Central and South America............................... 14,997 21,332
Europe, Africa, Middle East............................. 73,322 63,677
Asia Pacific Area....................................... 77,619 58,319
-------- --------
$356,125 $359,912
======== ========
</TABLE>
11. SPECIAL CHARGES AND GAIN ON SALE OF ASSETS:
Special Charges
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Litigation.................................................... $ -- $16,990
Restructuring................................................. 5,230 --
------ -------
Total....................................................... $5,230 $16,990
====== =======
</TABLE>
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.
F-39
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
Gain on Sale of Asset
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Gain on sale of property, plant and equipment............... $10,030 $ 4,360
Gain from affiliated entity transactions.................... -- 7,000
------- -------
Total..................................................... $10,030 $11,360
======= =======
</TABLE>
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
Company's 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.
12. SUBSEQUENT EVENTS:
In November 1996, Chi Bridge Holdings, Inc. ("Bridge Holdings"), 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, Bridge Holdings and certain of
its subsidiaries will consummate a reorganization. Pursuant to the
reorganization (i) the shares of substantially all of Chicago Bridge & Iron
Company's ("Old CBIC") non-U.S. subsidiaries will be transferred by dividend
to its parent corporation, Bridge Holdings, and contributed to Chicago Bridge
& Iron Company B.V. ("CBICBV") in exchange for newly issued common shares of
CBICBV; (ii) the shares of substantially all of Old CBIC's U.S. subsidiaries
will be transferred by dividend to Bridge Holdings and contributed to a wholly
owned subsidiary of Bridge Holdings ("New CBIC"), which will become a wholly
owned subsidiary of the Issuer in the reorganization, in exchange for newly
issued common stock of New CBIC; (iii) Bridge Holdings will contribute the
shares held by it of each of New CBIC and CBICBV to the Issuer in exchange for
additional Common Shares of the Issuer; and (iv) New CBIC will assume any
remaining assets and liabilities of Old CBIC. After the reorganization and
prior to the consummation of the Common Share Offering, Bridge Holdings will
be merged into Praxair such that Praxair will then directly own all of the
then outstanding 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 Praxair.
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-
F-40
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
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.
13. QUARTERLY OPERATING RESULTS:
As discussed in the Notes to Consolidated Financial Statements for the two
years ended December 31, 1995, the Company recorded special charges in 1995
and 1994 for a major litigation settlement and restructuring expenses. The
fourth quarter of 1995 was negatively impacted by approximately $15,000 for
significant losses on a few contracts and approximately $8,000 of
underabsorbed overhead costs.
The following table sets forth selected unaudited consolidated statement of
income information for the Company on a quarterly basis for the years ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1995
-------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues................................ $160,584 $156,385 $147,342 $157,627
Gross profit............................ 10,338 9,019 4,451 (16,100)
Special charges........................... 0 0 0 (5,230)
Income (loss) from operations........... 1,223 (32) (2,966) (28,740)
Net income (loss)....................... 1,164 2,022 (5,263) (23,529)
<CAPTION>
THREE MONTHS ENDED 1994
-------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues................................ $161,151 $190,942 $192,821 $217,889
Gross profit............................ 19,721 18,505 12,070 20,241
Special charges......................... 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>
F-41
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-43
Balance Sheet as of December 31, 1996...................................... F-44
Notes to Balance Sheet..................................................... F-45
</TABLE>
F-42
<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 December 31, 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 auditing standards generally
accepted in the United States. 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 December 31, 1996, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
February 7, 1997
F-43
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
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
===
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-44
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
NOTES TO BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
1. ORGANIZATION:
In November 1996, Chi Bridge Holdings, Inc. ("Bridge Holdings"), a
subsidiary of Praxair, Inc., formed its wholly owned subsidiary Chicago Bridge
& Iron Company N.V. (the "Issuer"), a corporation organized under the laws of
the Netherlands. The original $59 investment in exchange for common stock and
additional paid-in capital is the Company's only transaction for the year
ended December 31, 1996, and as such, no income or cash flow statements are
presented for the period.
2. SIGNIFICANT ACCOUNTING POLICIES:
The Issuer employs accounting policies that are in accordance with generally
accepted accounting principles 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, Bridge Holdings and certain of
its subsidiaries will consummate a reorganization. Pursuant to the
reorganization (i) the shares of substantially all of Chicago Bridge & Iron
Company's ("Old CBIC") non-U.S. subsidiaries will be transferred by dividend
to its parent corporation, Bridge Holdings, and contributed to Chicago Bridge
& Iron Company B.V. ("CBICBV") in exchange for newly issued common shares of
CBICBV; (ii) the shares of substantially all of Old CBIC's U.S. subsidiaries
will be transferred by dividend to Bridge Holdings and contributed to a wholly
owned subsidiary of Bridge Holdings ("New CBIC"), which will become a wholly
owned subsidiary of the Issuer in the reorganization, in exchange for newly
issued common stock of New CBIC; (iii) Bridge Holdings will contribute the
shares held by it of each of New CBIC and CBICBV to the Issuer in exchange for
additional Common Shares of the Issuer; and (iv) New CBIC will assume any
remaining assets and liabilities of Old CBIC. After the reorganization and
prior to the consummation of the Common Share Offering, Bridge Holdings will
be merged into Praxair such that Praxair will then directly own all of the
then outstanding Common Shares of the Issuer.
F-45
<PAGE>
[DESCRIPTION OF PHOTOS ON INSIDE BACK COVER]
[COMPANY LOGO]
[PHOTO OF PEAK SHAVING FACILITY]
Text: CB&I furnished this LNG peak shaving facility in South Carolina on a
turnkey basis.
[INSET PHOTO OF A REFINERY]
Text: CB&I regularly performs complex turnarounds on critical refinery vessels.
[INSET PHOTO OF A PETROLEUM STORAGE TERMINAL]
Text: CB&I developed, designed, procured, built, and commissioned all aspects of
this turnkey petroleum storage terminal in Singapore.
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION 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 UN-
DERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICI-
TATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURIS-
DICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURIS-
DICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
The Company.............................................................. 21
Dividend Policy.......................................................... 22
Dilution................................................................. 23
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Selected Consolidated Financial and Other Data........................... 25
Unaudited Pro Forma Consolidated Income Statement........................ 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 36
Certain Transactions; Relationship With Praxair.......................... 52
Principal and Selling Shareholders....................................... 55
Management............................................................... 57
Description of New Revolving Credit Facility............................. 67
Description of Share Capital............................................. 68
Share Certificates and Transfer.......................................... 73
Taxation................................................................. 76
Shares Eligible for Future Sale.......................................... 80
Underwriting............................................................. 82
Notice to Canadian Residents............................................. 85
Legal Matters............................................................ 86
Experts.................................................................. 86
Available Information.................................................... 86
Service of Process and Enforcement of
Civil Liabilities....................................................... 87
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL APRIL 20, 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE COMMON SHARE OF-
FERING) 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 ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
CHICAGO BRIDGE & IRON COMPANY N.V.
10,500,000 Common Shares
(NLG 0.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
UBS SECURITIES
- -------------------------------------------------------------------------------
