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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____ to ____
Commission File Number 1-12815
CHICAGO BRIDGE & IRON COMPANY N.V.
Incorporated in The Netherlands IRS Identification Number: not applicable
Polarisavenue 31
2132 JH Hoofddorp
The Netherlands
31-23-568-5660
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock; NLG .01 par value New York Stock Exchange
Amsterdam Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
none
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X ]
Aggregate market value of common stock held by non-affiliates, based on a New
York Stock Exchange closing price of $11.125 as of March 25, 1999, was
$115,681,844.
The number of shares outstanding of a single class of common stock as of March
25, 1999 was 11,284,157.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the 1998 Annual Report to Shareholders Part I and Part II
Portions of the 1999 Proxy Statement Part III
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I.
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II.
Item 5. Market for Registrant's Common Equity and Related 12
Stockholder Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on 12
Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and 15
Management
Item 13. Certain Relationships and Related Transactions 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports 16
on Form 8-K
SIGNATURES 17
</TABLE>
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PART I
ITEM 1. BUSINESS
Chicago Bridge & Iron Company N.V. and its Subsidiaries ("CB&I" or the
"Company") is a global engineering and construction company specializing in the
design and engineering, fabrication, field erection and repair of bulk liquid
terminals, steel tanks, pressure vessels, low temperature and cryogenic storage
facilities and other steel plate structures and their associated systems. CB&I
has been continuously engaged in the engineering and construction industry since
its founding in 1889.
Prior to January 12, 1996, the business of the Company was operated by Chicago
Bridge & Iron Company, a wholly owned subsidiary of Chi Bridge Holdings, Inc.
("Holdings"), 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.
In March 1997, Holdings effected a reorganization (the "Reorganization") whereby
Holdings transferred the business of Chicago Bridge & Iron Company to Chicago
Bridge & Iron Company N.V., a corporation organized under the laws of The
Netherlands.
Effective March 26, 1997, an initial public offering (the "Offering") of a
majority of the shares of the Company's Common Stock, par value NLG 0.01 (the
"Common Stock"), was made. The Company did not receive any proceeds from the
Offering, but paid a portion of the offering costs. The Common Stock is traded
on the New York and Amsterdam stock exchanges.
PRODUCT LINE INFORMATION
<TABLE>
<CAPTION>
REVENUES BY PRODUCT LINE
(In millions)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Flat Bottom Tanks $287 $209 $248
Specialty and Other Structures 130 154 117
Low Temperature/Cryogenic
Tanks and Systems 108 109 60
Turnarounds 85 42 45
Pressure Vessels 64 53 82
Repairs and Modifications 64 58 70
Elevated Tanks 38 48 42
-- -- --
Total $776 $673 $664
==== ==== ====
</TABLE>
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Flat Bottom Tanks
These above-ground storage tanks are sold primarily to customers operating in
the petroleum, petrochemical and chemical industries around the world. This
industrial customer group includes nearly all of the major oil and chemical
companies on every continent. 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, petrochemicals and a large
variety of feedstocks for the manufacturing industry.
Specialty and Other Structures
Specialty and other structures are marketed to a diverse group of customers in
such industries as metals and mining, utilities, telecommunications, aerospace
and wastewater treatment. Examples of these special plate structures include
research and test facilities for testing prototype spacecraft, rocket engines
and vacuum testing of satellites before launch; hydroelectric structures such as
penstocks, spiral cases and draft tubes; and processing facilities or components
used in the iron, aluminum and mining industries. These structures are typically
made from bent and formed metal plate materials (carbon steel, stainless steel,
special alloy steel and aluminum) and are shipped as fabricated pieces or
components to their final location for field assembly and welding. The Company
performs design, constructability analysis, complex fabrication, welding and
specialized field erection in order to supply these special structures for a
variety of applications throughout the world.
Low Temperature/Cryogenic Tanks and Systems
These facilities are used primarily for the storage and handling of liquefied
gases. The Company specializes in providing refrigerated turnkey terminals and
tanks. Refrigerated tanks are built from special steels and alloys that have
properties to withstand cold temperatures. The systems usually include special
refrigeration systems to maintain the gases in liquefied form. Applications
extend from low temperature (+30(Degree)F to -100(Degree)F ) to cryogenic
(-100(Degree)F to -423(Degree)F). Customers in the petroleum, chemical,
petrochemical, specialty gas, natural gas, power generation and agricultural
industries use these tanks and systems to store and handle liquefied gases such
as LNG, methane, ethane, ethylene, LPG, propane, propylene, butane, butadiene,
anhydrous ammonia, oxygen, nitrogen, argon and hydrogen.
Turnarounds
A turnaround is a logically planned shutdown of a refinery or other process unit
for repair and maintenance of equipment and associated systems. The work is
usually scheduled on a multi-shift, seven day per week basis. Personnel,
materials and equipment must come together at precisely the right time to
accomplish this manpower intensive operation. This product line often requires
short cycle times and unique construction procedures. The Company currently
offers this service to its customers in the petroleum, petrochemical and
chemical industries throughout the world.
Pressure Vessels
Pressure vessels are built primarily from high strength carbon steel plates
which have been bent or formed in a fabrication shop and are welded together at
a job site. Pressure vessels come in a variety of cylindrical, spherical,
hemispherical and conical shapes and sizes, some weighing in excess of 700 tons,
with thicknesses in excess of six inches. This product line encompasses a number
of technological issues such as design, analysis, welding capabilities,
metallurgy, complex fabrication and specialty field erection methods. Existing
customers represent a cross section of the petroleum, petrochemical, chemical
and pulp and paper industries, where process
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applications of high pressure and/or temperature are required. Pressure vessels
are used in refineries as storage containers as well as process vessels, which
are used to transform crude oil into its various components. They are also used
as digesters in the pulp and paper industry. The Company has designed, built and
tested pressure vessels throughout the world.
Repairs and Modifications
Repair, maintenance and modification services are performed primarily on flat
bottom tanks and pressure vessels. While the Company has focused on providing
these services primarily in the United States, efforts are under way to expand
these services throughout the world. Customers in the petroleum, chemical,
petrochemical and water industries generally require these types of services.
Elevated Tanks
The water storage line includes single pedestal, fluted column and concrete
pedestal tanks, as well as standpipes and reservoirs. These products have a
capacity range of 25,000 gallons to 3,000,000 gallons. These structures provide
potable water reserves and supply pressure to the water distribution system.
BUSINESS GOALS AND STRATEGIES
The Company is committed to increasing shareholder value by seeking to build
upon its established success and by growing its business in the global
marketplace. It intends to accomplish this by means of a strategic plan, which
includes goals and key strategies.
Goals
The Company's goals provide direction for its employees as they strive for the
long-term enhancement of shareholder value.
1. Continue to improve the Company's safe work practices with a goal of zero
injuries.
Working safely is of paramount importance; the Company cannot compromise safety
for expediency; its constant goal must be zero injuries.
2. Selectively compete in the global market for steel plate structures and their
associated systems.
The Company is a niche player in the Engineering & Construction industry with
special expertise in the design and engineering, fabrication, field erection and
repair of steel plate structures including bulk liquid terminals, steel tanks,
pressure vessels, and low temperature and cryogenic storage facilities.
Associated systems are the civil, foundation, piping, mechanical, electrical,
instrumentation and fire protection systems that accompany many of the process
and storage vessels the Company builds.
3. Focus on profitable opportunities in the developing regions and active
markets worldwide, as well as in the Company's strong base in North America.
The Company will leverage its core competencies in logistics and project
execution to expand in areas where it can secure profitable new business while
maintaining and strengthening its North American base.
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4. Create and deliver superior, cost-effective solutions that provide a
competitive advantage.
The Company will use its proprietary knowledge, know-how and execution
capabilities to deliver better solutions to its customers than those available
from its competitors.
5. Create an atmosphere in which the Company's skilled, productive, motivated
and mobile work force can grow and develop.
It will seek to attract and retain superior employees, deploy them wisely,
invest in developing their capabilities, and enable them to share in the
Company's financial successes.
6. Use the Company's marketing and selling expertise to build superior
relationships with targeted customers.
The Company will cultivate existing and pursue additional strategic alliances
with targeted customers.
7. Make the Company's support services (e.g., Legal, Finance, I.T.) strong
contributors to its performance and profitability.
Indirect functions must efficiently provide value-added support services to its
field operations.
Key Strategies
The Company's key strategies provide a focus for near-term efforts and a
foundation for future growth.
1. Continue to improve the Company's safe work practices with a goal of zero
injuries.
As a result of the importance of safety to its employees, the goal of safer
operations is reemphasized here as the number one key strategy.
2. Build excellence in project management.
This is the means by which the Company will plan, track and execute its projects
safely, on time, and at or above the "as sold" profitability. The ability to
consistently achieve these results depends upon the skills of the Company's
people and the excellence of its systems. The Company will invest in and improve
both of these.
3. Improve the Company's response to customers' changing requirements.
The Company has put controls in place to ensure that the scope and value of the
work delivered meet the owner's requirements and are adequately reflected in the
compensation received.
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4. Execute an effective marketing process with a focus on major opportunities,
emerging countries, difficult geographies and expanded services for significant
profitable growth.
The Company is tracking "elephant" projects that fit its unique capabilities.
These projects represent a significantly larger revenue than its "normal"
projects. The Company continues to expand into emerging markets such as
Equatorial Africa and the former Soviet Republics. It continues to seek work in
locations where its ability to staff and to field erect commands a premium. The
Company will strive to continue its success in selling expanded work scope.
5. Identify all costs and improve the Company's ability to forecast financial
results.
Costs that do not add value are being eliminated. The Company is strengthening
its financial controls, and the worldwide implementation of the financial
portion of the J.D. Edwards enterprise management system is scheduled for
completion during 1999.
OTHER OPERATIONAL INFORMATION
During 1998, the Company recognized the growing market for water-related
products and began to broaden its product line to provide complete water storage
and treatment solutions. The water services product offerings encompass water
storage tanks and water and wastewater treatment products, including elevated
tanks, standpipes, reservoirs and clarification products. CB&I has been
successful in securing awards for concrete pedestal tanks, which incorporate a
steel water storage structure atop a concrete base and provide a lower-cost
storage option.
The Company continues to be successful with its innovative tank building process
called CoilBuilding(TM), in which the tank shell is formed from continuous steel
coils rather than individual plates. CoilBuilding is particularly suited for
smaller-diameter, stainless steel tanks used in certain petrochemical, chemical,
pharmaceutical and food applications where corrosion resistance and cleanliness
are vital. The Company has exclusive rights to the CoilBuilding process in North
America and is aggressively marketing this new technology.
The principal raw materials used by the Company are metal plate and structural
steel. These materials are available from numerous suppliers worldwide. CB&I
does not anticipate having difficulty obtaining adequate amounts of raw
materials in the foreseeable future.
CB&I holds patents and licenses for certain items incorporated into its
products. However, none is so essential that its loss would materially affect
the businesses of the Company.
The Company is not dependent upon 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.
CB&I had a backlog of work to be completed on contracts of $508 million at
December 31, 1998, and $555 million at December 31, 1997. Approximately 75% of
the backlog as of December 31, 1998 is expected to be completed in 1999. New
business taken represents the value of new project commitments received by the
Company during a given period and is
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included in backlog until work is performed and revenue recognized or until
cancellation. Backlog may also fluctuate with currency movements.
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 effective
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. This perception 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 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.
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.
The Company incurred expenses during the year for the purpose of complying with
environmental regulations, but their impact on the consolidated financial
statements was not material.
The Company incurred expenses of approximately $860,000 in 1998, $1,670,000 in
1997, and $730,000 in 1996 for its research and development activities.
The Company employed 6,453 people as of December 31, 1998.
Financial information by geographic area of operation can be found on pages 52
and 53 of the Company's 1998 Annual Report to Shareholders and is incorporated
herein by reference.
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ITEM 2. PROPERTIES
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. CB&I
believes these facilities are adequate to meet its current requirements. The
following list summarizes its principal properties:
<TABLE>
<CAPTION>
Location Type of Facility Interest
- -------- ---------------- --------
<S> <C> <C>
Houston, Texas Engineering, fabrication facility, warehouse, Owned
operations and administrative office
Kankakee, Illinois (1) Warehouse Owned
Plainfield, Illinois Engineering, operations and administrative Owned
office
Fort Saskatchewan, Warehouse, operations and Owned
Canada administrative office
Dubai, United Arab Engineering, warehouse, operations and Leased
Emirates administrative office
Puerto Ordaz, Venezuela Fabrication facility and warehouse Leased
Kwinana, Australia Fabrication facility, warehouse and Leased
administrative office
Ao Udom, Thailand Warehouse and operations office Leased
Batangas, Philippines Fabrication facility and warehouse Leased
Cilegon, Indonesia Fabrication facility and warehouse Leased
Al Aujam, Saudi Arabia Fabrication facility and warehouse Leased
Secunda, South Africa Fabrication facility and warehouse Leased
Amsterdam, Netherlands Corporate office Leased
</TABLE>
(1) The Company completed the sale of the fabrication and office portions of the
Kankakee facility during 1998. The Company plans to continue to utilize the
warehouse space at this facility.
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.
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
A subsidiary of the Company was a minority shareholder in a company which owned
or operated 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 subsidiary has been
named a potentially responsible party ("PRP") under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and similar
state laws. Without admitting any liability, the subsidiary 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. Without
admitting any liability, the subsidiary has reached settlements at most sites,
which require the other PRPs to perform the environmental
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clean-up. In July 1996, a judgment in favor of the subsidiary was entered in the
suit Aluminum Company of America v. Beazer East, Inc. v. Chicago Bridge & Iron
Company, instituted in January 1991, before the U. S. District Court for the
Western District of Pennsylvania. On September 2, 1997, the United States Court
of Appeals for the Third Circuit affirmed the judgment in favor of the
subsidiary. There were no further appeals. The Company believes any remaining
potential liability will not be material, although there can be no assurance
that such remaining potential liability will not have a material adverse effect
on its business, financial condition or results of operations. In addition, the
subsidiary has a suit pending against certain of its insurers in the
Massachusetts Superior Court filed in 1994 to recover amounts spent in
connection with this matter.
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 material 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, CB&I Constructors, Inc. (formerly CBI Na-Con, Inc.), 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 $20,000,000 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 CB&I Constructors, Inc. before the District
Court of Harris
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County, Texas in Fina Oil & Chemical Company v. CB&I Constructors, Inc., et al.
The Company denies that it is liable. While the Company believes any liability
in excess of a $2,000,000 deductible is covered by insurance, and 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
material adverse effect on the Company's business, financial condition or
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 or 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. At December 31, 1998, the Company and certain
subsidiaries had provided $220,747,000 of performance bonds and letters of
credit to support its contracting activities arising in the ordinary course of
business. This amount fluctuates based on the level of contracting activity.
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 results of operations. At December 31,
1998, the Company had outstanding surety bonds and letters of credit of
$23,423,000 relating to its insurance program.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this item can be found on page 54 of the Company's 1998
Annual Report to Shareholders and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item can be found on pages 24 and 25 of the
Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this item can be found on pages 26 through 31 of the
Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item can be found on page 30 of the Company's 1998
Annual Report to Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements and Report of Independent Public Accountants
can be found on pages 32 through 54 of the Company's 1998 Annual Report to
Shareholders and are incorporated herein by reference.
Quarterly financial data can be found on page 54 of the Company's 1998 Annual
Report to Shareholders and is incorporated herein by reference.
Additional financial information and schedules can be found in Part IV of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CB&I has neither changed its independent public accountants nor had any
disagreements on accounting and financial disclosure with its independent public
accountants during the prior two years.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to supervisory directors can be found on pages 2
through 4 of the Company's 1999 Proxy Statement and is incorporated herein by
reference.
The following table sets forth certain information regarding the executive
officers of Chicago Bridge & Iron Company ("CBIC") and Chicago Bridge & Iron
Company B.V. ("CB&I B.V."). As permitted under the law of The Netherlands, the
Company does not have executive officers. CB&I B.V. serves as the Company's
managing director.
<TABLE>
<CAPTION>
Served in
Name Age Position Position Since
- ---- --- -------- --------------
<S> <C> <C> <C>
Gerald M. Glenn 56 Chairman of the Supervisory Board of the 1997
Company;
Chairman, President and Chief Executive Officer 1996
and Director of CBIC;
Chairman, President and Chief Executive Officer 1997
and Managing Director of CB&I B.V.
C. David Bassett 63 Vice President - Engineering, Fabrication and 1996
Logistics of CBIC
Stephen P. Crain 45 Vice President - Global Sales and Marketing of 1997
CBIC
Stephen M. Duffy 49 Vice President - Human Resources and 1996
Administration of CBIC
Robert B. Jordan 49 Vice President - Operations of CBIC; 1998
Managing Director of CB&I B.V. 1998
John R. Meier 53 Vice President and Controller of CBIC 1997
Timothy J. Wiggins 42 Vice President - Chief Financial Officer and 1996
Director of CBIC;
Vice President, Treasurer and Chief Financial 1997
Officer and Managing Director of CB&I B.V.
Robert H. Wolfe 49 Secretary of the Company; 1997
Vice President, General Counsel and Secretary of 1996
CBIC
Secretary of CB&I B.V. 1997
</TABLE>
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There are no family relationships between any executive officers and supervisory
directors. Executive officers of CBIC are elected annually. The Managing
Directors of CB&I B.V. serve until successors are elected.
Business Experience
Gerald M. Glenn has served as Chairman of the Supervisory Board of the Company
since April 1997. He has been the Chairman, President and Chief Executive
Officer and Director of CBIC since May 1996, and has been the Chairman,
President and Chief Executive Officer and Managing Director of CB&I B.V. since
March 1997. Mr. Glenn has been elected to serve as Chairman of the Supervisory
Board of the Company; his term will expire in 2000. Since 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 for Fluor Daniel, Inc.
C. David Bassett has been the Vice President - Engineering, Fabrication and
Logistics of CBIC since November 1996. From February 1994 to November 1996, Mr.
Bassett was an independent consultant. From 1987 to February 1994, Mr. Bassett
was the Chief Operating Officer for CRS Sirrine in Greenville, South Carolina.
Stephen P. Crain has been the Vice President - Global Sales and Marketing of
CBIC since July 1997. Prior to that time, Mr. Crain was employed by CBIC or its
affiliates in an executive or management capacity for more than five years. Mr.
Crain has been continuously employed by the Company since 1978.
Stephen M. Duffy has been the Vice President - Human Resources and
Administration of CBIC since June 1996. Mr. Duffy was the Vice President - Human
Resources and Administration of CBI Industries, Inc. from November 1991 through
May 1996.
Robert B. Jordan has been the Vice President - Operations of CBIC and Managing
Director of CB&I B.V. since February 1998. From May 1996 to February 1998, Mr.
Jordan was the Senior Vice President - Sales and Operations for the Process
Division of BE&K Incorporated located in Birmingham, Alabama. From February 1994
to May 1996, Mr. Jordan was the Senior Vice President - Sales and Operations for
the Process and Industrial Division of Raytheon/Rust Engineering & Construction
located in Birmingham, Alabama. Mr. Jordan also served the Fluor Daniel
organization from 1973 to February 1994, most recently as Vice President -
General Manager of the Chemical and Process Division.
John R. Meier has been the Vice President and Controller of CBIC since June
1997. Prior to that time, Mr. Meier was employed by CBIC and CBI Industries,
Inc. in an executive or management capacity for more than five years. Mr. Meier
has been employed by the Company since 1968.
Timothy J. Wiggins has been the Vice President - Chief Financial Officer and
Director of CBIC since September 1996, and the Vice President, Treasurer and
Chief Financial Officer and Managing Director of CB&I B.V. since March 1997.
From August 1993 to September 1996, Mr. Wiggins was the 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 &
14
<PAGE> 15
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
CBIC since November 1996, and the Secretary of the Company since its inception.
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.
Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 can be found on page 7 of the 1999 Proxy Statement and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation can be found on pages 8
through 19 of the 1999 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Common Stock Ownership By Certain Persons and
Management can be found on pages 6 and 7 of the 1999 Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
The following consolidated financial statements and Report of Independent Public
Accountants previously incorporated by reference under Item 8 of Part II of this
report are herein incorporated by reference.
Consolidated Balance Sheets - As of December 31, 1998 and 1997
Consolidated Statements of Income - For the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity - For the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - For the years ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules
Supplemental Schedule V - Valuation and Qualifying Accounts and Reserves for
each of the years ended December 31, 1998, 1997 and 1996 can be found on page 19
of this report.
Schedules, other than the one above, have been omitted because the schedules are
either not applicable or the required information is shown in the financial
statements or notes thereto previously incorporated by reference under Item 8 of
Part II of this report.
Quarterly financial data for the years ended December 31, 1998 and 1997 is shown
in the Notes to Consolidated Financial Statements previously incorporated by
reference under Item 8 of Part II of this report.
CB&I's interest in 50 percent or less owned affiliates, when considered in the
aggregate, does not constitute a significant subsidiary; therefore, summarized
financial information has been omitted.
Exhibits
The Exhibit Index on page 20 and Exhibits being filed are submitted as a
separate section of this report.
Reports on Form 8-K
The Company did not file a current report on Form 8-K during the three months
ended December 31, 1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Chicago Bridge & Iron Company N.V.
Date: March 31, 1999 /s/ Timothy J. Wiggins
-------------------------------------
By: Chicago Bridge & Iron Company B.V.
Its: Managing Director
Timothy J. Wiggins
Managing Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 31, 1999.
Signature Title
/s/ Gerald M. Glenn Chairman of the Supervisory Board
- ----------------------------------- of Registrant, and President, Chief
Gerald M. Glenn Executive Officer of CBIC
(Principal Executive Officer)
/s/ Timothy J. Wiggins Vice President and Chief Financial
- ----------------------------------- Officer of CBIC
Timothy J. Wiggins (Principal Financial Officer)
/s/ John R. Meier Vice President and Controller of
- ----------------------------------- CBIC
John R. Meier (Principal Accounting Officer)
/s/ Jerry H. Ballengee Supervisory Director
- -----------------------------------
Jerry H. Ballengee
/s/ J. Dennis Bonney Supervisory Director
- -----------------------------------
J. Dennis Bonney
/s/ J. Charles Jennett Supervisory Director
- -----------------------------------
J. Charles Jennett
/s/ Vincent L. Kontny Supervisory Director
- -----------------------------------
Vincent L. Kontny
/s/ Gary L. Neale Supervisory Director
- -----------------------------------
Gary L. Neale
17
<PAGE> 18
/s/ L. Donald Simpson Supervisory Director
- -----------------------------------
L. Donald Simpson
/s/ Marsha C. Williams Supervisory Director
- -----------------------------------
Marsha C. Williams
Registrant's Agent for Service in the United States
/s/ Robert H. Wolfe
- -----------------------------------
Robert H. Wolfe
18
<PAGE> 19
SCHEDULE V. SUPPLEMENTAL INFORMATION ON VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
CHICAGO BRIDGE & IRON COMPANY N.V.
Valuation and Qualifying Accounts and Reserves
For Each of the Three Years Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE CHARGED TO BALANCE
AT COSTS AND AT
DESCRIPTIONS JANUARY 1 EXPENSES DEDUCTIONS(1) DECEMBER 31
------------ --------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts
1998 $1,909 $1,232 $(1,091) $2,050
1997 3,047 1,207 (2,345) 1,909
1996 4,343 2,313 (3,609) 3,047
</TABLE>
(1) Deductions generally represent utilization of previously established
reserves or adjustments to reverse unnecessary reserves due to subsequent
collections.
19
<PAGE> 20
EXHIBIT INDEX
3 (1) Amended Articles of Association of the Company (English
translation)
4.1 (2) Specimen Stock Certificate
10.1 (2) Form of Indemnification Agreement between the Company and its
Supervisory and Managing directors
10.2 (5) The Company's Annual Incentive Compensation Plan
10.3 (6) The Company's Long-Term Incentive Plan
As amended September 1, 1998
10.4 (5) The Company's Deferred Compensation Plan
10.5 (4) The Company's Management Plan
10.6 (5) The Company's Excess Benefit Plan
10.7 (2) Form of the Company's Supplemental Executive Death Benefits Plan
10.8 (2) Employment Agreements Including Special Stock-Based, Long-Term
Compensation Related to the Common Share Offering between the
Company and Certain Executive Officers
10.9 (2) Form of Termination Agreements between the Company and Certain
Executive Officers
10.10 (2) Separation Agreement
10.11(2) Form of Amended and Restated Tax Disaffiliation Agreement
10.12 (2) Employee Benefits Separation Agreement
10.13 (2) Conforming Agreement
10.14 (5) Employment Agreement Letters between the Company and Robert B.
Jordan
10.15 (2) Revolving Credit Facility
(a) Amendment No. 1 dated October 31, 1997
(b) Amendment No. 2 dated March 5, 1998
10.16 (6) The Company's Supervisory Board of Directors Fee Payment Plan
10.17 (6) The Company's Supervisory Board of Directors Stock Purchase Plan
20
<PAGE> 21
13 (1) Portion of the 1998 Annual Report to Shareholders
21 (1) List of Significant Subsidiaries
23 (1) Consent and Report of the Independent Public Accountants
27 (1) Financial Data Schedule
- ----------------------
(1) Filed herewith
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-18065)
(3) Incorporated by reference from the Company's Registration Statement on Form
S-8 (File No. 333-24445)
(4) Incorporated by reference from the Company's Registration Statement on Form
S-8 (File No. 333-24443)
(5) Incorporated by reference from the Company's 1997 Form 10-K dated March 31,
1998
(6) Incorporated by reference from the Company's 1998 Form 10-Q dated November
12, 1998
21
<PAGE> 1
Exhibit 3
Chapter I.
Definitions.
Article 1.
In the articles of association the following expressions shall have the
following meanings:
a. the general meeting: the body of the company formed by shareholders,
and other persons entitled to vote;
b. the general meeting of shareholders: the meeting of shareholders, and
other persons entitled to attend the general meetings;
c. the distributable part of the net assets: that part of the company's
net assets which exceeds the aggregate of the part of the capital
which has been paid and called up and the reserves which must be
maintained by virtue of the law;
d. the annual accounts: the balance sheet and profit and loss account
with the explanatory notes; e. the accountant: a registered accountant
or other accountant referred to in Section 393 of Book 2 of the Civil
Code;
f. the annual meeting: the general meeting of shareholders held for the
purpose of discussion and adoption of the annual accounts.
Chapter II.
Name, seat, objects.
Article 2. Name and seat.
1. The name of the company is: CHICAGO BRIDGE & IRON COMPANY N.V.
2. The official seat of the company is in Amsterdam.
Article 3 Objects.
The objects of the company are:
a. to incorporate, to own, to participate in any way whatsoever, to
manage, to supervise, to operate and to promote enterprises, companies
and businesses;
b. to perform any and all activity of an industrial, financial or
commercial nature;
c. to design, develop, manufacture, market, sell and service products of
any nature, including without limitation any hardware and/or software;
d. to develop and trade in patents, trademarks, copyrights, licenses,
know-how and other intellectual property rights;
e. to borrow, to lend and to raise funds, including the issuance of
bonds, promissory notes or other securities or evidence of
indebtedness, as well as to enter into agreements in connection with
the aforementioned;
f. to furnish advice and to render services to enterprises and companies
with which the company forms a group and to third parties;
g. to render guarantees, to bind the company and to pledge its assets for
obligations of the companies and enterprises with which it forms a
group, including its subsidiaries, and on behalf of third parties;
h. to obtain, alienate, manage and exploit real estate and items of
property in general;
i. to trade in securities and items of property in general; as well as
everything pertaining to the foregoing, relating thereto or in
furtherance thereof, all in the widest sense of the word.
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<PAGE> 2
Chapter III
Capital and shares. Register.
Article 4. Authorized capital.
1. The authorized capital amounts to five hundred thousand Dutch guilders (NLG
500,000.--).
2. The authorized capital is divided into fifty million (50.000.000) shares of
one cent (NLG 0,01) each.
3. All shares are, at the option of the shareholder, either registered shares
or bearer shares.
Article 5. Certificates of shares.
1. For bearer shares, share certificates shall be issued. Share certificates
may, at the request of a shareholder, also be issued for registered shares.
Share certificates shall be numbered in the manner to be determined by the
management board.
2. Multiple certificates shall be issued at a shareholder's request for such
numbers of shares as shall be determined by the management board. At the
holder's request, a multiple certificate shall be exchanged for
certificates of single shares up to the same nominal amount.
3. The share certificates shall be signed by a member of the management board
or by both a member of the supervisory board and a member of the management
board and such signatures will be valid if reproduced on the certificates
in print. One or, as the case may be, both of these signatures may also be
replaced by a distinctive company stamp, provided by the company or under
its supervision. If there is at least one original signature, then no
company stamp described hereinabove is required.
4. The company shall not charge any fee for the issuance and exchange of share
certificates.
Article 5.A. CF-certificates; K-certificates.
1. A share certificate relating to one or more bearer shares shall be provided
with a simplified dividend sheet, without dividend coupons and voucher.
Such share certificates shall be referred to hereinafter as
CF-certificates.
2. A simplified dividend sheet (hereinafter referred to as a CF-dividend
sheet) may only be issued by the company to a custodian to be designated by
the shareholder. This custodian may only be designated from a group of
custodians which are accepted as such by the company and who provide for
the custody of the CF-dividend sheets to be administered by an organisation
independent of the company but accepted by it. These custodians shall
undertake not to issue the CF-dividend sheets in their charge to any
persons other than custodians accepted by the company or the company
itself.
3. For all dividends and other distributions relating to a share for which a
CF-certificate has been issued, the company shall be released towards the
person entitled thereto by placing those dividends or distributions at the
disposal of, or at the instruction of the independent organisation referred
to in paragraph 2.
4. A share certificate relating to one or more bearer shares may have a
dividend sheet annexed, consisting of dividend coupons and a voucher. Such
share certificates shall be referred to hereinafter as K-certificates. The
management board decides whether or not K-certificates shall be issued. A
decision of the management board to issue K-certificates is subject to the
approval of the supervisory board.
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<PAGE> 3
5. The management board has the right to draw up further rules governing
the issuance of K-certificates, CF-certificates and the conversion of
K-certificates into CF-certificates and vice versa.
Article 5.B. Conversion of shares.
1. Bearer shares may, at the shareholder's request, be converted into
registered shares and vice versa.
2. Conversion of bearer shares into registered shares shall be
effected by the surrendering of share certificates and simultaneous
entry in the register referred to in article 5.D. The dividend sheets
belonging thereto must also be surrendered.
3. Conversion of registered shares into bearer shares shall be
effected at the written request of the shareholder. If a life interest
or a right of pledge is created in a share, the cooperation of the
beneficiary of the life interest or pledgee shall be required. At the
issuance of bearer share certificates the entry in the register shall
be deleted.
4. The company shall not charge any fee for conversion.
Article 5.C. Duplicate certificates.
1. In the event of the loss, theft or destruction of share
certificates, coupon sheets, dividend coupons or vouchers relating to
bearer shares, the management board can issue duplicates. The
management board may attach conditions to the issuance of duplicates,
including the provision of security and the payment of costs by the
applicant.
2. The issuance of a duplicate shall render the original document of
no value with regard to the company.
3. The new document shall clearly state that it is a duplicate.
Article 5.D. Register of shareholders.
1. The management board shall keep a register containing the names and
addresses of all holders of registered shares.
2. Every holder of one or more registered shares and any person having
a life interest or a right of pledge over one or more such shares
shall be obliged to provide the company in writing with their address.
3. All entries and notes in a register shall be signed by a member of
the management board or by a person authorised thereto by a member of
the management board.
4. Furthermore, article 85, Book 2 of the Civil Code applies to the
register.
5. Extracts from the register are not transferable.
Chapter IV. Issuance of shares. Own shares.
Article 6. Issuance of shares. Body competent to issue shares.
1. The issuance of shares shall be effected pursuant to a resolution of
the supervisory board provided that the supervisory board has been
designated by the general meeting as authorized body for this purpose.
Such authorization of the supervisory board shall only take place for
a specific period of no more than five years and may not be extended
by more than five years on each occasion.
2. The provisions of paragraph 1 of this article shall also apply to the
issuance of options to subscribe for new shares.
3. In case the supervisory board is no longer authorized to issue shares,
the general meeting shall be authorized to issue shares upon the
proposal of the supervisory board.
3
<PAGE> 4
4. The supervisory board is authorised, provided that the supervisory
board has been designated by the general meeting as the body
authorized to issue shares, to issue, at the expense of a reserve of
the company, with due observance of the provisions of article 31,
paragraph 3, shares and options to subscribe for new shares, provided
that such shares and options are issued to employees of the company
under a valid employee option scheme of the company.
Article 7. Conditions of issuance. Rights of pre-emption.
1. A resolution for the issuance of shares shall stipulate the price and
further conditions of issuance.
2. On the issuance of shares, each shareholder shall have a right of
pre-emption in proportion to the aggregate nominal value of his
shares. No pre-emptive rights shall exist with regard to shares issued
against a contribution other than cash nor with regard to shares
issued to employees of the company or employees of group companies.
3. Shareholders shall have a similar right of pre-emption if options are
granted to subscribe for shares.
4. The company shall inform the shareholders of the issuance of shares in
respect of which there is a right of pre-emption, or, as the case may
be, the granting of options to subscribe for shares in respect of
which there is a right of pre-emption, as well as the period of time
during which the right of pre-emption may be exercised, with due
observance of the applicable provisions of Dutch law.
5. The right of pre-emption may, subject to due observance of the
relevant provisions of the law, be limited or excluded by the
supervisory board provided the supervisory board is designated as the
authorized body in this respect by resolution of the general meeting
for a fixed period of time not exceeding five years. Article 6
paragraph 3 shall apply correspondingly.
Article 8. Payment for shares.
1. The full nominal amount of each share must be paid in on issue, as
well as, if a share is subscribed for at a higher price, the balance
of these amounts.
2. Payment for a share must be made in cash insofar as no other manner of
payment has been agreed on. Payment in foreign currency can be made
only after approval by the company, which approval shall be deemed
given upon acceptance of foreign currency by the company.
3. The management board shall be authorised to enter into transactions
concerning non-monetary contributions on shares, and the other
transactions referred to in article 94 paragraph 1, Book 2 of the
Civil Code, without the prior approval of the general meeting.
Article 9. Own shares.
1. When issuing shares the company shall not be entitled to subscribe for
its own shares.
2. The company shall be entitled to acquire its own fully paid up shares
or depository receipts in respect thereof, provided either no valuable
consideration is given or provided that:
a. the distributable part of the net assets is at least equal
to the purchase price; and
b. the nominal value of the shares or the depository receipts
in respect thereof to be acquired by the company itself,
already held by the company or pledged for the benefit of
the company, or which are held by a subsidiary, does not
exceed one tenth of the issued share capital.
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<PAGE> 5
3. The validity of the acquisition shall be determined by the amount of
the net assets according to the latest adopted balance sheet, decreased
by the consideration for shares in the company's capital or depository
receipts in respect thereof and distributions of profits or by the
charge of any reserve to third parties which have fallen due by the
company and its subsidiaries after the balance sheet date. If more than
six months of a financial year have elapsed and the annual accounts
have not been adopted, any acquisition in conformity with paragraph 2
shall not be permitted.
4. An acquisition for valuable consideration shall be permitted only if
the general meeting has authorized the management board in this respect
and after approval of the supervisory board. The authorization by the
general meeting shall be valid for a period not exceeding eighteen
months. The general meeting shall stipulate in the authorization how
many shares or depositary receipts in respect thereof may be acquired,
how they may be acquired, and between what limits the price must be.
5. An acquisition of shares in contravention of paragraphs 2-4 shall be
void. Depositary receipts in respect of shares acquired by the company
in contravention of paragraphs 2-4 shall be transferred to all members
of the management board by operation of law.
6. The transfer of shares owned by the company or depositary receipts in
respect thereof held by the company shall be effected by virtue of a
resolution of the management board, after approval of the supervisory
board. The resolution to such transfer shall also stipulate the
conditions thereof.
7. No voting rights can be exercised in the general meeting in respect of
any share belonging to the company or to any subsidiary of the company;
the same applies to any share in respect of which either the company or
any subsidiary holds depositary receipts. The beneficiary of a life
interest in respect of a share held by the company itself or a
subsidiary company is, however, not excluded from exercising the right
to vote if the life interest was created before the share was held by
the company or one of its subsidiaries. The company or its subsidiary
may not exercise voting rights in respect of shares of which the
company has a life interest.
8. In establishing to what extent shareholders exercise voting rights, are
present or are represented, shares for which no voting rights can be
exercised shall not be taken into consideration.
9. The company may take its own shares or depositary receipts in respect
thereof as pledge only if:
a. the shares to be pledged are fully paid up;
b. the aggregate nominal value of the shares and depositary
receipts in respect thereof to be pledged and already held
or held in pledge does not exceed one-tenth of the issued
capital, and
c. the general meeting has approved the pledge agreement.
10. Upon the proposal of the management board - which proposal must have
prior approval from the supervisory board - the general meeting shall
have the power to decide to cancel shares acquired by the company in
its own share capital, subject however to the statutory provisions
relating hereto.
Chapter V
Transfer of shares. rights "in rem".
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<PAGE> 6
Article 10. Transfer of shares. Life interest ("vruchtgebruik"). Pledging
("pandrecht"). Depositary Receipts.
1. The transfer of shares and the creation and transfer of limited rights
thereon shall take place in accordance with the provisions of Dutch law
applicable thereto.
2. The shareholder shall have the voting rights in respect of the shares
in which a life interest has been created. However, the voting rights
shall accrue to the beneficiary of a life interest if it was so
stipulated at the creation of the life interest. The shareholder who
holds no voting rights and the beneficiary of a life interest who does
hold voting rights, shall have the rights which the law attributes to
holders of depository receipts issued with the company's co-operation.
The rights referred to in the preceding sentence shall not accrue to
the beneficiary of the life interest who holds no voting rights.
3. The shareholder shall have the rights resulting from a share in which a
life interest has been created relating to the acquisition of newly
issued shares, such as stock dividends, it being understood that he/she
shall have to compensate the beneficiary of the life interest for the
value of these rights insofar as the latter is entitled thereto by
virtue of his/her life interest.
4. When shares are pledged, the voting rights cannot be assigned to the
pledgee. He shall not have the rights which the law attributes to
holders of depository receipts issued with the company's co-operation.
5. The company shall not co-operate with the issuance of depository
receipts in respect of its shares.
Chapter VI
Management.
Article 11. Management Board.
1. The management of the company shall be constituted by a management
board consisting of one or more members.
2. The number of members shall be determined by the supervisory board.
Article 12. Appointment.
1. The members of the management board shall be appointed by the general
meeting from a nomination of at least two persons for every position to
be filled, which has been drawn up by the supervisory board.
2. The general meeting shall be free to make the appointment if the
supervisory board has not made any nomination within, on or before the
date which is three months after the vacancy occurs.
3. Every nomination made by the supervisory board shall be binding if made
on or before the date which is three months after the vacancy occurs.
The general meeting can only disturb the binding character of the
nomination by resolution passed by a majority of at least two thirds of
the votes cast, which two thirds of the votes represents more than half
of the issued share capital.
Article 13. Suspension and dismissal.
1. A member of the management board may at any time be suspended or
dismissed by the general meeting.
2. With respect to any suspension or dismissal other than on the
proposal of the supervisory board, the general meeting can only
pass a resolution based on a majority of at least two
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<PAGE> 7
thirds of the votes cast which two thirds of the votes represent more
than half of the issued share capital.
3. A member of the management board may at any time be suspended by the
supervisory board. Such suspension may be discontinued by the general
meeting at any time.
4. Any suspension may be extended one or more times, but may not last
longer than three months in the aggregate. If at the end of that period
no decision has been taken on termination of the suspension, or on
dismissal, the suspension shall cease.
Article 14. Renumeration.
The renumeration and further conditions of employment of every member of the
management board shall be determined by the supervisory board.
Article 15. Duties of the management board. Decision making process. Allocation
of duties.
1. Subject to the restrictions imposed by these articles of association,
the management board shall be entrusted with the management of the
company.
2. The management board may lay down rules regarding its own
decisionmaking process. These rules shall be subject to the approval of
the supervisory board.
3. Meetings of the management board shall only be held in the Netherlands
except that the management board may decide to have telephonic
meetings. The management board may adopt resolutions without a meeting
provided the proposal concerned is submitted to all members of the
management board and none of them objects to this manner of adopting
resolutions.
4. The management board may determine which duties in particular each
member of the management board will be charged with. The allocation of
duties shall be subject to the approval of the supervisory board.
Article 16. Representation.
1. The management board as such is authorized to represent the company.
Each member of the management board shall also be authorized to
represent the company.
2. The management board may appoint staff members with general or limited
power to represent the company. Each of those staff members shall be
authorized to represent the company with due observance of any
restrictions imposed on him/her. The management board shall determine
such staff members' titles.
3. In the event of a conflict of interest between the company and a member
of the management board, the company shall be represented by a member
of the management board or another person as the supervisory board
shall designate for this purpose.
Article 17. Approval of decisions of the management board.
1. The supervisory board is entitled to require such resolutions of the
management board to be subject to its approval as the supervisory board
shall decide. Such resolutions shall be clearly specified and notified
to the management board in writing.
2. The supervisory board is authorized to give the management board
instructions concerning the general policy of the company for
financial, social and economic matters. The management board shall act
in accordance with such instructions.
3. The lack of approval referred to in this article 17 does not affect the
authority of the management board or its members to represent the
company.
Article 18. Absence or prevention.
If a member of the management board is absent or is prevented from performing
his duties, the remaining members or member of the management board shall be
temporarily entrusted with the
7
<PAGE> 8
entire management of the company. If all members of the management board or the
sole member of the management board are/is absent or are/is prevented from
performing their duties, the management of the company shall be temporarily
entrusted to the supervisory board which shall then be authorized to entrust the
management temporarily to one or more persons, whether or not from among its
members.
Chapter VII
Supervisory board.
Article 19. Number of members.
1. The company shall have a supervisory board, consisting of at least six
members, with a maximum of twelve members.
2. With due observance of the provisions of paragraph 1., the number of
members of the supervisory board shall be determined by the supervisory
board.
3. Where the number of members of the supervisory board falls below six,
measures shall be taken forthwith to fill the number of members. In the
meantime the supervisory board shall keep all its powers.
Article 20. Appointment.
1. All members of the supervisory board shall be appointed by the general
meeting from a nomination of at least two persons for every position to
be filled, which has been drawn up by the supervisory board.
2. The provisions in paragraph 2 and 3 of article 12 shall likewise
apply to an appointment by the general meeting.
3. No person who has reached the age of seventy-two may be appointed as a
supervisory board member.
Article 21. Suspension and dismissal. Retirement.
1. Every member of the supervisory board may be suspended or dismissed by
the general meeting at any time.
2. The provisions in paragraph 2 of article 13 shall similarly apply to
the suspension and dismissal of supervisory board members by the
general meeting.
3. A supervisory board member shall retire no later than at the next
annual meeting held after a period of three years following his
appointment. A so retired member of the supervisory board may be
immediately re-elected.
4. Every member of the supervisory board shall retire no later than on the
day on which the annual meeting is held in the financial year in which
he reaches the age of seventy-two.
5. With due observance of the preceding paragraphs the supervisory board
shall draw up a rotation plan.
Article 22. Remuneration.
The general meeting shall determine the remuneration for every member of the
supervisory board.
Article 23. Duties and powers.
1. It shall be the duty of the supervisory board to supervise the
activities of the management board and the general course of affairs in
the company and in the business connected therewith. It shall assist
the management board with advice. In performing their duties, the
supervisory board members shall act in accordance with the interests of
the company and of the business connected therewith.
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<PAGE> 9
2. The management board shall supply the supervisory board, in due time,
with the information required for the performance of its duties.
3. The supervisory board may delegate any of its powers to committees
consisting of such member or members of its body as it thinks fit; any
committee so formed shall, in the exercise of the power so delegated,
conform to any regulations that may be imposed on it by the supervisory
board.
Article 24. Proceedings and decision-making process.
1. The supervisory board shall elect a chairman from among its members,
and a vice chairman who shall take the place of the chairman in the
latter's absence. It shall appoint a secretary, who need not be a
member of the supervisory board, and shall make arrangements for
his/her substitution in case of absence.
2. In the absence of the chairman and the vice chairman at a meeting, the
board members in attendance shall designate a chairman therefor.
3. The supervisory board shall meet whenever the chairman, or two other
supervisory board members, or the management board, deem(s) such
necessary, but if the supervisory board has not met for six months, any
supervisory board member may call a meeting.
4. The secretary shall keep minutes of the proceedings at meetings of the
supervisory board. The minutes shall be adopted in the same meeting or
in the following meeting of the supervisory board and shall be signed
by the chairman and the secretary as evidence thereof.
5. All resolutions of the supervisory board shall be adopted by a
majority of the votes cast.
6. With the exception of article 25 paragraph 4 under a., resolutions
of the supervisory board shall only be valid if passed at a meeting at
which the majority of the supervisory board members are present or
represented. The supervisory board may also adopt resolutions in a
telephone meeting or without a meeting, provided the proposal
concerned is submitted to all supervisory board members and none of
them objects to this manner of adopting resolutions. The secretary
shall draw up a report regarding a resolution thus adopted and shall
attach the replies received to the report, which shall be signed by
the chairman and the secretary.
7. A supervisory board member may be represented by a co-member of the
supervisory board authorized in writing. The expression "in writing"
shall include any message transmitted by current means of communication
and received in writing. A supervisory board member may not act as
representative for more than one co-member.
8. The supervisory board shall meet together with the management board as
often as the supervisory board or management board deems necessary.
Article 25. Indemnification. Limited liability.
1. The company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the company)
by reason of the fact that he is or was a supervisory director, member
of the management board, officer, employee or agent of the company, or
is or was serving at the request of the company as a supervisory
director, member of the management board, officer, director, employee,
trustee or agent of another company, a partnership, joint venture,
trust or other enterprise or entity, against all expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement
actually and reasonably incurred by
9
<PAGE> 10
him in connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful or outside of his mandate. The termination of any
action, suit or proceeding by a judgement, order, settlement,
conviction, or upon a plea of nolo contender or its equivalent, shall
not, of itself, create a presumption that the person did not act in
good faith and not in a manner which he reasonably could believe to be
in or not opposed to the best interest of the company, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
2. The company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or proceeding by or in the right of the company to procure a
judgement in its favour, by reason of the fact that he is or was a
supervisory director, member of the management board, officer or agent
of the company, or is or was serving at the request of the company as
a supervisory director, member of the management board, officer,
director, employee, trustee or agent of another company, a
partnership, joint venture, trust or other enterprise or entity,
against all expenses (including attorneys' fees) judgements, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the company, except that no indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable for gross negligence
or wilful misconduct in the performance of his duty to the company,
unless and only to the extent that the court in which such action or
proceeding was brought or any other court having appropriate
jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all of the circumstances of
the case, such person is fairly and reasonably entitled to
indemnification against such expenses which the court in which such
action or proceeding was brought or such other court having
appropriate jurisdiction shall deem proper.
3. To the extent that a supervisory director, member of the management
board, officer, employee or agent of the company has been successful on
the merits or otherwise in defense of any action, suits of proceeding,
referred to in paragraphs 1 and 2, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
4. Any indemnification by the company referred to in paragraphs 1 and 2
shall (unless ordered by a court) only be made upon a determination
that indemnification of the supervisory director, member of the
management board, officer, director, employee, trustee or agent is
proper under the circumstances because he had met the applicable
standard of conduct set forth in paragraph 1 and 2 of this Article 25.
Such determination shall be made:
a. by a majority of supervisory directors who are not parties
to such action, suit or proceeding, even though less than
a quorum, or;
b. if there are no supervisory directors who are not named as
parties to such action, suit or proceeding or if the
supervisory directors who are not named as parties to such
action, suit or proceeding so direct, by independent legal
counsel in a written opinion; or
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<PAGE> 11
c. by the general meeting of shareholders.
5. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the company in advance of the final
disposition of such action, suit or proceeding upon a resolution of the
supervisory board with respect to the specific case upon receipt of an
undertaking by or on behalf of the supervisory director, member of the
management board, officer, director, employee, trustee or agent to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the company as authorized in this
article.
6. The indemnification provided for by this article shall not be
deemed exclusive of any other right to which a person seeking
indemnification may be entitled under the laws of the Netherlands as
from time to time amended or under any by-laws, agreement, resolution
of the general meeting of shareholders or of the disinterested members
of the supervisory board or otherwise, both as to actions in his
official capacity and as to actions in another capacity while holding
such position, and shall continue as to a person who has ceased to be
a supervisory director, member of the management board, officer,
director, employee, trustee or agent and shall also inure to the
benefit of the heirs, executors and administrators of such a person.
7. The company shall have the power to purchase and maintain insurance on
behalf of any person who is or was a supervisory director, member of
the management board, officer, employee or agent of the company, or is
or was serving at the request of the company as a supervisory director,
member of the management board, officer, director, employee, trustee or
agent of another company, a partnership, joint venture, trust or other
enterprise, or entity, against any liability asserted against him and
incurred by him in any such capacity or arising out of his capacity as
such, whether or not the company would have the power to indemnify him
against such liability under the provisions of this article.
8. Whenever in this article reference is made to the company, this
shall include, in addition to the resulting or surviving company also
any constituent company (including any constituent company of a
constituent company) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had the power to
indemnify its supervisory directors, members of the management board,
officers, employees and agents, so that any person who is or was a
supervisory director, member of the management board, officer,
employee or agent of such constituent company, or is or was serving at
the request of such constituent company as a supervisory director,
member of the management board, officer, director, employee, trustee
or agent of another company, a partnership, joint venture, trust or
other enterprise or entity, shall stand in the same position under the
provisions of this article with respect to the resulting or surviving
company as he would have with respect to such constituent company if
its separate existence had continued.
9. No person shall be personally liable to the company or its
stockholders for monetary damages for breach of fiduciary duty as a
supervisory director or member of the management board; provided,
however, that the foregoing shall not eliminate or limit the liability
of a supervisory director or member of the management board (1) for
any breach of such individual's duty of loyalty to the company or its
stockholders, (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3) for
any transaction from which the director derived an improper
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<PAGE> 12
personal benefit or (4) for personal liability which is imposed by
Dutch law, as from time to time amended. Any amendment, repeal or
modification of this Article 25 shall not adversely affect any right
or protection of any person with respect to any act or omission
occurring prior to such amendment, repeal or modification.
Chapter VIII
Annual Accounts. Profits.
Article 26. Financial year. Drawing up the annual accounts. Deposition for
inspection.
1. The fiscal year of the company shall be the calendar year.
2. Annually, and not later than five months after the end of the fiscal
year, the management board shall draw up the annual accounts, unless,
by reason of special circumstances, this period is extended with a
maximum extension of six months by the general meeting.
3. Within the period referred to in paragraph 2, the annual accounts shall
be deposited at the office of the company for inspection by the
shareholders. Within this period of time, the management board shall
also submit the annual report. The statement of the accountant, as
mentioned in article 29, and the additional information required by
virtue of the law shall be added to the annual accounts.
4. The annual accounts shall be signed by all the members of the
management board; if the signature of one or more of the members is
lacking, this shall be stated and reasons given.
Article 27. Accountant.
1. The company shall appoint an accountant to audit the annual accounts.
2. Such appointment shall be made by the general meeting. This resolution
of the general meeting shall require the approval of the supervisory
board. If the general meeting fails to make an appointment, the
supervisory board shall be competent to do so or, in the absence of the
supervisory board members or in the event the supervisory board fails
to do so, the management board shall be competent to do so. The
appointment of an accountant shall not be limited by virtue of any
nomination; the appointment may, at all times, be revoked by the
general meeting or by the supervisory board or management board if
either of the latter boards has appointed the accountant.
3. The accountant shall issue a report on his audit examination to the
supervisory board and the management board.
4. The accountant shall give the results of his investigations in a
declaration as to the faithfulness of the annual accounts.
Article 28. Submission to the supervisory board.
1. The management board shall submit simultaneously the annual accounts
and the annual report to the supervisory board.
2. The annual accounts shall be signed by the members of the supervisory
board; if the signature of one or more of them is lacking, this shall
be stated and reasons given.
3. The supervisory board shall present a report on the annual accounts
to the general meeting.
Article 29. Adoption.
1. The company shall ensure that the annual accounts, the annual
report and the information to be added by virtue of the law are kept
at its office as of the date on which the annual meeting is convened.
Shareholders, and beneficiaries of a life interest in shares to whom
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<PAGE> 13
the right to vote the shares accrue, may inspect the documents at such
place and obtain a copy thereof, free of charge.
2. The general meeting shall adopt the annual accounts. The annual
accounts may not be adopted in the event that the general meeting has
been unable to inspect the accountant's declaration referred to in
article 27, paragraph 4, unless a legal ground is given in the
information required to be added by law for the lack of the
accountant's declaration referred to in article 27, paragraph 4.
3. The unconditional adoption of the annual accounts by the general
meeting shall serve to constitute a discharge of the management board
members for their management and for the supervisory board members for
their supervision insofar as such management and supervision is
apparent from the annual accounts.
Article 30. Publication.
1. The company shall publish the annual accounts within eight days
following the adoption thereof. The publication shall be effected by
the deposit of a complete copy in the Dutch language or, if such copy
was not prepared, a copy in the French, German or English language, at
the offices of the Trade Register in whose district the company has its
official seat according to these articles of association. The date of
adoption must be stated on the copy.
2. If the annual accounts are not adopted within seven months of the
termination of the fiscal year, in accordance with the legal
requirements, then the management board shall, without further delay,
publish the prepared annual accounts in the manner prescribed in
paragraph 1; it shall be noted on the annual accounts that they have
not yet been adopted.
3. In the event that the general meeting shall have extended the period
for the preparation of the annual accounts in accordance with article
28 paragraph 2, then the last preceding paragraph shall apply with
effect from the date falling two months from the termination of such
period.
4. A copy of the annual report, produced in the same language or in Dutch,
shall, together with the additional information required by virtue of
law, be published at the same time and in the same manner as the annual
accounts. Insofar as the law permits, the foregoing shall not apply if
copies of those documents are held at the office of the company for
inspection by any person and, upon request, full or partial copies
thereof are supplied at a price not exceeding the cost; the company
shall make an official return thereof for filing in the Trade Register.
5. The publication shall be effected with due observance of the
applicable legal exemptions.
Article 31. Profits. Distribution.
1. From the profits appearing from the annual accounts as adopted,
such an amount shall be reserved by the company as shall be determined
by the management board which resolution requires the approval of the
supervisory board. The profits remaining thereafter shall be treated
in accordance with the provisions of the following paragraphs of this
article.
2. The profits remaining after the reservation referred to in paragraph 1
are at the disposal of the general meeting for distribution on the
shares equally and proportionally and/or for reservation.
3. A distribution can only take place up to the distributable part of
the net assets.
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<PAGE> 14
4. Distributions of profits shall take place after adoption of the annual
accounts from which it shall appear that approval of such accounts has
been given.
5. The management board may, subject to due observance of the provisions
of article 31, paragraph 3, and with the approval of the supervisory
board resolve to pay an interim dividend in anticipation of the final
dividends.
6. On the proposal of the management board, which proposal shall require
the prior approval of the supervisory board, subject to the due
observance of the provisions of article 31, paragraph 3, the general
meeting may resolve to make distributions at the expense of any
reserve.
7. The supervisory board or - in case the supervisory board is no longer
authorised to issue shares in accordance to article 6 - the general
meeting, may determine to distribute stock dividends.
Article 32. Date on which distributions become payable. Currency.
1. The date on which dividends and other payments become payable shall
be announced in accordance with article 42. V
2. The management board may resolve to make payments in the currency of
the country where these payments are made payable.
3. Any claim of a shareholder for payment shall be barred after five
years have elapsed.
Chapter IX
General meetings of shareholders.
Article 33. Annual meeting.
1. Annually, and not later than six months after the end of the fiscal
year, the annual meeting shall be held.
2. The agenda for such meeting shall set forth, inter alia, the following
points for discussion:
a. the annual report;
b. adoption of the annual accounts;
c. appropriation of profits;
d. filling of any vacancies in the management board and/or
supervisory board and if necessary the appointment of the
accountants;
e. other proposals put forward for discussion and announced with
due observance of article 35 by the supervisory board, the
management board or by the shareholders and beneficiaries of a
life interest to whom the voting right has been granted,
representing, in the aggregate, at least one-tenth of the
issued capital.
Article 34. Other meetings.
1. Other general meetings of shareholders shall be held as often as the
management board or the supervisory board deems such necessary.
2. Shareholders, and beneficiaries of a life interest to whom the voting
right have been granted, representing in the aggregate at least
one-tenth of the issued capital, may request the management board to
convene a general meeting of shareholders, stating the subjects to be
discussed. If the management board has not convened a meeting within
four weeks in such a manner that the meeting can be held within six
weeks after the request has been made, the persons who have made the
request shall be authorized to convene a meeting themselves.
Article 35. Convocation. Agenda.
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1. General meetings of shareholders shall be convened by the management
board.
2. The convocation shall be given no later than on the fifteenth day
prior to the date of the meeting.
3. The convocation shall specify the subjects to be discussed.
Subjects that were not specified in the notification may be
announced at a later date, subject to due observance of the
requirements set out in this article.
4. The convocation shall be made in the manner stated in article 42.
Article 36. The entire capital is represented.
As long as the entire issued capital is represented at a general meeting of
shareholders, valid resolutions can be adopted on all subjects brought up for
discussion, even if the formalities prescribed by law or by the articles of
association for the convocation and holding of meetings have not been complied
with, provided such resolutions are adopted unanimously.
Article 37. Place of the meetings.
The general meetings of shareholders shall be held in Amsterdam, Rotterdam, The
Hague or Schiphol Airport (municipality Haarlemmermeer). In meetings held
elsewhere, resolutions can be validly adopted provided the entire issued capital
is present.
Article 38. Chairmanship.
1. The general meetings of shareholders shall be presided over by the
chairman of the supervisory board or, in his absence, by the vice
chairman of the supervisory board; in the event that the latter is
also absent, the supervisory board members present shall elect a
chairman from their midst. The supervisory board may designate another
person to act as chairman of a general meeting of shareholders.
2. If the chairman has not been appointed in accordance with paragraph 1,
the shareholders present at such meeting shall, themselves, choose a
chairman.
Article 39. Minutes. Records.
1. Minutes of the proceedings at any general meeting of shareholders shall
be kept by a secretary to be designated by the chairman. The minutes
shall be confirmed by the chairman and the secretary and shall be
signed by them as proof thereof.
2. The supervisory board, the chairman or the person who has convened the
meeting may determine that notarial minutes of the proceedings of the
meeting shall be drawn up. The notarial minutes shall be co-signed by
the chairman.
3. The management board shall keep a record of the resolutions made at
this general meeting. If the management board is not represented at a
general meeting, the chairman of the meeting shall provide the
management board with a transcript of the resolutions made as soon as
possible after the meeting. The records shall be deposited at the
offices of the company for inspection by the shareholders and the
holders of depositary receipts. Upon request, each of them shall be
provided with a copy or an extract of such record at not more than the
actual cost thereof. Shareholders in this respect shall include
beneficiaries of a life interest who hold voting rights.
Article 40. Meeting rights. Admittance.
1. Each shareholder entitled to vote and each beneficiary of a life
interest or pledgee to whom the voting rights accrue shall be entitled
to attend the general meeting of shareholders, to address the meeting
and to exercise his voting rights. Where it concerns registered shares,
the management board must be notified in writing of the intention to
attend the meeting. Such notice must be received by the management
board not later than
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on the date mentioned in the notice of the meeting. Where it concerns
bearer shares the share certificates must be lodged not later than on
the date mentioned in the notice of the meeting, at the place
mentioned therein.
2. The right to take part in the meeting in accordance with paragraph 1
may be exercised by a proxy authorised in writing, provided that the
power of attorney has been received by the management board not later
than on the date mentioned in the notice of the meeting.
3. The date mentioned in the notice of the meeting, referred to in
paragraphs 1 and 2, cannot be prior than the seventh day prior to the
date of the meeting.
4. If the voting rights on a share accrue to the beneficiary of a life
interest or to a pledgee, instead of to the shareholder, the
shareholder is also authorised to attend the general meeting of
shareholders and to address the meeting, provided that, where it
concerns registered shares, the management board has been notified of
the intention to attend the meeting in accordance with paragraph 1,
and, where it concerns bearer shares, the lodging as prescribed by
paragraph 1 has taken place. Paragraph 2 applies accordingly.
5. Each share confers the right to cast one vote.
6. Each person entitled to vote or his proxy shall sign the attendance
list.
7. The members of the supervisory board and of the management board shall,
as such, have the right to advise the general meeting of shareholders.
8. The chairman shall decide whether persons other than those who shall be
admitted in accordance with the above provisions of this article shall
be admitted to the meeting.
Article 41. Votes.
1. Insofar as no greater majority is prescribed by law or these articles
of association, all resolutions of the general meeting shall be adopted
by a majority of the votes cast.
2. If, in an election of persons, a majority is not obtained, a second
vote shall be taken. If, again, a majority is not obtained, further
votes shall be taken until either one person obtains the absolute
majority or the election is between two persons who have received an
equal number of votes. In the event of a further election (not
including the second free vote), the election shall be between the
persons who participated in the preceding election, with the exception
of the person who received the smallest number of votes in that
preceding election. If, in that preceding election, more than one
person received the smallest number of votes, it shall be decided by
lot who of these persons shall no longer participate in the new
election. If the votes are equal in the election between the two, it
shall be decided by lot who is to be chosen. If there is a tie vote in
a vote for the election of persons out of a binding list of nominees,
the first person on that list shall be elected.
3. If there is a tie vote on a matter other than a vote for the election
of persons, the proposal shall be rejected.
4. Votes need not be held in writing. The chairman is, however, entitled
to decide that a vote shall be by secret ballot. If the vote concerns
an election of persons, any person present at the meeting and entitled
to vote can also demand a vote by a secret ballot.
5. Abstentions and invalid votes shall not be counted as votes that have
been cast.
6. Voting by acclamation shall be allowed if none of the persons present
and entitled to vote objects to it.
7. The chairman's decision at the meeting about the outcome of a vote
shall be final and conclusive. The same shall apply to the contents of
an adopted resolution regarding the voting on an unwritten proposal.
If, however, the correctness of that decision is
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<PAGE> 17
challenged immediately after its pronouncement, a new vote shall be
taken if either the majority of the persons present and entitled to
vote so requests, or, if the original voting was taken by roll call or
in writing, any person present and entitled to vote so requests. As a
result of the new vote, the original vote shall have no legal
consequence and shall be cancelled.
Chapter X.
Convocation and notification.
Article 42.
1. All announcements for the general meetings of shareholders, all
notifications concerning dividend and other payments and all other
communications to holders of registered shares shall be effected by
means of letters mailed to the addresses as shown in the register of
shareholders. In case there are bearer shares issued any outstanding
announcements, notifications and other communications to shareholders
shall also be effected by means of a notice in a national daily paper
and, in case of a listing on the AEX-Effectenbeurs N.V. in the Official
Price List, without prejudice to the provisions of article 96a
paragraph 4, Book 2 of the Civil Code.
2. The expression "shareholders" in paragraph 1 shall include the
beneficiaries of a life interest and pledgees to which the voting
rights on shares accrue.
Chapter XI
Amendment of the articles of association and dissolution. Liquidation.
Article 43. Amendment of the articles of association. Dissolution.
1. When a proposal to amend the articles of association or to dissolve
the company is to be submitted to the general meeting, such must be
mentioned in the notice of the general meeting of shareholders and, if
an amendment to the articles of association is to be discussed, a copy
of the proposal, setting forth the text of the proposed amendment
verbatim, shall at the same time be deposited at the company's office
and, if shares are listed on the AEX-Effectenbeurs N.V. at the office
of a member of the AEX-Effectenbeurs N.V. to be designated in the
notice of the meeting or another payment office as referred to in the
relevant Rules of the AEX-Effectenbeurs N.V. for inspection and shall
be held available for shareholders as well as for beneficiaries of a
life interest and pledgees to which the voting rights on share accrue,
free of charge until the end of the meeting.
2. A proposal to amend the articles of association to legally merge or to
dissolve the company shall require prior approval of the supervisory
board.
Article 44. Liquidation.
1. In the event of dissolution of the company by virtue of a resolution of
the general meeting, the members of the management board shall be
charged with the liquidation of the business of the company, and the
members of the supervisory board with the supervision thereof.
2. During liquidation, the provisions of these articles of association
shall remain in force to the extent possible.
3. The balance remaining after payment of creditors shall be transferred
to the shareholders.
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4. The liquidation shall take place in accordance with the provisions
of Section 1 of Volume 2 of the Civil Code.
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EXHIBIT 13
24> CHICAGO BRIDGE & IRON
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
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 and cash flow data for each of the years in the five year period ended
December 31, 1998 and the selected consolidated balance sheet data as of
December 31, 1998, 1997, 1996, 1995 and 1994 have been derived from the audited
consolidated financial statements of the Company.
(In thousands, except share and employee data)
<TABLE>
<CAPTION>
---------------------------------------------------------------
POST-PRAXAIR ACQUISITION(1) PRE-PRAXAIR ACQUISITION(1)
Years Ended December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 775,692 $ 672,811 $ 663,721 $ 621,938 $ 762,803
Cost of revenues 703,363 609,173 590,030 614,230 692,266
- -------------------------------------------------------------------------------------------------------------
Gross profit 72,329 63,638 73,691 7,708 70,537
Selling and administrative expenses 46,959 44,988 42,921 43,023 45,503
Management Plan charge (2) -- 16,662 -- -- --
Special charges (3) -- -- -- 5,230 16,990
Other operating income, net (4) (991) (4,807) (493) (10,030) (11,360)
- -------------------------------------------------------------------------------------------------------------
Income (loss) from operations 26,361 6,795 31,263 (30,515) 19,404
Interest expense (3,488) (3,892) (5,002) (799) (180)
Interest income 1,616 1,416 990 1,191 1,652
- -------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
minority interest 24,489 4,319 27,251 (30,123) 20,876
Income tax (expense) benefit (7,347) 730 (7,789) 8,093 (3,074)
- -------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest 17,142 5,049 19,462 (22,030) 17,802
Minority interest in (income) loss (105) 354 (2,900) (3,576) (1,359)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 17,037 $ 5,403 $ 16,562 $ (25,606) $ 16,443
=============================================================================================================
PER SHARE DATA
- -------------------------------------------------------------------------------------------------------------
Net income--Basic (5) $ 1.41 $ 0.43 N/A N/A N/A
Net income--Diluted (5) 1.40 0.43 N/A N/A N/A
Dividends (5) 0.24 0.18 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- -------------------------------------------------------------------------------------------------------------
Total assets $ 348,709 $ 400,650 $ 351,496 $ 356,125 $ 359,912
Long-term debt 5,000 44,000 53,907 -- --
Total shareholders' equity 101,656 103,826 90,746 186,507 183,101
Contract capital (6) 76,969 95,243 121,926 109,503 101,063
- -------------------------------------------------------------------------------------------------------------
CASH FLOW DATA
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities $ 50,824 $ 40,407 $ 25,159 $ (36,806) $ 38,447
Cash flows from investing activities (2,142) (21,907) (11,348) 1,554 14,051
Cash flows from financing activities (53,286) (20,124) (14,797) 32,012 (49,742)
- -------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 17,710 $ 16,911 $ 17,281 $ 16,077 $ 15,569
EBITDA (7) 44,071 40,368 48,544 (9,208) 51,963
Capital expenditures 12,249 34,955 20,425 14,880 18,772
- -------------------------------------------------------------------------------------------------------------
OTHER DATA
- -------------------------------------------------------------------------------------------------------------
Number of employees:
Salaried 1,525 1,464 1,516 1,663 1,800
Hourly and craft 4,928 4,630 4,432 3,483 4,852
New business taken (8) $ 760,989 $ 757,985 $ 687,227 $ 782,878 $ 648,082
Backlog (8) 507,783 554,982 485,704 470,174 323,343
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
1998 ANNUAL REPORT < 25
FOOTNOTES FOR PREVIOUS TABLE
(1) Prior to the first quarter of 1996, the Company was a subsidiary of CBI
Industries, Inc. ("Industries"). During the first quarter of 1996, pursuant
to a merger agreement dated December 22, 1995, Industries became a
subsidiary of Praxair, Inc. ("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) Upon consummation of the Offering (Note 1), the Company made a contribution
to the Management Plan in the form of 925,670 Common Shares having a value
of $16.7 million. Accordingly, the Company recorded expense of $16.7
million (the "Management Plan charge") in 1997 (Note 9).
(3) 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 the
write-down of an idle facility and other related costs. In 1994, the
Company recorded a special charge of $17.0 million to recognize the
expenses of a major litigation settlement.
(4) Other operating income, net generally represents gains on the sale of
property, plant and equipment. 1997 was favorably impacted by non-recurring
income of approximately $4.0 million from the recognition of income related
to a favorable appeals court decision and the resolution of disputed
liabilities. In addition, 1997 includes $1.6 million gain from the sale of
assets, primarily from the sale of the Cordova, Alabama, manufacturing
facility, partially offset by $0.8 million increase in litigation reserves.
The gain recorded in 1995 primarily relates to the sale of certain
underutilized facilities. 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.
(5) The Reorganization (Note 1) was completed in March 1997 and did not
materially affect the carrying amounts of the Company's assets and
liabilities. The Reorganization is reflected in the Company's financial
statements as of January 1, 1997. Also in March 1997, the Company completed
a common share offering (the "Offering" - Note 1). Thus, net income per
share and dividend data are not applicable for years prior to 1997.
(6) Contract capital is defined as accounts receivable plus net contracts in
progress less accounts payable.
(7) EBITDA is defined as income (loss) from operations plus the Management Plan
charge, 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."
(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.
<PAGE> 3
26 > CHICAGO BRIDGE & IRON
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes.
RESULTS OF OPERATIONS
The following table indicates new business taken by geographic area for the
years ended December 31, 1998, 1997 and 1996:
(In millions)
1998 1997 1996
- --------------------------------------------------------------------------------
NEW BUSINESS TAKEN BY GEOGRAPHIC AREA
- --------------------------------------------------------------------------------
North America $ 276 $ 263 $ 269
Europe, Africa, Middle East 211 191 133
Asia Pacific 108 200 171
Central and South America 166 104 114
- --------------------------------------------------------------------------------
Total $ 761 $ 758 $ 687
================================================================================
1998 VERSUS 1997
New Business Taken/Backlog--New business taken during 1998 increased by $3.0
million to $761.0 million compared with $758.0 million in 1997. The level of new
business taken was achieved in spite of difficult market conditions for the
engineering and construction industry. Management believes the Company's more
deliberate and focused marketing strategy--including the pursuit of prospects in
new geographic areas and beyond the Company's traditional scope of
work--contributed to the 1998 new
<PAGE> 4
1998 ANNUAL REPORT < 27
business taken results. Included in the 1998 new business taken was an expansion
of an order for a large iron plant for Saldanha Steel in South Africa and three
heavy crude oil projects in Venezuela. Over 60% of the new business taken during
1998 was for contracts awarded outside of North America. During 1998, new
business taken increased 60% in the Central and South America (CSA) area, 10% in
the Europe, Africa, Middle East (EAME) area and 5% in North America, but
declined 46% in the Asia Pacific (AP) area as a result of the Asian economic
downturn. Continued depressed oil prices may have an impact on activity in, and
capital spending by, the petroleum and petrochemical sector. However, lower
feedstock prices may lead to increased demand for downstream processing
capabilities in this sector. Backlog at December 31, 1998 was $507.8 million
compared with the backlog at December 31, 1997 of $555.0 million.
Revenues--Revenues increased $102.9 million, or 15.3%, to $775.7 million in 1998
from $672.8 million in 1997. Major projects contributing to revenues in 1998
were the iron plant for Saldanha Steel in South Africa and an ammonia plant
expansion and a liquefied natural gas ("LNG") facility in North America.
Revenues in 1998 were favorably impacted by a higher volume of work in all
geographic areas, except Asia Pacific. The decline in Asia Pacific revenues was
more than offset by the Company's ability to expand on its traditional scope of
work in other areas. In 1999, management anticipates that new business taken and
revenues will likely be lower than the levels achieved in 1998, but that the
three-year target of 3-5% annual revenue growth remains achievable. It is
expected there will be some shift in the geographic distribution of revenues,
with EAME returning to more historic revenue levels and growth in CSA given the
size of the current backlog in that area.
Gross Profit--Gross profit increased $8.7 million to $72.3 million in 1998 from
$63.6 million in 1997. Gross profit as a percentage of revenues ("gross margin")
was 9.3% in 1998 and 9.5% in 1997. The CSA area had higher than expected costs
and disappointing execution results. Excluding the disappointing results in the
CSA area, gross margin in 1998 would have been 11.0% of revenues, which is
consistent with unearned gross margin in the Company's December 31, 1998
backlog.
Income from Operations--Income from operations increased 12.4% to $26.4 million
in 1998, compared with $23.5 million in 1997, excluding the one-time, non-cash
Management Plan charge (Note 9). This increase in operating income was the
result of a more than threefold increase in North America and a 50% increase in
EAME. These accomplishments were partially offset by the operating loss in CSA.
Including the one-time, non-cash Management Plan charge, the Company reported
operating income of $6.8 million in 1997. Selling and administrative expenses
were $47.0 million or 6.1% of revenues in 1998 compared with $45.0 million or
6.7% of revenues in 1997.
Interest expense decreased $0.4 million to $3.5 million in 1998 from $3.9
million in 1997. The decrease primarily reflected lower interest expense on
corporate revolving debt, partially offset by higher costs for short-term
borrowing outside of the United States. Interest income consisted primarily of
interest earned on cash balances at non-U.S. subsidiaries and increased $0.2
million to $1.6 million in 1998 compared with $1.4 million in 1997. Net interest
expense decreased $0.6 million to $1.9 million in 1998 compared with $2.5
million in 1997.
The Company recorded income tax expense of $7.3 million in 1998 compared with a
$0.7 million income tax benefit in 1997. The lower income tax expense for 1997
was mostly due to a $6.6 million income tax benefit attributable to the
Management Plan charge. Excluding the Management Plan charge, income tax expense
would have been $5.9 million in 1997, or an effective tax rate of 28.0% in 1997
compared with 30.0% in 1998. Compared with the prior year, income tax expense
increased due to the higher effective tax rate that resulted from reduced
project profitability in lower tax rate jurisdictions.
Net income for 1998 was $17.0 million, or $1.41 per share, compared with net
income of $15.5 million, or $1.24 per share for 1997, excluding the Management
Plan charge. Including the one-time, non-cash Management Plan charge in 1997,
the Company reported net income of $5.4 million or $0.43 per share.
<PAGE> 5
28 > CHICAGO BRIDGE & IRON
1997 VERSUS 1996
New Business Taken/Backlog--New business taken during 1997 increased by $70.8
million, or 10.3%, to $758.0 million compared with $687.2 million in 1996.
Included in the 1997 new business taken was an expansion of an order for a large
COREX(R) unit for Saldanha Steel in South Africa and an order for fifty tanks
for a Nickel-Cobalt refinery in Australia, both of which are projects for the
metals and mining industries. Awards in the petroleum and petrochemical sector
included numerous contracts, the most significant of which was for several large
floating roof tanks in Nigeria. Over 60% of the new business taken during 1997
was for contracts awarded outside of North America. Backlog at December 31, 1997
increased by $69.3 million to $555.0 million compared with the backlog at
December 31, 1996 of $485.7 million.
Revenues--Revenues increased $9.1 million, or 1.3%, to $672.8 million in 1997
from $663.7 million in 1996. The two largest projects contributing to revenues
in 1997 were the petrochemical project in Tuban, Indonesia ("Tuban Project"),
and the COREX unit for Saldanha Steel in South Africa. Additionally, 1997
revenues in the low temperature/cryogenic product line increased by $49 million,
partly as a result of work put in place on three LNG projects in North Carolina,
Tennessee and Argentina. Revenues in 1997 were favorably impacted by a higher
volume of work in all geographic areas, except North America. The decline in
North American revenues was more than offset by the Company's ability to expand
on its traditional scope of work in other areas.
Gross Profit--Gross profit decreased $10.1 million to $63.6 million in 1997 from
$73.7 million in 1996. Gross profit as a percentage of revenues ("gross margin")
decreased to 9.5% in 1997 from 11.1% in 1996. In 1997, annual cost savings of
approximately $21 million were realized from restructuring activities, relative
to the Company's 1995 cost base. However, these benefits were offset by an
operating loss at CB&I Constructors, the major North American unit. This loss
resulted from start-up problems associated with the expansion of the Houston
fabricating facility and implementation of new integrated computer systems being
piloted in Houston. These factors resulted in additional costs and delays in
some materials reaching construction sites, thereby resulting in lower gross
profit and postponing the recognition of revenue. The gross profit decline in
CB&I Constructors was partly offset by higher gross profit in the Europe,
Africa, Middle East area. This improvement was the result of better contract
execution and a shift to more profitable product lines.
Income from Operations--Income from operations was $6.8 million in 1997, or 1.0%
of revenues. Excluding the Management Plan charge, income from operations was
$23.5 million, or 3.5% of revenues in 1997, versus $31.3 million, or 4.7% in
1996. Selling and administrative expenses increased to $45.0 million in 1997
from $42.9 million in 1996, due to higher administrative expenses required as an
independent public company. Also, as expected, higher benefit costs in 1997 had
a negative impact on income from operations. Income from operations was
favorably impacted by other operating income of $4.8 million, which included
non-recurring income of $4.0 million from the recognition of income related to a
favorable appeals court decision and the resolution of disputed liabilities, a
$1.6 million gain from the sale of assets, and an offsetting charge of $0.8
million due to an increase in litigation reserves.
Interest expense decreased $1.1 million to $3.9 million in 1997 from $5.0
million in 1996. The decrease primarily reflected lower interest rates, $0.6
million of capitalized interest, and the Company's reduction of its long-term
debt balance as of December 31, 1997.
The Company recorded a $0.7 million income tax benefit in 1997 compared with
$7.8 million of income tax expense in 1996. The decrease in income tax expense
between periods is mostly attributable to lower taxable income as a result of
the Management Plan charge. Excluding the Management Plan charge, income tax
expense would have been $5.9 million in 1997, or an effective tax rate of 28.0%
in 1997 compared with 28.6% in 1996.
The Company recorded minority interest in loss of $0.4 million in 1997 compared
to minority interest in income of $2.9 million in 1996. The decrease in minority
interest in income was mainly due to lower profitability of the Company's less
than 100% owned consolidated entity operating in Asia.
<PAGE> 6
1998 ANNUAL REPORT < 29
Including the one-time, non-cash Management Plan charge, the Company reported
net income of $5.4 million or $0.43 per share in 1997. Excluding the Management
Plan charge, net income for 1997 was $15.5 million, or $1.24 per share. Giving
effect to the Offering and Reorganization (Note 1) as if each had occurred at
the first day of the year, net income per share would have been $1.32 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the Company generated cash from operations of $50.8 million compared
with $40.4 million in 1997. A significant contributor to positive operating cash
flow was a $18.3 million reduction in contract capital (accounts receivable plus
net contracts in progress less accounts payable) in 1998 and a $26.7 million
reduction in contract capital in 1997. In 1996, cash generated from operations
was primarily the result of increased net income and reduced working capital
requirements.
In 1998, the Company expended $12.2 million for capital expenditures and
realized $10.1 million in proceeds from the sale of an excess manufacturing
facility and field equipment. The capital expenditures in 1998 included $2.4
million for the expansion and improvement of facilities, $5.9 million for field
equipment, and $3.9 million for information systems. In 1997, the Company
expended $35.0 million for capital expenditures and realized $13.0 million in
proceeds from the sale of excess manufacturing facilities and field equipment.
The capital expenditures in 1997 included $19.2 million for the expansion and
improvement of facilities, $11.9 million for field equipment, and $3.9 million
for information systems. The Company anticipates that capital expenditures in
the near future will approximate the level of depreciation and amortization,
although there can be no assurance that such levels will not increase or
decrease.
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
participated in corporate cash management systems. Liquidity required for or
generated from the business was handled through this system. As part of the
Praxair acquisition, $55.0 million of acquisition related indebtedness was
assumed by the Company.
In early 1997, the Company entered into a revolving credit facility (the
"Revolving Credit Facility") with a syndicate of banks. The terms of this
Revolving Credit 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. The Revolving Credit Facility has a maximum availability of $100
million for three years (until March 6, 2000), to be reduced to $50 million for
two years (until March 6, 2002) thereafter (including up to $35 million of
letters of credit). In April 1997, the Company borrowed $75 million under this
Revolving Credit Facility to refinance its long-term debt to Praxair and to fund
its own corporate cash management system.
During 1997, the Company made substantial progress in reducing long-term debt,
ending the year with $44 million in long-term debt, down from the $75 million of
long-term debt at the time of the Offering. The reduction in long-term debt in
1997 was due in large measure to a $26.7 million reduction in contract capital
(accounts receivable plus net contracts in progress less accounts payable).
During 1998, the Company continued to make significant progress in reducing
long-term debt, ending the year with $5.0 million in long-term debt, which was
lower than the Company's expected normal debt level, down from $44.0 million at
the end of 1997. This reduction in long-term debt was achieved even as the
Company repurchased $14.0 million of its common stock during 1998. The Company
ended 1998 with contract capital of $77.0 million, an $18.3 million reduction
from December 31, 1997. Cash and cash equivalents at year-end were $5.6 million
compared with $10.2 million at the end of 1997.
In addition to liquidity generated through the Revolving Credit Facility, the
Company intends to continue to improve its contract capital position through
aggressive management of its individual components, including programs to reduce
accounts receivable, to manage contracts in progress and to maximize available
terms from trade suppliers.
Management anticipates that by utilizing cash generated from operations and
funds provided under the Revolving Credit Facility, the Company will be able to
meet its contract capital and capital expenditure needs for at least the next 24
months.
<PAGE> 7
30 > CHICAGO BRIDGE & IRON
As previously reported, the Company continues to be impacted by the Tuban
Project in Indonesia, where work remains suspended. At December 31, 1998, the
Company's backlog related to this project was approximately $50 million and the
Company and its affiliates had approximately $35 million of net receivables
outstanding. Similar to other major contractors involved in the project, the
Company has received approval to redeploy certain material purchased for this
project in order to reduce its costs. While the Company believes the Tuban
Project is viable, it is expected that permanent financing for the project will
not be secured until the political and economic situation in Indonesia improves,
which is not expected to occur until after the elections in June 1999 at the
earliest. The Company believes work on the Tuban Project ultimately will resume,
but no assurances can be given that this will happen, or even though the project
resumes, that it will not have an adverse impact on the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency exchange
rates which may adversely affect its results of operations and financial
condition. The Company seeks to minimize the risks from these foreign currency
exchange rate fluctuations through its regular operating and financing
activities and, when deemed appropriate, through its limited use of foreign
currency forward contracts. The Company's exposure to changes in foreign
currency exchange rates arises from receivables, payables and firm commitments
from international transactions, as well as intercompany loans utilized to
finance non-U.S. subsidiaries. The Company does not use financial instruments
for trading or other speculative purposes.
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, trade and accounts receivable, payables,
notes payable and long-term debt approximates fair value. The Company's
accounting policies and a quantification of its derivative financial instruments
are included in Note 2 (Significant Accounting Policies) of the Notes to
Consolidated Financial Statements.
EURO CONVERSION
The Euro was introduced on January 1, 1999, at which time the conversion rates
between the currencies of the eleven participating European countries that are
members of the European Economic and Monetary Union (EMU) and the Euro were set.
The local currencies will continue to be used as legal tender through January 1,
2002. Thereafter, the local currencies will be canceled and Euro bills and coins
will be used in the eleven participating countries. The Company does not
anticipate that the transition to the Euro will have a significant impact on its
results of operations, financial position or cash flows.
YEAR 2000 COMPLIANCE
The Company continues to execute its plan to address the effect of Year 2000
issues on its worldwide businesses. The plan consists of two primary phases:
Assessment (consisting of identification, business criticality ranking and
impact analysis and remediation planning) and Remediation (consisting of repair,
testing, implementation, certification, and contingency plans). This plan
involves representatives of the Company from all operational and geographical
areas and encompasses information technology (IT) systems, embedded (non-IT)
systems and suppliers.
Assessment has been completed on all of the Company's worldwide IT systems. As
of December 31, 1998, 73% of the Remediation phase for the Company's IT systems
was completed. The Remediation phase is scheduled to be completed by June 1999.
Assessment of North American non-IT systems is complete, and the Remediation
phase continues and is scheduled for completion by the end of first quarter
1999. Non-IT systems include building and mechanical systems (such as
telecommunication systems, HVAC and security systems) and fabrication and field
construction equipment. Assessment of non-IT systems outside North America
continues on building and mechanical systems with completion scheduled by the
end of first quarter 1999. The Remediation phase is scheduled to be completed by
mid-1999. The Company's assessment and remediation of its fabrication and field
construction equipment throughout the world has been completed.
<PAGE> 8
1998 ANNUAL REPORT < 31
The Company has identified key material suppliers and service providers
("suppliers"), and has initiated discussions and mailed correspondence to these
suppliers to survey their state of readiness on Year 2000 issues. Completion of
this assessment is dependent upon their cooperation. Responses have been
received from 96% of the North American inquiries and 92% of the non-North
American inquiries. The Company continues to work to get responses from
suppliers. At this point, it is not possible to forecast whether there will be
any significant disruption due to supplier failure to remediate their own Year
2000 issues. The Company, as part of the Remediation phase, has formulated its
contingency plan. This plan includes the Company's continuous communication with
suppliers to assure that they are able to continue to perform without
disruption. Due to the continual change of geographic location and type of
projects on which the Company is executing work, the Company is familiar with
reassessing and reestablishing its supplier chain through the use of alternative
sourcing of materials and services to meet its business needs.
The Company estimates that the cost to remediate its Year 2000 issues is $2.5
million, of which 42% was incurred through December 31, 1998. Approximately $0.5
million of the total cost will be capitalized for the accelerated purchase of
desktop hardware. The cost estimate excludes the direct costs of the ongoing
J.D. Edwards implementation (which is a Year 2000 compliant system), the costs
of which are being capitalized. The decision to implement this new information
system was made independent of the Company's Year 2000 compliance efforts. A
portion of the J.D. Edwards system implementation will enable the Company to
meet its Year 2000 remediation needs and is scheduled to be completed by August
31, 1999. Over the next several years the Company will continue to integrate its
other software systems into J.D. Edwards in order to fully utilize the system's
capabilities.
The Company has targeted internal compliance with Year 2000 issues for all
critical areas, excluding the ongoing J.D. Edwards implementation, by the second
quarter of 1999. The Company believes that the current efforts to address and
resolve the issues associated with Year 2000 are adequate. However, the Company
cannot guarantee that all Year 2000 issues will be anticipated and corrected,
and there can be no assurance that the systems of any third party on which the
Company's systems and operations rely will be timely converted. It is too soon
to determine whether the Company will experience disruption to transportation,
communication, electric power or other infrastructure systems due to Year 2000
issues that affect the public infrastructure in the locations where it executes
projects. The inability of the Company, its suppliers or the public
infrastructure to effectuate solutions to their respective Year 2000 issues on a
timely and cost effective basis may have a material adverse effect on the
Company.
Because of the uncertainties the Company faces with regard to Year 2000 issues,
it is developing contingency plans to provide for continuation of its critical
operations in spite of possible Year 2000 disruptions. Development of
contingency plans is expected to be complete by the end of second quarter 1999.
If the Company is unsuccessful in implementing the J.D. Edwards system at
remaining locations by the Year 2000, the cost of implementing the J.D. Edwards
contingency plan would not be material to the Company.
This discussion and analysis contains certain forward-looking statements that
involve a number of risks and uncertainties. Actual events or results may differ
materially from the Company's expectations. In addition to matters described
herein, including the Tuban Project and Year 2000 issues, operating risks, risks
associated with fixed price contracts, risks associated with percentage of
completion accounting, fluctuating revenues and cash flow, dependence on the
petroleum and petrochemical industries and competitive conditions, as well as
risk factors listed from time to time in the Company's reports filed with the
Securities and Exchange Commission (including, but not limited to its
Registration Statement on Form S-1 [File No.333-18065], as amended), may affect
the actual results achieved by the Company.
<PAGE> 9
32 > CHICAGO BRIDGE & IRON
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Supervisory Board of Chicago Bridge & Iron Company
N.V.:
We have audited the accompanying consolidated balance sheets of CHICAGO BRIDGE &
IRON COMPANY N.V. (a Netherlands corporation) and SUBSIDIARIES, the business of
which was formerly operated by CHICAGO BRIDGE & IRON COMPANY (a Delaware
corporation) and SUBSIDIARIES, as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the three years ended December 31, 1998. 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
in the United States. 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
N.V. and SUBSIDIARIES as of December 31, 1998 and 1997, and the results of its
operations and cash flows for the three years ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen
Amsterdam, The Netherlands
February 10, 1999
<PAGE> 10
1998 ANNUAL REPORT < 33
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Years Ended December 31, 1998 1997
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 5,636 $ 10,240
Accounts receivable 143,911 157,785
Contracts in progress with earned revenues
exceeding related progress billings (Note 3) 51,953 63,172
Other current assets 6,760 17,157
- -------------------------------------------------------------------------------
Total current assets 208,260 248,354
- -------------------------------------------------------------------------------
Property and equipment (Note 6) 110,481 121,798
Goodwill (Note 2) 18,051 18,539
Other non-current assets 11,917 11,959
- -------------------------------------------------------------------------------
Total assets $ 348,709 $ 400,650
===============================================================================
LIABILITIES
- ------------------------------------------------------------------------------
Notes payable (Note 4) $ 3,088 $ 1,158
Accounts payable 41,536 52,904
Accrued liabilities (Note 6) 50,045 46,518
Contracts in progress with progress billings
exceeding related earned revenues (Note 3) 77,359 72,810
Income taxes payable 2,882 5,160
- -------------------------------------------------------------------------------
Total current liabilities 174,910 178,550
- -------------------------------------------------------------------------------
Long-term debt (Note 4) 5,000 44,000
Other non-current liabilities (Note 6) 62,199 69,001
Minority interest in subsidiaries 4,944 5,273
- -------------------------------------------------------------------------------
Total liabilities 247,053 296,824
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Common stock, NLG .01 par value; 50,000,000 authorized shares;
12,517,552 shares issued in 1998 and 1997 (Note 10) 74 74
Additional paid-in capital 94,037 93,691
Retained earnings 28,851 14,712
Treasury stock, at cost: 1,103,258 shares in 1998 (13,144) --
Cumulative translation adjustment (8,162) (4,651)
- -------------------------------------------------------------------------------
Total shareholders' equity 101,656 103,826
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 348,709 $ 400,650
===============================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 11
34 > CHICAGO BRIDGE & IRON
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------
Revenues $775,692 $ 672,811 $663,721
Cost of revenues 703,363 609,173 590,030
- -----------------------------------------------------------------------------
Gross profit 72,329 63,638 73,691
Selling and administrative expenses 46,959 44,988 42,921
Management Plan charge (Note 9) -- 16,662 --
Other operating income, net (991) (4,807) (493)
- -----------------------------------------------------------------------------
Income from operations 26,361 6,795 31,263
Interest expense (3,488) (3,892) (5,002)
Interest income 1,616 1,416 990
- -----------------------------------------------------------------------------
Income before taxes and minority interest 24,489 4,319 27,251
Income tax (expense) benefit (7,347) 730 (7,789)
- -----------------------------------------------------------------------------
Income before minority interest 17,142 5,049 19,462
Minority interest in (income) loss (105) 354 (2,900)
- -----------------------------------------------------------------------------
Net income $ 17,037 $ 5,403 $ 16,562
=============================================================================
Net income per Common Share - Basic $ 1.41 $ 0.43 N/A(1)
- -----------------------------------------------------------------------------
Net income per Common Share - Diluted 1.40 0.43 N/A(1)
- -----------------------------------------------------------------------------
(1) Net income per Common Share is not presented for 1996 as the Reorganization
and Offering had not taken place (Note 1). Giving effect to the
Reorganization and the Offering as if each had occurred at the first day of
the year, net income per Common Share would have been $1.32 in 1996.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
<PAGE> 12
1998 ANNUAL REPORT < 35
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
ADVANCES TOTAL
ADDITIONAL TO FORMER TREASURY CUMULATIVE SHARE-
COMMON PAID-IN RETAINED PARENT STOCK, TRANSLATION HOLDERS'
STOCK CAPITAL EARNINGS COMPANY AT COST ADJUSTMENT EQUITY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1 $ 237,785 $ -- $(142,786) $ -- $ -- $ 95,000
Comprehensive income -- -- 16,562 -- -- (775) 15,787
Advances to former
Parent Company -- -- -- (15,041) -- -- (15,041)
Return of capital dividend
to former Parent Company -- (157,827) -- 157,827 -- -- --
Dividend payable
to former Parent Company -- -- (5,000) -- -- -- (5,000)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 1 79,958 11,562 -- -- (775) 90,746
Reorganization (Note 1) 73 (14) -- -- -- -- 59
Comprehensive income -- -- 5,403 -- -- (3,876) 1,527
Management Plan charge
(Note 9) -- 16,662 -- -- -- -- 16,662
Dividends to common
shareholders -- -- (2,253) -- -- -- (2,253)
Common Stock offering costs -- (2,915) -- -- -- -- (2,915)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 74 93,691 14,712 -- -- (4,651) 103,826
Comprehensive income -- -- 17,037 -- -- (3,511) 13,526
Dividends to common
shareholders -- -- (2,898) -- -- -- (2,898)
Long-Term Incentive Plan
amortization -- 520 -- -- -- -- 520
Purchase of treasury stock -- -- -- -- (13,970) -- (13,970)
Issuance of treasury stock -- (174) -- -- 826 -- 652
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 74 $ 94,037 $ 28,851 $ -- $ (13,144) $ (8,162) $ 101,656
=============================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 13
36 > CHICAGO BRIDGE & IRON
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- --------------------------------------------------------------------------------
Net income $ 17,037 $ 5,403 $ 16,562
Adjustments to reconcile net income to net cash
provided by operating activities:
Management Plan charge (Note 9) -- 16,662 --
Depreciation and amortization 17,710 16,911 17,281
Increase/(decrease) in deferred income taxes 1,137 (9,292) 4,251
Gain on sale of property and equipment (991) (1,623) (493)
Change in operating assets and
liabilities (see below) 15,931 12,346 (12,442)
- -------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 50,824 40,407 25,159
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- -------------------------------------------------------------------------------
Proceeds from sale of property and equipment 10,107 13,048 9,077
Capital expenditures (12,249) (34,955) (20,425)
- -------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,142) (21,907) (11,348)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- -------------------------------------------------------------------------------
Payment to former Parent Company -- (6,008) (15,041)
Increase/(decrease) in notes payable 1,930 (1,956) 1,337
Net (repayment)/borrowing under Revolving
Credit Facility (39,000) 44,000 --
Purchase of treasury stock (13,970) -- --
Issuance of treasury stock 652 -- --
Dividends paid (2,898) (2,253) --
Net repayment of debt to former Parent Company -- (53,907) (1,093)
- -------------------------------------------------------------------------------
Net Cash Used in Financing Activities (53,286) (20,124) (14,797)
- -------------------------------------------------------------------------------
Decrease in cash and cash equivalents (4,604) (1,624) (986)
Cash and cash equivalents, beginning of the year 10,240 11,864 12,850
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $ 5,636 $ 10,240 $ 11,864
===============================================================================
CHANGE IN OPERATING ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
(Increase)/decrease in receivables, net $ 13,874 $ (56,110) $ 9,213
(Increase)/decrease in contracts in
progress, net 15,768 54,693 (24,950)
Increase/(decrease) in accounts payable (11,368) 28,100 3,314
- --------------------------------------------------------------------------------
Change in contract capital 18,274 26,683 (12,423)
(Increase)/decrease in other current assets 6,318 (5,714) 8,689
Increase/(decrease) in income taxes payable (2,278) 720 404
Increase/(decrease) in accrued and other
non-current liabilities (3,275) (8,396) (9,067)
(Increase)/decrease in other (3,108) (947) (45)
- -------------------------------------------------------------------------------
Total $ 15,931 $ 12,346 $(12,442)
===============================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
- -------------------------------------------------------------------------------
Cash paid for interest $ 3,899 $ 4,619 $ 3,902
Cash paid for income taxes 5,200 5,310 3,536
- -------------------------------------------------------------------------------
SUPPLEMENTAL NON-CASH DISCLOSURE
- -------------------------------------------------------------------------------
Return of capital dividend to former
Parent Company $ -- $ -- $157,827
- -------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 14
1998 ANNUAL REPORT < 37
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. ORGANIZATION AND NATURE OF OPERATIONS
Chicago Bridge & Iron Company N.V. and Subsidiaries, the business of which was
formerly operated by Chicago Bridge & Iron Company and Subsidiaries (the
"Company"), is a global engineering and construction company specializing in the
design and engineering, fabrication, field erection and repair of bulk liquid
terminals, steel tanks, pressure vessels, low temperature and cryogenic storage
facilities and other steel plate structures and their associated systems. 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 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.
Organization--During the periods and as of the dates prior to January 1, 1996,
the Company was a wholly owned subsidiary of Chi Bridge Holdings, Inc.,
("Holdings") which in turn was a wholly owned subsidiary of CBI Industries, Inc.
("Industries"). On January 12, 1996, pursuant to the merger agreement dated
December 22, 1995, Industries became a subsidiary of Praxair, Inc. ("Praxair").
This merger transaction was reflected in the Company's consolidated financial
statements as a purchase effective January 1, 1996 ("Merger Date"). Accordingly,
the historical information provided for the periods prior to January 1, 1996
("Pre-Praxair Acquisition") will not be comparable to subsequent financial
information ("Post-Praxair Acquisition").
<PAGE> 15
38 > CHICAGO BRIDGE & IRON
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
approximated 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 was based on the respective fair values. The allocation
of this fair value resulted in the following opening balance sheet:
HISTORICAL PURCHASE OPENING
BALANCE SHEET ACCOUNTING BALANCE SHEET
DECEMBER 31, 1995 ADJUSTMENTS JANUARY 1, 1996
(PRE-PRAXAIR INCREASE/ (POST-PRAXAIR
ACQUISITION) (DECREASE) ACQUISITION)
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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 and
shareholder's equity $ 356,125 $ 8,952 $365,077
===============================================================================
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 is being 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.
<PAGE> 16
1998 ANNUAL REPORT < 39
Common Stock Offering--In December 1996, the Company filed a registration
statement with the Securities and Exchange Commission for an initial public
offering (the "Offering") of a majority of the shares of the Company's Common
Stock, par value NLG 0.01 (the "Common Stock"). Effective March 1997, the
Company completed the Offering of 11,045,941 shares of Common Stock at $18.00
per share. The Company did not receive any proceeds from the Offering, but paid
a portion of the offering costs. The Common Stock is traded on the New York and
Amsterdam stock exchanges.
Reorganization--In March 1997, Holdings effected a reorganization (the
"Reorganization") whereby Holdings transferred the business of Chicago Bridge &
Iron Company ("CB&I") to Chicago Bridge & Iron Company N.V. ("CB&I N.V."), a
corporation organized under the laws of The Netherlands. The Reorganization did
not affect the carrying amounts of CB&I's assets and liabilities, nor result in
any distribution of its cash or other assets to Praxair. CB&I N.V.'s only
transaction for the year ended December 31, 1996 was a $59 original investment
in exchange for common stock. The Reorganization is reflected in the Company's
financial statements effective January 1, 1997. The consolidated statements of
income and statements of cash flows for the year ended December 31, 1996 include
the amounts of CB&I prior to the Reorganization.
Nature of Operations--Projects for the worldwide petroleum and petrochemical
industry accounted for approximately 60-70% of the Company's revenues in 1998,
1997 and 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 affected because of reduced activity due to the
price of oil or changing taxes, price controls and laws and regulations related
to the petroleum and petrochemical industry.
Tuban Project--In late 1996, the Company took a contract to supply materials and
construct a portion of a $2.5 billion petrochemical project in Tuban, West Java,
Indonesia. The Tuban Project, which is currently about 40% complete, remains
suspended. At December 31, 1998, the Company's backlog related to this project
was approximately $50 million and the Company and its affiliates had
approximately $35 million of net receivables outstanding. Similar to other major
contractors involved in the project, the Company has received approval to
redeploy certain material purchased for this project in order to reduce its
costs. While the Company believes the Tuban Project is viable, it is expected
that permanent financing for the project will not be secured until the political
and economic situation in Indonesia improves, which is not expected to occur
until after the elections in June 1999 at the earliest. The Company believes
work on the Tuban Project ultimately will resume, but no assurances can be given
that this will happen, or even though the project resumes, that it will not have
an adverse impact on the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Consolidation--These financial statements are prepared
in accordance with generally accepted accounting principles in the United
States. The consolidated financial statements include all majority owned
subsidiaries. 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.
<PAGE> 17
40 > CHICAGO BRIDGE & IRON
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 change orders and estimated minimum
recoveries of claims. Losses expected to be incurred on jobs in process 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 are primarily performed on variations of
cost reimbursable and target 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 includes direct contract
costs such as material and construction labor, and indirect costs which are
attributable to contract activity.
Foreign Currency Translation and Exchange--The primary effects of foreign
currency translation adjustments are recognized in shareholders' equity as
cumulative translation adjustment. Foreign currency exchange gains/(losses) are
included in the determination of income, and were $615 in 1998, $1,387 in 1997,
and $(587) in 1996.
Per Share Computations--
1998 1997
- --------------------------------------------------------------------------------
Net income $ 17,037 $ 5,403
Weighted average shares outstanding--Basic 12,117,573 12,517,552
Effect of Restricted Stock Units 29,438 --
Effect of Performance Shares 5,127 --
Effect of Directors Deferred Fee Shares 711 --
- --------------------------------------------------------------------------------
Weighted average shares outstanding--Diluted 12,152,849 12,517,552
================================================================================
Net income per Common Share--Basic $ 1.41 $ 0.43
Net income per Common Share--Diluted 1.40 0.43
- --------------------------------------------------------------------------------
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 $17,222 in 1998,
$16,423 in 1997 and $16,793 in 1996. In 1997, the Company revised its
capitalization policy by adjusting the dollar threshold for capitalizing small
tools in order to better match costs and revenues. This policy revision
positively impacted 1997 income by $1,198.
Goodwill--As a result of the purchase accounting adjustments recorded as of
January 1, 1996, the Company recorded the excess of cost over the fair value of
tangible net assets of the Company as goodwill on the balance sheet and is
amortizing it on a straight-line basis over 40 years. Amortization expense was
$488 in 1998, 1997 and 1996. Accumulated amortization was $1,464 as of December
31, 1998 and $976 as of December 31, 1997. The carrying value of goodwill is
reviewed periodically based on the undiscounted cash flows of the entity 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.
The Company recorded a valuation allowance of $27,155 for deferred tax assets in
connection with the Praxair Acquisition accounting. If the related deferred tax
assets are realized, the reversal of the valuation allowance will first reduce
the remaining goodwill balance dollar-for-dollar until zero, and thereafter will
reduce income tax expense.
<PAGE> 18
1998 ANNUAL REPORT < 41
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, accounts payable, notes payable and long-term debt approximates fair
value. The Company's other financial instruments are not significant. For the
three years ended December 31, 1998, the Company recorded interest expense on
notes payable, long-term debt and certain other interest bearing obligations.
Forward Contracts--Although the Company does not engage in currency speculation,
it periodically uses forward contracts to hedge foreign currency transactions.
Gains or losses on forward contracts are included in income. At December 31,
1998, the Company had $10,034 of outstanding foreign currency exchange contracts
to purchase Canadian dollars and $2,909 of outstanding foreign currency exchange
contracts to sell British pounds. These forward contracts hedged intercompany
loans utilized to finance non-U.S. subsidiaries and will mature within 35 days
after year end. The fair value of these forward contracts approximated their
carrying value in the financial statements at December 31, 1998. Also at
December 31, 1998, the Company had $2,400 of outstanding foreign currency
exchange contracts to sell Singapore dollars. These forward contracts hedge
contract costs to be incurred in U.S. dollars with revenues to be earned in
Singapore dollars and will mature within 305 days after year end. The fair value
of the forward contracts was approximately $(215) at December 31, 1998. 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.
New Accounting Standards--In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for fiscal years beginning after June 15, 1999. SFAS 133 requires all
derivative instruments be recorded on the balance sheet at their fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Company has not yet
determined the impact that the adoption of SFAS 133 will have on its earnings or
statement of financial position. However, the Company anticipates that, due to
its limited use of derivative instruments, the adoption of SFAS 133 will not
have a significant effect on its results of operations or its financial
position.
Research and Development--Expenditures for research and development activities,
which are charged to income as incurred, amounted to $860 in 1998, $1,670 in
1997 and $730 in 1996.
Reclassification of Prior Year Balances--Certain prior year balances have been
reclassified to conform with current year presentation.
3. CONTRACTS IN PROGRESS
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 contracts in progress is reported as a
current asset and the excess of progress billings over revenues recognized on
contracts in progress is reported as a current liability as follows:
1998 1997
- -------------------------------------------------------------------------------
CONTRACTS IN PROGRESS
- -------------------------------------------------------------------------------
Revenues recognized on contracts in progress $ 871,100 $ 658,760
Billings on contracts in progress (896,506) (668,398)
- -------------------------------------------------------------------------------
$ (25,406) $ (9,638)
===============================================================================
Shown on balance sheet as:
Contracts in progress with earned revenues
exceeding related progress billings $ 51,953 $ 63,172
Contracts in progress with progress billings
exceeding related earned revenues (77,359) (72,810)
- -------------------------------------------------------------------------------
$ (25,406) $ (9,638)
===============================================================================
<PAGE> 19
42 > CHICAGO BRIDGE & IRON
4. NOTES PAYABLE AND LONG-TERM DEBT
Prior to April 2, 1997, the Company's cash requirements were funded by Praxair
through the long-term debt account. Interest was payable to Praxair at 7% per
annum.
On April 2, 1997, the Company, The Chase Manhattan Bank and a syndicate of other
banks entered into a five year senior, unsecured competitive advance and
revolving credit facility (the "Revolving Credit Facility"). Maximum
availability under the Revolving Credit Facility is $100,000 for the first three
years (until March 6, 2000), to be reduced to $50,000 for two years (until March
6, 2002) thereafter (including up to $35 million of letters of credit). The
Company initially borrowed $75,000 thereunder to repay the long-term debt to
Praxair balance as of April 2, 1997. The committed amounts under the Revolving
Credit Facility are available for general corporate purposes, including working
capital, letters of credit and other requirements of the Company. Revolving
credit loans are available at interest rates based upon the lenders' alternate
base rate or a spread ranging from 0.325% to 0.875% (based on the Company's debt
coverage ratio) over LIBOR or on a competitive bid basis. The weighted average
interest rate was 5.95% and 6.62% at December 31, 1998 and 1997. Letters of
credit may be issued, subject to a $35,000 sublimit, on either a committed or
competitive bid basis and expire one year after issuance, unless otherwise
provided. The Revolving Credit Facility contains certain restrictive covenants
regarding tangible net worth, interest coverage and leverage ratios, and capital
expenditures, among other restrictions. The Revolving Credit Facility will
terminate on March 6, 2002.
Notes payable consist primarily of short-term loans borrowed under credit
facilities made available by commercial banks. The Company's weighted average
interest rate for notes payable was 8.47% at December 31,1998, 7.11% at December
31, 1997 and 5.34% at December 31, 1996.
Capitalized interest was $599 in 1997.
5. LEASES
Certain facilities and equipment are rented under operating leases that expire
at various dates through 2006. Rental expense on operating leases was $7,068 in
1998, $6,468 in 1997, and $4,445 in 1996. Future rental commitments during the
years ending in 1999 through 2003 and thereafter are $6,472, $2,849, $2,244,
$957, $697, and $1,070, respectively.
6. SUPPLEMENTAL BALANCE SHEET DETAIL
1998 1997
- -------------------------------------------------------------------------------
COMPONENTS OF PROPERTY AND EQUIPMENT
- -------------------------------------------------------------------------------
Land and improvements $ 11,267 $ 11,698
Buildings and improvements 39,527 35,448
Plant and field equipment 104,188 106,555
- -------------------------------------------------------------------------------
Total property and equipment 154,982 153,701
- -------------------------------------------------------------------------------
Accumulated depreciation (44,501) (31,903)
- -------------------------------------------------------------------------------
Net property and equipment $ 110,481 $ 121,798
===============================================================================
COMPONENTS OF ACCRUED LIABILITIES
- -------------------------------------------------------------------------------
Payroll, vacation, bonuses and profit-sharing $ 15,762 $ 9,322
Self-insurance/retention reserves 7,446 10,925
Postretirement benefit obligation 2,295 1,909
Pension obligation 1,529 1,539
Contract cost and other accruals 23,013 22,823
- -------------------------------------------------------------------------------
Accrued liabilities $ 50,045 $ 46,518
===============================================================================
COMPONENTS OF OTHER NON-CURRENT LIABILITIES
- -------------------------------------------------------------------------------
Self-insurance/retention reserves $ 19,541 $ 19,733
Postretirement benefit obligation 24,258 25,951
Pension obligation 12,953 14,391
Other 5,447 8,926
- -------------------------------------------------------------------------------
Other non-current liabilities $ 62,199 $ 69,001
===============================================================================
<PAGE> 20
1998 ANNUAL REPORT < 43
7. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters--A subsidiary of the Company was a minority shareholder in
a company which owned or operated 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 subsidiary has been named a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and similar state laws. Without admitting any liability, the
subsidiary 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. Without admitting any liability, the subsidiary has
reached settlements at most sites, which require the other PRPs to perform the
environmental clean-up. In July 1996, a judgment in favor of the subsidiary was
entered in the suit Aluminum Company of America v. Beazer East, Inc. v. Chicago
Bridge & Iron Company, instituted in January 1991, before the U.S. District
Court for the Western District of Pennsylvania. On September 2, 1997, the United
States Court of Appeals for the Third Circuit affirmed the judgment in favor of
the subsidiary. There were no further appeals. The Company believes any
remaining potential liability will not be material, although there can be no
assurance that such remaining potential liability will not have a material
adverse effect on its business, financial condition or results of operations. In
addition, the subsidiary has a suit pending against certain of its insurers in
the Massachusetts Superior Court filed in 1994 to recover amounts spent in
connection with this matter.
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 material 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.
<PAGE> 21
44 > CHICAGO BRIDGE & IRON
Other Contingencies--In 1991, CB&I Constructors, Inc. (formerly CBI Na-Con,
Inc.), 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 CB&I Constructors, Inc.
before the District Court of Harris County, Texas in Fina Oil & Chemical Company
v. CB&I Constructors, Inc., et al. The Company denies that it is liable. While
the Company believes any liability in excess of a $2,000 deductible is covered
by insurance, and 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 material adverse effect on the Company's business,
financial condition or 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 or 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. At December 31, 1998, the Company and certain
subsidiaries had provided $220,747 of performance bonds and letters of credit to
support its contracting activities arising in the ordinary course of business.
This amount fluctuates based on the level of contracting activity.
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 results of operations. At December 31,
1998, the Company had outstanding surety bonds and letters of credit of $23,423
relating to its insurance program.
8. POSTRETIREMENT BENEFITS
Defined Contribution Plans--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 substantially replaces the former Parent
Company-sponsored pension and 401(k) plans discussed below. The New 401(k) Plan
consists of a voluntary pre-tax salary deferral feature under Section 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 Company expensed $7,845 in 1998 and $6,949 in 1997 for the New 401(k) Plan.
<PAGE> 22
1998 ANNUAL REPORT < 45
Effective January 1, 1998, the Company established a new defined contribution
plan ("International Savings and Benefit Plan") for eligible employees. This
plan consists of a voluntary salary deferral feature, a Company matching
contribution, and an additional Company profit-sharing contribution to be
determined annually by the Company. The Company expensed $200 in 1998 for the
International Savings and Benefit Plan.
The Company is the sponsor for several other defined contribution plans that
cover salaried and hourly employees for which the Company does not provide
matching contributions. The cost of these plans to the Company was not
significant in 1998, 1997 and 1996.
Defined Benefit Plans--The Company has participated in three defined benefit
plans sponsored by the Company's Canadian subsidiary and makes contributions to
union sponsored multi-employer pension plans. Prior to 1997, the Company
participated in a defined benefit plan sponsored by the former Parent Company
(the "CBI Industries Pension Plan").
The following tables reflect information for the Canadian plans:
1998 1997 1996
- -------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC PENSION COST
- -------------------------------------------------------------------------------
Service cost $ -- $ -- $ 301
Interest cost 687 1,007 1,287
Expected return on plan assets (1,513) (1,806) (1,840)
Recognized net actuarial gain (1,116) (126) --
Settlement loss due to annuity purchase 147 -- --
Settlement loss due to distribution
of surplus to members 1,016 -- --
Curtailment gain -- -- (1,899)
- -------------------------------------------------------------------------------
Net periodic pension cost/(income) $ (779) $ (925) $ (2,151)
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------
CHANGE IN PENSION BENEFIT OBLIGATION
- -------------------------------------------------------------------
Benefit obligation at beginning of year $ 11,374 $ 16,735
Interest cost 687 1,007
Actuarial loss 147 --
Benefits paid (3,037) (5,856)
Currency translation (738) (512)
- -------------------------------------------------------------------
Benefit obligation at end of year $ 8,433 $ 11,374
- -------------------------------------------------------------------
CHANGE IN PLAN ASSETS
- -------------------------------------------------------------------
Fair value at beginning of year $ 23,532 $ 28,091
Actual return on plan assets 1,326 2,409
Benefits paid (4,053) (5,856)
Employer reversion (3,831) --
Currency translation (991) (1,112)
- -------------------------------------------------------------------
Fair value at end of year 15,983 23,532
- -------------------------------------------------------------------
Funded status 7,550 12,158
Unrecognized net prior service costs 126 145
Unrecognized net actuarial gains (986) (1,867)
- -------------------------------------------------------------------
Prepaid pension asset $ 6,690 $ 10,436
===================================================================
<PAGE> 23
46 > CHICAGO BRIDGE & IRON
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 Company's pension expense and the related
pension obligations were:
1998 1997 1996
- -------------------------------------------------------------------------------
Discount rate 6-8.50% 6-8.50% 7.50%
Increase in compensation levels -- -- 6.00%
Long-term rate of return on plan assets 7.50% 7.50% 7.50%
- -------------------------------------------------------------------------------
In 1997, a portion of the salaried plan was converted from a defined benefit to
a defined contribution arrangement. All active members ceased accruing benefits
under the defined benefit provision and commenced participation in the defined
contribution arrangement. The remaining members (retirees and deferreds)
continue to have benefits under the plan. In 1994, the Company announced its
intentions to terminate the field construction plan. During 1998, members who
elected to transfer their balance were paid out, and annuities were purchased
for members who elected the pension option and for the pensioners. The remaining
surplus assets reverted to the Company. In 1996, the Company announced its
intentions to terminate the hourly plan. A surplus sharing agreement with the
participants was developed in 1998, and has been presented to the plan members.
In 1996, a curtailment gain was recorded related to the salaried and hourly
plans.
The Company made contributions of $2,773 in 1998, $3,991 in 1997, and $3,431 in
1996 to certain union sponsored multi-employer pension plans. Benefits under
these defined benefit plans are based on years of service and compensation
levels.
The CBI Industries Pension Plan was the principal non-contributory tax qualified
defined benefit plan of the Company and covered most U.S. salaried employees of
the Company. The Company's portion of the net pension cost for the CBI
Industries Pension Plan was $4,414 in 1996. Benefit accruals under the CBI
Industries Pension Plan for 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 incurred $1,178 in 1998 and
$1,284 in 1997 of pension expense and has a remaining pension liability to
Praxair of $14,482 and $15,930 as of December 31, 1998 and 1997.
Postretirement Health Care and Life Insurance Benefits--The Company participates
in a health care and life insurance benefit program. This program provides
certain separate health care and life insurance benefits for retired Company
employees. 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 Company at any time.
Effective January 1, 1997, the Company discontinued its participation in the
program sponsored by the former Parent Company, and the future obligation for
the Company's active employees as of December 31, 1996 under this program has
been assumed by the Company. The following tables reflect information for the
assumed and current employees of the Company:
1998 1997 1996
- -------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST
- -------------------------------------------------------------------------------
Service cost $ 298 $ 253 $ 375
Interest cost 519 488 582
Expected return on plan assets -- -- --
Recognized net actuarial gain (7) (47) --
Curtailment gain -- (812) --
- -------------------------------------------------------------------------------
Net periodic postretirement
benefit cost/(income) $ 810 $ (118) $ 957
===============================================================================
<PAGE> 24
1998 ANNUAL REPORT < 47
The significant assumptions used in determining the other postretirement benefit
expense were a discount rate of 7.0% in 1998, 7.5% in 1997 and 7.0% in 1996; and
a salary scale of 4.25% in 1998, 1997 and 1996. The curtailment gain of $812
recognized in 1997 was related to the closure of the Company's manufacturing
facility in Kankakee, Illinois.
1998 1997
- ------------------------------------------------------------------------------
CHANGE IN POSTRETIREMENT BENEFIT OBLIGATION
- ------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 7,275 $ 7,781
Service cost 298 253
Interest cost 519 488
Assumption change 173 (139)
Curtailment gain -- (812)
Retiree contributions 77 71
Benefits paid (396) (367)
- ------------------------------------------------------------------------------
Benefit obligation at end of year 7,946 7,275
- ------------------------------------------------------------------------------
Funded status (7,946) (7,275)
Unrecognized net actuarial gain (662) (842)
- ------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ (8,608) $ (8,117)
==============================================================================
Because the medical plan offers a defined dollar benefit, the accumulated
postretirement benefit obligation, service cost and interest cost are unaffected
by a 1% increase or decrease in the assumed rate of medical inflation.
The Company's obligation with respect to retired employees of the Company as of
December 31, 1996 ("Retirees") under the program was fixed at $21,400 as of
December 31, 1996, as agreed to by the Company and Praxair. The Retirees
obligation is payable ratably to Praxair over a twelve-year period beginning
December 1, 1997 with interest at 7.5%. The Company incurred $1,457 in 1998 and
$1,593 in 1997 of other postretirement expense for Retirees and has a remaining
postretirement benefit liability to Praxair of $17,945 and $19,743 as of
December 31, 1998 and 1997. The Company reimbursed the former Parent Company
$1,318 in 1996 for its proportionate cost of this program.
9. MANAGEMENT PLAN
The Company established the Chicago Bridge & Iron Management Defined
Contribution Plan (the "Management Plan") in early 1997. The Management Plan is
not qualified under Section 401(a) of the Internal Revenue Code ("the Code") and
each participant's account is treated as a separate account under Section 404(a)
(5) of the Code. Upon consummation of the Offering, the Company made a
contribution to the Management Plan in the form of 925,670 shares of Common
Stock having a value of $16,662. Accordingly, the Company recorded expense of
$16,662 (the "Management Plan charge") in 1997.
The designation of the Management Plan's participants, the amount of Company
contributions to the Management Plan and the amount allocated to the individual
participants were determined by the Company's Management Board. The allocation
to the participant's individual accounts occurs concurrently with the Company's
contributions. Management Plan shares contributed concurrent with the Offering
will vest in March 2000, and with respect to one participant in January 1999.
Upon vesting, 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.
<PAGE> 25
48 > CHICAGO BRIDGE & IRON
10. COMMON STOCK
The changes in the number of outstanding common shares were:
1998 1997
- ------------------------------------------------------------------------------
Balance at beginning of year 12,517,552 12,517,552
Purchases of treasury shares (1,158,300) --
Shares issued under stock plans 55,042 --
- ------------------------------------------------------------------------------
Balance at end of year 11,414,294 12,517,552
==============================================================================
Employee Stock Purchase Plan--The Company's Employee Stock Purchase Plan
provides that employees may purchase shares of Common Stock beginning January 1,
1998 at 85% of the Common Stock closing price per share on the New York Stock
Exchange on the first trading day following the end of the calendar quarter. The
plan provides for the purchase of up to 250,000 of authorized and unissued
shares of Common Stock or treasury shares. As of December 31, 1998, 195,647
shares remain available for purchase.
Long-Term Incentive Plan--Under the Company's Long-Term Incentive Plan (the
"Incentive Plan") up to 1,251,755 shares may be granted to its executive
officers, other management employees and Supervisory Directors in the form of
stock options, performance shares or restricted stock units.
Stock Options--In accordance with APB Opinion No. 25, no compensation cost has
been recognized in the Company's Income Statement. Had compensation cost for the
Employee Stock Purchase Plan and stock options granted under the Incentive Plan
been determined consistent with FASB Statement No. 123 (using the Black-Scholes
option pricing model), the Company's net income and net income per common share
would have been reduced to the following pro forma amounts:
1998 1997
- ------------------------------------------------------------------------------
NET INCOME
- ------------------------------------------------------------------------------
As reported $ 17,037 $ 5,403
Pro forma 16,677 4,740
- ------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE -- BASIC
- ------------------------------------------------------------------------------
As reported $ 1.41 $ .43
Pro forma 1.38 .38
- ------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE -- DILUTED
- ------------------------------------------------------------------------------
As reported $ 1.40 $ .43
Pro forma 1.37 .38
- ------------------------------------------------------------------------------
Using the Black-Scholes option pricing model, the fair value of each option
grant is estimated on the date of grant based on the following weighted-average
assumptions:
1998 1997
- ------------------------------------------------------------------------------
Risk-free interest rate 5.53% 6.87%
Expected dividends yield 1.64% 1.33%
Expected volatility 37.73% 31.65%
Expected life 10.0 years 10.0 years
- ------------------------------------------------------------------------------
<PAGE> 26
1998 ANNUAL REPORT < 49
The following table summarizes the changes in stock options for the years ended
December 31, 1998 and 1997:
WEIGHTED AVERAGE
STOCK EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE PER SHARE
- ------------------------------------------------------------------------------
Outstanding at
January 1, 1997 -- -- --
Granted 520,248 $18.00 -- $22.88 $18.06
Forfeited (15,945) $18.00 $18.00
- ------------------------------------------------------------------------------
Outstanding at
December 31, 1997 504,303 $18.00 -- $22.88 $18.06
Granted 241,900 $11.00 -- $16.88 $13.84
Forfeited (58,128) $18.00 $18.00
- ------------------------------------------------------------------------------
Outstanding at
December 31, 1998 688,075 $11.00 -- $18.00 $16.54
==============================================================================
The option exercise price equals the Common Stock's market price on date of
grant. The weighted average fair value of options granted during 1998 and 1997
was $6.56 and $8.77, respectively. At December 31, 1998, there were 688,075
options outstanding with a weighted-average remaining contractual life of 8.68
years. None of these options were exercisable.
The outstanding options on 446,175 shares granted in 1997 and 76,000 shares
granted in 1998 are exercisable subject to achievement of a cumulative net
income per common share for the three-year period from 1997 through 1999 of at
least $6.25 per common share (excluding the $16,662 Management Plan charge), or
if not achieved, on any succeeding April 2 if such goal, compounded an
additional 15% per year, is achieved as of the end of the fiscal year then ended
preceding such April 2 date, and if never so achieved, then automatically after
five years from their date of grant for 498,136 shares and after nine years for
24,039 shares. Options on 6,900 shares granted in 1997 to non-executive
employees, having an exercise price of $21.38 or $22.88, were repriced to $18.00
in July 1998.
Options on 158,900 shares granted in 1998 vest over a four-year period at a rate
of one-fourth each year beginning July 1999. The options on 7,000 shares granted
in 1998 vest in September 1999.
Performance Shares--During 1998, 52,300 performance shares were granted under
the Incentive Plan. The shares are targeted to vest one-third each year over a
three-year period beginning February 1999, subject to achievement of specific
Company performance goals.
Restricted Stock Units--During 1998, 98,920 restricted stock units were granted
under the Incentive Plan. The units vest one-fourth each year over a four-year
period beginning September 1999.
Total compensation expense recognized in 1998 under the Incentive Plan was $520.
At December 31, 1998, 412,460 shares remain available for grant under the
Incentive Plan.
<PAGE> 27
50 > CHICAGO BRIDGE & IRON
11. TRANSACTIONS WITH FORMER PARENT COMPANY
Prior to the Offering, the Company recognized certain related-party transactions
with Industries or Praxair (the "former Parent Company"). Related-party
transactions recorded in 1998 and 1997, not disclosed elsewhere, were not
material. Related-party transactions recorded in 1996, not disclosed elsewhere
in the financial statements, were as follows:
Revenues from Affiliates--The Company provided services to affiliates of the
former Parent Company for the construction and expansion of facilities and for
certain repair and maintenance work. The Company recorded revenues from
affiliates of $13,384 in 1996. Gross profit, net of overhead costs, was $2,287
in 1996. The Company believes these revenues and gross profits approximate those
of similar services provided to independent third parties.
Debt to Former 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 increased when the Company required cash and decreased
when a cash surplus was available to reduce the long-term debt balance. The
Company paid interest at 7% per annum on a quarterly basis. This interest
expense was $3,850 in 1996. 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 Offering, the Company entered into a long-term credit
agreement with a group of financial institutions in order to repay the Debt to
former Parent Company and to provide liquidity to support letters of credit and
working capital requirements. (Note 4)
Payable to Former Parent Company--Payable to former Parent Company as of
December 31, 1996 included a $5,000 dividend to Praxair paid in the first
quarter of 1997 and interest accrued on the Debt to former Parent Company, net
of an income tax receivable from the former Parent Company.
Corporate Services--The former 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 former Parent Company 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 $4,732 in 1996. Subsequent to June 30, 1996,
the Company performed substantially all of these support services internally.
The amounts allocated by the former 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 former 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.
12. INCOME TAXES
Prior to the Reorganization, the consolidated amount of current and deferred tax
expense was allocated among the members of the former Parent Company group using
the pro-rata method, which assumed the Company's taxes would be filed as part of
the former Parent Company's consolidated return. In conjunction with the
Offering, the Company became a stand-alone entity and, therefore, subsequent to
March 26, 1997, the consolidated amount of current and deferred tax expense is
being calculated using a separate return approach. The separate return approach
did not result in significant adjustments to the tax accounts.
<PAGE> 28
1998 ANNUAL REPORT < 51
1998 1997 1996
- ------------------------------------------------------------------------------
SOURCES OF INCOME/(LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST
- ------------------------------------------------------------------------------
U.S. $ (143) $(23,778) (A) $ 2,919
Non-U.S. 24,632 28,097 24,332
- ------------------------------------------------------------------------------
Total $ 24,489 $ 4,319 $ 27,251
==============================================================================
(A) The U.S. loss before income taxes and minority interest in 1997 includes
the Management Plan charge.
INCOME TAX (EXPENSE)/BENEFIT
- ------------------------------------------------------------------------------
Current income taxes --
U.S. $ -- $ -- $ 1,295
Non-U.S. (4,721) (4,596) (4,833)
- ------------------------------------------------------------------------------
(4,721) (4,596) (3,538)
- ------------------------------------------------------------------------------
Deferred income taxes --
U.S. 418 4,575 (3,087)
Non-U.S. (3,044) 751 (1,164)
- ------------------------------------------------------------------------------
(2,626) 5,326 (4,251)
- ------------------------------------------------------------------------------
Total income tax (expense)/benefit $ (7,347) $ 730 $ (7,789)
==============================================================================
RECONCILIATION OF INCOME TAXES AT THE STATUTORY RATE
AND INCOME TAX (EXPENSE)/BENEFIT
- ------------------------------------------------------------------------------
Tax (expense) at statutory rate $ (8,571) $ (1,512) $ (9,538)
State income taxes -- (394) (50)
Non-statutory tax rate differential 1,973 3,180 2,519
Other, net (749) (544) (720)
- ------------------------------------------------------------------------------
Income tax (expense)/benefit $ (7,347) $ 730 $ (7,789)
==============================================================================
Effective tax rate 30.0% (16.9%) 28.6%
- ------------------------------------------------------------------------------
The Company's statutory rate was The Netherlands' rate of 35% in 1998 and 1997,
and the U.S. rate of 35% in 1996.
The principal temporary differences included in deferred income taxes reported
on the December 31, 1998 and 1997 balance sheets were:
1998 1997
- --------------------------------------------------------------
CURRENT DEFERRED TAXES
- --------------------------------------------------------------
Insurance $ 2,425 $ 4,054
Employee benefits 1,026 1,573
Contracts 2,405 5,070
Tax benefit of U.S. operating losses 5,307 3,029
Other 247 (617)
- --------------------------------------------------------------
11,410 13,109
Valuation allowance (11,410) (13,109)
- --------------------------------------------------------------
NON-CURRENT DEFERRED TAXES
- --------------------------------------------------------------
Employee benefits 14,006 13,264
Insurance 7,533 10,109
Non-U.S. activity 5,299 3,408
Other 3,178 3,854
- --------------------------------------------------------------
30,016 30,635
Valuation allowance (15,745) (14,046)
Depreciation (11,064) (12,245)
- --------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 3,207 $ 4,344
==============================================================
<PAGE> 29
52 > CHICAGO BRIDGE & IRON
The Company had a valuation allowance of $27,155 as of December 31, 1998 and
1997 for its U.S. deferred tax assets, as realization is dependent on sustained
U.S. taxable income. As of December 31, 1998, the Company has a United States
net operating loss carryforward of approximately $13,400, which expires in 2012
to 2018. The Company did not record any Netherlands deferred income taxes on
indefinitely reinvested undistributed earnings of its subsidiaries and
affiliates at December 31, 1998. If any such undistributed earnings were
distributed, the Netherlands participation exemption should become available
under current law to significantly reduce or eliminate any resulting Netherlands
income tax liability.
13. SEGMENT INFORMATION
The Company manages its operations by four geographic segments: North America;
Europe, Africa, Middle East; Asia Pacific; and Central and South America. Each
geographic area offers similar services. The Chief Executive Officer evaluates
the performance of these four segments based on revenues and income from
operations. Each segment's performance reflects the allocation of corporate
costs, which were based primarily on revenues. No customer accounted for more
than 10% of revenues. Intersegment revenues are not material.
The following table represents revenues by geographic segment:
1998 1997 1996
- ------------------------------------------------------------------------------
REVENUES
- ------------------------------------------------------------------------------
North America $314,975 $ 295,159 $328,836
Europe, Africa, Middle East 225,548 134,187 109,522
Asia Pacific 135,861 148,501 134,486
Central and South America 99,308 94,964 90,877
- ------------------------------------------------------------------------------
Total revenues $775,692 $ 672,811 $663,721
==============================================================================
The following list indicates revenues for individual countries in excess of 10%
of consolidated revenue during any of the past three years, based on where the
Company performed the work:
1998 1997 1996
- ------------------------------------------------------------------------------
United States $288,162 $ 272,778 $314,917
South Africa 79,251 37,609 17,594
Australia 77,828 24,443 28,712
- ------------------------------------------------------------------------------
<PAGE> 30
1998 ANNUAL REPORT < 53
The following tables present income from operations, assets and capital
expenditures by geographic segment:
1998 1997 1996
- ------------------------------------------------------------------------------
INCOME FROM OPERATIONS
- ------------------------------------------------------------------------------
North America $ 11,411 $ 3,134(A)$ 9,469
Europe, Africa, Middle East 18,962 12,803 4,298
Asia Pacific 4,905 4,886 10,966
Central and South America (8,917) 2,634 6,530
Management Plan charge (Note 9) -- (16,662) --
- ------------------------------------------------------------------------------
Total income from operations $ 26,361 $ 6,795 $ 31,263
==============================================================================
(A) 1997 was favorably impacted by non-recurring income of approximately
$3.4 million from the recognition of income related to a favorable
appeals court decision.
1998 1997 1996
- ------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------
North America $137,538 $ 181,224 $165,651
Europe, Africa, Middle East 92,854 99,332 90,389
Asia Pacific 68,133 70,708 63,700
Central and South America 50,184 49,386 31,756
- ------------------------------------------------------------------------------
Total assets $348,709 $ 400,650 $351,496
==============================================================================
The Company's revenues earned and assets attributable to operations in The
Netherlands were not significant in any of the past three years. The Company's
long-lived assets are considered to be net property and equipment. Approximately
65% of these assets were located in the United States for the past three years,
while the other 35% were strategically located throughout the world.
1998 1997 1996
- ------------------------------------------------------------------------------
CAPITAL EXPENDITURES
- ------------------------------------------------------------------------------
North America $ 6,374 $ 25,856 $ 14,010
Europe, Africa, Middle East 3,550 6,095 4,672
Asia Pacific 1,367 1,116 987
Central and South America 958 1,888 756
- ------------------------------------------------------------------------------
Total capital expenditures $ 12,249 $ 34,955 $ 20,425
==============================================================================
Although the Company manages its operations by the four geographic segments,
revenues by product line are shown below:
1998 1997 1996
- ------------------------------------------------------------------------------
REVENUES
- ------------------------------------------------------------------------------
Flat Bottom Tanks $287,382 $ 208,556 $248,093
Specialty and Other Structures 129,949 153,553 116,551
Low Temperature/Cryogenic Tanks and Systems 107,725 109,195 60,512
Turnarounds 84,748 42,449 45,057
Pressure Vessels 64,078 53,279 82,147
Repairs and Modifications 63,523 57,857 69,576
Elevated Tanks 38,287 47,922 41,785
- ------------------------------------------------------------------------------
Total revenues $775,692 $ 672,811 $663,721
==============================================================================
<PAGE> 31
54 > CHICAGO BRIDGE & IRON
14. QUARTERLY OPERATING RESULTS AND COMMON STOCK DIVIDENDS AND
PRICES (UNAUDITED)
Quarterly Operating Results--The following table sets forth selected unaudited
consolidated income statement information for the Company on a quarterly basis
for the two years ended December 31, 1998:
Three Months Ended 1998 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------
Revenues $ 189,881 $ 181,808 $ 204,965 $ 199,038
Gross profit 16,888 17,538 18,130 19,773
Income from operations 5,424 5,911 6,520 8,506
Net income 3,350 3,927 4,638 5,122
Net income per Common
Share--Basic $ .27 $ .32 $ .38 $ .44
Net income per Common
Share--Diluted .27 .32 .38 .43
- ------------------------------------------------------------------------------
Three Months Ended 1997 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------
Revenues $ 150,396 $ 160,349 $ 166,755 $ 195,311
Gross profit 16,346 18,521 8,551 20,220
Management Plan charge (16,662) -- -- --
Income (loss) from
operations (11,342) 7,510 1,508 9,119
Net income (loss) (6,975) 4,774 1,112 6,492
Net income (loss)
per Common Share--
Basic and Diluted $ (.56) $ .38 $ .09 $ .52
- ------------------------------------------------------------------------------
Common Stock Dividends and Prices--In December 1996, the Company filed a
registration statement with the Securities and Exchange Commission for an
initial public offering of a majority of the shares of the Company's Common
Stock. Effective March 1997, the Company completed the Offering of 11,045,941
shares of Common Stock at $18 per share. The Common Stock is traded on the New
York and Amsterdam stock exchanges. As of March 19, 1999, the Company had
approximately 2,600 shareholders. The following table presents the quarterly
common shares outstanding, dividends on Common Stock and range of Common Stock
prices for the years ended December 31, 1998 and 1997:
Three Months Ended 1998 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------
Common shares
outstanding at
quarter end 12,267,852 12,284,748 11,659,609 11,414,294
Common dividends
per share $ .06 $ .06 $ .06 $ .06
- ------------------------------------------------------------------------------
RANGE OF COMMON STOCK PRICES
- ------------------------------------------------------------------------------
New York Stock Exchange
High $ 17 5/16 $ 17 3/4 $ 15 7/8 $ 13 1/2
Low 12 7/8 15 10 1/8 8
Close 16 3/4 15 1/2 10 7/8 12 3/16
- ------------------------------------------------------------------------------
Amsterdam Stock Exchange (In NLG)
High 36.00 29.50 18.50 24.00
Low 34.50 29.50 18.50 24.00
Close 36.00 29.50 18.50 24.00
- ------------------------------------------------------------------------------
Three Months Ended 1997 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------
Common shares
outstanding at
quarter end 12,517,552 12,517,552 12,517,552 12,517,552
Common dividends
per share -- $ .06 $ .06 $ .06
- ------------------------------------------------------------------------------
RANGE OF COMMON STOCK PRICES
- ------------------------------------------------------------------------------
New York Stock Exchange
High $ 18 1/8 $ 23 1/8 $ 23 5/8 $ 23
Low 17 5/8 16 1/8 19 7/8 14 1/2
Close 17 3/4 22 1/8 20 3/4 16 1/4
- ------------------------------------------------------------------------------
Amsterdam Stock Exchange (In NLG)
High 34.00 42.20 48.90 43.20
Low 34.00 31.00 41.00 31.00
Close 34.00 42.20 41.00 31.50
- ------------------------------------------------------------------------------
<PAGE> 1
Exhibit 21
LIST OF SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction in which
Subsidiary or Affiliate Incorporated or Organized
----------------------- -------------------------
<S> <C>
Chicago Bridge & Iron Company B.V. The Netherlands
Arabian CBI Ltd. Saudi Arabia
Arabian CBI Tank Manufacturing Co. Ltd. Saudi Arabia
CBI Construcciones S.A. Argentina
CBI Constructors Pty. Ltd. Australia
CBI Constructors Pty. Ltd. (PNG) New Guinea
CBI Constructors S.A. (Pty.) Ltd. South Africa
CBI Holdings U.K. Ltd. United Kingdom
CBI Constructors Limited United Kingdom
CBI (Malaysia) Sdn. Bhd. Malaysia
CBI (Philippines) Inc. Philippines
CBI Sino Thai, Ltd. Thailand
CBI Venezolana, S.A. Venezuela
CMP Holdings, B.V. The Netherlands
CB&I (Europe) B.V. The Netherlands
Horton CBI, Limited Canada
Horton Services, Inc. Canada
P.T. CBI Indonesia (1) Indonesia
Chicago Bridge & Iron Company (Antilles) N.V. Netherland Antilles
CBI Eastern Anstalt Liechtenstein
Oasis Supply Company Anstalt Liechtenstein
CBI Overseas LLC Delaware
Chicago Bridge & Iron Company Delaware
CB&I Constructors, Inc. Texas
CBI Services, Inc. Delaware
Chicago Bridge & Iron Company Illinois
CBI Company Ltd. Delaware
Constructora CBI Ltd. Chile
CBI Caribe Limited Delaware
Chicago Bridge & Iron Company (Delaware) Delaware
Lealand Finance Company B.V. The Netherlands
</TABLE>
(1) Unconsolidated affiliate
In addition, Chicago Bridge & Iron Company N.V. has multiple other consolidated
subsidiaries providing similar contracting services outside the United States,
the number of which changes from time to time depending upon business
opportunities and work locations.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FORM S-8
As independent public accountants with respect to Chicago Bridge & Iron Company
N.V. and Subsidiaries, we hereby consent to the incorporation of our reports
addressed to the Shareholders and the Supervisory Board of Chicago Bridge & Iron
Company N.V. in respect of the December 31, 1998 and 1997 consolidated balance
sheets, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years ended December
31, 1998, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (Nos. 333-24443, 333-24445,
333-33199 and 333-39975).
It should be noted that we have not made an examination of any financial
statements of Chicago Bridge & Iron Company N.V. and Subsidiaries as of any date
or for any period subsequent to December 31, 1998, the date of the latest
financial statements covered by our report.
/s/ Arthur Andersen
- --------------------------
Amsterdam, The Netherlands
March 30, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE SUPPLEMENTAL
SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders and the Supervisory Board of Chicago Bridge & Iron Company
N.V.:
We have audited in accordance with generally accepted auditing standards in the
United States the consolidated financial statements of CHICAGO BRIDGE & IRON
COMPANY N.V. (a Netherlands corporation) and SUBSIDIARIES, the business of which
was formerly operated by CHICAGO BRIDGE & IRON COMPANY (a Delaware corporation)
and SUBSIDIARIES, included in the Company's 1998 Annual Report to Shareholders
incorporated by reference in this Form 10-K, and have issued our report thereon
dated February 10, 1999. Our audit was conducted for the purpose of forming an
opinion on those statements taken as a whole. Supplemental Schedule V. (the
"Schedule") to the consolidated financial statements included on page 19 of this
Form 10-K is the responsibility of the Company's management. The Schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
Schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen
- --------------------------
Amsterdam, The Netherlands
February 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998, AND THE INCOME STATEMENT FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> $5,636
<SECURITIES> 0
<RECEIVABLES> 145,961
<ALLOWANCES> 2,050
<INVENTORY> 1,588
<CURRENT-ASSETS> 208,260
<PP&E> 154,982
<DEPRECIATION> (44,501)
<TOTAL-ASSETS> 348,709
<CURRENT-LIABILITIES> 174,910
<BONDS> 5,000
0
0
<COMMON> 74
<OTHER-SE> 101,582
<TOTAL-LIABILITY-AND-EQUITY> 348,709
<SALES> 0
<TOTAL-REVENUES> 775,692
<CGS> 0
<TOTAL-COSTS> 703,363
<OTHER-EXPENSES> (991)
<LOSS-PROVISION> 141
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,489
<INCOME-TAX> 7,347
<INCOME-CONTINUING> 17,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,037
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.40
</TABLE>
