1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(AMENDMENT NO.1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 7, 2001
CHICAGO BRIDGE & IRON COMPANY N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
(State or other jurisdiction of incorporation)
1-12815 N.A.
(Commission File Number) (IRS Employer Identification No.)
Polarisavenue 31
2132 JH Hoofdorp
The Netherlands N.A.
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 31-23-568-5660
N.A.
(Former name or former address, if changed since last report)
2
FORM 8-K/A
CHICAGO BRIDGE & IRON COMPANY N.V.
EXPLANATORY NOTE
Chicago Bridge & Iron Company N.V. (the "Company" or "CB&I") and Pitt-Des
Moines, Inc. ("PDM") have signed two amendments to the Asset Purchase Agreement
with retroactive effect to February 7, 2001. These amendments redefined the
terms and the assets purchased in the agreement, resulting in revised PDM
historical and the unaudited pro forma combined financial statements of CB&I and
PDM. These revised financial statements and the related notes are included in
this filing. A copy of the amendments to the purchase agreement are attached as
exhibits. Additionally, a copy of the Howe-Baker International, Inc. ("HBI")
historical and pro forma financial statements resulting from the Company's
December 28, 2001 acquisition of HBI are attached as exhibits.
3
Item 2. Acquisition or Disposition of Assets
On February 7, 2001, the Company acquired substantially all of
the assets (the "Assets") of the Engineered Construction Division and the Water
Division (the "Divisions") of PDM for a consideration of 2,848,172 common shares
of the Company (the "CB&I Shares"; including 282,575 collar shares for price
protection if required) and $40 million in cash (the "Transaction"). PDM is
obligated to remit to the Company net proceeds from the disposition of the CB&I
Shares in excess of $44 million. The source of funds for the cash portion of the
purchase price was a private placement of 837,692 common shares of the Company
to Farinvest, Ltd., an affiliate of WEDGE Group Incorporated ("WEDGE") and
1,623,846 common shares of the Company's stock plus warrants to purchase, at
nominal value, 251,598 common shares of the Company to First Reserve Fund VIII,
L.P. ("First Reserve"), plus 250,000 warrants.
The Engineered Construction Division engineers, fabricates and
constructs storage tanks and systems, process systems, and unique plate
structures for the petroleum, petrochemical, cryogenic, liquid natural gas,
defense and aerospace industries. The Water Division designs, fabricates and
constructs water storage tank projects including conventional styles such as
ground storage reservoirs and standpipes, steel elevated tanks and composite
elevated tanks as well as unique projects involving one-of-a-kind tanks designed
for specific applications. The Divisions will be integrated with current CB&I
business units and the Assets will continue to be used in the same lines of
business.
The original 8-K discussing this acquisition was filed with
the Securities and Exchange Commission on February 22, 2001, and included copies
of (i) the Company's press release dated February 7, 2001, (ii) the Asset
Purchase Agreement dated February 7, 2001 between the Company and PDM setting
forth the terms and conditions of the Transaction, (iii) the Shareholder
Agreement dated February 7, 2001 among the Company, PDM and certain
shareholders, (iv) the Standby Funding Agreement dated February 7, 2001 among
the Company, PDM and Farinvest, Ltd., (v) the Post-Closing Risk Allocation
Agreement dated February 7, 2001 between the Company and PDM, (vi) Amendments
dated February 7, 2001 to shareholder agreements dated December 28, 2000 between
the Company and First Reserve and between the Company and WEDGE, respectively,
(vii) the Stock Purchase Agreement dated February 7, 2001 between the Company
and First Reserve Fund, and (viii) the Stock Purchase agreement dated February
7, 2001 between the Company and Farinvest, Ltd.
4
Item 7. Financial Statements and Exhibits
3 (a) Financial Statements of the Divisions
(b) Pro forma financial information
(c) Exhibits
(1) Amendment No. 1 to Asset Purchase Agreement dated March 7,
2001
(2) Amendment No. 2 to Asset Purchase Agreement dated May 31,
2001
(3) Financial Statements of HBI
(4) Pro Forma financial information related to the Company's
December 28, 2001 acquisition of HBI
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Chicago Bridge & Iron Company N.V.
/s/ Richard E. Goodrich
---------------------------------------
By: Chicago Bridge & Iron Company B.V.
Its: Managing Director
Richard E. Goodrich
Managing Director
(Principal Financial Officer)
Date: September 28, 2001
6
LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
7
LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors...........................................2
Audited Combined Financial Statements
Combined Statements of Income............................................3
Combined Statements of Financial Condition...............................4
Combined Statements of Cash Flows........................................6
Combined Statements of Equity............................................7
Notes to Combined Financial Statements...................................8
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Report of Independent Auditors
The Board of Directors and Stockholder
We have audited the accompanying combined statements of financial condition of
Liquid & Cryogenic and Water Storage (See Basis of Presentation) as of December
31, 1999 and 1998, and the related combined statements of income, equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the 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 combined financial condition of Liquid & Cryogenic
and Water Storage as of December 31, 1999 and 1998, and the related combined
results of operations and cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Pittsburgh, Pennsylvania
February 28, 2000
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LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED STATEMENTS OF INCOME
(Unaudited)
Nine months ended September 30, Years ended December 31,
-------------------------------- -----------------------------------------------
2000 1999 1999 1998 1997
------------- ------------- ------------- ------------- -------------
Earned revenue $ 154,118,039 $ 142,969,022 $ 194,279,847 $ 192,069,326 $ 182,898,538
Cost of earned revenue (133,087,507) (123,370,752) (169,748,497) (168,690,316) (158,095,871)
------------- ------------- ------------- ------------- -------------
Gross profit from operations 21,030,532 19,598,270 24,531,350 23,379,010 24,802,667
Selling, general and
administrative expenses (12,854,630) (13,970,321) (19,002,639) (18,513,150) (16,497,288)
Corporate allocation (1,369,000) (1,545,000) (1,820,000) (2,176,000) (1,800,695)
------------- ------------- ------------- ------------- -------------
Income from operations 6,806,902 4,082,949 3,708,711 2,689,860 6,504,684
Other income/(expense):
Interest income 223,243 61,118 90,417 -- --
Interest expense -- (70,978) (89,887) (24,794) --
Gain on sale of assets -- 2,242 9,987 15,654 29,667
Miscellaneous, net 74,030 (23,950) (23,253) 1,679 (61,793)
------------- ------------- ------------- ------------- -------------
297,273 (31,568) (12,736) (7,461) (32,126)
------------- ------------- ------------- ------------- -------------
Income before income taxes 7,104,175 4,051,381 3,695,975 2,682,399 6,472,558
Income tax expense (2,841,670) (1,524,940) (1,826,174) (1,137,611) (2,616,918)
------------- ------------- ------------- ------------- -------------
Net income $ 4,262,505 $ 2,526,441 $ 1,869,801 $ 1,544,788 $ 3,855,640
============= ============= ============= ============= =============
See Notes to Combined Financial Statements.
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LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
------------- -----------------------------
2000 1999 1998
------------ ------------ ------------
Assets
Current Assets
Cash and cash equivalents $ 5,134,644 $ 3,790,807 $ 4,514,447
Accounts and notes receivable 38,886,622 30,320,013 33,045,329
Inventories 1,229,173 1,357,796 1,787,247
Costs and estimated profits in excess
of billings 26,895,950 26,100,049 27,141,571
Deferred income taxes 1,186,466 1,837,486 1,579,968
------------ ------------ ------------
Total Current Assets 73,332,855 63,406,151 68,068,562
Other Assets 1,034,894 927,618 723,321
Property, Plant and Equipment
Land 502,819 502,819 502,819
Buildings 7,212,032 7,154,230 6,272,317
Machinery and equipment 33,546,802 32,575,405 32,755,346
------------ ------------ ------------
41,261,653 40,232,454 39,530,482
Allowances for depreciation (31,870,364) (30,355,484) (30,145,118)
------------ ------------ ------------
Net Property, Plant and Equipment 9,391,289 9,876,970 9,385,364
------------ ------------ ------------
Total Assets $ 83,759,038 $ 74,210,739 $ 78,177,247
============ ============ ============
See Notes to Combined Financial Statements.
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LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
------------- -------------------------
2000 1999 1998
----------- ----------- -----------
Liabilities and Equity
Current Liabilities
Accounts payable $22,368,082 $28,120,804 $17,916,578
Accrued compensation, related taxes and benefits 3,933,710 5,654,478 4,450,678
Other accrued expenses 828,735 522,592 1,093,311
Billings in excess of costs and estimated profits 6,115,232 6,013,585 3,510,279
Casualty and liability insurance -- 432,777 164,675
----------- ----------- -----------
Total Current Liabilities 33,245,759 40,744,236 27,135,521
Deferred Income Taxes 127,466 127,466 80,599
Equity 50,385,813 33,339,037 50,961,127
----------- ----------- -----------
Total Liabilities and Equity $83,759,038 $74,210,739 $78,177,247
=========== =========== ===========
See Notes to Combined Financial Statements.
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LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, Years ended December 31,
------------------------------- --------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Cash Flows from Operating Activities
Net income $ 4,262,505 $ 2,526,441 $ 1,869,801 $ 1,544,788 $ 3,855,640
Adjustments to reconcile net income
to net cash (utilized) provided
by operating activities:
Depreciation and amortization 1,827,050 1,274,602 2,609,090 1,889,352 2,431,779
Gain on sale of assets -- (2,242) (9,987) (15,654) (29,667)
Deferred income taxes (credits) 651,020 -- (269,070) (242,283) (235,351)
Minority interest, net of dividends paid -- -- -- -- 29,190
Other non-cash (credits) debits (199,961) (86,579) 13,721 59,148 110,534
Change in operating assets and liabilities
(using) providing cash:
Accounts receivable (8,566,609) 434,127 2,725,316 (7,678,581) 5,167,011
Inventories 128,623 272,966 429,451 (489,430) 798,406
Costs, estimated profits and billings, net (694,254) 13,482,512 3,544,828 1,004,652 (12,894,392)
Accounts payable (5,752,722) (2,546,099) 10,204,226 (4,708,708) 1,443,053
Accrued liabilities (1,847,402) 1,904,930 901,183 1,184,748 (358,837)
------------ ------------ ------------ ------------ ------------
Net cash (utilized) provided
by operating activities (10,191,750) 17,260,658 22,018,559 (7,451,968) 317,366
Cash Flows from Investing Activities
Capital expenditures (1,344,336) (1,524,523) (3,078,678) (3,112,049) (1,928,709)
Proceeds from sale of assets 10,581 320,771 13,976 48,633 36,290
Acquisitions, net of cash acquired -- -- -- -- (355,814)
Change in non-current assets 74,122 (282,427) (184,350) (79,015) --
------------ ------------ ------------ ------------ ------------
Net cash utilized by investing activities (1,259,633) (1,486,179) (3,249,052) (3,142,431) (2,248,233)
Cash Flows from Financing Activities
Increase (decrease) in borrowings
from PDM, Inc. 12,795,220 (4,996,252) (19,493,147) 12,622,244 702,782
------------ ------------ ------------ ------------ ------------
Net cash provided (utilized) by
financing activities 12,795,220 (4,996,252) (19,493,147) 12,622,244 702,782
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents 1,343,837 10,778,227 (723,640) 2,027,845 (1,228,085)
Cash and cash equivalents
at beginning of year 3,790,807 4,514,447 4,514,447 2,486,602 3,714,687
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 5,134,644 $ 15,292,674 $ 3,790,807 $ 4,514,447 $ 2,486,602
============ ============ ============ ============ ============
See Notes to Combined Financial Statements.
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LIQUID & CRYOGENIC AND WATER STORAGE
COMBINED STATEMENTS OF EQUITY
Net Equity
---------------------------------------------------------------------
Balance on January 1, 1997 $ 32,332,482
Net Income 3,855,640
Transfer from Pitt-Des Moines, Inc. 407,435
---------------------------------------------------------------------
Balance on December 31, 1997 36,595,557
Net Income 1,544,788
Transfer from Pitt-Des Moines, Inc. 12,820,782
---------------------------------------------------------------------
Balance on December 31, 1998 50,961,127
Net Income 1,869,801
Transfer to Pitt-Des Moines, Inc. (19,491,891)
---------------------------------------------------------------------
Balance on December 31, 1999 33,339,037
Net Income 4,262,505
Transfer from Pitt-Des Moines, Inc. 12,784,271
---------------------------------------------------------------------
Balance on September 30, 2000 (Unaudited) $ 50,385,813
---------------------------------------------------------------------
See Notes to Combined Financial Statements.
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NOTES TO COMBINED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Liquid & Cryogenic and Water Storage business consists of two divisions of
Pitt-Des Moines, Inc. and one wholly owned subsidiary (the "Company") that
provide engineering and design, procurement, fabrication, erection, and
rehabilitation of steel products such as liquid and cryogenic storage and
processing systems and water storage systems.
These combined financial statements include certain assets, liabilities and
operating results of Pitt-Des Moines, Inc.'s former Liquid & Cryogenic and Water
Storage groups. The financial activities of these combined financial statements
and additional non-domestic liquid & cryogenic assets were sold to Chicago
Bridge & Iron Company N.V. on February 7, 2001.
The accompanying combined financial statements include the certain accounts of
the following businesses and entities, all of which are under common control.
Businesses Form of Entity
PDM Engineered Construction Division of Pitt-Des Moines, Inc.
PDM Water Division of Pitt-Des Moines, Inc.
Hycon, Inc. Corporation-Subsidiary of Pitt-Des Moines, Inc.
The preparation of the Company's combined financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the financial
condition dates and the reported amounts of revenue and expenses during the
reporting periods.
Unaudited combined financial statements as of and for the nine months ended
September 30, 2000 and 1999 have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
CLASSIFICATIONS OF CURRENT ASSETS AND LIABILITIES
The Company includes in current assets and current liabilities amounts
realizable and payable under contracts which extend beyond one year. Other
assets and liabilities are classified as current or non-current on the basis of
expected realization or payment within or beyond one year, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and short-term investments with
maturities of three months or less at the time of acquisition.
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15
NOTES TO COMBINED FINANCIAL STATEMENTS
INVENTORIES
Inventories of raw materials and fabricated parts are valued at the lower of
first-in, first-out (FIFO) cost or market.
Contract material inventories included in accumulated contract costs are valued
using the specific identification method.
DEPRECIATION AND AMORTIZATION
Land, buildings, machinery and equipment are carried at cost. Buildings,
machinery and equipment, including capitalized leases, are generally depreciated
by accelerated methods.
REVENUE RECOGNITION
The Company's revenues are composed of products and services provided under
engineering and construction contracts. The Company recognizes construction
contract revenues using the percentage-of-completion method.
Percentage-of-completion is based upon input measures such as cost-to-cost and
labor hours. Contract revenue is generally based on the relationship of actual
costs incurred to date to total estimated costs, but for Water Storage contracts
is based on the proportion of man-hours incurred to date to total estimated
man-hours.
As long-term contracts extend over one or more years, revisions to estimates of
costs and profits are reflected in the accounting period in which the facts
which require the revisions become known. At the time a loss on a contract
becomes known, the entire amount of the estimated loss is recognized in the
financial statements.
The Company has a history of making reasonably dependable estimates of the
extent of progress towards completion, contract revenues, and contract costs on
its long-term contracts. However, due to uncertainties inherent in the
estimation process, actual results could differ materially from those estimates.
Revenue from contract change orders and claims is recognized when the settlement
is probable and the amount can be reasonably estimated. Contract costs include
all direct material, labor, subcontract costs and those indirect costs related
to contract performance. Costs and estimated profits in excess of billings are
classified as a current asset. Amounts billed in excess of costs and estimated
profits are classified as a current liability.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement, as amended, addresses the accounting
for derivatives and hedging activities and is effective for years starting after
June 15, 2000.
The Company does not currently utilize derivatives or engage in hedging
activities; therefore, management does not anticipate that the adoption of this
statement will have a material impact on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 on revenue recognition. The bulletin, which establishes
criteria that must be met to recognize revenue, was adopted by the Company
during 2000 and did not have a material impact on the Company's financial
position or results of operations.
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NOTES TO COMBINED FINANCIAL STATEMENTS
CORPORATE ALLOCATION AND RELOCATION COSTS
The corporate allocation in the accompanying Combined Statements of Income is an
estimate of the Company's share of Pitt-Des Moines, Inc.'s general corporate
expenses. Historically, Pitt-Des Moines, Inc. has not allocated corporate
expenses to its divisions. An estimate was prepared solely for the purpose of
preparing these combined statements. The allocation represents the Company's
proportionate share of half of Pitt-Des Moines, Inc.'s total corporate expenses,
as calculated by dividing the Company's earned revenue by Pitt-Des Moines,
Inc.'s consolidated earned revenue.
Also included in the accompanying Combined Statements of Income are costs
associated with the relocation of certain PDM Engineered Construction employees
to Houston, Texas. The costs totaled $589,591 (unaudited), $1,413,435 and
$1,272,092 (unaudited) for the nine months ended September 30, 2000, the year
ended December 31, 1999 and nine months ended September 30, 1999, respectively.
ACQUISITIONS
During 1997, the Company completed the acquisition of the remaining 10 percent
interest in Hycon, Inc., a tank related construction company located in
Harpersville, Alabama. The acquisition has been accounted for as a purchase and,
accordingly, operating results have been included in the Company's combined
financial statements since the date of acquisition. Pro forma information has
not been presented because it is not material.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at December 31, 1999 and 1998, include
approximately $14.7 million and $10.0 million, respectively, due from customers
in accordance with applicable retainage provisions of engineering and
construction contracts. These amounts become due upon completion of such
contracts. The 1999 amount is expected to be collected during 2000. The
allowance for doubtful accounts was approximately $0.2 million (unaudited), $0.4
million and $0.5 million on September 30, 2000 and December 31, 1999 and 1998,
respectively.
COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS
Costs and estimated profits on uncompleted contracts are summarized as follows:
September 30, December 31,
------------- ------------------------------
2000 1999 1998
(Unaudited)
-----------------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 418,694,108 $ 395,871,973 $ 298,966,166
Estimated profits 55,203,028 51,250,227 35,281,758
-----------------------------------------------------------------------------------------
473,897,136 447,122,200 334,247,924
Billings to date (453,116,418) (427,035,736) (310,616,632)
-----------------------------------------------------------------------------------------
$ 20,780,718 $ 20,086,464 $ 23,631,292
=========================================================================================
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NOTES TO COMBINED FINANCIAL STATEMENTS
Costs, estimated profits and billings on uncompleted contracts are included in
the accompanying Combined Statements of Financial Condition under the following
captions:
September 30, December 31,
2000 1999 1998
(Unaudited)
--------------------------------------------------------------------------------
Costs and estimated profits in
excess of billings $ 26,895,950 $ 26,100,049 $ 27,141,571
Billings in excess of costs and
estimated profits (6,115,232) (6,013,585) (3,510,279)
--------------------------------------------------------------------------------
$ 20,780,718 $ 20,086,464 $ 23,631,292
==============================================================================
PENSIONS
Most employees of the Company are covered under one of the noncontributory
defined benefit pension plans sponsored by Pitt-Des Moines, Inc. Plans covering
salaried employees, which are not specifically accounted for at the
division/subsidiary level, but have generally been provided for through the PDM
corporate allocations, provide monthly benefits at retirement age based on the
participant's monthly salary and years of employment. Plans covering hourly
employees, which are accounted for at the division/subsidiary level, generally
provide benefits of stated amounts for each year of service although certain of
such plans provide benefits based on the participant's hourly wage rate and
years of service. The plans permit the sponsor, at any time, to amend or
terminate the plans subject to union approval, if applicable.
The Company's policy is to fund the legal minimum required contributions. Plan
assets on December 31, 1999 consisted primarily of listed stocks, bonds,
investments in pooled funds and group annuity contracts of insurance carriers.
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NOTES TO COMBINED FINANCIAL STATEMENTS
Net periodic pension expense for the Company's defined benefit pension plans
attributable to hourly employees included the following components:
YEARS ENDED DECEMBER 31, 1999 1998 1997
------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 101,744 $ 91,906 $ 87,179
Interest cost on projected benefit obligation 311,894 299,448 283,413
Expected return on plan assets (429,510) (368,662) (300,547)
Amortization of transition amount (1,346) (1,346) (1,346)
Amortization of prior service cost 48,920 45,284 42,324
Recognized net actuarial gain (17,981) (7,482) --
------------------------------------------------------------------------------------
Net periodic pension expense $ 13,721 $ 59,148 $ 111,023
====================================================================================
The following assumptions were used in the determination of net periodic cost:
YEARS ENDED DECEMBER 31, 1999 1998 1997
-------------------------------------------------------------------------
Discount rate 6.8% 7.0% 7.5%
Rate of increase in compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
-------------------------------------------------------------------------
The interest rates used to discount actuarial liabilities to present value at
December 31, 1999 and 1998 were 7.75 percent and 6.75 percent, respectively.
The following table sets forth the change in benefit obligation, plan assets and
funded status of the Company's defined benefit pension plans that are
attributable to hourly employees:
DECEMBER 31, 1999 1998
------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 4,687,298 $ 4,318,539
Service cost 101,744 91,906
Interest cost 311,894 299,447
Plan amendments 59,656 --
Benefits paid (249,712) (277,670)
Actuarial (gain) or loss (614,470) 222,283
Other -- 32,793
------------------------------------------------------------------------------
Benefit obligation at end of year $ 4,296,410 $ 4,687,298
------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 4,826,387 $ 4,136,910
Actual return on plan assets 285,589 833,268
Employer contributions 140,125 133,879
Benefits paid (249,712) (277,670)
------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 5,002,389 $ 4,826,387
------------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ 705,979 $ 139,088
Unrecognized transition amount (1,354) (2,700)
Unrecognized prior service cost 474,522 463,785
Unrecognized net gain (838,248) (385,675)
------------------------------------------------------------------------------
Net amount recognized $ 340,899 $ 214,498
------------------------------------------------------------------------------
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NOTES TO COMBINED FINANCIAL STATEMENTS
Amounts recognized in the Combined Statements of Financial Condition include:
DECEMBER 31, 1999 1998
--------------------------------------------------
Prepaid benefit cost $ 340,899 $ 219,882
Accrued benefit liability -- (5,384)
--------------------------------------------------
Net amount recognized $ 340,899 $ 214,498
--------------------------------------------------
The projected benefit obligation and accumulated benefit obligation for pension
plans with accumulated benefit obligations in excess of plan assets were
$1,923,116 and $2,122,470 as of December 31, 1999 and 1998, respectively. The
fair value of plan assets for these plans was $1,582,082 and $1,365,197 as of
December 31, 1999 and 1998, respectively.
The Company also makes contributions to certain multi-employer defined benefit
pension plans primarily for field union employees. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
are generally based on the number of man-hours worked. Company contributions and
costs recognized for these plans were approximately $2,000 for the years ended
December 31, 1999 and 1997. There was no contribution during 1998.
The Company sponsors defined contribution plans or contributed to union
sponsored defined contribution plans which cover nearly all salaried employees,
certain hourly groups in accordance with their union labor contracts and nearly
all non-union field employees. Based upon the respective plans, the Company
contributions represent either a stated matching percentage of the participant's
basic contribution or a stated rate per hour worked. Company contributions and
costs recognized for these plans were $1.5 million, $1.3 million and $0.9
million for the years ended December 31, 1999, 1998 and 1997, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company participates in the Pitt-Des Moines, Inc. noncontributory Employee
Stock Ownership Plan (ESOP) which provides salaried employees, who have at least
one year of continuous service, an opportunity to own Pitt-Des Moines, Inc.
Common Stock and to accumulate additional retirement benefits. The Company's
contributions are determined annually by the Board of Directors of Pitt-Des
Moines, Inc. in an amount not to exceed the maximum allowable as an income tax
deduction.
Company contributions are 100 percent vested after five years of continuous
service. The ESOP contribution is allocated to the participant's account based
upon the actual salary paid to the participant during that year. The following
table sets forth the status of the Company's participation in the ESOP:
YEARS ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------
Contributions $ 396,194 $ 389,533 $ 354,195
Dividends paid on ESOP shares $ 78,981 $ 75,416 $ 61,750
Number of shares held by ESOP 116,152 125,698 112,301
Plan assets at market value $2,860,253 $3,016,741 $2,063,540
--------------------------------------------------------------------------------
-13-
20
NOTES TO COMBINED FINANCIAL STATEMENTS
PAYABLE TO PITT-DES MOINES, INC.
The payable represents the net of cumulative intercompany activity with Pitt-Des
Moines, Inc. Pitt-Des Moines, Inc. makes various payments on the Company's
behalf including, among other things, salaried payroll, payroll taxes, insurance
and income taxes approximating $50 million annually. Additionally, from time to
time, the Company borrows from Pitt-Des Moines, Inc. to finance working capital
needs or capital expansion. Any excess cash is generally sent to Pitt-Des
Moines, Inc. to repay the obligation.
LETTERS OF CREDIT
From time to time, the Company utilizes stand-by-letters of credit drawn on
Pitt-Des Moines, Inc.'s unsecured revolving credit facility. On December 31,
1999, $6.0 million of stand-by-letters of credit were outstanding.
INCOME TAXES
The Company is included in the consolidated federal income tax return of
Pitt-Des Moines, Inc. which has been settled through calendar year ended
December 31, 1996. The consolidated federal income tax provision is allocated
among the groups' members on a separate return basis with tax credits allocated
to those members which generated the credits. The current provision for income
taxes represents amounts paid or payable. Current federal income tax balances of
all affiliated companies are settled with Pitt-Des Moines, Inc. which makes
consolidated tax payments. State tax provision of subsidiaries are determined
based upon applicable state statutes. Deferred income tax assets and liabilities
are determined on differences between financial reporting and tax bases of
assets and liabilities.
The income tax expense (benefit) included in the Combined Statements of Income
is as follows:
YEARS ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------
Current:
Federal $ 1,821,745 $ 1,185,612 $ 2,393,710
State 273,499 194,282 458,559
--------------------------------------------------------------------------------
Total current expense 2,095,244 1,379,894 2,852,269
Deferred:
Federal (217,326) (195,690) (190,091)
State (51,744) (46,593) (45,260)
--------------------------------------------------------------------------------
Total deferred benefit (269,070) (242,283) (235,351)
--------------------------------------------------------------------------------
Total income tax expense $ 1,826,174 $ 1,137,611 $ 2,616,918
--------------------------------------------------------------------------------
For the unaudited nine month periods ended September 30, 2000 and 1999, the
Company recorded income tax provisions of $2,841,670 and $1,524,940,
respectively, reflecting income tax rates of approximately 40 and 38 percent,
respectively. These rates are based upon the estimated tax rates for the
respective years.
-14-
21
NOTES TO COMBINED FINANCIAL STATEMENTS
A reconciliation of U.S. statutory federal income tax to the income tax expense
on income before income taxes is as follows:
YEARS ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------
U.S. statutory federal income tax expense $1,293,591 $ 938,840 $2,265,395
Increase in taxes resulting from:
State taxes less federal benefit 144,142 95,997 264,304
Other, net 388,441 102,774 87,219
--------------------------------------------------------------------------------
Income tax expense $1,826,174 $1,137,611 $2,616,918
--------------------------------------------------------------------------------
Deferred taxes reflect the tax effects of differences between the amounts
recorded as assets and liabilities for financial reporting purposes and the
amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:
DECEMBER 31, 1999 1998
--------------------------------------------------------------------------------
Deferred tax assets:
Casualty and liability insurance $ 317,359 $ 207,734
Inventory 245,277 381,490
Employee benefits 1,122,050 810,744
Accounts receivable allowance 152,800 180,000
--------------------------------------------------------------------------------
Total current deferred tax assets 1,837,486 1,579,968
--------------------------------------------------------------------------------
Property, plant and equipment (long-term) 328,931 270,512
--------------------------------------------------------------------------------
Total deferred tax assets $ 2,166,417 $ 1,850,480
--------------------------------------------------------------------------------
Deferred tax liabilities:
Pension $ 136,360 $ 85,799
Other (8,894) (5,200)
--------------------------------------------------------------------------------
Total deferred tax liabilities $ 127,466 $ 80,599
--------------------------------------------------------------------------------
Income taxes for the years ended December 31, 1999, 1998 and 1997 were paid by
Pitt-Des Moines, Inc.
-15-
22
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF CB&I AND PDM
The following unaudited pro forma combined balance sheet as of September
30, 2000 gives effect to the acquisition of PDM (Liquid & Cryogenic and Water
Storage) and the related Common Stock issuance as if each had occurred on
September 30, 2000. The unaudited pro forma condensed combined statements of
income for the nine months ended September 30, 2000 and for the year ended
December 31, 1999 give effect to these transactions as if each had occurred on
January 1, 1999.
The unaudited pro forma combined financial statements do not purport to be
indicative of the combined results of operations of CB&I and PDM that might have
occurred had the PDM Transaction been completed on such dates, nor are they
indicative of future results of operations. The pro forma adjustments related to
the purchase price allocation are preliminary, based on information obtained to
date that is subject to revisions as additional information becomes available.
Such information includes third party appraisals of PDM's property, plant and
equipment, actuarial valuations of the PDM employee benefit plans, and
adjustments required to fair value of PDM's contracts in progress, all as of the
transaction closing date. Revisions to the preliminary purchase price allocation
may have a significant impact on total assets, total liabilities and
shareholders' equity, cost of revenues, selling, general and administrative
expense, depreciation and amortization, and interest expense.
The unaudited pro forma combined financial statements should be read in
conjunction with the notes to the unaudited pro forma combined financial
statements, the historical consolidated financial statements of CB&I and related
notes included in its Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q, as amended, and the historical financial statements of PDM and related
notes included in Item 7 (a).
23
CHICAGO BRIDGE & IRON COMPANY N.V.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
($ in 000s)
CB&I/HBI PDM PDM PRO FORMA
Assets As Adjusted Historical Adjustments As Adjusted
---------------------------------------------------- ---------------- ---------------- -------------- ------------------
Current Assets:
Cash and cash equivalents $ 8,236 $ 5,135 $ - $ 13,371
Accounts receivables 123,990 38,887 - 162,877
Contracts in progress with earned revenues 57,200 26,896 - 84,096
exceeding related progress billings
Inventories - 1,229 - 1,229
Net assets of discontinued operations 13,042 - - 13,042
Other current assets 13,646 1,186 ($1,186)(a) 13,646
---------------- ---------------- -------------- ------------------
TOTAL CURRENT ASSETS 216,114 73,333 (1,186) 288,261
Property and equipment 119,043 9,391 6,303 (b) 134,737
Intangible assets 156,101 240 37,650 (c) 193,991
Long-term receivable 47,851 - - 47,851
Other non-current assets 29,981 795 1,418 (d) 32,194
---------------- ---------------- -------------- ------------------
TOTAL ASSETS $ 569,090 $ 83,759 $ 44,185 $ 697,034
================ ================ ============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 521 $ - $ - $ 521
Accounts payable 59,720 22,368 - 82,088
Accrued liabilities 44,740 4,763 - 49,503
Contracts in progress with progress billings 52,460 6,115 - 58,575
exceeding related earned revenues
Income taxes payable and other 2,329 - - 2,329
---------------- ---------------- -------------- ------------------
TOTAL CURRENT LIABILITIES 159,770 33,246 - 193,016
Long-term debt 114,100 - 5,500 (e) 119,600
Other non-current liabilities 68,672 127 627 (f) 69,426
Minority interest in subsidiaries 32,454 - - 32,454
---------------- ---------------- -------------- ------------------
TOTAL LIABILITIES 374,996 33,373 6,127 414,496
Common stock subject to redemption 35,000 (g) 35,000
Common stock 103 - 22 (g) 125
Additional paid-in capital 168,304 - 48,978 (g) 217,282
Retained earnings 48,312 50,386 (45,942) (h) 52,756
Stock held in Trust (12,735) - - (12,735)
Treasury stock, at cost (752) - - (752)
Cumulative translation adjustment (9,138) - - (9,138)
---------------- ---------------- -------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 194,094 50,386 3,058 247,538
---------------- ---------------- -------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 569,090 $ 83,759 $ 44,185 $ 697,034
================ ================ ============== ==================
The accompanying notes are an integral part of the pro forma condensed
combined balance sheet.
24
CHICAGO BRIDGE & IRON COMPANY N.V.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
($ in 000s, except per share data)
CB&I/HBI PDM PDM PRO FORMA
AS ADJUSTED HISTORICAL ADJUSTMENTS AS ADJUSTED
--------------- -------------- --------------- -------------------
Revenues $ 983,955 $ 194,280 $ - $ 1,178,235
Cost of revenues 845,917 169,761 344 (a) 1,016,022
--------------- -------------- --------------- -------------------
Gross profit 138,038 24,519 (344) 162,213
Selling and administrative expenses 81,496 20,823 922 (b) 103,241
Other operating income, net (2,788) - - (2,788)
--------------- -------------- --------------- -------------------
Income from operations 59,330 3,696 (1,266) 61,760
Interest expense (10,230) (90) (374) (c) (10,694)
Interest income 3,760 90 - 3,850
--------------- -------------- --------------- -------------------
Income before taxes and minority interest 52,860 3,696 (1,640) 54,916
Income tax expense (17,112) (1,826) 607 (d) (18,331)
--------------- -------------- --------------- -------------------
Income before minority interest 35,748 1,870 (1,033) 36,585
Minority interest in income (2,551) - - (2,551)
--------------- -------------- --------------- -------------------
Income from continuing operations $ 33,197 $ 1,870 $ (1,033) $ 34,034
=============== ============== =============== ===================
Income from continuing operations per share
Basic $1.73 $1.39
Diluted $1.71 $1.36
Shares
Basic 19,146 5,310 (e) 24,456
Diluted 19,398 5,561 (e) 24,959
The accompanying notes are an integral part of the pro forma condensed
combined statement of income.
25
CHICAGO BRIDGE & IRON COMPANY N.V.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
($ in 000s, except per share data)
CB&I/HBI PDM PDM PRO FORMA
AS ADJUSTED HISTORICAL ADJUSTMENTS AS ADJUSTED
--------------- --------------- ---------------- ---------------
Revenues $ 650,384 $ 154,118 $ - $ 804,502
Cost of revenues 573,398 133,013 258 (a) 706,669
--------------- --------------- ---------------- ---------------
Gross profit 76,986 21,105 (258) 97,833
Selling and administrative expenses 46,700 14,224 691 (b) 61,615
Other operating income, net (2,366) - - (2,366)
--------------- --------------- ---------------- ---------------
Income from operations 32,652 6,881 (949) 38,584
Interest expense (7,359) - (301) (c) (7,660)
Interest income 2,201 223 - 2,424
--------------- --------------- ---------------- ---------------
Income before taxes and minority interest 27,494 7,104 (1,250) 33,348
Income tax expense (9,151) (2,841) 455 (d) (11,537)
--------------- --------------- ---------------- ---------------
Income before minority interest 18,343 4,263 (795) 21,811
Minority interest in income (1,820) - - (1,820)
--------------- --------------- ---------------- ---------------
Income from continuing operations $ 16,523 $ 4,263 $ (795) $ 19,991
=============== =============== ================ ===============
Income from continuing operations per share
Basic $0.95 $0.88
Diluted $0.93 $0.86
Shares
Basic 17,467 5,310 (e) 22,777
Diluted 17,792 5,561 (e) 23,354
The accompanying notes are an integral part of the pro forma condensed
combined statement of income.
26
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE DATA
1. CB&I AND PDM HISTORICAL DATA
The CB&I/HBI As Adjusted balances represent the pro forma consolidated
balance sheet of Chicago Bridge & Iron Company N.V. ("CB&I") and Howe-Baker
International, Inc. ("HBI") as of September 30, 2000, and the pro forma
consolidated statements of income of CB&I and HBI for the nine months ended
September 30, 2000 and the twelve months ended December 31, 1999, as reported in
the November 24, 2000 proxy filing and subsequently amended for CB&I's
discontinued operation of UltraPure Systems. Subsequent to the filing of the
proxy, a warrant was granted allowing the purchase of 82,118 shares of Common
Stock at an exercise price of NLG 0.01 per share. The diluted shares amount for
EPS has been revised to reflect these warrants. The PDM historical balances
represent the PDM Liquid and Cryogenic Water Storage combined balance sheet as
of September 30, 2000 and combined statements of income for each of the
indicated periods, as reported in the historical combined financial statements
of PDM Liquid and Cryogenic Water Storage.
2. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflected in the pro forma combined balance
sheet give effect to the following based on CB&I's preliminary allocation of
purchase price to PDM's net assets:
(a) To reclassify PDM's deferred tax asset from current to non-current
assets, to record consistently with CB&I.
(b) To record the write-up of fixed assets to their depreciated
replacement value, based on preliminary estimates. This write-up will
be depreciated over 15 years.
(c) To record the $37,650 excess of cost over the fair value of tangible
net assets as intangible assets. This balance was allocated as
follows:
AMORTIZATION PERIOD
Goodwill $37,890 40 years
PDM historical intangible assets (240)
------------
Pro forma adjustment $37,650
============
27
(d) To record the following: (1) the reclassification of PDM's deferred
tax asset of $1,186 discussed in (a) above; and (2) a $232 increase in
deferred tax asset on the pension asset adjustment discussed in (f)
below.
(e) To record $5,500 of acquisition-related costs.
(f) To record a $627 increase in pension liability.
(g) To record the issuance of 5,309,710 shares of Common Stock at NLG 0.01
par value and the issuance of a warrant allowing for the purchase of
251,598 shares of Common Stock at an exercise price of NLG 0.01 per
share. 837,692 shares were issued to Farinvest in exchange for $13.6
million in cash. 1,623,846 shares and the warrants were issued to
First Reserve in exchange for $26.4 million in cash. The total $40
million in cash was used for the purchase of PDM. The remaining
2,848,172 shares were valued at the guaranteed price of $44 million.
PDM has the right to require CB&I to repurchase $35 million of these
shares.
(h) The elimination of the PDM historical stockholder's equity and the
capital structure of PDM under prior ownership.
The pro forma adjustments reflected in the pro forma condensed combined
statements of income give effect to the following:
(a) To reflect $344 and $258 of incremental depreciation expense for the
year ended December 31, 1999 and the nine months ended September 30,
2000, respectively. Total pro forma depreciation expense includes the
following amounts:
12/31/99 9/30/00
------------------ -----------------
CB&I/HBI as adjusted $20,197 $14,269
PDM Historical 2,584 1,808
Pro forma adjustment 344 258
------------------ -----------------
Total pro forma expense $23,125 $16,335
================== =================
28
(b) To reflect $922 and $691 of incremental goodwill amortization expense
for the year ended December 31, 1999 and the nine months ended
September 30, 2000, respectively. Total pro forma amortization expense
includes the following amounts:
12/31/99 9/30/00
------------------ -----------------
CB&I/HBI as adjusted $3,495 $2,917
PDM Historical 25 19
Pro forma adjustment 922 691
------------------ -----------------
Total pro forma expense $4,442 $3,627
================== =================
(c) To record increased interest expense of $374 for the year ended
December 31, 1999 and $301 for the nine months ended September 30,
2000, reflecting the additional borrowings under the CB&I revolving
credit facility. The average interest expense rate for the CB&I
revolving credit facility was 6.8% in 1999 and 7.3% in 2000.
(d) To reflect income tax effect of deductible pro forma adjustments.
(e) Incremental issuance of 5,309,710 shares of Common Stock and dilutive
effect of 251,598, related to the warrant.