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EX-32.2 - EXHIBIT 32.2 - CHICAGO BRIDGE & IRON CO N Va20170630ex322.htm
EX-32.1 - EXHIBIT 32.1 - CHICAGO BRIDGE & IRON CO N Va20170630ex321.htm
EX-31.2 - EXHIBIT 31.2 - CHICAGO BRIDGE & IRON CO N Va20170630ex312.htm
EX-31.1 - EXHIBIT 31.1 - CHICAGO BRIDGE & IRON CO N Va20170630ex311.htm
EX-10.4 - EXHIBIT 10.4 - CHICAGO BRIDGE & IRON CO N Va20170630ex104.htm
EX-10.3 - EXHIBIT 10.3 - CHICAGO BRIDGE & IRON CO N Va20170630ex103.htm
EX-10.2 - EXHIBIT 10.2 - CHICAGO BRIDGE & IRON CO N Va20170630ex102.htm
EX-10.1 - EXHIBIT 10.1 - CHICAGO BRIDGE & IRON CO N Va20170630ex101.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
o
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.
The Netherlands
 
Prinses Beatrixlaan 35
 
98-0420223
(State or other jurisdiction of
 
2595 AK The Hague
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
The Netherlands
 
 
 
 
31 70 373 2010
 
 
 
 
(Address and telephone number of principal executive offices)
 
 
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.    
x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
 
 
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
o  Yes    x  No
The number of shares outstanding of the registrant’s common stock as of July 27, 2017101,169,452
 



CHICAGO BRIDGE & IRON COMPANY N.V.
Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

CHICAGO BRIDGE & IRON COMPANY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(Unaudited)
Revenue
$
1,283,477

 
$
2,161,164

 
$
3,110,829

 
$
4,295,793

Cost of revenue
1,661,534

 
1,903,209

 
3,337,935

 
3,782,268

Gross (loss) profit
(378,057
)
 
257,955

 
(227,106
)
 
513,525

Selling and administrative expense
67,167

 
69,195

 
140,224

 
150,141

Intangibles amortization
6,377

 
6,464

 
12,863

 
13,541

Equity earnings
(8,655
)
 
(2,059
)
 
(16,266
)
 
(5,664
)
Other operating expense, net
3,637

 
1,107

 
3,668

 
927

Operating (loss) income from continuing operations
(446,583
)
 
183,248

 
(367,595
)
 
354,580

Interest expense
(34,714
)
 
(20,196
)
 
(58,815
)
 
(40,261
)
Interest income
882

 
2,754

 
2,110

 
4,934

(Loss) income from continuing operations before taxes
(480,415
)
 
165,806

 
(424,300
)
 
319,253

Income tax benefit (expense)
178,752

 
(41,937
)
 
165,048

 
(81,461
)
Net (loss) income from continuing operations
(301,663
)
 
123,869

 
(259,252
)
 
237,792

Net (loss) income from discontinued operations
(120,847
)
 
8,679

 
(111,353
)
 
14,718

Net (loss) income
(422,510
)
 
132,548

 
(370,605
)
 
252,510

Less: Net income attributable to noncontrolling interests ($457, $437, $870 and $885 related to discontinued operations)
(2,909
)
 
(8,709
)
 
(30,159
)
 
(21,746
)
Net (loss) income attributable to CB&I
$
(425,419
)
 
$
123,839

 
$
(400,764
)
 
$
230,764

Net (loss) income attributable to CB&I per share (Basic):
 
 
 
 
 
 
 
Continuing operations
$
(3.02
)
 
$
1.10

 
$
(2.87
)
 
$
2.07

Discontinued operations
(1.20
)
 
0.08

 
(1.11
)
 
0.13

Total
$
(4.22
)
 
$
1.18

 
$
(3.98
)
 
$
2.20

Net (loss) income attributable to CB&I per share (Diluted):
 
 
 
 
 
 
 
Continuing operations
$
(3.02
)
 
$
1.09

 
$
(2.87
)
 
$
2.05

Discontinued operations
(1.20
)
 
0.08

 
(1.11
)
 
0.13

Total
$
(4.22
)
 
$
1.17

 
$
(3.98
)
 
$
2.18

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
100,866

 
105,298

 
100,660

 
105,051

Diluted
100,866

 
106,091

 
100,660

 
105,925

Cash dividends on shares:
 
 
 
 
 
 
 
Amount
$
7,062

 
$
7,372

 
$
14,109

 
$
14,731

Per share
$
0.07

 
$
0.07

 
$
0.14

 
$
0.14

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

3


CHICAGO BRIDGE & IRON COMPANY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(Unaudited)
Net (loss) income
$
(422,510
)
 
$
132,548

 
$
(370,605
)
 
$
252,510

Other comprehensive income (loss) from continuing operations, net of tax:
 
 
 
 
 
 
 
Change in cumulative translation adjustment
32,914

 
(23,691
)
 
57,324

 
(1,232
)
Change in unrealized fair value of cash flow hedges
457

 
(260
)
 
810

 
1,043

Change in unrecognized prior service pension credits/costs
56

 
(183
)
 
(20
)
 
(156
)
Change in unrecognized actuarial pension gains/losses
(6,612
)
 
4,569

 
(8,045
)
 
2,416

Other comprehensive income (loss) from discontinued operations, net of tax:
 
 
 
 
 
 
 
Change in cumulative translation adjustment
(225
)
 
30

 
270

 
263

Comprehensive (loss) income
(395,920
)
 
113,013

 
(320,266
)
 
254,844

Net income attributable to noncontrolling interests ($457, $437, $870 and $885 related to discontinued operations)
(2,909
)
 
(8,709
)
 
(30,159
)
 
(21,746
)
Change in cumulative translation adjustment attributable to noncontrolling interests
(651
)
 
713

 
(1,621
)
 
(544
)
Comprehensive (loss) income attributable to CB&I
$
(399,480
)
 
$
105,017

 
$
(352,046
)
 
$
232,554

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

4



CHICAGO BRIDGE & IRON COMPANY N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
June 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents ($188,408 and $328,387 related to variable interest entities ("VIEs"))
$
354,920

 
$
490,679

Accounts receivable, net ($51,900 and $53,159 related to VIEs)
663,141

 
488,513

Inventory
158,818

 
190,102

Costs and estimated earnings in excess of billings ($6,263 and $26,186 related to VIEs)
418,038

 
410,749

Current assets of discontinued operations

 
414,732

Other current assets ($357,635 and $426,515 related to VIEs)
477,530

 
546,977

Total current assets
2,072,447

 
2,541,752

Equity investments
174,561

 
165,256

Property and equipment, net
502,426

 
505,944

Goodwill
2,829,214

 
2,813,803

Other intangibles, net
208,388

 
219,409

Deferred income taxes
876,969

 
730,108

Non-current assets of discontinued operations

 
462,144

Other non-current assets ($73,865 and $5,484 related to VIEs)
482,274

 
401,004

Total assets
$
7,146,279

 
$
7,839,420

Liabilities
 
 
 
Revolving facility and other short-term borrowings
$
374,000

 
$
407,500

Current maturities of long-term debt, net
1,469,320

 
503,910

Accounts payable ($353,343 and $337,089 related to VIEs)
976,929

 
964,548

Billings in excess of costs and estimated earnings ($441,481 and $407,325 related to VIEs)
1,704,464

 
1,395,349

Current liabilities of discontinued operations

 
247,469

Other current liabilities
953,567

 
1,017,473

Total current liabilities
5,478,280

 
4,536,249

Long-term debt, net

 
1,287,923

Deferred income taxes
8,937

 
7,307

Non-current liabilities of discontinued operations

 
5,388

Other non-current liabilities
438,852

 
441,216

Total liabilities
5,926,069

 
6,278,083

Shareholders’ Equity
 
 
 
Common stock, Euro .01 par value; shares authorized: 250,000; shares issued: 108,857 and 108,857; shares outstanding: 101,001 and 100,113
1,288

 
1,288

Additional paid-in capital
758,192

 
782,130

Retained earnings
955,733

 
1,370,606

Treasury stock, at cost: 7,856 and 8,744 shares
(296,351
)
 
(344,870
)
Accumulated other comprehensive loss
(346,898
)
 
(395,616
)
Total CB&I shareholders’ equity
1,071,964

 
1,413,538

Noncontrolling interests ($0 and $6,874 related to discontinued operations)
148,246

 
147,799

Total shareholders’ equity
1,220,210

 
1,561,337

Total liabilities and shareholders’ equity
$
7,146,279

 
$
7,839,420

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

5


CHICAGO BRIDGE & IRON COMPANY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Six Months Ended June 30,
 
2017
 
2016
 
(Unaudited)
Cash Flows from Operating Activities
 
 
 
Net (loss) income
$
(370,605
)
 
$
252,510

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
48,898

 
62,853

Loss on net assets sold (net of cash paid for transaction costs of $4,700)
60,117

 

Deferred income taxes
(141,866
)
 
68,932

Stock-based compensation expense
26,441

 
21,275

Other operating expense, net
1,644

 
934

Unrealized (gain) loss on foreign currency hedges
(3,687
)
 
2,863

Excess tax benefits from stock-based compensation

 
(46
)
Changes in operating assets and liabilities:
 
 
 
Increase in receivables, net
(164,655
)
 
(113,662
)
Change in contracts in progress, net
298,677

 
87,405

Decrease in inventory
32,988

 
15,334

Decrease in accounts payable
(57,913
)
 
(53,637
)
Increase in other current and non-current assets
(42,502
)
 
(12,764
)
Decrease in other current and non-current liabilities
(127,972
)
 
(22,878
)
(Increase) decrease in equity investments
(140
)
 
445

Change in other, net
(25,535
)
 
9,700

Net cash (used in) provided by operating activities
(466,110
)
 
319,264

Cash Flows from Investing Activities
 
 
 
Proceeds from sale of discontinued operation, net of cash sold

645,506

 

Capital expenditures
(34,300
)
 
(25,276
)
Advances with partners of proportionately consolidated ventures, net
50,384

 
(39,116
)
Proceeds from sale of property and equipment
1,609

 
4,302

Other, net
(9,858
)
 
(55,578
)
Net cash provided by (used in) investing activities
653,341

 
(115,668
)
Cash Flows from Financing Activities
 
 
 
Revolving facility and other short-term repayments, net
(33,500
)
 
(181,000
)
Advances with equity method and proportionately consolidated ventures, net
11,817

 
161,698

Repayments on long-term debt
(318,750
)
 
(75,000
)
Excess tax benefits from stock-based compensation

 
46

Purchase of treasury stock
(9,080
)
 
(7,970
)
Issuance of stock
7,176

 
8,864

Dividends paid
(14,109
)
 
(14,731
)
Distributions to noncontrolling interests
(24,298
)
 
(29,643
)
Revolving facility and deferred financing costs
(13,763
)
 

Net cash used in financing activities
(394,507
)
 
(137,736
)
Effect of exchange rate changes on cash and cash equivalents
57,040

 
(13,169
)
(Decrease) increase in cash and cash equivalents
(150,236
)
 
52,691

Cash and cash equivalents, beginning of period
505,156

 
550,221

Cash and cash equivalents, end of period
354,920

 
602,912

Cash and cash equivalents, end of period - discontinued operations

 
(16,596
)
Cash and cash equivalents, end of period - continuing operations
$
354,920

 
$
586,316

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

6


CHICAGO BRIDGE & IRON COMPANY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except per share data)

 
Six Months Ended June 30, 2017
 
Common Stock
 
Additional
Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive (Loss) Income
 
Non -
controlling Interests
 
Total
Shareholders’ Equity
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 (Unaudited)
Balance at December 31, 2016
100,113

 
$
1,288

 
$
782,130

 
$
1,370,606

 
8,744

 
$
(344,870
)
 
$
(395,616
)
 
$
147,799

 
$
1,561,337

Net (loss) income

 

 

 
(400,764
)
 

 

 

 
30,159

 
(370,605
)
Disposition

 

 

 

 

 

 

 
(7,035
)
 
(7,035
)
Change in cumulative translation adjustment, net

 

 

 

 

 

 
55,973

 
1,621

 
57,594

Change in unrealized fair value of cash flow hedges, net

 

 

 

 

 

 
810

 

 
810

Change in unrecognized prior service pension credits/costs, net

 

 

 

 

 

 
(20
)
 

 
(20
)
Change in unrecognized actuarial pension gains/losses, net

 

 

 

 

 

 
(8,045
)
 

 
(8,045
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(24,298
)
 
(24,298
)
Dividends paid ($0.14 per share)

 

 

 
(14,109
)
 

 

 

 

 
(14,109
)
Stock-based compensation expense

 

 
26,441

 

 

 

 

 

 
26,441

Purchase of treasury stock
(299
)
 

 

 

 
299

 
(9,080
)
 

 

 
(9,080
)
Issuance of stock
1,187

 

 
(50,379
)
 

 
(1,187
)
 
57,599

 

 

 
7,220

Balance at June 30, 2017
101,001

 
$
1,288

 
$
758,192

 
$
955,733

 
7,856

 
$
(296,351
)
 
$
(346,898
)
 
$
148,246

 
$
1,220,210

 
Six Months Ended June 30, 2016
 
Common Stock
 
Additional
Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive (Loss) Income
 
Non -
controlling Interests
 
Total
Shareholders’ Equity
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 (Unaudited)
Balance at December 31, 2015
104,427

 
$
1,288

 
$
800,641

 
$
1,712,508

 
4,430

 
$
(206,407
)
 
$
(294,040
)
 
$
149,600

 
$
2,163,590

Net income

 

 

 
230,764

 

 

 

 
21,746

 
252,510

Change in cumulative translation adjustment, net

 

 

 

 

 

 
(1,513
)
 
544

 
(969
)
Change in unrealized fair value of cash flow hedges, net

 

 

 

 

 

 
1,043

 

 
1,043

Change in unrecognized prior service pension credits/costs, net

 

 

 

 

 

 
(156
)
 

 
(156
)
Change in unrecognized actuarial pension gains/losses, net

 

 

 

 

 

 
2,416

 

 
2,416

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(29,643
)
 
(29,643
)
Dividends paid ($0.14 per share)

 

 

 
(14,731
)
 

 

 

 

 
(14,731
)
Stock-based compensation expense

 

 
21,275

 

 

 

 

 

 
21,275

Purchase of treasury stock
(237
)
 

 

 

 
237

 
(7,970
)
 

 

 
(7,970
)
Issuance of stock
1,125

 

 
(49,573
)
 

 
(1,125
)
 
52,171

 

 

 
2,598

Balance at June 30, 2016
105,315

 
$
1,288

 
$
772,343

 
$
1,928,541

 
3,542

 
$
(162,206
)
 
$
(292,250
)
 
$
142,247

 
$
2,389,963


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


7


CHICAGO BRIDGE & IRON COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
($ and share values in thousands, except per share data)
(Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
Organization and Nature of Operations—Founded in 1889, Chicago Bridge & Iron Company N.V. (“CB&I”, “we”, “our” or “us”) provides a wide range of services, including conceptual design, technology, engineering, procurement, fabrication, modularization, construction and commissioning services to customers in the energy infrastructure market throughout the world. Our business is aligned into three operating groups, which represent our reportable segments: Engineering & Construction; Fabrication Services; and Technology. See Note 2 and Note 4 for discussions of our discontinued operations and Note 15 for a discussion of our reportable segments and related financial information.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Consolidation—The accompanying unaudited interim Condensed Consolidated Financial Statements (“Financial Statements”) are prepared in accordance with the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”). These Financial Statements include all wholly-owned subsidiaries and those entities which we are required to consolidate. See the “Partnering Arrangements” section of this footnote for further discussion of our consolidation policy for those entities that are not wholly-owned. Intercompany balances and transactions are eliminated in consolidation.
Basis of Presentation—We believe these Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our results of operations for the three and six months ended June 30, 2017 and 2016, our financial position as of June 30, 2017 and our cash flows for the six months ended June 30, 2017 and 2016. The December 31, 2016 Condensed Consolidated Balance Sheet (the “Balance Sheet”) was derived from our December 31, 2016 audited Consolidated Balance Sheet, adjusted to conform to our current year presentation.
On February 27, 2017, we entered into a definitive agreement (the “CS Agreement”) with CSVC Acquisition Corp (“CSVC”), under which CSVC agreed to acquire our capital services operations, which are primarily comprised of our former Capital Services reportable segment and provides comprehensive and integrated maintenance services, environmental engineering and remediation, construction services, program management, and disaster response and recovery services for private-sector customers and governments (the “Capital Services Operations”). We completed the sale of our Capital Services Operations on June 30, 2017 (the “Closing Date”). We considered the Capital Services Operations to be a discontinued operation in the first quarter 2017, as the divestiture represented a strategic shift and will have a material effect on our operations and financial results. Operating results of the Capital Services Operations have been classified as a discontinued operation within the Condensed Consolidated Statements of Operations (the “Statement of Operations”) for the three and six months ended June 30, 2017 and 2016. Further, the assets and liabilities of the Capital Services Operations have been classified as assets and liabilities of discontinued operations within our December 31, 2016 Balance Sheet, and our June 30, 2017 Balance Sheet reflects the impact of the sale. Cash flows of the Capital Services Operations are not reported separately within our Condensed Consolidated Statements of Cash flows. Unless otherwise noted, the footnotes to our Financial Statements relate to our continuing operations. See Note 4 for additional discussion of our discontinued operations and the impact of the sale of the Capital Services Operations.
In July 2017, we initiated a plan to market and sell our Technology operations (primarily comprised of our Technology reportable segment) and Engineered Products operations (representing a portion of our Fabrication Services reportable segment) (collectively, the “Technology Operations”), the proceeds of which will be used to significantly reduce our outstanding debt. We anticipate classifying the Technology Operations as held for sale during the third quarter 2017.
We believe the disclosures accompanying these Financial Statements are adequate to make the information presented not misleading. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC for interim reporting periods. The results of operations and cash flows for the interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying Financial Statements should be read in conjunction with our Consolidated Financial Statements and notes thereto included in our 2016 Annual Report on Form 10-K (“2016 Annual Report”).

8

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Use of Estimates—The preparation of our Financial Statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe the most significant estimates and judgments are associated with revenue recognition for our contracts, including estimating costs and the recognition of incentive fees and unapproved change orders and claims; fair value and recoverability assessments that must be periodically performed with respect to long-lived tangible assets, goodwill and other intangible assets; valuation of deferred tax assets and financial instruments; the determination of liabilities related to self-insurance programs and income taxes; and consolidation determinations with respect to our partnering arrangements. If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ from those included in the accompanying Financial Statements.
Revenue Recognition—Our revenue is primarily derived from long-term contracts and is generally recognized using the percentage of completion (“POC”) method, primarily based on the percentage that actual costs-to-date bear to total estimated costs to complete each contract. We follow the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Revenue Recognition Topic 605-35 for accounting policies relating to our use of the POC method, estimating costs, and revenue recognition, including the recognition of incentive fees, unapproved change orders and claims, and combining and segmenting contracts. We primarily utilize the cost-to-cost approach to estimate POC as we believe this method is less subjective than relying on assessments of physical progress. Under the cost-to-cost approach, the use of estimated costs to complete each contract is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for contracts. Significant estimates that impact the cost to complete each contract are costs of engineering, materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; liquidated damages; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. 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, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts in progress. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates. See Note 14 for discussion of projects with significant changes in estimated margins during the three and six months ended June 30, 2017 and 2016.
Our long-term contracts are awarded on a competitively bid and negotiated basis and the timing of revenue recognition may be impacted by the terms of such contracts. We use a range of contracting options, including cost-reimbursable, fixed-price and hybrid, which has both cost-reimbursable and fixed-price characteristics. Fixed-price contracts, and hybrid contracts with a more significant fixed-price component, tend to provide us with greater control over project schedule and the timing of when work is performed and costs are incurred, and accordingly, when revenue is recognized. Cost-reimbursable contracts, and hybrid contracts with a more significant cost-reimbursable component, generally provide our customers with greater influence over the timing of when we perform our work, and accordingly, such contracts often result in less predictability with respect to the timing of revenue recognition. Contract revenue for our long-term contracts recognized under the POC method reflects the original contract price adjusted for approved change orders and estimated recoveries for incentive fees, unapproved change orders and claims, and liquidated damages. We recognize revenue associated with incentive fees when the value can be reliably estimated and recovery is probable. We recognize revenue associated with unapproved change orders and claims to the extent the related costs have been incurred, the value can be reliably estimated and recovery is probable. Our recorded incentive fees, unapproved change orders and claims reflect our best estimate of recovery amounts; however, the ultimate resolution and amounts received could differ from these estimates. Liquidated damages are reflected as a reduction to contract price to the extent they are deemed probable. See Note 14 for additional discussion of our recorded unapproved change orders, claims and incentives.
With respect to our engineering, procurement, and construction (“EPC”) services, our contracts are not segmented between types of services, such as engineering and construction, if each of the EPC components is negotiated concurrently or if the pricing of any such services is subject to the ultimate negotiation and agreement of the entire EPC contract. However, an EPC contract including technology or fabrication services may be segmented if we satisfy the segmenting criteria in ASC 605-35. Revenue recorded in these situations is based on our prices and terms for similar services to third party customers. Segmenting a contract may result in different interim rates of profitability for each scope of service than if we had recognized revenue without segmenting. In some instances, we may combine contracts that are entered into in multiple phases, but are interdependent and include pricing considerations by us and the customer that are impacted by all phases of the project. Otherwise, if each phase is independent of the other and pricing considerations do not give effect to another phase, the contracts will not be combined.

9

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cost of revenue for our long-term contracts includes direct contract costs, such as materials and labor, and indirect costs that are attributable to contract activity. The timing of when we bill our customers is generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Projects with costs and estimated earnings recognized to date in excess of cumulative billings is reported on the Balance Sheet as costs and estimated earnings in excess of billings. Projects with cumulative billings in excess of costs and estimated earnings recognized to date is reported on the Balance Sheet as billings in excess of costs and estimated earnings. The net balances on our Balance Sheet are collectively referred to as Contracts in Progress, net and the components of these balances at June 30, 2017 and December 31, 2016 were as follows:
 
 
June 30, 2017
 
December 31, 2016
 
 
Asset
 
Liability
 
Asset
 
Liability
Costs and estimated earnings on contracts in progress
 
$
4,334,524

 
$
28,697,752

 
$
8,466,638

 
$
23,408,316

Billings on contracts in progress
 
(3,916,486
)
 
(30,402,216
)
 
(8,055,889
)
 
(24,803,665
)
Contracts in progress, net
 
$
418,038

 
$
(1,704,464
)
 
$
410,749

 
$
(1,395,349
)
Any uncollected billed amounts, including contract retentions, are reported as accounts receivable. At June 30, 2017 and December 31, 2016, accounts receivable included contract retentions of approximately $64,500 and $72,100, respectively. Contract retentions due beyond one year were approximately $46,600 and $37,500 at June 30, 2017 and December 31, 2016, respectively.
Revenue for our service contracts that do not satisfy the criteria for revenue recognition under the POC method is recorded at the time services are performed. Revenue associated with incentive fees for these contracts is recognized when earned. Unbilled receivables for our service contracts are recorded within accounts receivable and were approximately $9,600 and $16,100 at June 30, 2017 and December 31, 2016, respectively.
Revenue for our pipe and steel fabrication and catalyst manufacturing contracts that are independent of an EPC contract, or for which we satisfy the segmentation criteria discussed above, is recognized upon shipment of the fabricated or manufactured units. During the fabrication or manufacturing process, all related direct and allocable indirect costs are capitalized as work in process inventory and such costs are recorded as cost of revenue at the time of shipment.
Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain reserves for specifically-identified potential uncollectible receivables. At June 30, 2017 and December 31, 2016, our allowances for doubtful accounts were not material.
Other Operating Expense (Income), NetOther operating expense (income), net generally represents (gains) losses associated with the sale or disposition of property and equipment. For the three and six months ended June 30, 2017, other operating (income) expense, net also included accrued future operating lease expense for vacated facility capacity where we remain contractually obligated to a lessor of approximately $3,000.
Recoverability of Goodwill—Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually at a reporting unit level, absent any indicators of impairment or when other actions require an impairment assessment (such as a change in reporting units). We perform our annual impairment assessment during the fourth quarter of each year based upon balances as of October 1. We identify a potential impairment by comparing the fair value of the applicable reporting unit to its net book value, including goodwill. If the net book value exceeds the fair value of the reporting unit, an indication of potential impairment exists, and we measure the impairment by comparing the carrying value of the reporting unit’s goodwill to its implied fair value. To determine the fair value of our reporting units and test for impairment, we utilize an income approach (discounted cash flow method) as we believe this is the most direct approach to incorporate the specific economic attributes and risk profiles of our reporting units into our valuation model. This is consistent with the methodology used to determine the fair value of our reporting units in previous years. We generally do not utilize a market approach given the lack of relevant information generated by market transactions involving comparable businesses. However, to the extent market indicators of fair value become available, we consider such market indicators in our discounted cash flow analysis and determination of fair value. See Note 6 for additional discussion of our goodwill.
Recoverability of Other Long-Lived Assets—We amortize our finite-lived intangible assets on a straight-line basis with lives ranging from 6 to 20 years, absent any indicators of impairment. We review tangible assets and finite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, the estimated future cash flow associated with the asset or asset group will be compared to their respective carrying amounts to determine if an impairment exists. See Note 6 for additional discussion of our intangible assets.

10

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Earnings Per Share (“EPS”)—Basic EPS is calculated by dividing net income attributable to CB&I by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of dilutive securities, consisting of restricted shares, performance based shares (where performance criteria have been met), stock options and directors’ deferred-fee shares. See Note 3 for calculations associated with basic and diluted EPS.
Cash Equivalents—Cash equivalents are considered to be highly liquid securities with original maturities of three months or less.
Inventory—Inventory is recorded at the lower of cost and net realizable value and cost is determined using the first-in-first-out or weighted-average cost method. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. An allowance for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical usage patterns, estimates of future sales expectations and salvage value. See Note 5 for additional discussion of our inventory.
Foreign Currency—The nature of our business activities involves the management of various financial and market risks, including those related to changes in foreign currency exchange rates. The effects of translating financial statements of foreign operations into our reporting currency are recognized as a cumulative translation adjustment in accumulated other comprehensive income (loss) (“AOCI”) which is net of tax, where applicable. Foreign currency transactional and re-measurement exchange gains (losses) are included within cost of revenue and were not material for the three and six months ended June 30, 2017 and 2016.
Financial Instruments—We do not engage in currency speculation; however, we utilize foreign currency exchange rate derivatives on an ongoing basis to hedge against certain foreign currency related operating exposures. We generally seek hedge accounting treatment for contracts used to hedge operating exposures and designate them as cash flow hedges. Therefore, gains and losses, exclusive of credit risk and forward points (which represent the time value component of the fair value of our derivative positions), are included in AOCI until the associated underlying operating exposure impacts our earnings. Changes in the fair value of (1) credit risk and forward points, (2) instruments deemed ineffective during the period, and (3) instruments that we do not designate as cash flow hedges are recognized within cost of revenue.
For those contracts designated as cash flow hedges, we document all relationships between the derivative instruments and associated hedged items, as well as our risk-management objectives and strategy for undertaking hedge transactions. This process includes linking all derivatives to specific firm commitments or highly-probable forecasted transactions. We continually assess, at inception and on an ongoing basis, the effectiveness of derivative instruments in offsetting changes in the cash flow of the designated hedged items. Hedge accounting designation is discontinued when (1) it is determined that the derivative is no longer highly effective in offsetting changes in the cash flow of the hedged item, including firm commitments or forecasted transactions, (2) the derivative is sold, terminated, exercised, or expires, (3) it is no longer probable that the forecasted transaction will occur, or (4) we determine that designating the derivative as a hedging instrument is no longer appropriate. See Note 9 for additional discussion of our financial instruments.
Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using currently enacted income tax rates for the years in which the differences are expected to reverse. A valuation allowance (“VA”) is provided to offset any net deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our net DTAs depends upon our ability to generate sufficient future taxable income of the appropriate character and in the appropriate jurisdictions.
Income tax and associated interest and penalty reserves, where applicable, are recorded in those instances where we consider it more likely than not that additional tax will be due in excess of amounts reflected in income tax returns filed worldwide, irrespective of whether or not we have received tax assessments. We continually review our exposure to additional income tax obligations and, as further information is known or events occur, changes in our tax and penalty reserves may be recorded within income tax expense and changes in interest reserves may be recorded in interest expense.
Partnering ArrangementsIn the ordinary course of business, we execute specific projects and conduct certain operations through joint venture, consortium and other collaborative arrangements (collectively referred to as “venture(s)”). We have various ownership interests in these ventures, with such ownership typically proportionate to our decision making and distribution rights. The ventures generally contract directly with the third party customer; however, services may be performed directly by the ventures, or may be performed by us, our partners, or a combination thereof.

11

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Venture net assets consist primarily of working capital and property and equipment, and assets may be restricted from being used to fund obligations outside of the venture. These ventures typically have limited third party debt or have debt that is non-recourse in nature; however, they may provide for capital calls to fund operations or require participants in the venture to provide additional financial support, including advance payment or retention letters of credit.
Each venture is assessed at inception and on an ongoing basis as to whether it qualifies as a VIE under the consolidations guidance in ASC 810. A venture generally qualifies as a VIE when it (1) meets the definition of a legal entity, (2) absorbs the operational risk of the projects being executed, creating a variable interest, and (3) lacks sufficient capital investment from the partners, potentially resulting in the venture requiring additional subordinated financial support, if necessary, to finance its future activities.
If at any time a venture qualifies as a VIE, we perform a qualitative assessment to determine whether we are the primary beneficiary of the VIE and, therefore, need to consolidate the VIE. We are the primary beneficiary if we have (1) the power to direct the economically significant activities of the VIE and (2) the right to receive benefits from, and obligation to absorb losses of, the VIE. If the venture is a VIE and we are the primary beneficiary, or we otherwise have the ability to control the venture, we consolidate the venture. If we are not determined to be the primary beneficiary of the VIE, or only have the ability to significantly influence, rather than control the venture, we do not consolidate the venture. We account for unconsolidated ventures using either proportionate consolidation for both the Balance Sheet and Statement of Operations, when we meet the applicable accounting criteria to do so, or utilize the equity method. See Note 7 for additional discussion of our material partnering arrangements.
New Accounting Standards—In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes current industry-specific guidance, including ASC 605-35. The new standard prescribes a five-step revenue recognition model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. The new model requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time for each of these obligations. These concepts, as well as other aspects of the ASU, may change the method and/or timing of revenue recognition for certain of our contracts, primarily associated with our fabrication and manufacturing contracts. We expect that revenue generated from our EPC and engineering services contracts will continue to be recognized over time utilizing the cost-to-cost measure of progress consistent with current practice. We also expect our revenue recognition disclosures to significantly expand due to the new qualitative and quantitative requirements regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from our contracts. We will adopt the standard, including any updates to the standard, upon its effective date in the first quarter 2018 utilizing the modified retrospective approach. This approach will result in a cumulative adjustment to beginning equity in the first quarter 2018 for uncompleted contracts impacted by the adoption of the standard. We are continuing to assess the potential impact of the new standard on our Financial Statements.
In February 2016, the FASB issued ASU 2016-02, which requires the recognition of a right-of-use asset and a lease liability for most lease arrangements with a term greater than one year, and increases qualitative and quantitative disclosures regarding leasing transactions. The standard is effective for us in the first quarter 2019, although early adoption is permitted. Transition requires application of the new guidance at the beginning of the earliest comparative balance sheet period presented utilizing a modified retrospective approach. We are assessing the timing of adoption of the new standard and its potential impact on our Financial Statements.
In the first quarter 2017, we adopted ASU 2015-11, which simplifies the subsequent measurement of our inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Our adoption of the standard did not have a material impact on our Financial Statements.
In the first quarter 2017, we adopted ASU 2016-09, which modified the accounting for excess tax benefits and tax deficiencies associated with share-based payments, amended the associated cash flow presentation, and allows for forfeitures to be either recognized when they occur, or estimated. ASU 2016-09 eliminated the requirement to recognize excess tax benefits in additional paid-in capital (“APIC”), and the requirement to evaluate tax deficiencies for APIC or income tax expense classification, and provided for these benefits or deficiencies to be recorded as an income tax expense or benefit in the Statement of Operations. Additionally, tax benefits of dividends on share-based payment awards are reflected as an income tax expense or benefit in the income statement. With these changes, tax-related cash flows resulting from share-based payments are classified as operating activities as opposed to financing, as previously presented. We have elected to recognize forfeitures as they occur, rather than estimating expected forfeitures. Our adoption of the standard did not have a material impact on our Financial Statements.

12

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the first quarter 2017, the FASB issued, and we early adopted, ASU 2017-04, which eliminated the second step of the goodwill impairment test that required a hypothetical purchase price allocation. ASU 2017-04 requires that if a reporting unit’s carrying value exceeds its fair value, an impairment charge would be recognized for the excess amount, not to exceed the carrying amount of goodwill. Our early adoption of the standard in the first quarter 2017 did not have a material impact on our Financial Statements.
3. EARNINGS PER SHARE
A reconciliation of weighted average basic shares outstanding to weighted average diluted shares outstanding and the computation of basic and diluted EPS are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net (loss) income from continuing operations attributable to CB&I (net of $2,452, $8,272, $29,289 and $20,861 of noncontrolling interests)
 
$
(304,115
)
 
$
115,597

 
$
(288,541
)
 
$
216,931

Net (loss) income from discontinued operations attributable to CB&I (net of $457, $437, $870 and $885 of noncontrolling interests)
 
(121,304
)
 
8,242

 
(112,223
)
 
13,833

Net (loss) income attributable to CB&I
 
$
(425,419
)
 
$
123,839

 
$
(400,764
)
 
$
230,764

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding—basic
 
100,866

 
105,298

 
100,660

 
105,051

Effect of restricted shares/performance based shares/stock options (1)
 

 
780

 

 
861

Effect of directors’ deferred-fee shares (1)
 

 
13

 

 
13

Weighted average shares outstanding—diluted
 
100,866

 
106,091

 
100,660

 
105,925

Net (loss) income attributable to CB&I per share (Basic):
 
 
 
 
 
 
 
 
Continuing operations
 
$
(3.02
)
 
$
1.10

 
$
(2.87
)
 
$
2.07

Discontinued operations
 
(1.20
)
 
0.08

 
(1.11
)
 
0.13

Total
 
$
(4.22
)
 
$
1.18

 
$
(3.98
)
 
$
2.20

Net (loss) income attributable to CB&I per share (Diluted):
 
 
 
 
 
 
 
 
Continuing operations
 
$
(3.02
)
 
$
1.09

 
$
(2.87
)
 
$
2.05

Discontinued operations
 
(1.20
)
 
0.08

 
(1.11
)
 
0.13

Total
 
$
(4.22
)
 
$
1.17

 
$
(3.98
)
 
$
2.18

(1)
The effect of restricted shares, performance based shares, stock options and directors’ deferred-fee shares were not included in the calculation of diluted EPS for the three and six months ended June 30, 2017 due to the net loss for the periods. Antidilutive shares excluded from diluted EPS were not material for the three and six months ended June 30, 2016.

13

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. DISPOSITION OF CAPITAL SERVICES OPERATIONS
Transaction Summary— As discussed in Note 2, on February 27, 2017, we entered into the CS Agreement, which provided for the sale of our Capital Services Operations and completed the sale on June 30, 2017. Under the CS Agreement, the initial purchase price was $755,000, subject to certain adjustments, including a working capital adjustment, whereby the purchase price would be adjusted to the extent actual working capital of the Capital Services Operations on the Closing Date differed from required working capital under the CS Agreement. Prior to the Closing Date, the CS Agreement was amended to, among other things, reduce the purchase price to $700,000. As a result, and after giving effect to working capital and other adjustments estimated prior to the Closing Date of approximately $32,600, we received cash proceeds of approximately $667,400 (approximately $645,500 net of cash sold) on the Closing Date. In addition, based on actual working capital of the Capital Services Operations on the Closing Date, we accrued our estimate of the final post-closing working capital adjustment within other current liabilities on our June 30, 2017 Balance Sheet, to be paid during the fourth quarter 2017. Accordingly, we estimate that our final net proceeds will be approximately $599,000, including approximately $46,500 for transaction costs and the aforementioned post-closing working capital adjustment. As a result of the aforementioned, during the three and six months ended June 30, 2017, we recorded a pre-tax charge of approximately $64,800, and income tax expense of approximately $61,000 resulting from a taxable gain on the transaction (due primarily to the non-deductibility of goodwill). The transaction will not result in any material cash taxes associated with the taxable gain due to the use of previously recorded net operating loss carryforwards. The proceeds received on the Closing Date were used to reduce our outstanding debt.
Assets and Liabilities—The carrying values of the major classes of assets and liabilities of the discontinued Capital Services Operations included within our Balance Sheet on December 31, 2016 were as follows:
 
 
December 31,
2016
Assets
 
 
Cash
 
$
14,477

Accounts receivable, net
 
239,146

Costs and estimated earnings in excess of billings
 
153,275

Other assets
 
7,834

Current assets of discontinued operations
 
414,732

 
 
 
Property and equipment, net
 
59,746

Goodwill (1)
 
229,607

Other intangibles, net
 
148,440

Other assets
 
24,351

Non-current assets of discontinued operations
 
462,144

 
 
 
Total assets of discontinued operations
 
$
876,876

 
 
 
Liabilities
 
 
Accounts payable
 
$
141,028

Billings in excess of costs and estimated earnings
 
53,986

Other liabilities
 
52,455

Current liabilities of discontinued operations
 
247,469

 
 
 
Other liabilities
 
5,388

Non-current liabilities of discontinued operations
 
5,388

 
 
 
Total liabilities of discontinued operations
 
$
252,857

 
 
 
Noncontrolling interests of discontinued operations
 
$
6,874

(1) 
The carrying value of goodwill for the Capital Services Operations includes the impact of a $655,000 impairment charge recorded in the fourth quarter 2016 in connection with our annual impairment assessment.


14

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Results of Operations—The results of our Capital Services Operations which have been reflected within discontinued operations in our Statement of Operations for the three and six months ended June 30, 2017 and 2016 were as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue
 
$
561,708

 
$
559,690

 
$
1,114,655

 
$
1,124,671

Cost of revenue
 
528,927

 
523,119

 
1,047,614

 
1,056,065

Gross profit
 
32,781

 
36,571

 
67,041

 
68,606

Selling and administrative expense
 
16,503

 
13,536

 
29,541

 
25,187

Intangibles amortization
 

 
4,030

 
2,550

 
8,230

Loss on net assets sold
 
64,817

 

 
64,817

 

Other operating expense (income)
 
876

 
120

 
504

 
(304
)
Operating (loss) income from discontinued operations
 
(49,415
)
 
18,885

 
(30,371
)
 
35,493

Interest expense (1)
 
(6,577
)
 
(5,877
)
 
(13,440
)
 
(11,710
)
Interest income
 
7

 
305

 
16

 
614

(Loss) income from discontinued operations before taxes
 
(55,985
)
 
13,313

 
(43,795
)
 
24,397

Income tax expense (2)
 
(64,862
)
 
(4,634
)
 
(67,558
)
 
(9,679
)
Net (loss) income from discontinued operations
 
(120,847
)
 
8,679

 
(111,353
)
 
14,718

Net income from discontinued operations attributable to noncontrolling interests
 
(457
)
 
(437
)
 
(870
)
 
(885
)
Net (loss) income from discontinued operations attributable to CB&I
 
$
(121,304
)
 
$
8,242

 
$
(112,223
)
 
$
13,833

(1) Interest expense was allocated to the Capital Services Operations due to a requirement to use the proceeds of the transaction to repay our debt. Proceeds from the transaction were initially used to repay our revolving facility borrowings as of June 30, 2017. The revolving facility was subsequently utilized to repay a portion of our senior notes in July 2017, as described in Note 8. The allocation of interest expense was based upon the debt amounts to be repaid.
(2) As noted above, the transaction resulted in a taxable gain (due primarily to the non-deductibility of goodwill) resulting in additional tax expense of approximately $61,000 during the three and six months ended June 30, 2017.
Cash Flows—Cash flows for our Capital Services Operations for the six months ended June 30, 2017 and 2016 were as follows:
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Operating cash flows
 
$
(36,469
)
 
$
28,470

Investing cash flows
 
$
(1,459
)
 
$
(2,495
)
5. INVENTORY
The components of inventory at June 30, 2017 and December 31, 2016 were as follows:
 
 
June 30,
2017
 
December 31,
2016
Raw materials
 
$
97,231

 
$
65,969

Work in process
 
28,717

 
51,625

Finished goods
 
32,870

 
72,508

Total
 
$
158,818

 
$
190,102


15

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. GOODWILL AND OTHER INTANGIBLES
Goodwill—At June 30, 2017 and December 31, 2016, our goodwill balances were $2,829,214 and $2,813,803, respectively, attributable to the excess of the purchase price over the fair value of net assets acquired in connection with our acquisitions. The change in goodwill for the six months ended June 30, 2017 is as follows:
 
 
Total
Balance at December 31, 2016
 
$
2,813,803

Foreign currency translation and other
 
16,596

Amortization of tax goodwill in excess of book goodwill
 
(1,185
)
Balance at June 30, 2017 (1)
 
$
2,829,214

(1) 
At June 30, 2017, we had approximately $453,100 of cumulative impairment losses which were recorded in our Engineering & Construction operating group during 2015 related to the sale of our nuclear power construction business (our “Nuclear Operations”) on December 31, 2015.
As discussed further in Note 2, goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually at a reporting unit level, absent any indicators of impairment or when other actions require an impairment assessment (such as a change in reporting units). We perform our annual impairment assessment during the fourth quarter of each year based upon balances as of October 1. At December 31, 2016, we had the following three operating groups and reporting units:
Engineering & Construction—Our Engineering & Construction operating group represented a reporting unit.
Fabrication Services—Our Fabrication Services operating group represented a reporting unit.
Technology—Our Technology operating group represented a reporting unit.
During the three months ended December 31, 2016, we performed a quantitative assessment of goodwill for each of the aforementioned reporting units. Based upon these quantitative assessments, the fair value of each of these reporting units substantially exceeded their respective net book values, and accordingly, no impairment charge was necessary as a result of our impairment assessments. During the three months ended June 30, 2017, we experienced a decline in our market capitalization and incurred charges on certain projects (as discussed further in Note 14) within our Engineering & Construction reporting unit that resulted in a net loss for the three and six months ended June 30, 2017. We believe these events and circumstances were indicators that goodwill of our Engineering & Construction reporting unit was potentially impaired. Accordingly, we performed a quantitative assessment of goodwill for our Engineering & Construction reporting unit as of June 30, 2017. Based on this quantitative assessment, the fair value of the Engineering & Construction reporting unit continued to substantially exceed its net book value, and accordingly, no impairment charge was necessary as a result of our interim impairment assessment. If we were to experience an additional decline in our market capitalization, or a prolonged market capitalization at our current levels, it could indicate that the goodwill of our reporting units is impaired, and require additional interim quantitative impairment assessments. If, based on future assessments our goodwill is deemed to be impaired, the impairment would result in a charge to earnings in the period of impairment. There can be no assurance that future goodwill impairment tests will not result in charges to earnings. See Note 4 for discussion of our goodwill impairment for the Capital Services Operations recorded in the fourth quarter 2016 in connection with our annual impairment assessment.
Other Intangible Assets—The following table presents our acquired finite-lived intangible assets at June 30, 2017 and December 31, 2016, including the June 30, 2017 weighted-average useful lives for each major intangible asset class and in total:
 
 
 
 
June 30, 2017
 
December 31, 2016
 
 
Weighted Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Backlog and customer relationships
 
18 Years
 
$
99,086

 
$
(24,143
)
 
$
99,086

 
$
(21,374
)
Process technologies
 
15 Years
 
263,043

 
(140,717
)
 
258,516

 
(129,261
)
Tradenames
 
12 Years
 
27,327

 
(16,208
)
 
27,090

 
(14,648
)
Total (1)
 
16 Years
 
$
389,456

 
$
(181,068
)
 
$
384,692

 
$
(165,283
)
(1) 
The decrease in other intangibles, net during the six months ended June 30, 2017 primarily related to amortization expense of approximately $12,900.

16

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. PARTNERING ARRANGEMENTS
As discussed in Note 2, we account for our unconsolidated ventures using either proportionate consolidation, when we meet the applicable accounting criteria to do so, or the equity method. Further, we consolidate any venture that is determined to be a VIE for which we are the primary beneficiary, or which we otherwise effectively control.
Proportionately Consolidated Ventures—The following is a summary description of our significant joint ventures which have been accounted for using proportionate consolidation:
CB&I/Zachry—We have a venture with Zachry (CB&I—50% / Zachry—50%) to perform EPC work for two liquefied natural gas (“LNG”) liquefaction trains in Freeport, Texas. Our proportionate share of the venture project value is approximately $2,700,000. In addition, we have subcontract and risk sharing arrangements with Chiyoda to support our responsibilities to the venture. The costs of these arrangements are recorded in cost of revenue.
CB&I/Zachry/Chiyoda—We have a venture with Zachry and Chiyoda (CB&I—33.3% / Zachry—33.3% / Chiyoda—33.3%) to perform EPC work for an additional LNG liquefaction train at the aforementioned project site in Freeport, Texas. Our proportionate share of the venture project value is approximately $675,000.
CB&I/Chiyoda—We have a venture with Chiyoda (CB&I—50% / Chiyoda—50%) to perform EPC work for three LNG liquefaction trains in Hackberry, Louisiana. Our proportionate share of the venture project value is approximately $3,200,000.
The following table presents summarized balance sheet information for our share of our proportionately consolidated ventures at June 30, 2017 and December 31, 2016:
 
 
June 30,
2017
 
December 31,
2016
CB&I/Zachry
 
 
 
 
Current assets (1)
 
$
251,237

 
$
260,934

Non-current assets
 
2,678

 
3,204

Total assets
 
$
253,915

 
$
264,138

Current liabilities (1)
 
$
387,466

 
$
379,339

CB&I/Zachry/Chiyoda
 
 
 
 
Current assets (1)
 
$
88,593

 
$
84,279

Non-current assets
 
1,539

 
1,969

Total assets
 
$
90,132

 
$
86,248

Current liabilities (1)
 
$
68,305

 
$
73,138

CB&I/Chiyoda
 
 
 
 
Current assets (1)
 
$
186,278

 
$
337,479

Current liabilities (1)
 
$
258,367

 
$
150,179

(1) 
Our venture arrangements allow for excess working capital of the ventures to be advanced to the venture partners. Such advances are returned to the ventures for working capital needs as necessary. Accordingly, at a reporting period end a venture may have advances to its partners which are reflected as an advance receivable within current assets of the venture. At June 30, 2017 and December 31, 2016, other current assets on the Balance Sheet included approximately $324,400 and $374,800, respectively, related to our proportionate share of advances from the ventures to our venture partners, and other current liabilities included approximately $347,300 and $394,400, respectively, related to advances to CB&I from the ventures.
Equity Method Ventures—The following is a summary description of our significant joint ventures which have been accounted for using the equity method:
Chevron-Lummus Global (“CLG”)—We have a venture with Chevron (CB&I—50% / Chevron—50%) which provides proprietary process technology licenses and associated engineering services and catalyst, primarily for the refining industry. As sufficient capital investments in CLG have been made by the venture partners, it does not qualify as a VIE.

17

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NET Power—We have a venture with Exelon and 8 Rivers Capital (CB&I—33.3% / Exelon—33.3% / 8 Rivers Capital—33.3%) to commercialize a new natural gas power generation system that recovers the carbon dioxide produced during combustion. NET Power is building a first-of-its-kind demonstration plant which is being funded by contributions and services from the venture partners and other parties. We have determined the venture to be a VIE; however, we do not effectively control NET Power and therefore do not consolidate it. Our cash commitment for NET Power totals $47,300 and at June 30, 2017, we had made cumulative investments totaling approximately $44,900.
CB&I/CTCI—We have a venture with CTCI (CB&I—50% / CTCI—50%) to perform EPC work for a liquids ethylene cracker and associated units in Sohar, Oman. We have determined the venture to be a VIE; however, we do not effectively control the venture and therefore do not consolidate it. Our proportionate share of the venture project value is approximately $1,400,000. Our venture arrangement allows for excess working capital of the venture to be advanced to the venture partners. Such advances are returned to the venture for working capital needs as necessary. At June 30, 2017 and December 31, 2016, other current liabilities included approximately $205,900 and $147,000, respectively, related to advances to CB&I from the venture.
Consolidated Ventures—The following is a summary description of our significant joint ventures we consolidate due to their designation as VIEs for which we are the primary beneficiary:
CB&I/Kentz—We have a venture with Kentz (CB&I—65% / Kentz—35%) to perform the structural, mechanical, piping, electrical and instrumentation work on, and to provide commissioning support for, three LNG trains, including associated utilities and a gas processing and compression plant, for the Gorgon LNG project, located on Barrow Island, Australia. Our venture project value is approximately $5,900,000 and the project was substantially complete at June 30, 2017.
CB&I/AREVA—We have a venture with AREVA (CB&I52% / AREVA—48%) to design, license and construct a mixed oxide fuel fabrication facility in Aiken, South Carolina. Our venture project value is approximately $5,800,000.
The following table presents summarized balance sheet information for our consolidated ventures at June 30, 2017 and December 31, 2016:
 
 
June 30,
2017
 
December 31,
2016
CB&I/Kentz
 
 
 
 
Current assets
 
$
26,486

 
$
68,867

Non-current assets
 
69,404

 

Total assets
 
$
95,890

 
$
68,867

Current liabilities
 
$
27,581

 
$
87,822

CB&I/AREVA
 
 
 
 
Current assets
 
$
24,416

 
$
16,313

Current liabilities
 
$
50,086

 
$
47,652

All Other (1)
 
 
 
 
Current assets
 
$
33,099

 
$
69,785

Non-current assets
 
16,003

 
16,382

Total assets
 
$
49,102

 
$
86,167

Current liabilities
 
$
8,514

 
$
7,748

(1) 
Other ventures that we consolidate are not individually material to our financial results and are therefore aggregated as “All Other”.
Other—The use of these ventures exposes us to a number of risks, including the risk that our partners may be unable or unwilling to provide their share of capital investment to fund the operations of the venture or complete their obligations to us, the venture, or ultimately, our customer. Differences in opinions or views among venture partners could also result in delayed decision-making or failure to agree on material issues, which could adversely affect the business and operations of the venture. In addition, agreement terms may subject us to joint and several liability for our venture partners, and the failure of our venture partners to perform their obligations could impose additional performance and financial obligations on us. The aforementioned factors could result in unanticipated costs to complete the projects, liquidated damages or contract disputes, including claims against our partners.

18

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

l8. DEBT
Our outstanding debt at June 30, 2017 and December 31, 2016 was as follows:
 
 
June 30,
2017
 
December 31,
2016
Current
 
 
 
 
Revolving facility and other short-term borrowings
 
$
374,000

 
$
407,500

 
 
 
 
 
Current maturities of long-term debt
 
1,481,250

 
506,250

Less: unamortized debt issuance costs
 
(11,930
)
 
(2,340
)
Current maturities of long-term debt, net of unamortized debt issuance costs
 
1,469,320

 
503,910

Current debt, net of unamortized debt issuance costs
 
$
1,843,320

 
$
911,410

Long-Term
 
 
 
 
Term Loan: $1,000,000 term loan (interest at LIBOR plus a floating margin)
 
$

 
$
300,000

Second Term Loan: $500,000 term loan (interest at LIBOR plus a floating margin)
 
481,250

 
500,000

Senior Notes: $800,000 senior notes, series A-D (fixed interest ranging from 4.65% to 5.80%)
 
800,000

 
800,000

Second Senior Notes: $200,000 senior notes (fixed interest of 5.03%)
 
200,000

 
200,000

Less: unamortized debt issuance costs
 

 
(5,827
)
Less: current maturities of long-term debt
 
(1,481,250
)
 
(506,250
)
Long-term debt, net of unamortized debt issuance costs
 
$

 
$
1,287,923

Committed Facilities—We have a five-year, $1,150,000 committed revolving credit facility (the “Revolving Facility”) with Bank of America N.A. (“BofA”), as administrative agent, and BNP Paribas Securities Corp., BBVA Compass, Credit Agricole Corporate and Investment Bank (“Credit Agricole”) and TD Securities, each as syndication agents, which expires in October 2018. The Revolving Facility had a $230,000 financial letter of credit sublimit at June 30, 2017. However, as a result of the amendments described below, effective August 9, 2017, the financial letter of credit sublimit was replaced with a $100,000 total letter of credit sublimit. At June 30, 2017, we had $204,000 and $67,211 of outstanding borrowings and letters of credit (none of which were financial letters of credit) under the facility, respectively, providing $878,789 of available capacity, of which $32,789 was available for letters of credit based on our new total letter of credit sublimit.
We also have a five-year, $800,000 committed revolving credit facility (the “Second Revolving Facility”) with BofA, as administrative agent, and BNP Paribas Securities Corp., BBVA Compass, Credit Agricole and Bank of Tokyo Mitsubishi UFJ, each as syndication agents, which expires in July 2020. The Second Revolving Facility supplements our Revolving Facility, and had a $50,000 financial letter of credit sublimit at June 30, 2017. However, as a result of the amendments described below, effective August 9, 2017, the financial letter of credit sublimit was replaced with a $100,000 total letter of credit sublimit. At June 30, 2017, we had $170,000 and $72,445 of outstanding borrowings and letters of credit (including $2,757 of financial letters of credit) under the facility, respectively, providing $557,555 of available capacity, of which $27,555 was available for letters of credit based on our new total letter of credit sublimit.
During the six months ended June 30, 2017, maximum outstanding borrowings under our Revolving Facility and Second Revolving Facility (together, “Committed Facilities”) were approximately $1,700,000. We are assessed quarterly commitment fees on the unutilized portion of the facilities as well as letter of credit fees on outstanding letters of credit. Through the date of the amendments described below, the interest, commitment fee, and letter of credit fee percentages were based on our quarterly leverage ratio and interest on borrowings under the facilities was assessed at either prime plus an applicable floating margin (4.25% and 1.50%, respectively at June 30, 2017), or LIBOR plus an applicable floating margin (1.23% and 2.50%, respectively at June 30, 2017). However, as a result of the amendments, effective August 9, 2017, interest on borrowings under the amended facilities will be assessed at either prime plus 4.00% or LIBOR plus 5.00%. In addition, our fees for financial and performance letters of credit will be 5.00% and 3.50%, respectively. During the six months ended June 30, 2017, our weighted average interest rate on borrowings under the Revolving Facility and Second Revolving Facility was approximately 3.3% and 4.9%, respectively, inclusive of the applicable floating margin. The Committed Facilities have financial and restrictive covenants described further below.

19

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Uncommitted Facilities—We also have various short-term, uncommitted letter of credit facilities (the “Uncommitted Facilities”) across several geographic regions, under which we had $1,624,089 of outstanding letters of credit as of June 30, 2017.
Term Loans—On February 13, 2017, we paid the remaining $300,000 of principal on our four-year, $1,000,000 unsecured term loan (the “Term Loan”) with BofA as administrative agent. Interest was based upon LIBOR plus an applicable floating margin for the period (0.98% and 2.25%, respectively). In conjunction with the repayment of the Term Loan, we also settled our associated interest rate swap that hedged against a portion of the Term Loan, which resulted in a weighted average interest rate of approximately 2.6% during the first quarter 2017.
At June 30, 2017, we had $481,250 outstanding under a five-year, $500,000 term loan (the “Second Term Loan”) with BofA as administrative agent. Interest and principal under the Second Term Loan is payable quarterly in arrears beginning in June 2017, and through the date of the amendments described below, bore interest at LIBOR plus an applicable floating margin (1.23% and 2.50%, respectively at June 30, 2017). However, as a result of the amendments, effective August 9, 2017, interest will be assessed at either prime plus 4.00% or LIBOR plus 5.00%. During the six months ended June 30, 2017, our weighted average interest rate on the Second Term Loan was approximately 3.1%, inclusive of the applicable floating margin. Future annual maturities for the Second Term Loan are $37,500, $75,000, $75,000 and $293,750 for 2017, 2018, 2019, and 2020, respectively. The Second Term Loan has financial and restrictive covenants described further below.
Senior Notes—We have a series of senior notes totaling $800,000 in aggregate principal amount outstanding as of June 30, 2017 (the “Senior Notes”). The Senior Notes include Series A through D and contained the following terms at June 30, 2017:
Series A—Interest due semi-annually at a fixed rate of 4.65%, with principal of $150,000 due in December 2017
Series B—Interest due semi-annually at a fixed rate of 5.07%, with principal of $225,000 due in December 2019
Series C—Interest due semi-annually at a fixed rate of 5.65%, with principal of $275,000 due in December 2022
Series D—Interest due semi-annually at a fixed rate of 5.80%, with principal of $150,000 due in December 2024
On July 28, 2017, we utilized $211,800 of the proceeds from the sale of the Capital Services Operations to repay a portion of each series of senior notes in the following amounts: (Series A - $44,600, Series B - $58,200, Series C - $78,500 and Series D - $30,500). The repayment dates for the remaining principal amounts remained the same.    
We also have senior notes totaling $200,000 in aggregate principal amount outstanding as of June 30, 2017 (the “Second Senior Notes”) with BofA as administrative agent. At June 30, 2017, interest was due semi-annually at a fixed rate of 5.03%, with principal of $200,000 due in July 2025. On July 28, 2017, we utilized $57,100 of the proceeds from the sale of the Capital Services Operations to repay a portion of the Second Senior Notes. The repayment date for the remaining principal amount remained the same.
The Senior Notes and Second Senior Notes (together, the “Notes”) have financial and restrictive covenants described further below. Further, as a result of the amendments described below, our fixed interest rate on the amended Notes was increased by an incremental 2.50% over the rates in effect immediately prior to such amendments. The amended Notes also include provisions relating to our credit profile, which if not maintained will result in an incremental annual cost of up to 1.50% of the outstanding balance under the Notes. Further, the Notes include provisions relating to our leverage, which if not maintained, could result in an incremental annual cost of up to 1.00% (or 0.50% depending on our leverage level) of the outstanding balance under the Notes, provided that the incremental annual cost related to our credit profile and leverage cannot exceed 2.00% per annum. Finally, the Notes are subject to a make-whole premium in connection with certain prepayment events.
Compliance and Other—On February 24, 2017, and effective for the period ended December 31, 2016, we amended our Revolving Facility, Second Revolving Facility, and Second Term Loan (collectively, “Bank Facilities”) and Notes (collectively, with Bank Facilities, “Senior Facilities”). The amendments:
Established a new maximum leverage ratio of 3.50 at December 31, 2016, decreasing to 3.00 at December 31, 2017, or 45 days subsequent to the closing of the sale of our Capital Services Operations (the “Closing Date”), if earlier.
Established a new minimum net worth of $1,201,507, maintained our required fixed charge coverage ratio at 1.75, and reduced our Revolving Facility from $1,350,000 to $1,150,000 at the Closing Date.
Included other financial and restrictive covenants, including restrictions regarding subsidiary indebtedness, sales of assets, liens, investments, type of business conducted, and mergers and acquisitions, and restrictions on dividend payments and share repurchases, among other restrictions.

20

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On May 8, 2017, and effective for the period ended March 31, 2017, we further amended our Senior Facilities. The amendments:
Required us to secure the Senior Facilities through the pledge of cash, accounts receivable, inventory, fixed assets, and stock of subsidiaries, which was in the process of being completed as of June 30, 2017.
Required us to repay portions of the Senior Facilities with all of the net proceeds from the sale of our Capital Services Operations, the issuance of any unsecured debt that is subordinate (“Subordinated Debt”) to the Senior Facilities, the issuance of any equity securities, or the sale of any assets.
Established new maximum leverage ratios for borrowings under the Senior Facilities as follows: 4.00 at March 31, 2017; 4.50 at June 30, 2017 and September 30, 2017; 3.00 at December 31, 2017 and March 31, 2018; and 2.50 at June 30, 2018.
Established total maximum leverage ratios (in addition to those established for the Senior Facilities) for all borrowings among the Senior Facilities and any Subordinated Debt as follows: 5.25 at June 30, 2017; 6.00 at September 30, 2017; 4.00 at December 31, 2017 and March 31, 2018; 3.25 at June 30, 2018; and 3.00 at September 30, 2018.
Prohibited mergers and acquisitions, open-market share repurchases, and increases to dividends until our leverage ratio is below 3.00 for two consecutive quarters.
As a result of the project impacts in the second quarter 2017 (discussed further in Note 14), as of June 30, 2017, we would not have been in compliance with the previously amended financial covenants for our Senior Facilities, without certain waivers and amendments. Accordingly, effective August 9, 2017 (the “Effective Date”), and effective for the period ended June 30, 2017, we are further amending our Senior Facilities. The amendments, which are subject to final documentation, waive our noncompliance with our existing covenants as of June 30, 2017 and certain other defaults and events of default. In addition, the amendments:
Eliminate our Minimum Net Worth covenant required by our previous amendments.
Require minimum levels of trailing 12-month earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined by the amendments, as follows: $500,000 at September 30, 2017; $550,000 at December 31, 2017; $500,000 at March 31, 2018; $450,000 at June 30, 2018 and September 30, 2018; and $425,000 at December 31, 2018 and thereafter (“Minimum EBITDA”). Trailing 12-month EBITDA for purposes of determining compliance with the Minimum EBITDA covenant will be adjusted to exclude: an agreed amount attributable to any restructuring or integration charges during the third and fourth quarters of 2017; an agreed amount attributable to previous charges on certain projects which occurred during the first and second quarters of 2017; and an agreed amount for potential future charges for the same projects if they were to be incurred during the third and fourth quarters of 2017 (collectively, the “EBITDA Addbacks”).
Provide for the replacement of our previous maximum leverage ratio and minimum fixed charge ratio with a new maximum leverage ratio of 1.75 (“Maximum Leverage Ratio”) and new minimum fixed charge coverage ratio of 2.25 (“Minimum Fixed Charge Coverage Ratio”), which are temporarily suspended and will resume as of March 31, 2018. Trailing 12-month EBITDA for purposes of determining compliance with the Maximum Leverage Ratio and consolidated net income for purposes of determining compliance with the Minimum Fixed Charge Coverage Ratio will be adjusted for the EBITDA Addbacks.
Require us to execute on our plan to market and sell our Technology Operations by December 27, 2017 (the “Technology Sale”), with an extension of up to 60 days at the discretion of the holders of a majority of the outstanding Notes and at the discretion of the administrative agents of the Bank Facilities.
Require us to maintain a minimum aggregate availability under our Revolving Facility and Second Revolving Facility, including borrowings and letters of credit, of $150,000 at all times from the Effective Date through the date of the Technology Sale, and $250,000 thereafter (“Minimum Availability”). Our amendments require the net cash proceeds from the Technology Sale be used to repay our Senior Facilities (“Mandatory Repayment Amount”). Further, our aggregate capacity under the Revolving Facility and Second Revolving Facility will be reduced by seventy percent (70%) of the portion of the Mandatory Repayment Amount allocable to the Revolving Facility and Second Revolving Facility, upon closing the Technology Sale and certain other mandatory prepayment events.
Limit the amount of certain of our funded indebtedness to $3,000,000 prior to the Technology Sale and $2,900,000 thereafter, in each case, subject to reduction pursuant to scheduled repayments and mandatory prepayments thereof (but, with respect to the Revolving Facility and Second Revolving Facility, only to the extent the commitments have been reduced by such prepayments) made by us after the Effective Date.

21

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prohibit mergers and acquisitions, open-market share repurchases and dividend payments and certain inter-company transactions.
Replace the previous financial letter of credit sublimits for our Revolving Facility and Second Revolving Facility with a $100,000 letter of credit sublimit for each, as described further above.
Adjust the interest rates on our Senior Facilities, as described further above.
As discussed above, our amended covenants require, among other things, the completion of our plan to sell the Technology Operations. Further, we are required to comply with various new restrictive and financial covenants, including the Minimum EBITDA and Minimum Availability covenants. Although we received temporary suspension of our Maximum Leverage Ratio and Minimum Fixed Charge Coverage Ratio, these covenants will resume effective March 31, 2018. Based on our forecasted EBITDA and cash flows, we project that future compliance with certain covenants subsequent to December 31, 2017 will require the completion of the Technology Sale and associated net proceeds consistent with our expectations. Accordingly, debt of approximately $1,200,000, which by its terms is due beyond one year and would otherwise be shown as long-term, has been classified as current, as certain factors regarding our compliance with such covenants is beyond our control.
In addition to providing letters of credit, we also issue surety bonds in the ordinary course of business to support our contract performance. At June 30, 2017, we had $358,739 of outstanding surety bonds in support of our projects. In addition, we had $473,194 of surety bonds maintained on behalf of our former Capital Services Operations, for which we have received an indemnity from CSVC. We also continue to maintain guarantees on behalf of our former Capital Services Operations in support of approximately $166,000 of backlog, for which we have also received an indemnity.
Capitalized interest was insignificant for the six months ended June 30, 2017 and 2016.
9. FINANCIAL INSTRUMENTS
Derivatives
Foreign Currency Exchange Rate Derivatives—At June 30, 2017, the notional value of our outstanding forward contracts to hedge certain foreign exchange-related operating exposures was approximately $139,600. These contracts vary in duration, maturing up to five years from period-end. We designate certain of these hedges as cash flow hedges and accordingly, changes in their fair value are recognized in AOCI until the associated underlying operating exposure impacts our earnings. Forward points, which are deemed to be an ineffective portion of the hedges, are recognized within cost of revenue and are not material.
Financial Instruments Disclosures
Fair Value—Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:
Level 1—Fair value is based upon quoted prices in active markets.
Level 2—Fair value is based upon internally-developed models that use, as their basis, readily observable market parameters. Our derivative positions are classified within level 2 of the valuation hierarchy as they are valued using quoted market prices for similar assets and liabilities in active markets. These level 2 derivatives are valued utilizing an income approach, which discounts future cash flow based upon current market expectations and adjusts for credit risk.
Level 3—Fair value is based upon internally-developed models that use, as their basis, significant unobservable market parameters. We did not have any level 3 classifications at June 30, 2017 or December 31, 2016.

22

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the fair value of our foreign currency exchange rate derivatives and interest rate derivatives at June 30, 2017 and December 31, 2016, respectively, by valuation hierarchy and balance sheet classification:
 
 
June 30, 2017
 
December 31, 2016
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Derivative Assets (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$

 
$
4,766

 
$

 
$
4,766

 
$

 
$
1,146

 
$

 
$
1,146

Other non-current assets
 

 
561

 

 
561

 

 
82

 

 
82

Total assets at fair value
 
$

 
$
5,327

 
$

 
$
5,327

 
$

 
$
1,228

 
$

 
$
1,228

Derivative Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities
 
$

 
$
(551
)
 
$

 
$
(551
)
 
$

 
$
(3,509
)
 
$

 
$
(3,509
)
Other non-current liabilities
 

 
(908
)
 

 
(908
)
 

 
(725
)
 

 
(725
)
Total liabilities at fair value
 
$

 
$
(1,459
)
 
$

 
$
(1,459
)
 
$

 
$
(4,234
)
 
$

 
$
(4,234
)
(1) 
We are exposed to credit risk on our hedging instruments associated with potential counterparty non-performance, and the fair value of our derivatives reflects this credit risk. The total level 2 assets at fair value above represent the maximum loss that we would incur on our outstanding hedges if the applicable counterparties failed to perform according to the hedge contracts. To help mitigate counterparty credit risk, we transact only with counterparties that are rated as investment grade or higher and monitor all counterparties on a continuous basis.
The carrying values of our cash and cash equivalents (primarily consisting of bank deposits), accounts receivable and accounts payable approximate their fair values because of the short-term nature of these instruments. At June 30, 2017, the fair value of our Second Term Loan, based upon the current market rates for debt with similar credit risk and maturities, approximated its carrying value as interest is based upon LIBOR plus an applicable floating margin. At June 30, 2017, the fair values of our Senior Notes and Second Senior Notes, based upon the current market rates for debt with similar credit risk and maturities, approximated their carrying values due to their classification as current on our Balance Sheet. At December 31, 2016, our Senior Notes and Second Senior Notes had a total fair value of approximately $785,700 and $206,400, respectively, based on current market rates for debt with similar credit risk and maturities and were categorized within level 2 of the valuation hierarchy.
Derivatives Disclosures
Fair Value—The following table presents the total fair value by underlying risk and balance sheet classification for derivatives designated as cash flow hedges and derivatives not designated as cash flow hedges at June 30, 2017 and December 31, 2016:
 
 
Other Current and
Non-Current Assets
 
Other Current and
Non-Current Liabilities
 
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
Derivatives designated as cash flow hedges
 
 
 
 
 
 
 
 
Interest rate
 
$

 
$
49

 
$

 
$

Foreign currency
 
545

 
109

 

 
(536
)
Fair value
 
$
545

 
$
158

 
$

 
$
(536
)
Derivatives not designated as cash flow hedges
 
 
 
 
 
 
 
 
Foreign currency
 
$
4,782

 
$
1,070

 
$
(1,459
)
 
$
(3,698
)
Fair value
 
$
4,782

 
$
1,070

 
$
(1,459
)
 
$
(3,698
)
Total fair value
 
$
5,327

 
$
1,228

 
$
(1,459
)
 
$
(4,234
)

23

Chicago Bridge & Iron Company N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Master Netting Arrangements (“MNAs”)—Our derivatives are executed under International Swaps and Derivatives Association MNAs, which generally allow us and our counterparties to net settle, in a single net payable or receivable, obligations due on the same day, in the same currency and for the same type of derivative instrument. We have elected the option to record all derivatives on a gross basis in our Balance Sheet. The following table presents our derivative assets and liabilities at June 30, 2017 on a gross basis and a net settlement basis:
 
 
Gross
Amounts
Recognized
(i)
 
Gross Amounts
Offset on the
Balance Sheet
(ii)
 
Net Amounts
Presented on the
Balance Sheet
(iii) = (i) - (ii)
 
Gross Amounts Not Offset on
the Balance Sheet (iv)
 
Net Amount
(v) = (iii) - (iv)
 
 
Financial
Instruments
 
Cash Collateral Received
 
Derivative Assets
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
 
5,327

 

 
5,327

 
(179
)
 

 
5,148

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