XXX BEGIN PAGE 28 HERE XXX
FINANCIAL SUMMARY CBI Industries, Inc. and Subsidiaries
____________________________________________________________________________________________________________________________________
Thousands of Dollars, except per share amounts 1993 1992 1991 1990 1989
____________________________________________________________________________________________________________________________________
RESULTS OF OPERATIONS
Revenues Contracting Services $ 728,572 $ 793,093 $ 775,591 $ 764,890 $ 727,059
Industrial Gases 826,242 746,394 697,569 661,970 584,145
Investments 116,930 133,287 141,741 138,549 184,294
________________________________________________________________________________________________________
1,671,744 1,672,774 1,614,901 1,565,409 1,495,498
__________________________________________________________________________________________________________________________________
Income from Operations Contracting Services 8,035 75,698 70,231 55,265 38,419
Industrial Gases 112,628 107,505 106,968 102,589 87,452
Investments 14,916 2,236 10,214 14,747 20,268
Corporate (17,834) (19,159) (19,880) (19,684) (18,918)
Special (Charge)/Credit (91,600)<FN1> - - 10,788<FN3> -
__________________________________________________________________________________________________________________________________
26,145 166,280 167,533 163,705 127,221
__________________________________________________________________________________________________________________________________
(Loss)/Income before Income Taxes (2,235) 145,500 136,965 122,849 87,036
Net (Loss)/Income (34,013)<FN1> 63,963<FN2> 61,076 55,135<FN3> 34,297
Net (Loss)/Income to Common Shareholders (39,846)<FN1> 58,367<FN2> 53,408 47,604<FN3> 26,883
____________________________________________________________________________________________________________________________________
FINANCIAL POSITION
Assets Contracting Services $ 402,225 $ 385,455 $ 350,855 $ 358,735 $ 310,750
Industrial Gases 1,109,051 971,796 843,239 803,496 738,780
Investments 358,969 328,074 284,777 270,051 309,132
________________________________________________________________________________________________________
1,870,245 1,685,325 1,478,871 1,432,282 1,358,662
__________________________________________________________________________________________________________________________________
Debt Current 68,698 65,657 46,378 46,085 36,194
Long-Term 607,579 410,998 259,550 394,739 465,790
________________________________________________________________________________________________________
676,277 476,655 305,928 440,824 501,984
__________________________________________________________________________________________________________________________________
Shareholders' Investment Preferred 33,080 27,187 20,570 15,198 9,599
Common 643,532 688,294 645,591 497,465 374,549
________________________________________________________________________________________________________
676,612 715,481 666,161 512,663 384,148
__________________________________________________________________________________________________________________________________
Debt to Capitalization <FN4> - % 50.0% 40.0% 31.5% 46.2% 56.6%
Debt to Capitalization Adjusted for the ESOP Debt <FN5> - % 42.4% 30.7% 19.4% 33.4% 42.5%
____________________________________________________________________________________________________________________________________
Per Common Share
Net (Loss)/Income - Primary $ (1.07)<FN1> $ 1.59<FN2> $ 1.54 $ 1.58<FN3> $ .94
Net (Loss)/Income - Fully Diluted (.89)<FN1> 1.42<FN2> 1.38 1.41<FN3> .86
Dividends .48 .48 .44 .40 .40
Common Shareholders' Investment 17.19 18.74 17.79 15.32 13.05
__________________________________________________________________________________________________________________________________
Common Stock Price Range 32-21 7/8 37 1/8-25 7/8 36 3/4-23 7/8 29 1/4-20 3/4 22 3/8-17 1/8
Year-End 30 3/8 29 5/8 32 3/8 26 7/8 21 5/8
____________________________________________________________________________________________________________________________________
Other
Capital Expenditures Contracting Services $ 24,925 $ 56,427 $ 29,267 $ 24,630 $ 21,793
Industrial Gases 189,041 156,813 93,536 91,180 92,558
Investments 16,960 24,315 24,214 12,599 4,302
________________________________________________________________________________________________________
230,926 237,555 147,017 128,409 118,653
__________________________________________________________________________________________________________________________________
Depreciation and Contracting Services 20,899 14,704 11,095 11,176 9,719
Depletion Industrial Gases 73,306 67,457 60,836 57,783 51,384
Investments 6,495 9,390 10,694 8,213 11,730
________________________________________________________________________________________________________
100,700 91,551 82,625 77,172 72,833
_______________________________________________________________________________________________________________________________
Net Other Non-Cash Charges
to Income from Operations 85,932 43,370 17,115 23,347 19,375
Cash Flow from Operations <FN6> 212,777<FN1> 301,201 267,273 264,224<FN3> 219,429
____________________________________________________________________________________________________________________________________
<FN1>Results in 1993 are after a special charge of $91,600 ($68,400 after-tax), which is equivalent to a net loss per common share
of $1.84 ($1.60 on a fully diluted basis), to provide for costs to more efficiently align capabilities to customer needs, and
for non-operational regulatory and legal costs.
<FN2>In 1992, CBI adopted Statements of Financial Accounting Standards No. 106 - Employers' Accounting for Postretirement Benefits
Other Than Pensions and No. 109 - Accounting for Income Taxes. The cumulative effect of adopting these two accounting
standards decreased net income by $7,170, which is equivalent to net loss per common share of $0.20 ($0.17 on a fully diluted
basis).
<FN3>Results in 1990 include a special credit from the sale of an equity interest in Australian Submarine Corporation of $10,788
($6,580 after-tax), which is equivalent to net income per common share of $0.23 ($0.19 on a fully diluted basis).
<FN4>Capitalization equals debt plus shareholders' investment.
<FN5>Adjusted to reflect ESOP debt as additional shareholders' investment consistent with the requirement of the ESOP Trust to
allocate its holdings of the Series C preferred and common shares to eligible employees.
<FN6>Cash flow from operations equals income from operations plus depreciation and depletion, and net other non-cash charges to
income from operations.
The financial statements should be read in conjunction with this summary.
28
XXX BEGIN PAGE 29 HERE XXX
FINANCIAL REVIEW CBI Industries, Inc. and Subsidiaries
______________________________________________________________________________
The following discussion and analysis of operating performance and financial
condition should be read in conjunction with the financial statements.
______________________________________________________________________________
OPERATING PERFORMANCE OVERVIEW
1993 was a challenging year for CBI. After posting five consecutive years of
improving financial performance, CBI was confronted with a number of
non-controllable, market-based, developments which resulted in the company
recording lower overall operating results in 1993. The following table
highlights CBI's key operating return measures over the most recent three
years:
Millions of Dollars, except per share amounts 1993<FN1> 1992<FN2> 1991
______________________________________________________________________________
Revenues $1,671.7 $1,672.8 $1,614.9
Gross Profit from Operations 353.6 380.7 369.1
Gross Profit from Operations - % 21.2% 22.8% 22.9%
Income from Operations 117.7 166.3 167.5
Income from Operations - % 7.0% 9.9% 10.4%
Net Income 34.4 64.0 61.1
Net Income per Common Share - Primary .77 1.59 1.54
Net Income per Common Share - Fully Diluted .71 1.42 1.38
Cash Flow from Operations <FN3> 262.4 301.2 267.3
______________________________________________________________________________
<FN1>Income from operations, net income, earnings per share data and cash flow
from operations in 1993 are before the special charge discussed in Note
16.
<FN2>Net income and earnings per share data in 1992 is after the cumulative
effect of accounting changes discussed in Notes 11 and 12.
<FN3>Cash flow from operations equals income from operations plus depreciation
and depletion, and net other non-cash charges to income from operations.
Consolidated revenues have been essentially flat over the past two years,
growing at a modest compound average annual rate of 1.7%. Revenues in 1993
aggregated $1.672 billion, which is basically equal to the amount of revenues
reported in 1992, and reflect the fact that increases generated by Liquid
Carbonic's operations and from acquisitions of new businesses were largely
offset by a lower level of core contracting work put in place by Chicago
Bridge & Iron during 1993. In addition, the sale of the assets of Integrated
Drilling and Exploration (Indrex) resulted in a reduction of 1993 revenues by
$20 million compared to 1992. In 1992, consolidated revenues advanced by 3.6%,
compared to 1991.
Gross profit from operations declined in absolute dollars and as a percent
of revenues in 1993, from the $380.7 million (22.8% of revenues) reported in
1992 to $353.6 million (21.2% of revenues) in 1993, primarily as a result of
cyclical market conditions which negatively impacted Chicago Bridge & Iron
throughout the later half of 1992 and the first half of 1993, as well as lower
1993 U.S. carbon dioxide prices and depressed economic conditions in Canada
which reduced the overall gross profit returns posted by the company's
Industrial Gases business. 1992 gross profit dollars advanced $11.6 million,
or 3.1%, on higher revenues while the 1992 gross profit margin of 22.8% of
revenues was about equal to that earned in 1991.
Over the past two years, CBI has confidently invested in research, new
product development and employee training, and has aggressively sought,
through reengineering and quality initiatives, to intelligently improve
existing processes to deliver products and services in the most practical and
efficient manner consistent with customer needs. Selling and administrative
expenses grew by 10.0% in 1993 and 6.4% in 1992, primarily reflecting the
29
OPERATING PERFORMANCE OVERVIEW (Continued)
effects of the inclusion of new businesses acquired over the past two years,
but also including the additional investments associated with new product and
application development activities. Absent these impacts, the company
estimates that selling and administrative expenses would have decreased by
approximately 1.0% in 1993 and increased by 4.9% in 1992. As a percent of
revenues, selling and administrative expenses totaled 14.1% in 1993, 12.8% in
1992 and 12.5% in 1991.
Largely due to the lower contributions provided by Chicago Bridge & Iron,
which resulted from both the decline in new business taken during the twelve
month period ending June 1993 and the absence of significant contract
settlement recoveries such as were recorded in 1992, consolidated operating
income declined by $48.5 million, or 29.2%, to $117.7 million in 1993. In
1992, operating income declined by $1.3 million, as the reserves established
in connection with the sale of Indrex more than offset the gains posted by
Chicago Bridge & Iron, Liquid Carbonic and Statia Terminals.
Although 1993's operating performance did not meet expectations, a number
of strategic actions were implemented to position CBI for better performance
in 1994 and beyond. Through the selective acquisition of several new
businesses, CBI has expanded its capabilities to meet a broader range of
customer requirements and preferences in a variety of new product and service
categories, in both existing and new markets. Additionally, with a strong
emphasis placed on research and development activities, and an aggressive
investment program in new and updated plant facilities, CBI has significantly
enhanced its ability to achieve profitable growth. Finally, by combining
investments made in people, training and process improvements, CBI has
established the framework to deliver benchmark quality products and services
which will lead to superior shareholder returns from successfully challenging
the complex and uncertain risks of the marketplace in the mid-1990s.
______________________________________________________________________________
CONTRACTING SERVICES
As anticipated in our 1992 Annual Report, Chicago Bridge & Iron realized a
lower level of operating income in 1993. The following table presents a
summary of revenues, gross profit, operating income, average assets, operating
returns, new business taken and year-end backlog over the past three years:
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Revenues $728.6 $793.1 $775.6
Gross Profit from Operations 87.0 141.6 130.2
Gross Profit from Operations - % 11.9% 17.9% 16.8%
Income from Operations 8.0 75.7 70.2
Income from Operations - % 1.1% 9.5% 9.1%
Average Assets Employed 393.8 368.2 354.8
Rate of Return on Average Assets Employed - % 2.0% 20.6% 19.8%
New Business Taken 839.6 703.5 803.1
Backlog at Year-End 424.9 325.2 438.5
______________________________________________________________________________
Revenues in 1993 declined by $64.5 million, or 8.1%, as a direct result of
the low level of new business awarded during the twelve month period ending
June 1993, when orders totaled $549.0 million compared to $724.4 million for
the preceding twelve months. In 1992, revenues advanced modestly to $793.1
million. This deterioration in 1993 market opportunities, which was driven by
an uncertain global economic climate, evolving but non-specific environmental
regulations in the United States and international funding constraints,
reflected the reluctance of customers to make investment decisions,
particularly as related to larger projects. During the last half of 1993,
customer inquiries moved from the discussion stage to the commitment stage. As
29
CONTRACTING SERVICES (Continued)
a result, Chicago Bridge & Iron recorded $551.9 million of new business in
that six month period, an order flow which will lead to increased revenues in
1994. The table on the following page highlights the annual amount of new
business taken by major product line over the past three years. An estimated
57% of the orders in 1993, and 55% over the three year period, were from the
hydrocarbon sector.
29
XXX BEGIN PAGE 30 HERE XXX
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Tanks and Spheres $328 $320 $279
Pressure Vessels 118 67 96
Repairs and Turnarounds 120 78 189
General Contracting 52 59 58
Specialty Structures 138 151 181
Heat Treating and Inspection 84 29 -
---- ---- ----
$840 $704 $803
______________________________________________________________________________
During the past two years, Contracting Services expanded its capabilities
and added to its revenue base by making three strategic new business
acquisitions. In March 1992, MQS, which provides non-destructive examination
and testing services, was acquired. Cooperheat, which performs post-weld heat
treating and refractory bake-outs as field services, and sells associated
equipment, became part of CBI on December 31, 1992. And more recently, in May
1993, Ershigs, a firm which specializes in the design, manufacture and
construction of fiberglass reinforced plastic and dual-laminate vessels, tanks
and other structures for corrosion-resistant applications, joined the company.
These new businesses have extended Chicago Bridge & Iron's ability to service
existing domestic customers through its 67 U.S. offices, and to become
associated with a number of new clients and to provide significant
opportunities to leverage its new strengths in international markets. In 1993,
Contracting Services executed work in 31 overseas countries from its 25
international offices.
Chicago Bridge & Iron's earned revenues for 1993, 1992 and 1991, by product
line, are summarized in the table to the right (below), which also includes
the contributions of the new businesses from their respective dates of
acquisition. An estimated 40% of the revenues were generated in international
markets in 1993, with an average of 41% being from outside the U.S. over the
three year period.
With the lower level of work executed, particularly on metal plate vessels
and special purpose structures, a less than favorable pricing environment for
standard products in the United States throughout most of 1993 and the first
quarter decision to close a fabrication facility in Cordova, Alabama,
Contracting Services operating income contribution, margins and return on
average assets employed declined as anticipated. Although the new businesses
acquired collectively added to Chicago Bridge & Iron's performance in 1993,
and to a lesser extent in 1992, their contribution was not sufficient to
offset the decline in Contracting Services core business, the absence of the
significant settlement recoveries which increased revenues and earnings in
1992, and the continuing upward pressure on costs. In 1992, operating income
advanced by 7.8%, operating margins advanced to 9.5% and the rate of return on
average assets employed reached 20.6%, all due primarily to the higher margins
associated with the completion of two complex, highly-engineered, projects
which were awarded in late 1990 and early 1991, and the receipt of the
aforementioned contract settlements on work executed in the late 1980s. The
following table presents revenues by product line over the past three years:
30
CONTRACTING SERVICES (Continued)
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Tanks and Spheres $268 $321 $234
Pressure Vessels 54 74 96
Repairs and Turnarounds 127 79 213
General Contracting 50 75 52
Specialty Structures 146 215 181
Heat Treating and Inspection 84 29 -
---- ---- ----
$729 $793 $776
______________________________________________________________________________
Chicago Bridge & Iron expects to generate an improved level of
profitability in 1994. However, there continues to exist a number of
uncertainties, particularly in the U.S., which may influence the pace of
customer demand, particularly in the first half of 1994. Nevertheless, the
pragmatic steps taken by Chicago Bridge & Iron to enhance processes, to
improve safety, to respond to customer demands for the most efficient contract
execution and to offer innovative solutions to address customer requirements
in adapting to U.S. mandated environmental requirements, have well positioned
the Contracting Services business. CBI's dedication to providing quality and
cost-effective service has received excellent market acceptance and has also
been recognized by several major customers through partnering and teaming
arrangements, under which Chicago Bridge & Iron has been selected as the
supplier of choice.
______________________________________________________________________________
INDUSTRIAL GASES
Liquid Carbonic continued to increase its revenue and operating income
contributions to CBI in 1993, reflecting both the diversification and
stability of its various businesses. These gains were registered in the face
of some difficult conditions in North America and evidence the outstanding
manner in which Liquid Carbonic has capitalized on well-balanced global
opportunities in the emerging free markets to expand its product offerings and
to extend its geographic presence. The returns provided by Liquid Carbonic
from 1991 to 1993 include:
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Revenues $826.2 $746.4 $697.6
Gross Profit from Operations 247.3 231.1 221.0
Gross Profit from Operations - % 29.9% 31.0% 31.7%
Income from Operations 112.6 107.5 107.0
Income from Operations - % 13.6% 14.4 % 15.3%
Average Assets Employed 1,040.4 907.5 823.4
Rate of Return on Average Assets Employed - % 10.8% 11.8% 13.0%
______________________________________________________________________________
Over the past two years, Industrial Gases revenues have increased at a
compound annual rate of 8.8%, with 1993 revenues advancing by 10.7% following
the 7.0% increase in 1992 revenues over those reported in 1991. These gains
reflect the success of Liquid Carbonic's focused strategy to increase the
volume of carbon dioxide, atmospheric and specialty gases sold. This growth
has been facilitated through the reinvestment in targeted new production
capacity and the broadening of product applications which add value to a
growing base of customers. The revenue gains in 1993 also reflect geographic
expansion, some of which resulted from Liquid Carbonic's acquisition of two
Polish atmospheric gas companies in April 1993. Finally, the acquisitions of
strong calcium carbonate businesses in Brazil in 1992 and in Mexico at the end
30
INDUSTRIAL GASES (Continued)
of 1993, a product line involving the use of carbon dioxide, provide a new
opportunity to participate in the market to supply a key ingredient used in
the manufacture of a broad range of consumer and industrial products, such as
pulp and paper, paint, plastics and personal hygiene products. The following
table presents revenues by product line over the past three years:
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Carbon Dioxide $385 $363 $346
Atmospheric Gases 169 160 152
Specialty Gases 142 133 125
Other Products 130 90 75
---- ---- ----
$826 $746 $698
______________________________________________________________________________
XXX BEGIN PAGE 31 HERE XXX
Geographically, revenues have grown most dramatically in international
markets, in part reflecting the positive effects of acquisitions. In the
United States, where carbon dioxide prices have been weak, revenue growth has
been primarily driven by higher volumes of products sold, particularly in the
process plant group which produces carbon monoxide and hydrogen. Continuing
difficult economic conditions within Canada, which have persisted over the
past two years, have resulted in reduced revenue contributions and a reduction
in operating income of approximately $5 million from this market from 1992 to
1993, following a nearly similar decline in 1992. The following table presents
revenues by geographic area:
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
United States $379 $365 $350
Canada 114 111 115
Latin America 275 220 193
Eurasia 58 50 40
---- ---- ----
$826 $746 $698
______________________________________________________________________________
Fourth quarter and annual 1993 revenues and operating income also benefited
from financial systems improvements which permitted changing the year-end of
Liquid Carbonic's international operations from November to December. The
change in year-end resulted in approximately $24.1 million in additional
revenues and, after reflecting certain adjustments, $3.5 million in additional
operating income for the quarter and the year as a whole. After deducting
related charges for interest, income taxes and minority interest, the change
contributed $0.02 to CBI's fourth quarter and annual 1993 earnings per share.
Liquid Carbonic is pursuing a number of other growth strategies, linking
its expanding technical know-how and industrial gas leadership position with
the construction capabilities of Chicago Bridge & Iron. In 1992, the city of
Houston, Texas and in 1993, the city of Seattle, Washington awarded Liquid
Carbonic contracts to supply liquefied natural gas (LNG) to fuel their
municipal bus transportation systems. Contracts have also been signed with
other customers, including other municipal bus systems. Additionally, Liquid
Carbonic is also refining a process to more efficiently manufacture various
products made with plastics, including automobile gas tanks, through the
fluorination of resins. Both of these new product development initiatives have
significant long-term potential and have encouraged the company to invest
significantly in front-end development and marketing. These initiatives, plus
several other strategic efforts, resulted in a negative impact on operating
31
INDUSTRIAL GASES (Continued)
income of $3.2 million in 1993 as compared to 1992.
Operating income provided by Liquid Carbonic increased at a compound annual
rate of 2.6% over the past two years. This rate of increase, which is below
the pace of revenue gains, and the lower operating margins and returns on the
average assets employed posted over the past two years, were dampened by the
market challenges in the U.S. and Canada over the past several years, the
significant commitment to new product and applications research and
development activities, and the major capital investments being reemployed to
position Liquid Carbonic for the 21st century. Earnings in the international
markets have, however, been strong, particularly in Brazil, which represented
over one-third of Liquid Carbonic's 1993 operating income. With a number of
new production facilities coming on-line in 1994, Liquid Carbonic is hopeful
for another year of record performance in 1994.
______________________________________________________________________________
INVESTMENTS
With the disposition of the net operating assets and business of Indrex
completed as of the end of 1992, the Investments segment now includes only
the results of operations from Statia Terminals (Statia) and the performance
of other financial investments. The revenues and income from operations
provided by this business segment to CBI over the past three years were:
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Revenues $116.9 $133.3 $141.7
Income from Operations 14.9 2.2 10.2
______________________________________________________________________________
Statia continued to record higher revenues and operating income in 1993.
Over the prior two years, Statia's revenues have grown at an annual compound
rate of 5.2% and operating income has advanced by an annual average rate of
19.7%. This growth has been driven by more fully utilizing its 1.6 million
barrel special products terminal in Brownsville, Texas, and more importantly,
by maximizing usage of the 6.3 million barrels of storage capacity at its
Caribbean terminal located on the island of St. Eustatius, Netherlands
Antilles. Statia has also been successful in positioning itself as the premier
Caribbean provider of bunkering and blending services.
In August 1992, Statia further leveraged its capabilities by becoming an
equity investor in and general manager of a terminaling operation located at
Point Tupper, Cape Breton Island, Nova Scotia. On October 20, 1993, Statia
purchased the other outstanding interests in, and became the 100% owner of,
this 7.6 million barrel storage facility, which is strategically located to
service global oil producing and trading customers which market their products
in the northeastern part of North America. Approximately 30% of the total
storage capacity was in use at the end of 1993. The remaining storage is
scheduled to be reactivated by mid-1994.
In November 1993, Statia entered into an agreement with an independent
third-party to lease and operate five million barrels of new storage capacity,
together with a related single-point mooring buoy, on the island of St.
Eustatius. These additional facilities, which are scheduled to be on-line by
the end of the first quarter of 1995, will permit Statia to service a new
long-term contract with a major oil producer, and to discharge and re-load
shipments from very large crude oil carriers. This expansion of Statia's core
capabilities will position it for significant additional growth in revenues
and earnings in 1995 and beyond.
Comparisons of the Investments segment operating income in 1993 to 1992
were favorably impacted by the sale of Indrex, which was effective as of
December 31, 1992. Total segment revenues, in contrast, were lower by
approximately $20 million in 1993 due to the lack of revenues from Indrex's
31
INVESTMENTS (Continued)
operations in 1993. Operating income results in 1993 were, however,
unfavorably affected by losses in Petroterminal de Panama, the owner of the
trans-Panamanian pipeline which carries Alaskan crude oil to the Caribbean
coast of Panama for shipment to the U.S. gulf coast. The pipeline, in which
CBI has a 21% equity interest, experienced a significantly lower level of
throughput during 1993.
Returns from other financial investments, net of currency adjustments, have
met expectations in light of the modest levels of investable cash balances,
lower interest rates and movement in foreign exchange rates over the past
three years.
______________________________________________________________________________
OTHER
In the fourth quarter of 1993, CBI recorded a special charge of $91.6 million
($68.4 million after-tax), which is equivalent to a net loss per common share
of $1.84 ($1.60 on a fully diluted basis), to provide for costs, identified
through its reengineering and quality management programs, to more efficiently
align capabilities to customer needs, and also for non-operational regulatory
and legal costs. Included within the special charge were non-cash provisions
totaling $42.0 million for write-downs of excess, non-performing, assets and
for increases in certain liability reserves. The remaining $49.6 million of
the special charge includes provisions for costs associated with certain
workforce realignments and reductions, and selected regulatory and legal
issues over the next several years. The actions and reserves provided for by
the special charge will adjust the company's expense structure and enhance
CBI's future operating performance.
XXX BEGIN PAGE 32 HERE XXX
Interest expense in 1993 increased by 36.6%, or $7.6 million, to $28.4
million, reflecting higher debt levels and the lengthening of debt maturities
to obtain the benefit of favorable long-term interest rates. In March 1993,
the company sold $75 million of ten year 6 5/8% notes, and in July 1993, sold
an additional $75 million of 6 1/4% notes due in the year 2000. The proceeds
of these public offerings were used to reduce commercial paper and other
borrowings under the company's three-year extendible revolving credit
facility. In 1992, interest costs declined by 32.0% to $20.8 million from
$30.6 million in 1991. This reduction reflected lower variable interest rates
and an increase in the amount of capitalized interest arising from the record
level of capital expenditures in 1992.
1993's consolidated effective tax rate is not meaningful due to the special
charge. Excluding the effect of the special charge, which was tax benefited
with a tax rate of 25.3%, the effective 1993 tax rate was 49.0% as compared to
43.1% in 1992 and 44.0% in 1991. The higher 1993 rate on pre-tax operating
earnings was primarily due to the significantly lower level of domestic
earnings. CBI's effective tax rates exceeded the U.S. statutory rate
principally due to the higher tax rates applicable to pre-tax earnings
generated from non-U.S. sources. Additionally, as indicated in the fourth
table in Note 11, CBI's effective tax rates were also higher than the
statutory rate due to the U.S. tax code requirement to allocate a portion of
domestic interest and other expenses against income from foreign sources.
1993's and 1992's consolidated effective tax rates were impacted by the
adoption of Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes, which requires that the tax benefits from dividends used for
ESOP debt service be reported as a reduction in the charge for dividends on
preferred shares in 1993 and 1992 as compared to the prior, non-restated,
practice of reflecting such tax benefits as a reduction of the provision for
income taxes. More than offsetting the effect of this required change in
accounting in 1992 was the favorable impact of lower effective tax rates
32
OTHER (Continued)
applicable to non-U.S. pre-tax income.
Minority interest in income amounted to $11.2 million in 1993, $11.7
million in 1992 and $15.6 million in 1991. These charges represent the portion
of after-tax earnings applicable to the minority ownership positions in
consolidated subsidiaries which are more than 50% but not 100% owned by CBI.
The charge for minority interest in income declined by $3.9 million in 1992 as
a result of CBI acquiring additional ownership interest in certain Latin
American subsidiaries of Liquid Carbonic.
In the fourth quarter of 1992, CBI adopted, retroactively to the first
quarter of 1992, the accounting requirements of Financial Accounting Standards
Board Statements No. 106 - Employers' Accounting for Postretirement Benefits
Other Than Pensions and No. 109 - Accounting for Income Taxes. The cumulative
effect of adopting these two accounting pronouncements decreased 1992 net
income by $7.2 million ($0.20 per common share).
______________________________________________________________________________
FINANCIAL CONDITION
LIQUIDITY
CBI's major objective, to enhance shareholder wealth, is partially achieved
through financial management which optimizes the company's cost of capital and
maximizes cash returns from business activities. The following table is a
condensed summary of that activity and shows cash flows taken from the
Statements of Cash Flows on page 36, capital expenditures, year-end balances
of debt, shareholders' investment and capitalization ratios:
Millions of Dollars 1993 1992 1991
______________________________________________________________________________
Operating Cash Flows $106.2 $162.6 $ 183.6
Capital Investment Cash Flows (250.3) (306.5) (134.1)
Financing and Shareholder Cash Flows 129.5 140.8 (55.3)
______________________________________________________________________________
(Decrease) in Cash and Temporary Cash Investments (14.6) (3.1) (5.8)
______________________________________________________________________________
Capital Expenditures 230.9 237.6 147.0
Debt <FN1> 676.3 476.7 305.9
Shareholders' Investment 676.6 715.5 666.2
Debt to Capitalization - % 50.0% 40.0% 31.5%
Debt to Capitalization Adjusted
for the ESOP Debt <FN2> - % 42.4% 30.7% 19.4%
______________________________________________________________________________
<FN1>Includes notes payable plus current and non-current long-term debt.
<FN2>Adjusted to reflect ESOP debt as additional shareholders' investment
consistent with the requirement of the ESOP Trust to allocate its
holdings of the Series C preferred and common shares to eligible
employees.
The combined balances of cash and temporary cash, most of which is in the
company's non-U.S. operations, stood at $23.2 million at the end of 1993 as
compared to $37.8 million and $40.9 million at the ends of 1992 and 1991,
respectively. Working capital amounted to $126.2 million at December 31, 1993
as compared to $108.7 million at December 31, 1992 and $119.6 million at the
end of 1991. The increase in 1993's working capital arose primarily from a
reduction in accrued income taxes and an increase in accounts receivable.
Operating cash flows shown in the preceding table represent the combined
after-interest, after-tax cash generated from operating activities together
with the effect of changes in working capital. The expenditures made to expand
capacity and improve efficiencies, which are included in capital investment
cash flows, have aggregated $615.5 million over the past three years, with
71.4% of this spending being devoted to Industrial Gases. Approximately 54% of
32
LIQUIDITY (Continued)
total CBI capital spending during this three year period has been invested to
increase capacity and the remaining 46% was dedicated to sustaining the level
of business activity.
The financing and shareholder cash flows include the net cash flows of
managing CBI's capital structure in response to growing requirements and to
providing shareholders with dividends on their investment in the company.
Dividends to common stock shareholders amounted to $17.9 million in 1993, a
year which marked the eighty-first consecutive year in which CBI has paid cash
dividends to common shareholders, a record uninterrupted since the company
began paying dividends in 1913.
Long-term debt increased by $196.6 million in 1993 to $607.6 million,
following an increase of $151.4 million in 1992. The increases in debt have
resulted from CBI's active program of reinvestment and the business
acquisitions made over the past two years. The ratio of debt to capitalization
(debt plus shareholders' investment) was 50.0% at the end of 1993 as compared
to 40.0% at December 31, 1992 and 31.5% at the end of 1991. The measurement of
CBI's financial leverage is complicated by the accounting required for the
debt incurred by the ESOP in 1988 to purchase the Series C preferred and
common stock. Under generally accepted accounting principles, CBI was required
to simultaneously record the $125 million of Senior ESOP Notes as additional
long-term debt and as a reduction of shareholders' investment. With the ESOP
debt considered as equity, which will occur as the common and preferred shares
held by the ESOP Trust are allocated to eligible employees, debt as a percent
of capitalization was 42.4% at December 31, 1993 as compared to 30.7% and
19.4% at the ends of 1992 and 1991, respectively. In January 1994, the company
sold its interest in certain leasehold improvements, buildings and land
associated with a sophisticated test facility for the U.S. Navy in Memphis,
Tennessee, and utilized the $28.1 million in proceeds to retire debt and
reduce, slightly, the effective capitalization ratio.
______________________________________________________________________________
CAPITAL RESOURCES
CBI has adequate resources to permit the financing of its operations. In
addition to a strong financial position and cash flow from operations, there
was available at December 31, 1993, $157.0 million of unused bank overdraft
and borrowing privileges, and a $300.0 million unsecured three-year extendible
revolving credit agreement which is used to support commercial paper and other
similar borrowings.
32
XXX BEGIN PAGE 33 XXX
STATEMENTS OF INCOME CBI Industries, Inc. and Subsidiaries
____________________________________________________________________________________________________________________________________
Thousands of Dollars, except per share amounts; Years ended December 31 1993 1992 1991
____________________________________________________________________________________________________________________________________
REVENUES Contracting Services $ 728,572 $ 793,093 $ 775,591
Industrial Gases 826,242 746,394 697,569
Investments 116,930 133,287 141,741
______________________________________________________________________________________________________
1,671,744 1,672,774 1,614,901
____________________________________________________________________________________________________________________________________
COST OF SERVICES AND
PRODUCTS SOLD Contracting Services 641,575 651,515 645,390
Industrial Gases 578,959 515,257 476,602
Investments 97,604 125,339 123,798
______________________________________________________________________________________________________
1,318,138 1,292,111 1,245,790
____________________________________________________________________________________________________________________________________
GROSS PROFIT FROM OPERATIONS 353,606 380,663 369,111
____________________________________________________________________________________________________________________________________
SELLING AND ADMINISTRATIVE Contracting Services 78,962 65,880 59,970
EXPENSE Industrial Gases 134,655 123,632 113,999
Investments 4,410 5,712 7,729
Corporate 17,834 19,159 19,880
____________________________________________________________________________________________________________________________________
235,861 214,383 201,578
____________________________________________________________________________________________________________________________________
SPECIAL CHARGE (NOTE 16) 91,600 - -
____________________________________________________________________________________________________________________________________
INCOME FROM OPERATIONS 26,145 166,280 167,533
____________________________________________________________________________________________________________________________________
Interest Expense (28,380) (20,780) (30,568)
______________________________________________________________________________________________________
(Loss)/Income before Income Taxes, Minority Interest
and Cumulative Effect of Accounting Changes (2,235) 145,500 136,965
Provision for Income Taxes (Note 11) (20,600) (62,700) (60,300)
______________________________________________________________________________________________________
(Loss)/Income before Minority Interest and
Cumulative Effect of Accounting Changes (22,835) 82,800 76,665
Minority Interest in Income (11,178) (11,667) (15,589)
______________________________________________________________________________________________________
(Loss)/Income before Cumulative Effect
of Accounting Changes (34,013) 71,133 61,076
Cumulative Effect of Changes in Accounting
for Income Taxes (Note 11) and Other
Postretirement Benefits (Note 12) - (7,170) -
____________________________________________________________________________________________________________________________________
Net (Loss)/Income (34,013) 63,963 61,076
Dividends on Preferred Shares, net of tax
benefits of $2,099 in 1993 and $2,255 in 1992 (5,833) (5,596) (7,668)
____________________________________________________________________________________________________________________________________
NET (LOSS)/INCOME TO
COMMON SHAREHOLDERS $ (39,846) $ 58,367 $ 53,408
____________________________________________________________________________________________________________________________________
PER COMMON SHARE - Net (Loss)/Income before Cumulative Effect of
PRIMARY (NOTE 1) Accounting Changes $ (1.07) $ 1.79 $ 1.54
Cumulative Effect of Accounting Changes - (.20) -
______________________________________________________________________________________________________
Net (Loss)/Income to Common Shareholders $ (1.07) $ 1.59 $ 1.54
____________________________________________________________________________________________________________________________________
PER COMMON SHARE - Net (Loss)/Income before Cumulative Effect of
FULLY DILUTED (NOTE 1) Accounting Changes $ (.89) $ 1.59 $ 1.38
Cumulative Effect of Accounting Changes - (.17) -
______________________________________________________________________________________________________
Net (Loss)/Income to Common Shareholders $ (.89) $ 1.42 $ 1.38
____________________________________________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
33
XXX BEGIN PAGE 34 XXX
BALANCE SHEETS CBI Industries, Inc. and Subsidiaries
____________________________________________________________________________________________________________________________________
Thousands of Dollars; Years ended December 31 1993 1992 1991
____________________________________________________________________________________________________________________________________
CURRENT ASSETS Cash $ 6,224 $ 5,291 $ 8,672
Temporary Cash Investments at cost, which
approximates market 17,005 32,498 32,236
Accounts Receivable less allowances of $11,500
in 1993, $8,000 in 1992 and $8,600 in 1991 283,952 236,333 242,867
Contracts in Progress with Earned Revenues
exceeding related Progress Billings (Note 1) 61,823 67,140 90,003
Inventories (Note 2)
Raw Material and Supplies 32,683 28,373 26,602
Work in Process 3,922 5,579 4,796
Finished Goods 27,039 27,670 26,231
------ ------ ------
63,644 61,622 57,629
Other Current Assets 38,626 31,276 25,910
______________________________________________________________________________________________________
471,274 434,160 457,317
____________________________________________________________________________________________________________________________________
OTHER ASSETS Notes Receivable 33,057 45,308 17,764
Real Estate Properties 26,721 30,420 28,454
Equity in and Advances to Unconsolidated Affiliates 65,506 73,561 70,362
Intangible Assets (Note 1) 78,278 54,468 23,604
Other Non-Current Assets 64,444 73,815 59,442
______________________________________________________________________________________________________
268,006 277,572 199,626
____________________________________________________________________________________________________________________________________
PROPERTY AND EQUIPMENT Land and Improvements 67,700 63,542 60,730
(NOTE 3) Building and Improvements 187,203 160,394 135,357
Plant Machinery and Terminals 848,710 704,723 607,326
Field and Office Equipment 596,239 631,459 548,008
--------- --------- ---------
1,699,852 1,560,118 1,351,421
Accumulated Depreciation (568,887) (586,525) (529,493)
______________________________________________________________________________________________________
1,130,965 973,593 821,928
____________________________________________________________________________________________________________________________________
TOTAL ASSETS $1,870,245 $1,685,325 $1,478,871
____________________________________________________________________________________________________________________________________
34
XXX BEGIN PAGE 35 XXX
____________________________________________________________________________________________________________________________________
CURRENT LIABILITIES Notes Payable (Note 4) $ 43,472 $ 45,618 $ 30,027
Current Maturities of Long-Term Debt (Note 5) 25,226 20,039 16,351
Accounts Payable 66,558 86,286 64,587
Dividends Payable 2,790 2,866 2,892
Accrued Liabilities 137,871 106,079 97,494
Contracts in Progress with Progress Billings
exceeding related Earned Revenues (Note 1) 52,198 34,741 88,431
Income Taxes Payable 16,955 29,829 37,893
______________________________________________________________________________________________________
345,070 325,458 337,675
____________________________________________________________________________________________________________________________________
LONG-TERM DEBT AND Long-Term Debt (Note 5) 607,579 410,998 259,550
OTHER LIABILITIES Other Non-Current Liabilities 130,494 105,307 56,682
Deferred Income Taxes 42,867 77,138 109,544
Minority Interest in Subsidiaries 67,623 50,943 49,259
____________________________________________________________________________________________________________________________________
SHAREHOLDERS' INVESTMENT Preferred Stock (Note 8)
Authorized 20,000,000 Shares, $1.00 par value,
issued serially, Series C, 3,713,519 shares
issued in 1993, 3,795,279 shares issued
in 1992 and 3,838,819 shares issued in 1991 120,318 122,967 124,378
Unallocated ESOP Shares (Note 10) (3,654) (7,309) (10,963)
Unamortized ESOP Debt (Note 10) (83,584) (88,471) (92,845)
______________________________________________________________________________________________________
33,080 27,187 20,570
______________________________________________________________________________________________________
Common Stock (Note 9)
Authorized 120,000,000 Shares, $2.50 par value,
39,783,614 shares issued in 1993, 1992 and 1991 99,459 99,459 99,459
Additional Paid-in Capital 214,320 214,320 214,320
Retained Earnings 427,828 479,614 432,879
Unamortized Restricted Stock Awards (Note 9) (8,498) (8,477) (6,438)
Unallocated ESOP Shares (Note 10) (931) (1,862) (2,793)
Unamortized ESOP Debt (Note 10) (18,609) (19,697) (20,671)
Cost of Reacquired Common Stock (Note 9) (45,353) (57,095) (64,448)
Cumulative Translation Adjustment (24,684) (17,968) (6,717)
______________________________________________________________________________________________________
643,532 688,294 645,591
______________________________________________________________________________________________________
Total Shareholders' Investment 676,612 715,481 666,161
____________________________________________________________________________________________________________________________________
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT $1,870,245 $1,685,325 $1,478,871
____________________________________________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
35
XXX BEGIN PAGE 36 XXX
STATEMENTS OF CASH FLOWS CBI Industries, Inc. and Subsidiaries
____________________________________________________________________________________________________________________________________
Thousands of Dollars; Years ended December 31 1993 1992 1991
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM Net (Loss)/Income $ (34,013) $ 63,963 $ 61,076
OPERATING ACTIVITIES Special Charge, net of tax benefit (Note 16) 68,400 - -
Cumulative Effect of Accounting
Changes (Notes 11 and 12) - 7,170 -
Depreciation and Depletion 100,700 91,551 82,625
------- ------- -------
135,087 162,684 143,701
(Increase)/Decrease in Accounts Receivable (20,527) (3,783) 9,929
Decrease/(Increase) in Contracts in Progress, net 20,892 (30,827) 13,217
(Decrease)/Increase in Accounts Payable,
Accrued Liabilities and Income Taxes Payable, net (55,762) 15,101 (18,881)
Increase/(Decrease) in Deferred Income Taxes 2,604 (10,393) 2,580
Decrease in Undistributed Earnings of
Unconsolidated Affiliates 3,144 1,387 6,081
Other, net 20,752 28,475 27,039
______________________________________________________________________________________________________
106,190 162,644 183,666
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM CAPITAL Purchase of Property and Equipment (230,926) (237,555) (147,017)
INVESTMENT ACTIVITIES Cost of Business Acquisitions, net of cash acquired (29,996) (42,313) -
Disposition of Property and Equipment 16,551 10,679 12,237
(Increase) in Other Assets, net (14,139) (48,849) (3,657)
Other, net 8,211 11,523 4,314
______________________________________________________________________________________________________
(250,299) (306,515) (134,123)
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING Issuance of Debt 198,341 280,041 14,644
AND SHAREHOLDER ACTIVITIES Repayment of Debt (43,629) (117,044) (149,540)
--------- --------- ---------
154,712 162,997 (134,896)
Sale of Common Stock 3,236 4,230 104,054
Purchase of Common Stock (1,979) (137) (336)
Dividends Paid (26,420) (26,338) (24,144)
______________________________________________________________________________________________________
129,549 140,752 (55,322)
____________________________________________________________________________________________________________________________________
(DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS $ (14,560) $ (3,119) $ (5,779)
____________________________________________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
36
XXX BEGIN PAGE 37 XXX
STATEMENTS OF COMMON
SHAREHOLDERS' INVESTMENT CBI Industries, Inc. and Subsidiaries
____________________________________________________________________________________________________________________________________
Thousands of Dollars; Years ended December 31 1993 1992 1991
____________________________________________________________________________________________________________________________________
COMMON STOCK Balance at Beginning of Year $ 99,459 $ 99,459 $ 60,558
Proceeds from Shares Sold - - 5,750
Transfer from Additional Paid-in Capital due to
Three-for-Two Stock Split - - 33,151
______________________________________________________________________________________________________
Balance at End of Year 99,459 99,459 99,459
____________________________________________________________________________________________________________________________________
ADDITIONAL PAID-IN CAPITAL Balance at Beginning of Year 214,320 214,320 151,793
Proceeds from Shares Sold - - 95,709
Transfer to Common Stock due to Three-for-Two
Stock Split and Fractional Share Payments - - (33,182)
______________________________________________________________________________________________________
Balance at End of Year 214,320 214,320 214,320
____________________________________________________________________________________________________________________________________
RETAINED EARNINGS Balance at Beginning of Year 479,614 432,879 389,931
Net (Loss)/Income to Common Shareholders (39,846) 58,367 53,408
Dividends on Common Shares, net of tax benefits
of $176 in 1993 and $188 in 1992 (17,647) (17,378) (15,222)
Proceeds from Shares Sold under Stock Plans 488 874 641
Restricted Stock Awards Granted 993 2,078 560
Exchange of Series C Preferred Shares for
Common Shares 139 67 175
Excess of Market Value over Cost of Allocated
ESOP Shares 2,807 2,727 3,386
Excess of Market Value over Cost of Shares Issued
in Business Acquisition 1,280 - -
______________________________________________________________________________________________________
Balance at End of Year 427,828 479,614 432,879
____________________________________________________________________________________________________________________________________
UNAMORTIZED RESTRICTED Balance at Beginning of Year (8,477) (6,438) (6,408)
STOCK AWARDS Restricted Stock Awards Granted, net of forfeitures (2,894) (4,934) (2,401)
Restricted Stock Awards Amortization 2,873 2,895 2,371
______________________________________________________________________________________________________
Balance at End of Year (8,498) (8,477) (6,438)
___________________________________________________________________________________________________________________________________
UNALLOCATED ESOP SHARES Balance at Beginning of Year (1,862) (2,793) (3,724)
Allocation of ESOP Shares 931 931 931
______________________________________________________________________________________________________
Balance at End of Year (931) (1,862) (2,793)
____________________________________________________________________________________________________________________________________
UNAMORTIZED ESOP DEBT Balance at Beginning of Year (19,697) (20,671) (21,550)
Amortization of ESOP Debt 1,088 974 879
______________________________________________________________________________________________________
Balance at End of Year (18,609) (19,697) (20,671)
____________________________________________________________________________________________________________________________________
COST OF REACQUIRED Balance at Beginning of Year (57,095) (64,448) (69,802)
COMMON STOCK Cost of Reacquired Shares (1,979) (137) (336)
Proceeds from Shares Sold under Stock Plans 2,748 3,356 1,954
Exchange of Series C Preferred Shares for
Common Shares 2,404 1,278 1,895
Restricted Stock Awards Granted, net of forfeitures 1,901 2,856 1,841
Cost of Shares Issued in Business Acquisition 6,668 - -
______________________________________________________________________________________________________
Balance at End of Year (45,353) (57,095) (64,448)
____________________________________________________________________________________________________________________________________
CUMULATIVE TRANSLATION Balance at Beginning of Year (17,968) (6,717) (3,333)
ADJUSTMENT Translation Adjustment (6,716) (11,251) (3,384)
______________________________________________________________________________________________________
Balance at End of Year (24,684) (17,968) (6,717)
____________________________________________________________________________________________________________________________________
COMMON SHAREHOLDERS'
INVESTMENT $643,532 $688,294 $645,591
____________________________________________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
37
XXX BEGIN PAGE 38 HERE XXX
NOTES CBI Industries, Inc. and Subsidiaries
______________________________________________________________________________
Thousands of Dollars, except per share amounts
______________________________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION The consolidated financial statements include CBI Industries,
Inc. and its subsidiaries (CBI). Significant intercompany balances and
transactions are eliminated. Investments in non-majority owned affiliates are
accounted for by the equity method. Effective in 1993, the Industrial Gases
international subsidiaries changed their year-end from November to December.
REVENUE RECOGNITION Revenues from Contracting Services are recognized on
the percentage of completion method. Earned revenue is based on the percentage
that incurred costs to date bear to total estimated costs after giving effect
to the most recent estimates of total cost. The cumulative impact of revisions
in total cost estimates during the progress of work is reflected in the year
in which these changes become known. Earned revenue reflects the original
contract price adjusted for agreed upon claim and change order revenue, if
any. Losses expected to be incurred on jobs in process, after consideration of
estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known. Progress billings in accounts
receivable are currently due and exclude retentions until such amounts are due
in accordance with contract terms. Revenues and related costs are recognized
by Industrial Gases and Investments subsidiaries when products are shipped or
services are rendered to the customer.
INTANGIBLE ASSETS The excess of cost over the fair value of tangible net
assets of acquired businesses is amortized on a straight-line basis over the
periods of expected benefit which do not exceed 40 years.
FOREIGN CURRENCY TRANSLATION AND EXCHANGE The primary effects of foreign
currency translation adjustments in non-highly inflationary countries are
recorded as a separate component of shareholders' investment. Foreign currency
translation adjustments in highly inflationary countries and other exchange
losses are included in the determination of income and were $10,944 in 1993,
$7,169 in 1992 and $6,003 in 1991.
RESEARCH AND DEVELOPMENT Expenditures for research and development
activities, which are charged to income as incurred, amounted to $13,694 in
1993, $11,726 in 1992 and $10,070 in 1991.
NET (LOSS)/INCOME PER COMMON SHARE Primary earnings per common share are
computed by dividing net (loss)/income to common shareholders by the weighted
average number of common shares outstanding during each year (37,166,000 in
1993, 36,601,000 in 1992 and 34,683,000 in 1991). Fully diluted earnings per
common share are computed by dividing net (loss)/income, adjusted for the
additional after-tax company contribution to the ESOP that would be required
under the assumption that the Series C preferred stock had been converted to
common stock, by the weighted average number of common and common equivalent
shares outstanding plus the additional common shares resulting from the
assumed conversion of the leveraged Series C preferred shares (42,604,000 in
1993, 41,957,000 in 1992 and 40,006,000 in 1991).
______________________________________________________________________________
2. INVENTORIES
Inventories are valued at the lower of cost (average and first-in, first-out)
or market. Approximately 80% of 1993, 76% of 1992 and 81% of 1991 inventories
were valued under the average cost method.
38
______________________________________________________________________________
3. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a straight-line
basis over the estimated useful lives: land improvements, 10 to 30 years;
building and improvements, 8 to 40 years; plant machinery and terminals, 2 to
20 years; and field and office equipment, 3 to 25 years.
Repair and maintenance costs, amounting to $61,596 in 1993, $53,630 in
1992, and $57,611 in 1991 are charged to expense as incurred. Renewals and
betterments which substantially extend the useful life of an asset are
capitalized and depreciated. Certain facilities used under capital leases are
recorded as property and equipment, and are depreciated.
______________________________________________________________________________
4. NOTES PAYABLE
The following is a summary of notes payable, principally borrowed outside the
U.S.:
1993 1992 1991
______________________________________________________________________________
Weighted average interest rate
at December 31 - % 7.0% 11.4% 12.1%
Maximum month-end borrowings during the year $53,285 $53,130 $33,565
Average month-end borrowings during the year $45,465 $36,767 $28,961
Weighted average interest rate
during the year - % 6.2% 10.0% 12.2%
______________________________________________________________________________
At December 31, 1993, CBI had $156,989 of unused bank overdraft borrowing
privileges available at prevailing interest rates. In addition, as discussed
in Note 5, CBI has a $300,000 unsecured three-year extendible revolving credit
agreement. Certain of these credit arrangements require payment of commitment
fees. While informal arrangements exist as to the level of compensating bank
balances required, withdrawal of such balances is not legally restricted.
38
XXX BEGIN PAGE 39 HERE XXX
______________________________________________________________________________
5. LONG-TERM DEBT
The components of long-term debt are:
1993 1992 1991
______________________________________________________________________________
Commercial Paper and Other Similar
Borrowings with weighted average
year-end interest rates of 3.6% in 1993
and 4.1% in 1992 $240,758 $232,615 $ -
6 1/4% Notes due 2000, net of
unamoritized discount of $280 74,720 - -
6 5/8% Notes due 2003, net of
unamoritized discount of $535 74,465 - -
Senior ESOP Notes with year-end interest rates
of 8.354% in 1993, and 8.43% in 1992 and
1991, maturing in 1994 through 2002 103,042 111,124 117,500
12 1/8% Notes, net of unamortized
discount of $183 in 1991 - - 79,817
Variable Rate Secured Notes with weighted
average year-end interest rates of 4.8%
in 1993, 6.3% in 1992 and 9.1% in
1991, maturing in 1994 through 2001 60,384 5,891 8,329
Variable Rate Unsecured Notes with
weighted average year-end interest rates
of 4.6% in 1993, 7.2% in 1992 and
9.1% in 1991, maturing in 1994
through 1998 72,518 67,651 43,532
Fixed Rate Secured Notes with weighted
average year-end interest rates of 8.0%
in 1993, 8.8% in 1992 and 10.1% in
1991, maturing in 1994 through 1996 793 2,159 6,400
Fixed Rate Unsecured Notes with weighted
average year-end interest rates of 8.9%
in 1993, 10.0% in 1992 and 9.5% in
1991, maturing in 1994 through 1997 3,876 8,904 14,977
Capital Lease Obligations with weighted
average year-end interest rates of 13.2%
in 1993, 13.7% in 1992 and 13.4% in
1991, payable through 1996 809 947 1,178
Other 1,440 1,746 4,168
______________________________________________________________________________
632,805 431,037 275,901
Less: current maturities (25,226) (20,039) (16,351)
______________________________________________________________________________
$607,579 $410,998 $259,550
______________________________________________________________________________
Commercial paper and other similar borrowings, which would normally be
classified as current debt, have been classified as long-term debt since this
debt is supported by unused commitments under an existing $300,000 unsecured
three-year extendible revolving credit agreement. The agreement has a present
termination date of December 31, 1996, which is extendible annually for one
additional year by mutual consent. Amounts borrowed under the agreement may be
prepaid under certain options and a commitment fee is payable on any unused
portion.
On December 15, 1992, CBI redeemed all of the outstanding 12 1/8% Notes. In
1991, CBI entered into an interest rate swap agreement, based on a notional
amount of $80 million, whereby CBI makes quarterly interest payments at an
annual rate of 9.59% through December 15, 1998 in exchange for the right to
receive interest payments semi-annually at 12 1/8% through December 15, 1992
and at floating rates (3.375% at December 31, 1993) quarterly through December
15, 1998.
The unsecured credit and Senior ESOP Note agreements contain restrictive
covenants regarding working capital, debt to total capitalization and
shareholders' investment. The company was in compliance with all covenants at
December 31, 1993.
Minimum annual principal payments of long-term debt during the years ending
in 1994 through 1998 are $25,226, $26,892, $271,093, $24,960 and $48,319,
respectively. In 1993 and 1992 capitalized interest was $5,935 and $6,117,
respectively. Cash payments for interest, net of amounts capitalized, were
$27,835 in 1993, $20,170 in 1992 and $31,311 in 1991.
______________________________________________________________________________
6. LEASES
Certain facilities and equipment are rented under operating leases that expire
at various dates through 2009. Rental expense on operating leases was $36,785
in 1993, $38,249 in 1992 and $37,405 in 1991. Future rental commitments during
the years ending in 1994 through 1998 and thereafter are $29,008, $21,369,
$17,861, $16,357, $11,710 and $44,945, respectively. In November 1993, Statia
Terminals entered into an agreement with an independent third-party to lease
and operate five million barrels of new storage capacity, together with a
related single-point mooring buoy, on the island of St. Eustatius. These
facilities are scheduled to be on-line by the end of the first quarter 1995.
Capital leases, which are not significant, are included in property and
equipment and the related obligations are reported in long-term debt.
39
XXX BEGIN PAGE 40 HERE XXX
______________________________________________________________________________
7. COMMITMENTS AND CONTINGENT LIABILITIES
CBI selectively enters into forward contracts in its management of foreign
currency balance sheet and transaction exposures. Gains or losses on forward
contracts designated to hedge a foreign currency transaction are included in
the measurement of income, while gains or losses on contracts which are
effective as net investment hedges are recognized in shareholders' investment.
At December 31, 1993, CBI had forward contracts, which mature in 1994, for
foreign currencies totaling $8,400.
On October 30, 1987, CBI Na-Con, Inc. was working in the Marathon Petroleum
Company refinery in Texas City, Texas. While a lift was being made by a crane
supplied and operated by others, the crane became unstable, causing the
operator to drop the load on a hydrofluoric acid tank which released part of
its contents into the atmosphere. The community surrounding the refinery was
evacuated after the incident, and a substantial number of persons evacuated
sought medical attention. CBI Na-Con, Inc. has reached settlements with all
but 15 of the 4,300 (approximate) third-party plaintiffs who brought suit as a
result of the incident. CBI Na-Con, Inc. is also defending a lawsuit brought
by Marathon originally seeking contractual indemnity which has been amended to
seek reimbursement for Marathon's expenditures relating to the incident,
including property damage, emergency response costs, third-party claim
payments and legal fees. CBI filed suit against its insurers seeking insurance
coverage and other recourse as a result of the denial of coverage or
reservation of rights by the insurers for the incident based on certain
pollution exclusions in the policies. The trial court granted summary judgment
in favor of the insurers in April 1991. CBI appealed the trial court's
judgment, and the Texas Appellate Court reversed and remanded the case back to
the trial court in August 1993 to allow CBI to conduct discovery. The insurers
are seeking review by the Texas Supreme Court.
A subsidiary of the company, Liquid Carbonic Industries Corporation (Liquid
Carbonic), has been or is currently involved in civil litigation and
governmental proceedings relating to antitrust matters. In this regard, since
April 1992, several lawsuits have been filed against Liquid Carbonic and
various competitors. These cases have been consolidated in the United States
District Court for the Middle District of Florida, Orlando Division. The
lawsuits allege generally that, beginning not later than 1968 and continuing
through the present, defendants conspired to allocate customers, fix prices
and rig bids for carbon dioxide in the United States in violation of the
antitrust laws. On April 19, 1993, the court certified a class in the
consolidated cases consisting of direct purchasers of carbon dioxide from
defendants in the continental United States for the period from January 1,
1968, to and including October 26, 1992. Plaintiffs seek from defendants
unspecified treble damages, civil penalties, injunctive relief, costs and
attorneys' fees. In addition, a suit has been brought against Liquid Carbonic
and others under the antitrust laws of the State of Alabama based upon the
foregoing allegations. The company believes that the allegations made against
Liquid Carbonic in these lawsuits are without merit, and Liquid Carbonic
intends to defend itself vigorously. Liquid Carbonic and its subsidiaries also
from time to time furnish documents and witnesses in connection with
governmental investigations of alleged violations of the antitrust laws. While
the outcome of any particular lawsuit or governmental investigation cannot be
predicted with certainty, the company believes that these antitrust matters
will not have a materially adverse effect on its operations or financial
condition.
In addition to the above lawsuits, CBI is a defendant in a number of
lawsuits arising from the conduct of its business. While it is impossible at
this time to determine with certainty the ultimate outcome of any litigation
or matters referred to above, CBI's management believes that adequate
provisions have been made for probable losses with respect thereto as best as
40
7. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
can be determined at this time and that the ultimate outcome, after provisions
therefor, will not have a material adverse effect on the financial position of
CBI. The adequacy of reserves applicable to the potential costs of being
engaged in litigation and potential liabilities resulting from litigation are
reviewed as developments in the litigation warrant.
CBI also is jointly and severally liable for some liabilities of
partnerships and joint ventures and has also given certain guarantees in
connection with the performance of contracts and repayment of obligations by
its subsidiaries and other ventures in which CBI has a financial interest.
CBI's management believes that the aggregate liability, if any, for these
matters will not be material to its financial position.
______________________________________________________________________________
8. PREFERRED STOCK
The authorized preferred stock is 20,000,000 shares with a $1.00 par value.
The Board of Directors may authorize issuance of one or more series of
preferred stock without shareholder approval.
SERIES A No shares have been issued; 800,000 shares are reserved as Series A
Junior Participating Preferred Stock. On March 4, 1986, the Board of Directors
declared a dividend of one Series A preferred stock purchase right for each
share of outstanding common stock to the stockholders of record on March 18,
1986. These rights, which are attached to the common stock and expire March
18, 1996, entitle the registered holder to purchase from CBI a "unit"
consisting of one one-hundredth of a share of Series A preferred stock at
$50.00 per unit. The rights are not exercisable until certain events occur as
set forth in a rights agreement between CBI and the First Chicago Trust
Company of New York as Rights Agent. These rights are junior to any other
series of preferred stock as to the payment of dividends and the distribution
of assets.
SERIES B No shares are currently authorized or outstanding.
SERIES C In April 1988, CBI sold to the ESOP, as further discussed in Note
10, 3,945,000 shares of Convertible Voting Preferred Stock, Series C, at
$32.40 per share, totaling $127,818. The Series C preferred stock has a $2.27
annual dividend per share payable semi-annually and is convertible into CBI
common stock, at the rate of one and one-half common shares for each
preferred share, at the option of the holder or automatically in the event the
Series C preferred stock is no longer held by the Trustee for the ESOP. The
Series C preferred stock may be redeemed, in whole or in part, at CBI's
option, and has a liquidation value of $32.40 per share plus accrued and
unpaid dividends. The Series C preferred stock is entitled to vote the number
of shares equal to the number of shares of common stock into which the Series
C preferred stock could be converted on the record date on all matters on
which the common stock is entitled to vote. Through December 31, 1993,
231,481 shares of the Series C preferred stock have been acquired and retired
from former employees who had been participants in the ESOP.
40
XXX BEGIN PAGE 41 HERE XXX
______________________________________________________________________________
9. COMMON STOCK
At December 31, 1993, 5,570,279 shares of authorized and unissued common
shares were reserved for the conversion of the Series C preferred shares. The
number of reacquired common shares was 2,273,761 at December 31, 1993,
2,905,146 at December 31, 1992 and 3,285,102 at December 31, 1991. The number
of outstanding common shares are:
1993 1992 1991
______________________________________________________________________________
Balance at Beginning of Year 36,737,940 36,287,720 21,647,593
Shares Sold - - 2,300,000
Allocation of ESOP Shares 70,264 70,264 69,320
Exchange of Series C Preferred Shares 122,636 65,308 84,133
Reacquired Shares (71,005) (3,980) (11,483)
Shares Sold under Stock Plans 140,129 171,028 89,631
Restricted Stock Awards,
net of forfeitures 99,625 147,600 65,550
Three-for-Two Stock Split - - 12,042,976
Shares Issued in Business Acquisition 340,000 - -
______________________________________________________________________________
Balance at End of Year 37,439,589 36,737,940 36,287,720
______________________________________________________________________________
In the second quarter of 1991, CBI completed a public offering of 2,300,000
pre-split shares of common stock and received net proceeds of $101,459. On May
15, 1991, CBI's Board of Directors declared a three-for-two stock split in the
form of a 50% stock dividend which was paid on June 21, 1991 to shareholders
of record on May 28, 1991.
STOCK OPTION PLAN Under this plan, as amended in 1990, key employees may be
granted the right to purchase common stock at not less than the market value
at the date of grant. The plan provides for granting tax-qualified incentive
stock options, non-qualified stock options or stock appreciation rights, up to
a maximum of 1,800,000 shares. Options generally may be exercised for ten
years after the date of grant and payment may be made in any combination of
cash and shares of CBI common stock. Options were granted for 220,300 common
shares (at $28.00 per share) in 1993, 216,350 common shares (at $33.75 per
share) in 1992 and 220,050 common shares (at $31.17 per share) in 1991.
Options on 207,950 shares have been exercised, options on 6,150 shares have
been cancelled and 452,850 shares were available for future grant as of
December 31, 1993.
EMPLOYEE STOCK PURCHASE PLANS These plans provide that employees may
purchase, semi-annually, through regular payroll deductions, common shares at
85% of market value at the date of purchase. The current plans provide that up
to 1,150,000 of reacquired common shares or authorized and unissued common
shares may be purchased through January 16, 1997. As of December 31, 1993,
574,652 shares remain available for future purchase.
RESTRICTED STOCK AWARD PLAN The number of common shares awarded under the
1989 Restricted Stock Award Plan was 110,200 in 1993, 157,150 in 1992 and
106,050 in 1991. Under the 1989 plan, up to 750,000 shares of common stock may
be granted to key employees. Shares are awarded in the name of the employee,
who has all rights of a shareholder, subject to certain restrictions or
forfeitures. Restrictions on 50% of the award generally expire five years from
the award date. As of December 31, 1993, 252,050 shares remain available for
award under the 1989 plan and 867,175 shares remain subject to restrictions
under the 1989 and previous plans. The market value of shares awarded under
the plan is recorded as unamortized restricted stock awards and shown as a
separate component of shareholders' investment. This deferred charge is
amortized to costs and expenses ($2,873 in 1993, $2,895 in 1992 and $2,371 in
1991) over the periods in which participants perform services.
41
______________________________________________________________________________
10. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In 1987, CBI established an ESOP to provide most U.S. salaried employees an
additional opportunity to share in the ownership of CBI. Initial funding for
the ESOP consisted of a transfer of surplus assets, including 546,305
pre-split common shares and $23,909 of cash investments, arising from the
termination and restructuring of CBI's principal defined benefit pension
plans. In 1988, the ESOP received additional funding through a $125,000 loan.
With the proceeds from the loan and funds from the pension reversion, the ESOP
purchased an additional 820,479 pre-split shares of CBI common stock and
3,945,000 shares of Series C preferred stock in 1988.
The loan, which is reflected as long-term debt on CBI's balance sheet, was
initially offset by a like amount of unamortized ESOP debt in shareholders'
investment. As company contributions plus the dividends on the shares held by
the ESOP are used to meet interest and principal payments on the loan over its
14-year term, shares acquired with the loan proceeds are allocated to eligible
employees. Debt service requirements on the Senior ESOP Notes, which are
funded through dividends (of $9,332 in 1993, $9,543 in 1992 and $9,562 in
1991) on the shares held by the ESOP and company contributions (of $7,646 in
1993, $6,454 in 1992 and $5,519 in 1991) amounted to $16,978 in 1993, $15,997
in 1992 and $15,081 in 1991, and are reported as dividends on preferred and
common stock, and as costs and expenses included in the measurement of income
from operations. The unamortized ESOP debt offset in shareholders' investment
is reduced as shares are allocated.
Shares received and purchased from the transfer of the surplus assets from
the terminated and restructured defined benefit pension plans are reflected as
unallocated ESOP shares. These shares are being allocated to eligible
employees over a period of eight years beginning in 1987. The value of the
shares allocated is reflected in the statements of income as a charge, based
upon the market value of the stock at each year-end, to costs and expenses
included in the measurement of income from operations and on the balance
sheets as a reduction of unallocated ESOP shares in the shareholders'
investment section.
The number of common shares allocated to eligible employees was 165,795 in
1993, 159,754 in 1992 and 154,474 in 1991. The number of Series C preferred
shares allocated was 357,703 in 1993, 342,238 in 1992 and 328,699 in 1991.
41
XXX BEGIN PAGE 42 HERE XXX
______________________________________________________________________________
11. INCOME TAXES
In the fourth quarter of 1992, CBI adopted the provisions of Statement of
Financial Accounting Standards No. 109 - Accounting for Income Taxes,
retroactive to the first quarter of 1992. The cumulative non-cash effect of
changing the method of accounting for income taxes as of January 1, 1992, from
the requirements previously followed under Statement of Financial Accounting
Standards No. 96, was to increase net income by $14,310. This increase
resulted primarily from the elimination of the requirement to provide deferred
income taxes on nonmonetary assets which are subject to indexation in certain
highly inflationary countries and the recognition of additional tax benefits.
This credit is reflected in the cumulative effect of accounting changes
reported on the statements of income. Additionally, under this accounting
standard, the tax benefits arising from dividends used for ESOP debt service
are reassigned from the provision for income taxes to the charge for dividends
on preferred shares, both of which are considered in measuring net income to
common shareholders.
11. INCOME TAXES (Continued)
The sources of (loss)/income before income taxes, minority interest and
cumulative effect of accounting changes are:
1993 1992 1991
______________________________________________________________________________
U.S. Sources<FN1> $(104,838) $ 18,375 $ 5,960
Non-U.S. Sources 102,603 127,125 131,005
______________________________________________________________________________
$ (2,235) $145,500 $136,965
______________________________________________________________________________
<FN1>(Loss)/income before taxes, minority interest and cumulative effect of
accounting changes from U.S. sources is after deducting corporate and
business segment administrative headquarter's costs, and the majority of
research and development expenditures and interest costs, which are
incurred within the United States but which provide benefit and support
to CBI's operations on a global basis; therefore, the reported U.S.
sources of pre-tax (loss)/income are not indicative of the level of
pre-tax (loss)/income earned solely from U.S. operations and are not
comparable to the amounts reported from non-U.S. sources. The 1993 U.S.
sources loss is primarily related to the special charge discussed in Note
16.
The (provision for) income taxes consisted of:
1993 1992 1991
______________________________________________________________________________
Current U.S. Taxes $ 9,326 $ (8,111) $ (8,215)
State Taxes<FN1> (878) (2,571) (2,896)
Deferred U.S. Taxes 18,650 (1,919) 8,846
Non-U.S. Taxes (47,698) (50,099) (58,035)
______________________________________________________________________________
$(20,600) $(62,700) $(60,300)
______________________________________________________________________________
<FN1>State taxes are high in relation to the U.S. source income because many
states do not permit the filing of consolidated tax returns, resulting in
losses in one business entity not being offset against profits in another
business entity.
At December 31, 1993, CBI had $1,074 of investment tax and other general
business credits that are available to utilize against 1993 and future U.S.
income tax liabilities through 2003, which were recognized as deferred tax
assets at December 31, 1993. The company has not recorded additional deferred
income taxes on $336,666 of indefinitely reinvested undistributed earnings of
non-U.S. subsidiaries and affiliates at December 31, 1993. Total income tax
payments were $49,803 in 1993, $57,506 in 1992 and $60,052 in 1991.
The components of the deferred income tax (provision)/benefit, which also
represent the principal types of temporary differences that give rise to
significant portions of the deferred income tax liability, are:
1993 1992 1991
______________________________________________________________________________
Depreciation Expense $(1,321) $(2,063) $ (769)
Non-U.S. Activity 162 218 (286)
Contract Accounting 35 (1,926) 1,071
Employee and Retiree Benefits (62) 1,047 (108)
Tax Benefit Leases - - 5,442
Special Charge 21,317 - -
Other, net (1,481) 805 3,496
______________________________________________________________________________
$18,650 $(1,919) $ 8,846
______________________________________________________________________________
42
11. INCOME TAXES (Continued)
The principal temporary differences which are included in the deferred
income tax liability at December 31, 1993 include depreciation expense -
$105,481, non-U.S. activity - $(20,191), employee and retiree benefits -
$(23,624) and special charge - $(21,317).
A reconciliation of income taxes at the U.S. statutory rate and the (provision
for) income taxes follows:
1993 1992 1991
______________________________________________________________________________
(Loss)/Income before Income Taxes, Minority
Interest and Cumulative Effect of
Accounting Changes $ (2,235) $145,500 $136,965
______________________________________________________________________________
Tax Benefit/(Provision) at U.S.
Statutory Rate $ 782 $(49,470) $(46,568)
State Income Taxes (878) (2,571) (2,896)
Equity Interest in Net Income of
Unconsolidated Affiliates (169) 1,625 1,150
Non-U.S. Tax Rate Differential and
Non-U.S. Losses without Tax Benefit (9,066) (7,531) (12,388)
Extra Tax due to Allocation of U.S. Expenses
to Non-U.S. Sources (2,982) (2,307) (2,979)
Special Charge (8,860) - -
Tax Benefits from Dividends used for ESOP
Debt Service - - 2,850
Other, net 573 (2,446) 531
______________________________________________________________________________
(Provision for) Income Taxes $(20,600) $(62,700) $(60,300)
______________________________________________________________________________
Effective Tax Rates (Note <FN1>) 43.1% 44.0%
______________________________________________________________________________
<FN1>The effective tax rate in 1993 is not meaningful due to the special
charge. Excluding the effect of the special charge, which was tax
benefited at an effective rate of 25.3%, the 1993 effective tax rate was
49.0%.
42
XXX BEGIN PAGE 43 HERE XXX
______________________________________________________________________________
12. PENSION PLANS AND OTHER POST RETIREMENT BENEFITS
CBI sponsors defined benefit and defined contribution pension plans, and makes
contributions to union sponsored multi-employer pension plans. The principal
non-contributory defined benefit plan covers most U.S. salaried employees.
Benefits under the principal defined benefit plan are based on years of
service and compensation levels.
Pension expense for the defined benefit plans include the following
components:
1993 1992 1991
______________________________________________________________________________
Service Cost $ 4,846 $ 4,150 $ 1,587
Interest Cost 8,044 6,947 6,456
Actual Return on Assets (10,221) (4,192) (8,606)
Net Amortization and Deferral 3,684 (2,029) 4,074
______________________________________________________________________________
Net Defined Benefit Pension Plans Expense $ 6,353 $ 4,876 $ 3,511
______________________________________________________________________________
12. PENSION PLANS AND OTHER POST RETIREMENT BENEFITS (Continued)
The funded status of the defined benefit plans is:
1993 1992 1991
______________________________________________________________________________
Market Value of Plan Assets $ 86,969 $ 73,443 $ 63,677
______________________________________________________________________________
Accumulated Benefit Obligation including
Vested Benefits of $79,102 in 1993,
$63,470 in 1992 and $55,719 in 1991 (80,603) (64,857) (56,953)
Additional Benefits Based on Projected
Salary Levels (34,568) (24,524) (19,206)
______________________________________________________________________________
Projected Benefit Obligation (115,171) (89,381) (76,159)
______________________________________________________________________________
Projected Benefit Obligation (Over)
Plan Assets (28,202) (15,938) (12,482)
Unrecognized Loss 29,102 14,785 10,840
Unrecognized Net Transition Asset (6,967) (7,987) (9,416)
Unrecognized Prior Service Costs 8,294 8,144 8,484
Additional Minimum Liability (1,249) - -
______________________________________________________________________________
Pension Asset/(Liability) $ 978 $ (996) $ (2,574)
______________________________________________________________________________
The principal defined benefit plan assets consist of long-term investments,
including equity and fixed income securities, and cash. The significant
assumptions used in determining pension expense and the related pension
obligations were: discount rate, 7.5% in 1993, and 8.5% in 1992 and 1991;
increase in compensation levels, 4.5% in 1993, and 5.0% in 1992 and 1991; and
long-term rate of return on plan assets, 9.0% in 1993, and 10.0% in 1992 and
1991. CBI funds pension costs as required. As discussed in Note 10, CBI also
maintains an ESOP which offsets certain benefit obligations of the principal
defined benefit pension plan. The total provisions for all pension plan
expense was $15,170 in 1993, $14,769 in 1992 and $14,102 in 1991.
In addition to pension benefits, CBI currently provides certain separate
life insurance and health care benefits for employees retiring under the
principal non-contributory defined benefit pension plan. Retiree health care
benefits are provided under an established formula which limits company costs
based on prior years of service of retired employees. This plan may be changed
or terminated by the company at any time for any reason with no liability to
current or future retirees. The costs of retiree life insurance and health
care benefits were $4,159 in 1991. In 1992, CBI adopted Statement of Financial
Accounting Standards No. 106 - Employers' Accounting for Postretirement
Benefits Other Than Pensions. The cumulative effect of adopting this new
accounting requirement as of January 1, 1992, which is included in the
cumulative effect of accounting changes reported on the statements of income,
amounted to a non-cash, after-tax, charge of $21,480 ($34,983 before income
tax benefit). The net other postretirement benefit expense was $3,211 in 1993
and $3,564 in 1992, which included components of service cost of $568 in 1993
and $991 in 1992; interest cost of $2,688 in 1993 (at 7.5%) and $2,617 in 1992
(at 8.5%); net of a return on plan assets of $45 in 1993 and $44 in 1992.
At December 31, 1993, the accrued liability for postretirement benefits
other than pensions equals $35,580, which reflects an accumulated
postretirement benefit obligation of $40,964, of which $15,118 is applicable
to retirees and $25,846 to active employees, net of plan assets of
$1,169 and an unrecognized net loss of $4,215.
43
XXX BEGIN PAGE 44 HERE XXX
______________________________________________________________________________
13. OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
CBI has three major business segments:
Contracting Services is organized under Chicago Bridge & Iron Company as a
worldwide construction group that provides, through separate subsidiaries, a
broad range of services including design, engineering, fabrication, project
management, general contracting and specialty construction services, including
non-destructive inspection and post-weld heat treatment, primarily associated
with metal plate vessels as well as water and wastewater treatment structures.
Industrial Gases is organized under Liquid Carbonic Industries Corporation.
Liquid Carbonic is the world's largest supplier of carbon dioxide in its
various forms, produces and markets other gases for industrial, medical and
specialty applications, and assembles and sells related equipment. Carbon
dioxide is used in the refrigeration, freezing, processing and preservation of
food, beverage carbonation, water treatment and chemical production. Other
gases are used in a variety of industrial, medical and specialty applications.
Liquid Carbonic currently has operations in the United States, Canada and 21
other countries.
Investments include interests in Statia Terminals, N.V., which provides oil
and gas storage and blending facilities and bunkering services in the
Caribbean and Nova Scotia, Canada, and operates a special products terminal in
Brownsville, Texas; and other financial investments.
Revenues, income from operations, assets, capital expenditures, and
depreciation and depletion by business segment are presented in the Financial
Summary.
CBI operates in the United States, Western Hemisphere (outside of the
United States) and Eastern Hemisphere. Transactions between companies in the
same or different geographic areas are recorded on the same basis as
transactions with unrelated customers. No customer accounted for more than 10%
of revenues. Export sales, to unrelated customers outside of the United
States, were less than 10% of revenues in each period reported. Transfers
between geographic areas are not material.
Revenues, (loss)/income from operations and assets by geographic area are:
(Loss)/
Income from
Revenues Operations Assets
______________________________________________________________________________
1993 United States<FN1> $ 808,679 $(92,200) $ 907,165
Western Hemisphere 609,487 98,103 727,180
Eastern Hemisphere 253,578 20,242 235,900
______________________________________________________________________________
$1,671,744 $ 26,145 $1,870,245
______________________________________________________________________________
1992 United States<FN1> $ 832,021 $ 6,146 $ 868,071
Western Hemisphere 548,094 116,293 611,994
Eastern Hemisphere 292,659 43,841 205,260
______________________________________________________________________________
$1,672,774 $166,280 $1,685,325
______________________________________________________________________________
1991 United States<FN1> $ 871,266 $ 5,701 $ 725,228
Western Hemisphere 519,166 131,335 547,883
Eastern Hemisphere 224,469 30,497 205,760
______________________________________________________________________________
$1,614,901 $167,533 $1,478,871
______________________________________________________________________________
<FN1>(Loss)/income from operations in the United States is after deducting
corporate and business segment administrative headquarter's costs and
the majority of research and development expenditures, both of which are
incurred within the United States, but which provide benefit on a global
basis; therefore, the reported level of U.S. operating income is not
indicative of the level of income earned solely from U.S. operations and
is not comparable to the amounts reported from non-U.S. sources. The 1993
United States loss from operations is primarily related to the special
charge discussed in Note 16.
______________________________________________________________________________
14. Unconsolidated Affiliates
CBI owns a non-majority interest in a number of affiliated companies and
participates in several joint ventures which are accounted for by the equity
method. Certain of these affiliates are engaged in similar businesses and some
contract with CBI. These transactions have not been eliminated from the
following summarized financial data.
1993 1992 1991
______________________________________________________________________________
Current Assets $ 117,753 $ 114,835 $ 110,303
Non-Current Assets 359,146 392,546 354,632
Current Liabilities (52,558) (83,535) (63,558)
Non-Current Liabilities (250,556) (240,755) (224,844)
______________________________________________________________________________
Equity $ 173,785 $ 183,091 $ 176,533
______________________________________________________________________________
CBI's Share of Equity $ 48,410 $ 66,596 $ 62,722
______________________________________________________________________________
Revenues $ 225,600 $ 288,486 $ 264,274
Costs of Services and Products Sold (173,098) (210,267) (172,046)
Other Expenses (50,550) (44,625) (49,884)
______________________________________________________________________________
Income before Income Taxes 1,952 33,594 42,344
Provision for Income Taxes (308) (12,020) (17,045)
______________________________________________________________________________
Net Income $ 1,644 $ 21,574 $ 25,299
______________________________________________________________________________
CBI's Share of Net Income $ 1,480 $ 6,665 $ 7,259
______________________________________________________________________________
44
XXX BEGIN PAGE 45 HERE XXX
______________________________________________________________________________
15. ACQUISITIONS AND DISPOSITION
In May 1993, Ershigs, Inc., an engineering, manufacturing and contractor
company, which specializes in fiberglass reinforced plastic and dual-laminate
vessels, tanks and other structures for corrosion-resistant applications was
acquired. During March 1992, CBI acquired the assets of MQS Inspection, Inc.,
which provides non-destructive examination and inspection services to its
clients in the utility, petroleum, petrochemical and other markets. The
outstanding stock of Cooperheat, Inc., which provides post-weld heat treating
and refractory bake-outs as field services and sells associated equipment, was
acquired on December 31, 1992. These acquisitions were recorded under the
purchase method of accounting. The company also acquired certain other
entities during the three years ended December 31, 1993. On February 17, 1993,
CBI sold the net operating assets of Indrex as discussed in the Financial
Review.
______________________________________________________________________________
16. SPECIAL CHARGE
In the fourth quarter of 1993, CBI recorded a special charge of $91,600
($68,400 after-tax), which is equivalent to net loss per common share of $1.84
($1.60 on a fully diluted basis), to provide for costs, identified through its
reengineering and quality programs, to more efficiently align capabilities to
customer needs, and for non-operational regulatory and legal costs. Included
within the special charge were non-cash provisions totaling $42,000 for the
write-downs of excess, non-performing, assets and for increases in certain
liability reserves. The remaining $49,600 of the special charge includes
provisions for costs associated with certain workforce realignments and
reductions, and selected regulatory and legal issues over the next several
years. The actions and reserves provided for by the special charge will adjust
the company's expense structure and enhance CBI's future operating
performance.
______________________________________________________________________________
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
CBI Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CBI
Industries, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1993, 1992 and 1991, and the related consolidated statements of income, cash
flows and common shareholders' investment for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CBI
Industries, Inc. and Subsidiaries as of December 31, 1993, 1992 and 1991, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
45
As discussed in Notes 11 and 12 to the financial statements, effective
January 1, 1992, the Company changed its methods of accounting for income
taxes and for postretirement benefits other than pensions.
/s/ ARTHUR ANDERSEN & CO.
_________________________
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
February 17, 1994.
______________________________________________________________________________
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
CBI is responsible for the financial statements and other information
presented in this report. The financial statements were prepared in accordance
with generally accepted accounting principles and necessarily include some
informed judgments and estimates in accounting for transactions and events.
Other financial information included in this report is consistent with these
financial statements.
CBI maintains a system of internal controls designed to provide reasonable
assurance of the proper execution and recording of transactions. In addition,
emphasis is placed on the careful selection and training of personnel, an
organizational structure which provides for an appropriate division of
responsibility and authority, and the communication of written policies and
procedures. CBI has an internal audit program to examine and evaluate the
adequacy of controls and procedures and the resultant recording of
transactions and events.
The Board of Directors, as a whole and through its Audit Committee,
monitors the financial and accounting operations of CBI, including the review
and discussion of financial statements and reports, the evaluation and
acceptance of budgets and the basis of the engagement and report of the
independent auditors. All members of the Audit Committee are outside
directors. The Audit Committee meets periodically with the independent
auditors, management personnel and the internal auditors to assure each is
discharging its responsibilities. The independent auditors and the internal
auditors have access to the Audit Committee without the presence of management
personnel.
45
XXX BEGIN PAGE 46 HERE XXX
QUARTERLY FINANCIAL DATA CBI Industries, Inc. and Subsidiaries
_________________________________________________________________________
Thousands of Dollars, except per share amounts
_________________________________________________________________________
QUARTERLY OPERATING RESULTS, COMMON STOCK PRICES AND DIVIDENDS
The following table summarizes the unaudited quarterly operating
results for the years ended December 31, 1993 and 1992:
Net (Loss)/Income
(Loss)/ Net per Common Share
Income from (Loss)/ ______________________
Quarter Ended Revenues Operations Income Primary Fully Diluted
_______________________________________________________________________________________
1993 December 31<FN1> $ 437,604 $(56,281) $(58,312) $(1.61) $(1.39)
September 30 408,372 31,523 10,297 .24 .22
June 30 427,842 29,524 8,418 .19 .17
March 31 397,926 21,379 5,584 .11 .11
_______________________________________________________________________________________
$1,671,744 $ 26,145 $(34,013) $(1.07) $ (.89)
_______________________________________________________________________________________
1992 December 31 $ 432,442 $ 29,957 $ 17,599 $ .44 $ .39
September 30 428,713 48,667 20,188 .51 .46
June 30 414,030 49,254 19,756 .50 .44
March 31<FN2> 397,589 38,402 6,420 .14 .13
_______________________________________________________________________________________
$1,672,774 $166,280 $ 63,963 $ 1.59 $ 1.42
_______________________________________________________________________________________
<FN1>Operating results in the fourth quarter and annual 1993 are after a special charge
of $91,600 ($68,400 after-tax), which is equivalent to a net loss per common share
of $1.84 ($1.60 on a fully diluted basis), to provide for costs to more efficiently
align capabilities to customer needs, and for non-operational regulatory and
legal costs.
<FN2>In the fourth quarter of 1992, CBI adopted, retroactively to the first quarter of
1992, Statements of Financial Accounting Standards No. 106 - Employers' Accounting
for Postretirement Benefits Other Than Pensions and No. 109 - Accounting for Income
Taxes. The cumulative effect of adopting these two accounting pronouncements
decreased first quarter and annual 1992 net income by $7,170, which is equivalent
to a net loss per common share of $0.20 ($0.17 on a fully diluted basis).
The following table presents the quarterly common shares outstanding,
range of closing common stock prices and dividends declared on common
shares for the years ended December 31, 1993 and 1992:
Common Shares Range of Closing Common Stock Prices
Outstanding at ____________________________________ Common
Quarter Ended Quarter End High Low Quarter End Dividends
__________________________________________________________________________________________
1993 December 31 37,439,589 $32 $23 7/8 $30 3/8 $.12
September 30 37,362,915 28 7/8 25 1/4 25 1/4 .12
June 30 37,273,091 29 1/4 21 7/8 25 .12
March 31 36,887,273 30 3/4 26 3/8 26 3/4 .12
__________________________________________________________________________________________
$.48
__________________________________________________________________________________________
1992 December 31 36,737,940 $32 5/8 $25 7/8 $29 5/8 $.12
September 30 36,659,994 34 1/2 27 28 3/4 .12
June 30 36,596,023 36 3/4 31 1/2 33 1/2 .12
March 31 36,564,379 37 1/8 31 5/8 34 1/8 .12
__________________________________________________________________________________________
$.48
__________________________________________________________________________________________
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