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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11442
CHART INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 34-1712937
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
35555 Curtis Boulevard, Eastlake, Ohio 44095
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(216) 946-2525
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, New York Stock Exchange
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 31, 1997, the registrant had 9,846,969 shares of Common Stock
outstanding. As of that date, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $102,211,531 (based upon the closing
price of $20.25 per share of Common Stock on the New York Stock Exchange on
January 31, 1997). For purposes of this calculation, the registrant deems the
4,799,486 shares of Common Stock held by all of its Directors and executive
officers to be the shares of Common Stock held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on May 1, 1997 are
incorporated by reference into Part III of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K is
as of December 31, 1996.
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PART I
ITEM 1. BUSINESS; ITEM 2. PROPERTIES; AND ITEM 3. LEGAL PROCEEDINGS.
THE COMPANY
Chart Industries, Inc. (the "Company" or "Chart") was organized in June
1992 as a Delaware corporation to serve as a holding company for the operating
units described herein. As used herein, the terms "Company" or "Chart" mean
Chart Industries, Inc., its subsidiaries and its predecessors, unless the
context otherwise indicates. The Company's executive offices are located at
35555 Curtis Boulevard, Eastlake, Ohio 44095, and its telephone number is (216)
946-2525.
In December 1992, the Company completed a reorganization (the
"Reorganization") whereby each of ALTEC International, Inc., Process Systems
International, Inc. ("PSI"), Process Engineering Inc. ("Process Engineering"),
NPS Products, Inc. and Greenville Tube Corporation ("Greenville Tube") became
wholly owned subsidiaries of the Company. In connection with the Reorganization,
in December 1992 the Company conducted an initial public offering of 4,220,500
shares of its Common Stock. In 1993, NPS Products, Inc. was merged into PSI and
now operates as the NPS Products Division of PSI ("NPS"). In addition, ALTEC
International, Inc. was reorganized into ALTEC International Limited Partnership
("ALTEC"). Chart controls ALTEC's operations through its wholly owned
subsidiary, Chart Management Company, Inc., an Ohio corporation. In 1994,
Process Engineering was merged into PSI and now operates as the Process
Engineering Division of PSI ("PEI"). In addition, PSI purchased certain assets
and assumed certain liabilities of CVI Incorporated, (a wholly owned subsidiary
of Pitt-DesMoines). These assets and liabilities have been organized into a
business now operating as the CVI Division of PSI ("CVI"). In 1995, the Company
began operation of Chart Coastal Fabrication, a division of PSI, in New Iberia,
Louisiana.
BUSINESS
GENERAL
The Company designs, engineers and manufactures standard and custom-built
industrial process equipment, primarily for low temperature applications. The
Company has developed a particular expertise in cryogenic systems and equipment
which operate at low temperatures sometimes approaching absolute zero (0
degreesKelvin/-273 degrees Centigrade/-459 degrees Fahrenheit). The Company's
products range from components and subsystems to complete systems which are used
by customers primarily to process, liquefy, store and transport gases. These
products are used in a variety of commercial and scientific applications,
including air separation, hydrocarbon processing, storage and transportation of
liquefied gases and cryogenics research. The Company also manufactures and
markets other products for other critical applications, including structural
pipe supports used in nuclear and fossil fuel power plants, specialty stainless
steel tubing and high-vacuum systems for satellite testing and scientific use.
OPERATING UNITS
Chart conducts operations through six operating units. The following table
sets forth certain information about each of these operating units.
OPERATING UNIT AND LOCATION PRINCIPAL PRODUCTS PRIMARY MARKETS
- ------------------------------ ------------------------------ ------------------------------
ALTEC Brazed aluminum plate-fin heat -Air separation equipment
LaCrosse, Wisconsin exchangers for low temperature -Hydrocarbon process equipment
applications; Bi-Braze(R) -Cryogenic and high vacuum
transition joints systems
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OPERATING UNIT AND LOCATION PRINCIPAL PRODUCTS PRIMARY MARKETS
- ------------------------------ ------------------------------ ------------------------------
PSI Cryogenic systems, including -Air separation equipment
Westborough, Massachusetts helium and nitrogen -Hydrocarbon processing
liquefiers, cryogenic equipment
refrigeration systems and -Cryogenic and high vacuum
multi-component gas separation systems
units; thermal vacuum system; -Specialty products
pipe supports, hangers and
saddles for critical pipe
applications
Chart Coastal Fabrication Fabrication of cryogenic gas -Air separation equipment
New Iberia, Louisiana processing units (cold boxes) -Hydrocarbon processing
equipment
CVI Cryogenic pumps and valves; -Air separation equipment
Columbus, Ohio and LNG fueling systems, -Hydrocarbon processing
Costa Mesa, California cryopumps, vacuum jacketed equipment
piping and other miscellaneous -Cryogenic and high vacuum
cryogenic-related components systems
-Specialty products
PEI Cryogenic and specialty -Air separation equipment
Plaistow, New Hampshire storage tanks and vessels, -Hydrocarbon processing
including road and rail equipment
tankers -Cryogenic and high vacuum
systems
-Specialty products
Greenville Tube Specialty stainless steel -Specialty products
Greenville, Pennsylvania and tubing
Clarksville, Arkansas
MARKETS AND PRODUCTS
The Company's primary markets and the approximate percentages of its 1994,
1995 and 1996 sales, respectively, represented by them include air separation
equipment (32%, 38% and 45%), hydrocarbon processing equipment (26%, 21% and
19%), and cryogenic and high vacuum systems (20%, 15% and 18%). The balance of
the Company's sales consist principally of specialty stainless steel tubing and
manufacturing services in certain niche markets. A description of the Company's
primary markets, principal products and major competitors is set forth below.
AIR SEPARATION EQUIPMENT. The Company designs, manufactures and sells
subsystems and components which are used at various stages of the low
temperature air separation process. Low temperature air separation facilities
compress, cool, purify, liquefy, distill and separate air into its component
atmospheric gases, principally nitrogen, oxygen and argon. These gases are used
for numerous commercial and scientific purposes. For example, oxygen is used in
the processing of primary metals and in steel-making, for hospital supplies, in
waste-water treatment, in the production of synthetic fuels and in the
processing of various chemicals, including antifreeze. Nitrogen is used in the
quick-freezing of various foods, in the manufacture of semiconductors, in the
production of fertilizer and in the enhanced recovery of oil and natural gas by
oil field pressurization. Argon has many diverse uses, including applications in
welding, annealing, electronics manufacture, titanium and zirconium production
and as an insulating barrier in double-paned window glass.
The market for low temperature air separation equipment is driven by demand
for high-purity forms of these atmospheric gases. The low temperature separation
of air into large volumes of highly pure forms of its component gases is
accomplished by compressing and cooling air until it reaches the temperatures at
which
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the gases transform into a liquid state. The atmospheric gases require
processing at extremely low temperatures to achieve liquefaction. Oxygen, argon
and nitrogen liquefy at -297 degrees, -302 degrees and -320 degrees Fahrenheit,
respectively. After liquefaction, the gases are separated into their pure
components by distillation. Once separated, these gases are generally stored and
transported in their liquid forms, because they can be more economically and
safely handled in that state.
Chart's major customers generally are large, international industrial gas
companies that incorporate the Company's systems and components into stand-alone
air separation facilities. These customers include Air Products and Chemicals,
MG Industries, Praxair, Inc., BOC and Air Liquide Process & Construction, Inc.
Chart competes with a number of companies in the low temperature air
separation equipment market. For subsystems and components, major competitors
include Linde A.G., CCI and Kobe Steel. The major competitor for fabrication of
cold boxes is Ivor J. Lee, Inc., Sumitomo Precision Products, Kobe Steel, IMI
Marston, Nordon Cryogenie and Linde A.G. are competing sources for brazed
aluminum plate-fin heat exchangers. The major competitors for on-site storage
and road and rail transportation tanks and vessels are Taylor-Wharton division
of Harsco and Minnesota Valley Engineers.
HYDROCARBON PROCESSING EQUIPMENT. The Company designs, manufactures and
sells complete systems, subsystems and components used in hydrocarbon
processing. Hydrocarbon processing facilities, including natural gas processing,
hydrocarbon refining and petrochemical processing plants, process natural gas
and other hydrocarbon streams (in gaseous or liquid forms) to low temperatures
and high pressures for the purpose of separating and extracting selected
components. These processes produce both purified forms of hydrocarbons which
are commercially marketable for various industrial or residential uses and
separately salable by-products for various industrial and scientific uses. For
example, various natural gas processing facilities separate nitrogen from
methane gas to enhance the British Thermal Unit value of the gas, separate and
produce liquefied petroleum gas for use as a fuel for household and recreational
purposes, separate ethane as a petrochemical feedstock, liquefy natural gas for
use as a fuel for industrial purposes and, more recently, for locomotives, buses
and trucks, and separate carbon dioxide and helium from natural gas sources.
Hydrocarbon processing generally takes place at relatively higher pressure
and temperature levels than air separation. Pressure levels in excess of 1,000
pounds per square inch are common in hydrocarbon processing, while air
separation typically takes place at less than 100 pounds per square inch. These
characteristics require the application of different design and engineering
techniques than are required to fabricate air separation equipment.
Chart's systems for this market include various gas separation
technologies, such as nitrogen rejection units used for separating nitrogen from
methane and hydrocarbon recovery and distillation systems for liquefied
petroleum gas plants. Subsystems and components include cold boxes similar to
those employed in air separation plants, low temperature tanks and vessels for
on-site storage and road and rail transportation, specialty stainless steel
tubing and other equipment. As an example, the Company's PSI unit has designed
nitrogen rejection units for major oil and gas producers which contain cold
boxes designed by PSI, fabricated at other Company locations, and containing
ALTEC's heat exchangers and Bi-Braze(R) transition couplings.
The Company has an agreement with Praxair granting PSI exclusive worldwide
rights to build and sell nitrogen rejection units (NRUs) and related equipment
utilizing Praxair's proprietary technology in this segment of the natural gas
processing field.
ALTEC developed, and in 1990 introduced, the Core-in-Kettle(R) heat
exchanger to provide a new application for brazed aluminum plate-fin heat
exchangers in the hydrocarbon processing market. These units are designed to
compete with kettle-type steel and alloy shell and tube heat exchangers. The
ALTEC design replaces the steel and alloy tube bundles contained in the kettle
with a brazed aluminum plate-fin heat exchanger core.
The Company's patented Ryan/Holmes technology for the distillative
separation of carbon dioxide and other gases from hydrocarbons is applied in gas
separation plants constructed in connection with enhanced oil and gas recovery
operations. This technology facilitates the extraction of carbon dioxide from
recovered hydrocarbons and its reinjection into the well with reduced costs of
recompression. The Ryan/Holmes
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technology is also used to extract other gases from recovered hydrocarbons, some
of which can be sold by customers as separate end products.
The Company, through CVI, is actively involved in LNG fuel systems,
including LNG and LNG to CNG fueling stations as well as on-board vehicle
systems.
Chart's major customers in the hydrocarbon processing equipment market
include oil and gas producers such as Amerada Hess, Amoco, Arco, Exxon, Koch
Industries, Lyondell, Mesa Petroleum, Mobil Oil, Phillips Petroleum, Shell Oil,
and Williams Field Services; large engineering contractors such as ABB Randall,
Bechtel, Fluor Daniel, JGC, M.W. Kellogg, Lummus, Parsons, and Stone & Webster.
Major competitors in the hydrocarbon processing equipment market include:
Dow, Monsanto and Grace for separation systems designed to compete with the
Company's Ryan/Holmes technology-based systems and Air Products and Chemicals
for nitrogen rejection units. Sumitomo Precision Products, Kobe Steel, IMI
Marston, Nordon Cryogenie, and Linde A.G. are competing sources for brazed
aluminum plate-fin heat exchangers.
CRYOGENIC AND HIGH VACUUM SYSTEMS. Chart designs, engineers and
manufactures complete custom liquefaction and refrigeration systems for helium
and hydrogen and custom thermal vacuum systems for various uses. Cryogenic
liquefaction, refrigeration, and regeneration systems are used for diverse
applications, ranging from small standard-packaged helium refrigeration units
for university and private sector laboratories to very large, custom designed
helium regeneration and refrigeration systems for national laboratories and
liquefiers for industrial application.
Chart has participated as a supplier in super-low temperature research
projects. In addition to its work with the technology for the production of
liquid helium, the Company has designed and fabricated a wide variety of custom
refrigeration and liquefaction systems for research conducted by laboratories
such as Brookhaven National Laboratory, Los Alamos Scientific Laboratory, Fermi
National Accelerator Laboratory, and CEBAF.
In addition to the research related applications, the Company's helium
liquefaction and refrigeration systems are beginning to have application in
emerging industrial application of superconductivity such as high gradient
magnetic separation and magnetic energy storage.
The Company also manufactures cold boxes, brazed aluminum plate-fin heat
exchangers, on-site storage and road and rail transportation tanks and vessels
and other equipment for this market. The Company's major competitors for
complete systems include L'Air Liquide, Linde A.G., CCI, Air Products and
Chemicals, and Kobe Steel.
Chart's custom thermal vacuum systems are designed and fabricated by the
PSI Westborough operating unit. Prior to its acquisition by Chart, CVI also
provided services to this area but that area has been integrated into PSI
Westborough. These systems are used by NASA, other government agencies, major
aerospace companies, including Lockheed/Martin, Space Systems/Loral, Hughes, and
other firms. The Company's products include high vacuum, low temperature space
simulation chambers used for pre-flight testing of satellites, rockets and other
space-related hardware. The Company also develops vacuum systems which are used
in the deposition of metallic coatings on the surfaces of specialized equipment
such as large telescope mirrors. The Company's major competitors in the market
for thermal vacuum products and systems for aerospace and research applications
include Dynavac (a unit of Tenney Vacuum) and Bemco.
The Company's experience and technological advancements in the high-vacuum
area resulted in its involvement in the Laser Interferometer Gravitational-Wave
Observatory (LIGO). The facilities will be dedicated to the detection of cosmic
gravitational waves and the harnessing of these waves for scientific research.
The Company will supply all of the required LIGO vacuum equipment; including
vacuum chambers, large pipe spools, valves, vacuum pumps, controllers, bakeout
equipment and modular clean rooms.
SPECIALTY MARKETS. Chart designs, manufactures and markets products for
nuclear and fossil fuel power plants, pulp and paper producers and various
specialty markets. The Company's products for this market
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include PEI's storage tanks and vessels, critical pipe supports and constants
manufactured by the NPS Products division of PSI and Greenville Tube's specialty
stainless steel tubing.
Although no new nuclear power plants and very few new fossil fuel power
plants are under construction in the United States, Chart remains active in the
domestic market by providing maintenance, repair and retrofit equipment to the
large number of existing operating facilities. Overseas, the construction of
power generation plants, particularly nuclear facilities, is more vigorous.
Together, South Korea and Taiwan have multiple nuclear plants scheduled for
construction over the next five years. Other countries in Southeast Asia, as
well as Canada and Spain, are also actively involved in new power plant
construction. Currently, the Company has a manufacturing and design agreement
for critical application pipe supports and devices with Korean Heavy Industries
& Construction Co., Ltd., the prime contractor for the construction of all
nuclear power plants currently under construction in South Korea.
The Company's major competitors for standard pipe support products are
Grinnel (a subsidiary of Tyco), Power Piping Company, Basic Engineers and Rilco.
Its major competitor for low-level nuclear waste treatment systems is General
Electric.
The Company, through its Greenville Tube operating unit, supplies specialty
stainless steel tubing for a variety of markets and applications, including food
processing, medical, construction and other general industrial uses. These
products are sold primarily to customers in North America. The Company employs a
unique manufacturing strategy to compete in the specialty tubing markets that it
serves. Virtually all of its competitors follow conventional manufacturing
practices, including the stocking of numerous sizes of stainless steel strips
and seamless tube hollows, so as to minimize the drawing required to obtain a
finished product. These competitors also obtain maximum volume by having long
production runs, thereby reducing changeovers and minimizing downtime, and, in
some cases, building tubes for finished goods inventory. Chart, conversely,
stocks only a limited array of stainless steel strips and seamless tube hollows,
and reworks the product repeatedly to produce the finished product. It
manufactures finished products only against orders received.
MARKETING
The Company's operating units, except for Greenville Tube, currently market
products and services in North America primarily through direct sales personnel
and supplement these direct sales through sales representatives and
distributors. Greenville Tube currently markets its tubing products exclusively
through independent manufacturer's sales representatives located throughout the
United States. The technical and custom design nature of the Company's products
requires a professional, highly trained sales force. Substantially all of the
Company's sales personnel have previous academic and industrial engineering or
technical experience.
The Company uses independent manufacturer's sales representatives in many
foreign countries. These independent representatives supplement the Company's
direct sales force in dealing with language and cultural matters. The Company's
domestic and foreign independent manufacturer's sales representatives earn
commissions on sales which vary by product type.
BACKLOG
At December 31, 1996, the Company's backlog of firm sales orders amounted
to approximately $128.3 million, compared with approximately $111.0 million at
December 31, 1995. The Company anticipates that $107.3 million of the 1996
backlog will be recognized as sales during 1997 and the remainder should be
recognized as sales in 1998. The Company's backlog fluctuates from time to time
and the amounts set forth above are not necessarily indicative of future backlog
levels.
CUSTOMERS
Sales to United States government funded projects accounted for 11%, 5% and
3% of consolidated sales in 1996, 1995 and 1994 respectively, and approximately
$800,000 of the accounts receivable balance at
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December 31, 1996. Ten customers accounted for 53% of consolidated sales in
1996. Chart's sales to particular customers fluctuate from period to period.
Management believes Chart's relationships with its customers are good.
PATENTS AND TRADEMARKS
Although the Company has a number of patents, trademarks and licenses
related to its businesses, except as described below, no one of them or related
group of them is considered by the Company to be of such importance that its
expiration or termination would have a material adverse effect on the Company's
businesses. In general, each operating unit depends upon technological
capabilities, manufacturing quality control and application of know-how, rather
than patents or other proprietary rights in the conduct of its business.
The Company holds a group of patents for its Ryan/Holmes technology, which
is used primarily in treating associated gases produced from tertiary oil
recovery projects. In addition to fabricating recovery plants on a turnkey basis
for customers, Chart also grants licenses under this technology to customers for
use in their own construction and operation of such facilities. As of December
31, 1996, there were 12 licensees using the Ryan/Holmes process. This group of
patents will expire during the period from 1999 through 2001 and the Company may
not derive licensing revenues from such technology thereafter.
RAW MATERIALS AND SUPPLIERS
The Company manufactures most of the products it sells. Raw materials such
as aluminum fin stock, brazing sheets, bars, plate and piping, stainless steel
hollows, strip, heads, plate and piping, carbon steel heads and plate, 9% nickel
steel heads and plate, compressors and valves are available from multiple
sources of supply.
The Company has experienced price increases recently in certain of its raw
materials, but anticipates passing these increased costs to its customer.
However, no assurance can be given as to the success with which the Company may
pass along such costs to customers. The Company foresees no acute shortages of
any raw materials which would have a material adverse effect on its operations.
ENGINEERING AND PRODUCT DEVELOPMENT
Chart's engineering and product development activities are primarily
associated with assisting in the design of products or modifications to execute
specific customer orders. The Company's engineering, technical and marketing
employees actively assist customers in identifying their needs and determining
appropriate products to meet those needs. A substantial portion of Chart's
engineering activities are conducted by the PSI Westborough operating unit,
which employs most of the Company's engineers and related staff personnel. A
portion of Chart's engineering expenditures were charged to customers either as
a separate item or as a part of product cost.
EMPLOYEES
As of December 31, 1996, the Company had a total of 925 employees,
including 270 salaried, 286 union hourly and 369 non-union hourly employees. The
salaried employees include 96 engineers and draft-persons and 174 other
professional, technical and clerical personnel.
The Company is a party to two collective bargaining agreements. ALTEC's
agreement with the International Association of Machinists and Aerospace Workers
covering 198 employees expires February 4, 1998. PEI's agreement with the
International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,
Forgers and Helpers covering 88 employees expires August 31, 1999. Since the
acquisition of each of its operating units, the Company has not had any work
stoppages or strikes. The Company believes its employee relations are good.
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PROPERTIES
The Company maintains its corporate headquarters in Eastlake, Ohio. Each of
ALTEC, PSI, CCF, PEI, CVI and Greenville Tube also maintains its own offices.
The Company currently produces its products in seven manufacturing plants which
are located in LaCrosse, Wisconsin; Westborough, Massachusetts; New Iberia,
Louisiana; Plaistow, New Hampshire; Columbus, Ohio; Costa Mesa, California; and
Clarksville, Arkansas. Chart also leases warehouse space at several locations
near its manufacturing facilities.
The Company's plant and office at Westborough, Massachusetts were not
originally purchased when the Company acquired the PSI operations. However, the
seller, while leasing the facility to the Company, retained a five-year option
to put the plant and office to the Company at $3.25 million, a price that
management believes approximates fair value. During 1995 the landlord notified
the Company of this intent. The Company entered into negotiations with the
landlord to also acquire some adjoining land. In May 1996 it was agreed to buy
the plant and office, plus an additional 23 acres, for $3.58 million.
Management considers the Company's facilities to be generally suitable and
adequate for their intended uses and to be sufficient for the Company's
foreseeable production capacity needs in light of its current plans.
The following table sets forth certain information about the Company's
facilities.
LOCATION SQ. FT. OWNERSHIP USE
- --------------------------- ------- ---------- ------------------------
LaCrosse, Wisconsin 134,000 Owned Manufacturing
10,000 Owned Office
Westborough, Massachusetts 51,900 Owned Manufacturing
33,200 Owned Office
31,600 Leased Manufacturing/Warehouse
New Iberia, Louisiana 60,000 Leased Manufacturing
Columbus, Ohio 34,700 Leased Manufacturing
5,000 Leased Manufacturing
Costa Mesa, California 21,900 Leased Manufacturing
Plaistow, New Hampshire 152,000 Owned Manufacturing
10,400 Owned Office
Clarksville, Arkansas 82,500 Owned Manufacturing
2,800 Owned Office
Greenville, Pennsylvania 2,100 Leased Office
Eastlake, Ohio 1,500 Leased Corporate Headquarters
GOVERNMENT CONTRACTS
In 1996, approximately 11% of the Company's revenues were derived from
contracts or subcontracts with, or funded by the United States government,
mostly related to LIGO. These contracts and subcontracts contain standard
provisions permitting the government to terminate them at its option, without
cause. In the event of such termination, the Company is entitled to receive
reimbursement on the basis of work completed (costs incurred plus a reasonable
profit). In addition, these contracts and subcontracts are subject to
renegotiation of profits. The Company has no knowledge of any pending or
threatened renegotiation or termination of any material government contract or
subcontract.
ENVIRONMENTAL MATTERS
The Company's operations involve and have involved the handling and use of
substances, such as various cleaning fluids used to remove grease from metal,
that are subject to federal, state and local environmental laws and regulations
that impose limitations on the discharge of pollutants into the soil, air and
water, and establish standards for their storage and disposal. The Company
monitors and reviews its procedures and policies for compliance with
environmental laws. Company management is highly conscious of these
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regulations, and supports an ongoing capital investment program to maintain the
Company's strict adherence to required standards.
As part of its ongoing environmental compliance and monitoring programs,
the Company is voluntarily developing work plans for environmental conditions
involving certain of its operating facilities. Based upon the Company's study of
the known conditions and its prior experience in investigating and correcting
environmental conditions, the Company estimates that the potential costs of
these site remediation efforts will not have a material adverse effect on the
Company's financial position or liquidity. Approximately $1.4 million is
recorded in accrued liabilities at December 31, 1996 for known environmental
matters. These expenditures are expected to be made mostly in the next year, if
the necessary regulatory agency approvals of the Company's work plans are
obtained. Although the Company believes it has adequately provided for the cost
of all known environmental conditions, the applicable regulatory agencies could
insist upon different and more costly remediative measures than those the
Company believes are adequate or required by existing law. Otherwise, the
Company believes that it is currently in compliance with all known material and
applicable environmental regulations.
LEGAL PROCEEDINGS
The Company's operating units are parties, in the ordinary course of their
business, to various legal actions related to performance under contracts,
product liability and other matters, several of which actions claim substantial
damages. The Company believes that these legal actions, as well as the legal
actions described below, will not have a material adverse effect on the
Company's consolidated financial position or liquidity.
In October 1993, the Company, through its then-existing subsidiary, Process
Engineering, along with other defendants, was found liable for damages for a
death resulting from an accident involving a soccer goal donated to a school
district prior to Chart's acquisition of Process Engineering. Total damages,
excluding accrued interest, awarded by the jury against the Company and two
other defendants totaled $925,000. The Company has appealed this jury verdict.
At this time the Company is unable to determine what its final potential
allocation of the damages may be if the Company's appeal is unsuccessful.
However, third quarter 1993 earnings included a charge related to this legal
proceeding which the Company feels adequately provides for any possible claims
that it may have for losses associated with this legal proceeding. The Company
is pursuing possible indemnification by the former shareholders of Process
Engineering pursuant to the purchase agreement which memorializes the sale of
Process Engineering to the Company and provides for indemnification for certain
pre-acquisition contingencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT*
The name, age as of February 27, 1997, and positions of each executive
officer of the Company are as follows:
NAME AGE POSITION AND OFFICES WITH THE COMPANY
---------------------------------------- --- -------------------------------------
Arthur S. Holmes........................ 56 Chairman and Chief Executive Officer
James R. Sadowski....................... 56 President and Chief Operating Officer
Don A. Baines........................... 54 Chief Financial Officer and Treasurer
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* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Arthur S. Holmes has been Chairman and Chief Executive Officer of the
Company since its formation in June 1992, and was President until December 1993.
He also has been President and the principal owner of Holmes Investment
Services, Inc. ("HIS"), a management consulting firm, since 1989. Mr. Holmes is
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currently the Chairman and Chief Executive Officer of ALTEC, and served as
President of ALTEC from 1985 through 1989. From 1978 through 1985, he served in
a variety of management capacities for Koch Process Systems, Inc., the
predecessor of PSI, most recently as Vice President-Manager of the Gas
Processing Division. Mr. Holmes is the co-inventor of the Company's patented
Ryan/Holmes technology. See "Business-Patents and Trademarks." Mr. Holmes holds
a B.S. and M.S. in Chemical Engineering from The Pennsylvania State University
and an M.B.A. from Northeastern University.
James R. Sadowski has been President and Chief Operating Officer of the
Company since December 1993. Prior to joining the Company, Mr. Sadowski served
as Group Vice President of Parker Hannifin Corporation's Bertea Aerospace Group
("Bertea") from 1991 to 1993. Prior to his service at Bertea he served in
various managerial capacities at Parker Hannifin Corporation and TRW, Inc. Mr.
Sadowski holds a B.S. in Engineering/Science from Case Institute of Technology
and a M.S. degree from the same institution in Mechanical Engineering.
Don A. Baines has been Chief Financial Officer of ALTEC since 1986 and has
been the Chief Financial Officer and Treasurer of the Company since its
formation in June 1992. He also has served as Chief Financial Officer for HIS
since 1989. From 1986 through 1989, Mr. Baines served as Vice President, Manager
of Finance for ALTEC. From 1976 through 1985, Mr. Baines served in a variety of
management capacities, most recently Controller, in the Process/Transport
Division of the Trane Company, which included the predecessor of ALTEC. Mr.
Baines is a Certified Public Accountant and holds a B.B.A. in Accounting from
St. Edward's University, Austin, Texas.
KEY EMPLOYEES OF THE OPERATING UNITS
Michael J. Wahlen has been the President and Chief Operating Officer of
ALTEC since 1989. From 1986 through 1989, Mr. Wahlen served as Vice President
and Manager of Sales for ALTEC. Mr. Wahlen began his career in 1973 with the
Trane Company and from 1979 to 1986 was Manager of Sales responsible for Trane's
brazed aluminum heat exchanger sales in the Western Hemisphere. Mr. Wahlen holds
a B.S. in Mechanical Engineering from the University of Wisconsin -- Milwaukee.
W. Kent Higgins has been President of the PSI's Westborough Division since
November 1994. Mr. Higgins had been Executive Vice President of PSI from April
1993 until November 1994. From 1991 through April 1993, Mr. Higgins served as
the President of NPS. From 1973 through 1991, had served in a variety of
management capacities at Koch Process Systems, Inc., the predecessor of PSI,
most recently as Vice President and Manager of Operations responsible for the
day to day manufacturing activities of that company. Mr. Higgins holds a B.S. in
Marine Engineering from the Maine Maritime Academy.
Charles R. Lovett has been the President of Process Engineering Division of
PSI since November 1994. From February 1993 to November 1994, he was Chief
Executive Officer of PSI and Process Engineering. From March 1992 to February
1993 he was the President and Chief Operating Officer of PSI. He was Executive
Vice President and Chief Operating Officer of Process Engineering from 1990 to
1992. From 1988 through 1990, he served as Vice President of Operations of AMW
Industries. From 1984 through 1988, Mr. Lovett served as the Vice President of
Manufacturing of Koch Process Systems, Inc., the predecessor of PSI. Mr. Lovett
holds a B.S. in Mechanical Engineering from the University of Dayton.
Charles E. Downs has been the President and Chief Operating Officer of
Greenville Tube since 1991. Mr. Downs was the Vice President and Treasurer of
Greenville Tube from 1987 to 1991. He joined Greenville Tube in 1986 as
Controller and Assistant Treasurer. Mr. Downs holds a B.S. in Business
Administration from Geneva College.
Roland E. Spence has been President of the CVI Division of PSI from January
1995. From 1960 to 1994, Mr. Spence served in a variety of management capacities
at CVI Incorporated, most recently as Vice President and Manager of the Costa
Mesa operations of that company.
9
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Quarterly Stock Prices and Dividends
QUARTER HIGH LOW DIVIDEND
- -------- ----- ---- --------
1995
1st 5-1/8 3-3/4 .07
2nd 5-7/8 4-1/8 .07
3rd 8-7/8 5 .07
4th 8-3/4 6-1/2 .07
QUARTER HIGH LOW DIVIDEND
- -------- ----- ---- --------
1996
1st 10-1/2 6-3/4 .07
2nd 16-7/8 9-7/8 .07
3rd 18-1/2 12-1/2 .07
4th 17-7/8 15-1/8 .09
Chart Industries Common Stock is traded on the New York Stock Exchange
under the symbol "CTI."
Shareholders of record on January 31, 1997 numbered 725. The Company
estimates that an additional 3,100 shareholders own stock held for their
accounts at brokerage firms and financial institutions.
10
12
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31 1996 1995 1994 1993 1992
- ------------------------------------------ -------- -------- ------- ------- --------
INCOME STATEMENT DATA:
Sales..................................... $148,400 $112,479 $84,258 $83,734 $104,845
Gross profit.............................. 45,002 30,775 15,808 17,779 26,670
Selling, general and administrative....... 21,745 18,108 15,020 15,865 14,624
Restructuring charge...................... 2,151
Operating income (loss)................... 23,257 12,667 (1,363) 1,914 12,046
Net interest expense...................... 623 1,858 996 602 1,451
Income tax expense (benefit).............. 7,605 3,746 (896) 512 3,789
Net income (loss)......................... 15,029 7,063 (1,463) 800 6,806
EARNINGS PER COMMON SHARE:
Net income (loss)......................... $ 1.48 $ .70 ($ .15) $ .08 $ .73
OTHER FINANCIAL DATA:
Income from continuing operations before
income taxes, depreciation and
amortization............................ $ 25,342 $ 13,551 $ 339 $ 3,385 $ 12,505
Depreciation and amortization............. 2,708 2,742 2,698 2,073 1,910
Dividends................................. 3,002 2,787 2,764 2,793 11,178
Dividends per share....................... $ .30 $ .28 $ .28 $ .28 N/A (1)
BALANCE SHEET DATA:
Cash, cash equivalents and restricted
cash.................................... $ 9,408 $ 229 $ 206 $ 704 $ 3,518
Working capital........................... 12,647 17,750 15,483 19,847 15,815
Total assets.............................. 81,196 66,506 54,881 48,003 48,954
Total debt................................ 4,830 14,573 18,080 14,810 8,068
Long-term debt, less current portion...... 4,469 12,566 16,073 13,000 6,000
Shareholders' equity...................... 28,096 18,433 14,364 18,418 21,747
- ---------------
(1) Prior to the Reorganization and public stock offering in December 1992, the
Company made cash distributions to its then current stockholders.
11
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
In 1996, Chart Industries experienced a 113 percent increase in net income
over the prior year. A large portion of this increase can be attributed to a
strong demand for air separation equipment, including heat exchangers, cold
boxes, cryogenic tanks and assorted system components. In addition to the air
separation equipment, the Company is about one third complete on the LIGO
project, its largest contract thus far which totaled $39.1 million.
As to order bookings, the Company has seen a tremendous increase in the
demand for hydrocarbon processing equipment. New orders in this area were $54.1
million in 1996 compared to $30.5 million and $21.4 million in 1995 and 1994,
respectively. Due to the longer lead time on this equipment, the Company is just
beginning to see the effect on sales. Backlog in this area now totals $45.2
million with an estimated gross margin of 39.2 percent.
The consolidated backlog of $128.3 million, another new high for the
Company, with an estimated gross margin of 30.8 percent, should allow for a
strong 1997 in which the Company will strive again to exceed its internal growth
targets and continue to look for acquisition candidates to enhance that growth.
Measurement Period
(Fiscal Year Covered)
3/31/92 57.8
6/30/92 55.1
9/30/92 54.9
12/31/92 47.3
3/31/93 39.1
6/30/93 35.8
9/30/93 36.1
12/31/93 41.1
3/31/94 38.9
6/30/94 44.3
9/30/94 48.5
12/31/94 53.8
3/31/95 58.2
6/30/95 57.3
9/30/95 97.7
12/31/95 111.0
3/31/96 112.9
6/30/96 124.4
9/30/96 125.7
12/31/96 128.1
12
14
OPERATING RESULTS
The following table sets forth, for the periods indicated, the percentage
relationship to sales of the Company each line item represents.
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
Sales............................................................. 100.0% 100.0% 100.0%
Cost of products sold............................................. 69.7 72.6 81.2
Gross profit...................................................... 30.3 27.4 18.8
Selling, general and administrative expense....................... 14.7 16.1 17.8
Restructuring charge.............................................. -- -- 2.6
Operating income (loss)........................................... 15.6 11.3 (1.6)
Interest expense, net............................................. .4 1.7 1.2
Income taxes (benefit)............................................ 5.1 3.3 (1.1)
Net income (loss)................................................. 10.1 6.3 (1.7)
YEAR ENDED DECEMBER 31, 1996 AND 1995
MARKET SECTOR ANALYSIS
SALES GROSS PROFIT
------------------- ------------------ GROSS
PERCENT PERCENT PROFIT
1996 ($000) OF TOTAL ($000) OF TOTAL MARGIN
-------- -------- ------- -------- ------
Air Separation Equipment..................... $ 66,304 44.7% $21,255 47.2% 32.1%
Hydrocarbon Processing Equipment............. 28,125 18.9% 9,266 20.6% 33.0%
Cryogenic & High Vacuum Equipment............ 26,822 18.1% 4,437 9.9% 16.5%
Specialty Products........................... 27,149 18.3% 10,044 22.3% 37.0%
-------- ------ ------- ------ ----
TOTAL.............................. $148,400 100.0% $45,002 100.0% 30.3%
======== ====== ======= ====== ====
SALES GROSS PROFIT
------------------- ------------------ GROSS
PERCENT PERCENT PROFIT
1995 ($000) OF TOTAL ($000) OF TOTAL MARGIN
-------- -------- ------- -------- ------
Air Separation Equipment..................... $ 42,811 38.1% $10,610 34.5% 24.8%
Hydrocarbon Processing Equipment............. 23,914 21.2% 7,882 25.6% 33.0%
Cryogenic & High Vacuum Equipment............ 17,301 15.4% 1,353 4.4% 7.8%
Specialty Products........................... 28,453 25.3% 10,930 35.5% 38.4%
-------- ------ ------- ------ ----
TOTAL.............................. $112,479 100.0% $30,775 100.0% 27.4%
======== ====== ======= ====== ====
YEARS ENDED DECEMBER 31, 1996 AND 1995
Sales for 1996 were $148.4 million, an increase of $35.9 million or 31.9
percent over 1995. By far, the largest increase in sales over 1995 came in air
separation equipment totalling $23.5 million, with increases of $10.1 million in
cryogenic tanks, $8.5 million in brazed aluminum heat exchangers, $2.9 million
in cold boxes and $2 million in assorted cryogenic components during 1996.
Sales in the hydrocarbon processing equipment area increased $4.2 million,
almost entirely in brazed aluminum heat exchangers, which were for the most part
supplying an increase in the demand for ethylene-related equipment. The large
pick-up in 1996 orders the Company has received related to the natural gas
processing market will be seen in increased sales during 1997 and into 1998.
Sales to the cryogenic/high vacuum market increased in 1996. Much of the
sales improvement in this market is the result of vacuum equipment being
supplied to the LIGO project, which totalled approximately $13 million during
1996.
13
15
Gross profit for 1996 increased $14.2 million or 46.2 percent from 1995
levels. The gross margin percentage increased from 27.4 percent in 1995 to 30.3
percent in 1996. As in sales, a large portion of the improvement in both gross
profit and in margin percentage came from the air separation sector. The most
dramatic improvement was the cryogenic tank area at PEI, which has fully turned
around after the 1994 restructuring, and when coupled with increasing prices,
has gone from a negative gross margin to a margin level comparable to the whole
market area. Also seeing large volume and price improvement in 1996 was the
brazed aluminum heat exchanger market.
As the LIGO job progresses toward completion, it is having a positive
effect in the cryogenic/high-vacuum equipment area, where the margin percentage
has grown to 16.5 percent from 7.8 percent.
Selling, general and administrative (SG&A) costs totaled $21.7 million for
1996, an increase of $3.6 million from 1995. However, as a percentage of sales,
SG&A has decreased from 16.1 percent in 1995 to 14.7 percent in 1996. This
improvement is the result of increasing volume relative to the fixed overheads.
The $3.6 million increase in expense is largely driven by the variable expenses
of profit sharing, management incentive compensation and selling commissions,
which are all closely tied to increasing profitability and sales levels. In
addition, outside consultants are working with the Company in efforts to
increase throughput in various facilities, the costs for which have been
included in SG&A.
Net interest expense declined during 1996 with borrowings declining from
$14.6 million to a net positive cash position. This was also the last year of
amortization for the loan origination costs related to the $25 million Credit
Agreement.
The 1996 tax expense includes the positive effect of eliminating the
deferred tax valuation allowance that related to certain tax loss carryforwards
as well as the ongoing benefits of several different tax credits.
As a result of the continued growth of the Company's Gulf Coast operations
and the expansion of ALTEC, total employment has increased 6.1 percent to 925.
The Company feels that this increase is moderate when compared to the greater
than 30 percent revenue growth shown in each of the last two years.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Sales for 1995 were $112.5 million versus $84.3 million for 1994, an
increase of $28.2 million, or 33.5 percent. Sales grew across all markets and
received an additional boost from the acquisition of CVI in the fourth quarter
of 1994. The continued strong demand for stainless steel tubing, brazed aluminum
heat exchangers and cryogenic storage tanks, was partially offset by a weak
market and poor contract performance in the high vacuum area. The Company has
decided to focus on large thermal vacuum systems and optical coating systems and
exit the small vacuum coating systems market. These changes in emphasis during
1995 should improve this area's performance in 1996 and beyond.
Strong air separation market conditions, extensive productivity
improvements at PEI, demand for redraw stainless steel tubing, and strong
throughput at each of Chart's plants resulted in gross profit for 1995 of $30.8
million versus $15.8 million for 1994, an improvement of $15.0 million, or 95
percent. This result reflects an improved gross profit margin to 27.4 percent
from 18.8 percent in 1994. The products supporting this improved margin
performance were stainless steel tubing, brazed aluminum heat exchangers and
cryogenic storage tanks. This improved performance more than compensated for the
anticipated low-margin sales in several long-term high vacuum projects and the
start-up costs of our Chart Coastal Fabrication facility in New Iberia,
Louisiana.
As a percentage of sales, selling, general and administrative (SG&A)
expense improved to 16.1 percent versus 17.8 percent in 1994. SG&A expense for
1995 was $18.1 million, approximately $3.1 million higher than 1994. The
addition of CVI increased SG&A expense by $2.3 million over last year. The
remaining increases are driven by higher commissions and employee profit
sharing.
Net interest expense for 1995 was $1.9 million versus $1.0 million in 1994.
Increased interest charges in 1995 reflect higher borrowing levels to meet
increased working capital requirements of the Company's operating units and the
acquisition indebtedness related to CVI. As of October 1, 1995, the differential
to
14
16
LIBOR at which Chart borrows from its bank group was lowered by 25 basis points
to LIBOR plus 200 basis points.
The 1995 effective tax rate of 34.7 percent reflects the positive effect of
certain tax credits taken in the most recently filed income tax returns and the
anticipated effect of such credits on the Company's 1995 tax returns.
With the improvement in backlog and operating results in 1995, the Company
has added selected personnel; these additional personnel are generally
concentrated in direct manufacturing labor and include a growing workforce at
Chart Coastal Fabrication. As of December 31, 1995, the Company had 872
employees, a 24 percent increase compared to the December 31, 1994 figure of 702
employees. The 1994 figure does not include 99 employees related to CVI as those
employees did not begin to transfer over to the Company until 1995 under the
acquisition agreement.
1996 LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations in 1996 was $32.9 million compared to $8.8
million in 1995 and $6.8 million in 1994. As the Company takes on large orders
and progresses through completion, there are normally wide swings in working
capital requirements depending on negotiated terms. The Company is currently
well positioned in regards to working capital despite the large backlog and
related inventory needs due to strong progress billings to Chart's customers and
strong net income.
Capital expenditures in 1996, 1995, and 1994 were $4.9 million, $2.1
million and $1.3 million, respectively. The 1996 capital expenditures relate to
the expansion of capacity at both ALTEC and Chart Coastal Fabrication (CCF), as
well as general throughput enhancing expenditures at the other locations. The
1995 expenditures included the leasehold improvements and various machinery and
equipment purchases for the Company's initial operation at CCF; along with
various productivity-enhancing machinery and equipment throughout all of Chart's
facilities.
The Company fulfilled the original terms of its acquisition agreement
related to Process Systems International, Inc., when the former owner exercised
its right to put the land and building to the Company. Management believes the
purchase price of $3.6 million for the land, building and neighboring parcel of
land approximated market.
In November 1996, the Board of Directors authorized a program to repurchase
1,000,000 shares of Company Common Stock. The amount and timing of share
purchases will depend on market conditions, share price, and other factors. The
Company reserves the right to discontinue the repurchase program at any time. In
1996, 146,300 shares were acquired under the program.
Management believes that cash generated by operations, borrowings under the
Credit Agreement, which now extends through June 1998, and access to capital
markets, will be sufficient to satisfy its working capital, dividend, capital
expenditure, debt repayment requirements and finance continued growth through
acquisition.
Dividends totaling $3 million, or $.30 per share, were paid during 1996 and
$2.8 million or $.28 per share were paid during each of 1995 and 1994. Any
future declarations of dividends are at the sole discretion of the Company's
Board of Directors. No assurance can be given as to whether dividends may be
declared in the future, and if declared, the amount and timing of such
dividends.
15
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Chart Industries, Inc.
We have audited the accompanying consolidated balance sheets of Chart
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial position of
Chart Industries, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 3, 1997
16
18
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................. $ 4,304 $ 229
Restricted cash....................................................... 5,104
Accounts receivable, net of allowances of $329 and $202............... 25,922 26,614
Inventories, net...................................................... 21,727 20,871
Unbilled contract revenue............................................. 1,402 791
Deferred income taxes................................................. 1,365 1,809
Prepaid expenses...................................................... 863 947
------- -------
TOTAL CURRENT ASSETS.................................................... 60,687 51,261
Property, plant and equipment, net...................................... 17,882 11,734
Other assets, net....................................................... 2,627 3,511
------- -------
TOTAL ASSETS............................................................ $81,196 $66,506
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable...................................................... $ 8,582 $ 7,764
Customer advances..................................................... 12,698 7,408
Billings in excess of contract revenue................................ 11,444 6,027
Accrued salaries, wages and benefits.................................. 6,810 4,760
Contract and warranty reserves........................................ 4,710 2,743
Accrued expenses and other liabilities................................ 3,435 2,802
Current portion of long-term debt..................................... 361 2,007
------- -------
TOTAL CURRENT LIABILITIES............................................... 48,040 33,511
Long-term debt.......................................................... 4,469 12,566
Deferred income taxes................................................... 591 1,996
SHAREHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized, none issued or
outstanding Common stock, par value $.01 per share -- 30,000,000
shares authorized, 10,203,200 and 10,094,594 shares issued at
December 31, 1996 and 1995, respectively........................... 102 101
Additional paid-in capital............................................ 18,118 17,024
Retained earnings..................................................... 14,321 2,294
Treasury stock, at cost, 362,585 and 163,158 shares at December 31,
1996 and 1995, respectively........................................ (4,445) (986)
------- -------
28,096 18,433
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $81,196 $66,506
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
17
19
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
---------------------------------
1996 1995 1994
-------- -------- -------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Sales...................................................... $148,400 $112,479 $84,258
Cost of products sold...................................... 103,398 81,704 68,450
-------- -------- -------
Gross profit............................................... 45,002 30,775 15,808
Selling, general and administrative expenses............... 21,745 18,108 15,020
Restructuring charge....................................... 2,151
-------- -------- -------
Operating income (loss).................................... 23,257 12,667 (1,363)
Interest expense -- net.................................... (623) (1,858) (996)
-------- -------- -------
Income (loss) before income taxes.......................... 22,634 10,809 (2,359)
Income tax expense (benefit):
Current.................................................. 8,566 4,556 (50)
Deferred................................................. (961) (810) (846)
-------- -------- -------
7,605 3,746 (896)
-------- -------- -------
Net income (loss).......................................... $ 15,029 $ 7,063 $(1,463)
======== ======== =======
Net income (loss) per share................................ $ 1.48 $ .70 $ (.15)
======== ======== =======
Shares used in per share calculations...................... 10,124 10,066 10,035
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
18
20
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL RETAINED TOTAL
SHARES COMMON PAID-IN EARNINGS TREASURY SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL (DEFICIT) STOCK EQUITY
----------- ------ ---------- -------- -------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at January 1, 1994..... 9,827 $100 $ 19,871 $ (430) $ (1,123) $18,418
Net loss..................... (1,463) (1,463)
Dividends ($.28 per share)... (2,764) (2,764)
Treasury stock
acquisitions.............. (11) (44) (44)
Stock options, net of tax
benefit................... (57) (47) 47 (57)
Contribution of treasury
stock to employee benefit
plans..................... 69 (134) 408 274
----- ---- -------- -------- -------- -------
Balance at December 31, 1994... 9,885 100 16,916 (1,940) (712) 14,364
Net income................... 7,063 7,063
Dividends ($.28 per share)... (2,787) (2,787)
Treasury stock
acquisitions.............. (97) (664) (664)
Stock options, net of tax
benefit................... 97 1 68 (40) 150 179
Contribution of treasury
stock to employee benefit
plans..................... 46 40 (2) 240 278
----- ---- -------- -------- -------- -------
Balance at December 31, 1995... 9,931 101 17,024 2,294 (986) 18,433
Net income................... 15,029 15,029
Dividends ($.30 per share)... (3,002) (3,002)
Treasury stock
acquisitions.............. (255) (3,732) (3,732)
Stock options, net of tax
benefit................... 115 1 737 28 766
Contribution of treasury
stock to employee benefit
plans..................... 50 357 245 602
----- ---- -------- -------- -------- -------
Balance at December 31, 1996... 9,841 $102 $ 18,118 $ 14,321 $ (4,445) $28,096
===== ==== ======== ======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
19
21
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
--------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)......................................... $ 15,029 $ 7,063 $ (1,463)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 2,708 2,742 2,698
Deferred income taxes.................................. (961) (810) (846)
Contribution of treasury stock to employee benefit
plans................................................ 602 278 274
Increase (decrease) in cash resulting from changes in
operating assets and liabilities:
Accounts receivable.................................. 692 (6,720) (4,740)
Inventory and other current assets................... (1,383) (3,779) 3,342
Accounts payable and accrued liabilities............. 5,468 4,042 3,862
Billings in excess of contract revenue and customer
advances.......................................... 10,707 6,022 3,628
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 32,862 8,838 6,755
INVESTING ACTIVITIES
Capital expenditures...................................... (4,868) (2,111) (1,333)
Acquisition of the PSI building........................... (3,578)
Acquisition of net assets from CVI Incorporated........... (650)
Other investing activities................................ 474 75 (640)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES..................... (7,972) (2,036) (2,623)
FINANCING ACTIVITIES
Borrowing under Industrial Revenue Bond................... 5,000
Principal payments on long-term debt...................... (3,243) (2,007) (15)
Repayments on credit facility............................. (44,750) (40,500) (32,000)
Borrowings on credit facility............................. 33,250 39,000 30,250
Purchase of treasury stock................................ (3,732) (664) (44)
Stock options exercised................................... 766 179 (57)
Dividends paid to shareholders............................ (3,002) (2,787) (2,764)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES..................... (15,711) (6,779) (4,630)
-------- -------- --------
Net increase (decrease) cash equivalents.................... 9,179 23 (498)
Cash and cash equivalents at beginning of year.............. 229 206 704
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 9,408 $ 229 $ 206
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
20
22
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- NATURE OF OPERATIONS
The Company is involved in the engineering and manufacturing of industrial
equipment and systems for the cryogenic and process industries and various
research applications. Substantially all of the Company's sales and trade
accounts receivable are related to the air separation, hydrocarbon and chemical
processing and power generation industries and laboratories related to space and
high physics research located throughout the world. The Company requires
customer advances when appropriate to reduce risk and provide working capital.
Sales to U.S. government funded projects accounted for 11%, 5% and 3% of
consolidated sales in 1996, 1995 and 1994, respectively and an $800,000 accounts
receivable balance at December 31, 1996. Ten customers accounted for 53% of
consolidated sales in 1996.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated in consolidation. Certain items in previous
financial statements have been reclassified to conform to 1996 presentation.
Cash and Cash Equivalents: The Company considers all investments with an
initial maturity of three months or less when purchased to be cash equivalents.
The 1996 amount includes $5,104,000 of proceeds and interest income related to
the issuance of the IRB in 1996 which have not yet been released from escrow for
the ALTEC expansion (see Note C).
Intangible Assets: Intangible assets are carried at cost less applicable
amortization and amounted to $2,258,000 at December 31, 1996 and $2,860,000 at
December 31, 1995. The accumulated amortization included in these amounts was
$387,000 and $190,000 in 1996 and 1995, respectively. Intangibles are amortized
on the straight-line method over the periods of expected benefit, but not in
excess of 15 years. Such amounts are classified as other assets in the
accompanying balance sheets. Total amortization was $507,000, $499,000 and
$321,000 in 1996, 1995 and 1994, respectively.
Inventories: Inventories are stated at the lower of cost or market with
cost being determined by both the last-in, first-out ("LIFO") method
(approximately 75 percent and 69 percent of total inventory at December 31, 1996
and 1995, respectively), and the first-in, first-out ("FIFO") method. The
components of inventory on a first-in, first-out basis are as follows:
DECEMBER 31
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
Raw materials and supplies................................... $11,507 $12,538
Work in process.............................................. 10,536 8,784
Finished goods............................................... 25 181
LIFO reserve................................................. (341) (632)
------- -------
$21,727 $20,871
======= =======
Property, Plant and Equipment: Property, plant and equipment are stated on
the basis of cost. Expenditures for maintenance, repairs and renewals are
charged to expense as incurred, whereas major betterments are capitalized. The
cost of applicable assets is depreciated over their estimated useful lives.
Depreciation is computed using the straight-line method for financial reporting
purposes and accelerated
21
23
methods for income tax purposes. The following table shows original costs and
the estimated useful lives of the different types of assets:
CLASSIFICATION EXPECTED USEFUL LIFE 1996 1995
----------------------------------------- ------------------------ ------- -------
Land and buildings....................... 20-35 years (buildings) $10,831 $ 6,753
Machinery and equipment.................. 3-12 years 14,724 13,287
Furniture and fixtures................... 3-5 years 2,256 2,050
Construction in process.................. 2,793 171
------- -------
30,604 22,261
Less accumulated depreciation............ 12,722 10,527
------- -------
Total Property, Plant and Equipment...... $17,882 $11,734
======= =======
The property, plant and equipment at PEI was evaluated for impairment
during 1994 and a writedown of $320,000 was included in a restructuring charge
taken in the second quarter of 1994.
Property, plant and equipment along with the intangible assets are
periodically evaluated for impairment. The Company assesses impairment for each
of their operating units by measuring future cash flows against the carrying
value of these long-lived assets. If the future undiscounted cash flows are less
than the carrying amount, an impairment reserve is recorded.
Revenue Recognition: The Company uses the percentage of completion method
of accounting for significant contracts. 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. Earned revenue on jobs
in process totalled $52.6 million. Timing of amounts billed on contracts varies
greatly from contract to contract causing high variation in working capital
needs. Amounts billed on percentage completion jobs in process total $62.6
million. The cumulative impact of revisions in total cost estimates during the
progress of work is reflected in the period in which these changes become known.
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.
Otherwise, revenue is recognized when the products are completed or shipped.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates especially in regards to the percentage of completion method of
revenue recognition.
Deferred Income Taxes: The Company and its subsidiaries file a
consolidated federal income tax return. Deferred income taxes are provided for
temporary differences between financial reporting and the consolidated tax
return in accordance with the liability method.
Net Income (Loss) Per Share: The weighted average number of common shares
and common share equivalents (stock options) outstanding in each year is used to
compute net income (loss) per share.
Employee Stock Options: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
NOTE C -- LONG-TERM DEBT
The Company currently maintains a consolidated credit and revolving loan
facility ("Facility") which provides for loans of up to $25 million, of which
$10 million may be available for the issuance of letters of credit. The Company
had no borrowings at December 31, 1996 and $11.5 million outstanding at December
31,
22
24
1995. The Facility extends to June 30, 1998. The Facility provides the bank with
a secured interest in substantially all of the property, plant and equipment of
the Company.
Under the terms of the Facility, loans (including draws under any proposed
letters of credit) will bear interest, at the Company's option, at a rate equal
to the bank's base rate (8.25 percent at December 31, 1996) or LIBOR plus 1.25
percent per annum. Based on the Company's financial position, the Company and
its banks have agreed to adjust the LIBOR differential on a set schedule. The
Company is also required to pay a commitment fee of .375% per annum on the
unused portion of the Facility, payable quarterly in arrears.
The Facility contains certain covenants and conditions which impose
limitations on the Company and its operating units, including meeting certain
financial tests and the maintenance of certain financial ratios on a
consolidated basis such as: minimum current ratio, minimum net worth, maximum
leverage, minimum interest coverage ratio and minimum fixed charge ratio. As of
December 31, 1996, the Company was in compliance with all covenants and
conditions. The Company has outstanding letters of credit totaling $2,635,000
all backed up by the Facility.
As part of the expansion of the ALTEC facility, the Company issued
Industrial Development Revenue Bonds (IRB) totaling $5 million during 1996 ($4.8
million outstanding at December 31, 1996). The bonds are collateralized by the
equipment related to the expansion. These notes pay interest at 6.3 percent and
have maturities in the next five years as follows: 1997 -- $361,000;
1998 -- $405,000; 1999 -- $431,000; 2000 -- $459,000 and 2001 -- $489,000. The
Company is required to spend these monies on the current expansion and has
commitments with vendors covering this work. All funds should be released from
escrow by the end of 1997.
The Company was able to repay during 1996 all remaining maturities of the
notes issued as part of the acquisition of CVI without any early retirement
costs.
Interest paid was $688,000 in 1996, $1,799,000 in 1995, and $800,000 in
1994.
NOTE D -- RESTRUCTURING CHARGE
During 1994, the Company elected to substantially restructure PEI's
operations. A restructuring charge was recorded during the second quarter of
1994 for the costs of employee severance (approximately $1.3 million),
lease-buyouts, excess inventory and machinery disposals (approximately $1.2
million) and the eventual sale of the land and buildings and other expenses
associated with the anticipated plant closure.
In October 1994, the Company announced its intention to maintain the
operations of PEI at its current Plaistow, New Hampshire location. The decision
to continue operations followed the termination of a proposed joint venture and
identification of substantial restructuring opportunities and cost reductions at
the Plaistow facility. In addition, PEI reached an agreement with its union work
force which is expected to permit meaningful operating concessions.
The original restructuring charge was reduced by $1.1 million reflecting
reductions in employee severance, lease buyouts and costs related to the
eventual sale of the land and buildings. The remaining $2.15 million
restructuring charge includes severance and other employee-related costs due to
the restructuring, write-off of inventory and equipment related to products no
longer manufactured, certain costs of the terminated joint venture negotiations
and the impairment in value of the land and building.
NOTE E -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1996, the
Company had net operating loss carryforwards for income tax purposes of $947,000
that expire in years 2003 through 2006. These carryforwards resulted from the
Company's 1991 acquisition of Process Engineering and are subject to Separate
Return Limitation Year (SRLY) and Section 382 limitations
23
25
imposed by the Internal Revenue Service Code of 1986, as amended, and the
regulations thereunder. Significant components of the Company's deferred tax
liabilities and assets are as follows:
DECEMBER 31
-----------------
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
Deferred tax liabilities:
Property, plant and equipment....................... $1,506 $1,524
Inventory........................................... 1,243 959
Other -- net........................................ 159 461
------ ------
TOTAL DEFERRED TAX LIABILITIES.............. 2,908 2,944
Deferred tax assets:
Accruals and reserves............................... 3,332 2,154
Net operating loss carryforwards.................... 322 683
Other -- net........................................ 28 290
------ ------
TOTAL DEFERRED TAX ASSETS................... 3,682 3,127
Valuation allowance for deferred tax assets........... 0 (370)
------ ------
Net deferred tax assets............................... 3,682 2,757
------ ------
NET DEFERRED TAX (ASSETS)/LIABILITIES....... $ (774) $ 187
====== ======
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
YEARS ENDED DECEMBER 31
----------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
Current:
Federal............................................. $7,936 $4,015 $ (185)
State............................................... 630 541 135
------ ------ ------
8,566 4,556 (50)
Deferred:
Federal............................................. (850) (644) (846)
State............................................... (111) (166)
------ ------ ------
(961) (810) (846)
------ ------ ------
$7,605 $3,746 $ (896)
====== ====== ======
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
YEARS ENDED DECEMBER 31
-----------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Tax at U.S. statutory rates.............. $7,922 35.0% $3,684 34.0% $(802) (34.0%)
State income taxes, net of federal tax
benefit................................ 337 1.5 248 2.3 89 3.8
Reversal of valuation allowance.......... (370) (1.6)
Federal tax benefit of Foreign Sales
Corp................................... (213) (.9) (122) (1.1) (96) (4.1)
Other -- net............................. (71) (.4) (64) (.5) (87) (3.7)
------ ---- ------ ---- ----- -----
$7,605 33.6% $3,746 34.7% $(896) (38.0%)
====== ==== ====== ==== ===== =====
The Company paid approximately $8 million and $3.1 million in income taxes
in 1996 and 1995, respectively.
24
26
NOTE F -- EMPLOYEE BENEFIT PLANS
The Company has two defined benefit pension plans which cover approximately
41% of their workforce. The plan benefits are based on either an average of the
employee's compensation for certain periods during their employment or fixed
amounts per year of service as negotiated with the employees' collective
bargaining unit. The Company's funding policy is to contribute at least the
minimum funding amounts required by law. Plan assets consist primarily of U.S.
Treasury notes and corporate stocks and bonds.
The actuarially computed combined pension cost included the following
components for the years ended December 31:
1996 1995 1994
----- ----- -----
(DOLLARS IN THOUSANDS)
-----------------------
Service cost of current period...................................... $ 281 $ 204 $ 198
Interest cost on projected benefit obligation....................... 302 264 230
Actual return on plan assets........................................ (290) (530) 39
Net amortization and deferrals...................................... 18 296 (279)
----- ----- -----
TOTAL PENSION COST........................................ $ 311 $ 234 $ 188
===== ===== =====
The following table sets forth the funded status and amounts recognized in
the balance sheets as of December 31:
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Actuarial present value of benefit obligation
Vested benefit obligation............................ $2,047 $1,992 $1,299 $1,131
====== ====== ====== ======
Accumulated benefit obligation....................... 2,140 2,067 $1,544 $1,372
====== ====== ====== ======
Projected benefit obligation........................... 3,115 2,932 $1,544 $1,372
Plan assets at fair value.............................. 3,129 2,896 1,272 987
------ ------ ------ ------
Plan assets in excess of (under) projected benefit
obligation........................................... 14 (36) (272) (385)
Unrecognized prior service cost........................ 173 184
Unrecognized net actuarial loss/(gain)................. 766 727 (45) (36)
------ ------ ------ ------
Prepaid Assets (Liabilities)................. 780 691 (144) (165)
====== ====== ====== ======
The assumptions used in determining pension cost and funded status
information are as follows:
1996 1995
---- ----
Discount rate....................................................... 7% 7%
Rate of increase in compensation.................................... 4-5% 4-5%
Expected long-term rate of return on assets......................... 8% 8%
The Company has defined contribution savings plans that cover most of its
employees. Company contributions to the plans are based on employee
contributions and the level of Company match and discretionary contributions.
Expenses under the plans totaled $1,127,000, $907,000, and $871,000 for the
years 1996, 1995 and 1994, respectively.
NOTE G -- STOCK OPTION PLANS
In July 1992, the Company adopted a Key Employee Stock Option Plan which
provides for the granting of options to purchase shares of Common Stock to
certain key employees of the Company. In May 1996, shareholders approved an
increase in the amount of shares authorized for the Plan to 615,000 shares of
Common Stock. Nonqualified stock options are exercisable for up to 10 years at
an option price determined by the Compensation Committee of the Board of
Directors.
25
27
Certain information for 1996, 1995 and 1994 relative to the Key Employee
Stock Option Plan is summarized below:
1996 1995 1994
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year.... 302,331 $ 2.64 333,802 $ 2.64 346,395 $ 2.44
Granted............................. 120,000 14.09 67,500 6.00 10,000 4.13
Exercised........................... (97,831) 1.60 (96,971) .26 (22,593) .18
Expired or canceled................. -- (2,000) 5.50 --
------- ------ ------- ------ ------- ------
Outstanding at end of year.......... 324,500 $ 8.58 302,331 $ 2.64 333,802 $ 2.64
======= ====== ======= ====== ======= ======
Exercisable at end of year.......... 85,500 139,331 203,802
======= ======= =======
Weighted-average fair value of
options granted during the year... $ 5.54 $ 2.36 N/A
====== ====== ======
Participants at end of year......... 35 32 32
======= ======= =======
Available for future grant at
end of year....................... 23,105 43,105 58,605
======= ======= =======
Exercise prices for options outstanding as of December 31, 1996 ranged from
$.18 to $15.875. The weighted-average remaining contractual life of those
options is 8.2 years. Certain information for ranges of exercise prices is
summarized below:
OUTSTANDING EXERCISABLE
------------------------------------ ---------------------
WEIGHTED AVERAGE WEIGHTED
----------------------- AVERAGE
EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
PRICE OF SHARES PRICE LIFE OF SHARES PRICE
- -------------------------------------------- --------- -------- ----------- --------- --------
Less than $10............................... 209,500 $ 5.41 7.4 85,500 $ 5.00
Equal to or greater than $10................ 115,000 14.36 9.6 0 --
In May 1996, the Shareholders approved the 1996 Outside Directors Stock
Option Plan which provides for the granting of options to purchase up to 75,000
shares of Common Stock. The option price for options granted under the Plan to
outside Directors will be equal to the fair market value of a share of Common
Stock on the date of grant and will be exercisable for a period of ten years
from the date of grant exercisable in 33.3% increments on each of the first
through the third anniversaries of the date of grant.
26
28
Certain information for 1996, 1995 and 1994 relative to the Outside
Directors Stock Option Plans is summarized below:
1996 1995 1994
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year.... 30,000 4.29 20,000 4.00 0
Granted............................. 10,000 7.875 10,000 4.875 20,000 4.00
Exercised........................... (16,668) 4.18
Expired or canceled.................
------- ------ ------- ------ ------- ------
Outstanding at end of year.......... 23,332 5.91 30,000 4.29 20,000 4.00
======= ====== ======= ====== ======= ======
Exercisable at end of year.......... 0 6,666 0
======= ======= =======
Weighted-average fair value of
options granted during the year... $ 2.28 $ 1.41 N/A
====== ====== ======
Participants at end of year......... 2 2 2
======= ======= =======
Available for future grant at end of
year.............................. 65,000 40,000 30,000
======= ======= =======
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation",
which also requires that the information be determined as if the Company has
accounted for its employee stock options granted subsequent to December 31,
1994, under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996 and 1995:
risk-free interest rates of 6.7 percent; dividend yields of 2 percent;
volatility factors of the expected market price of the Company's common stock of
.38; and a weighted-average expected life of the option of six (6) years for key
employee options and three (3) years for outside directors options.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's Key Employee and Outside Directors stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of these
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
1996 1995
------- ------
Pro forma net income............................................ $14,971 $7,051
Pro forma earnings per share.................................... $ 1.48 $ .70
Because FASB Statement No. 123 is applicable only to options granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
NOTE H -- LEASE COMMITMENTS
The Company had $774,000, $800,000 and $417,000 of rental expenses in 1996,
1995 and 1994, respectively. At December 31, 1996, future minimum lease payments
for non-cancelable operating leases for the next five years totaled $2.1 million
and are payable as follows: 1997 -- $679,000; 1998 -- $542,000;
1999 -- $435,000; 2000 -- $275,000; and 2001 -- $216,000.
27
29
NOTE I -- CONTINGENCIES
The Company's operating units are parties, in the ordinary course of their
businesses, to various legal actions related to performance under contracts,
product liability and other matters, several of which actions claim substantial
damages. The Company believes these legal actions will not have a material
effect on the Company's financial position or liquidity. The Company is subject
to federal, state and local environmental laws and regulations concerning, among
other matters, waste water effluents, air emissions and handling and disposal of
hazardous materials such as cleaning fluids.
As part of its ongoing environmental compliance and monitoring programs,
the Company is voluntarily developing work plans for environmental conditions
involving certain of its operating facilities. Based upon the Company's study of
the known conditions and its prior experience in investigating and correcting
environmental conditions, the Company estimates that the potential costs of
these site remediation efforts will not be material to financial position or
liquidity of the Company. Approximately $1.4 million for these costs is recorded
in accrued liabilities at December 31, 1996 for known environmental matters.
These expenditures are expected to be made mostly in the next year, if the
necessary regulatory agency approvals of the Company's work plans are obtained.
Though the Company believes it has adequately provided for the cost of all known
environmental conditions, the applicable regulatory agencies could insist upon
different and more costly remediative measures than those the Company believes
are adequate or required by existing law. Otherwise, the Company believes that
it is currently in compliance with all known material and applicable
environmental regulations.
NOTE J -- QUARTERLY DATA (UNAUDITED)
Selected quarterly data for the years ended December 31, 1996 and 1995 are
as follows:
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
Sales................................... $34,727 $30,612 $37,970 $45,091 $148,400
Gross profit............................ 10,017 9,784 11,277 13,924 45,002
Operating income........................ 5,110 5,401 5,951 6,795 23,257
Net income.............................. 3,209 3,548 3,813 4,459 15,029
Net income per share.................... .32 .35 .38 .44 1.48
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
Sales................................... $25,521 $29,236 $26,704 $31,018 $112,479
Gross profit............................ 6,608 7,867 7,266 9,034 30,775
Operating income........................ 1,722 3,119 3,501 4,325 12,667
Net income.............................. 780 1,648 2,057 2,578 7,063
Net income per share.................... .08 .16 .20 .26 .70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
28
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding Directors appearing under the caption "Election
of Directors" in the registrant's definitive Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held on May 1, 1997
(the "1997 Proxy Statement") is incorporated herein by reference. Information
regarding executive officers of the registrant is set forth in Part I of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference
to "Executive Compensation" in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by reference
to "Stock Ownership of Principal Holders and Management" in the 1997 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Report of Independent Auditors............................................ 16
Consolidated Balance Sheets at December 31, 1996 and 1995................. 17
Consolidated Statements of Operations for the Years Ended December 31,
1996,
1995 and 1994............................................................. 18
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31,
1996, 1995 and 1994....................................................... 19
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996,
1995 and 1994............................................................. 20
Notes to Consolidated Financial Statements................................ 21
(a)(2) Exhibits.
See the Index to Exhibits at page E-1 of this Form 10-K Annual Report.
(b) Financial Statement Schedules.
No financial statement schedules required.
(c) Reports on Form 8-K.
The Registrant has not filed Current Reports on Form 8-K during the fourth
quarter of 1996.
29
31
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CHART INDUSTRIES, INC.
By: /s/ ARTHUR S. HOLMES
------------------------------------
Arthur S. Holmes,
Chairman & Chief Executive Officer
Date: March 3, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ ARTHUR S. HOLMES
- ------------------------------------------------------
Arthur S. Holmes
Chairman & Chief Executive Officer
and a Director
(Principal Executive Officer)
/s/ CHARLES S. HOLMES
- ------------------------------------------------------
Charles S. Holmes
Vice Chairman and a Director
/s/ DON A. BAINES
- ------------------------------------------------------
Don A. Baines
Chief Financial Officer, Treasurer
and a Director
(Principal Financial Officer &
Principal Accounting Officer)
/s/ RICHARD J. CAMPBELL
- ------------------------------------------------------
Richard J. Campbell,
Director
/s/ LAZZARO G. MODIGLIANI
- ------------------------------------------------------
Lazzaro G. Modigliani
Director
Date: March 3, 1997
30
32
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ----------
3.1 Amended and Restated Certificate of Incorporation of the Company as (A)
filed with the Secretary of State of Delaware on December 3, 1992
3.2 Amended and Restated By-Laws of the Company (A)
4.1 Specimen certificate of the Company's Common Stock (B)
10.1 Form of Registration Rights Agreement by and among the Company, Arthur (B)
S. Holmes, Charles S. Holmes and Leonard T. Conway
10.2 Form of Indemnity Agreement of the Company (B)
10.3 Cross-Purchase Agreement by and between Arthur S. Holmes and Charles S. (B)
Holmes
*10.4 Key Employees Stock Option Plan of the Company (B)
10.5 1994 Stock Option Plan for Outside Directors of the Company (C)
10.5.1 1995 Stock Option Plan for Outside Directors of the Company (D)
10.5.2 1996 Stock Option Plan for Outside Directors of the Company
10.6 License Agreement by and between PSI and Koch Industries, Inc., dated (B)
August 30, 1991, relating to the Ryan/Holmes Technology
10.8 Lease by and between Koch Process Systems, Inc. and PSI, dated August (B)
1991
10.12 Employment Agreement by and between Charles E. Downs and Greenville (B)
Tube dated March 4, 1991
10.13 1989-1992 Labor Agreement by and between ALTEC and District Lodge 66 of (D)
the International Association of Machinists and Aerospace Workers,
AFL-CIO, dated March 30, 1989, as extended by 1992-1995 Labor Agreement
Extension, dated January 29, 1991 and by 1995-1998 Labor Agreement
Extension dated March 16, 1995
10.14 Agreement by and between Process Engineering and The International
Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers &
Helpers Local Lodge No. 752 of the AFL-CIO, effective July 21, 1996
10.16 Credit Agreement among the Company and National City Bank, as agent (C)
10.16.1 Amendments to Credit Agreement among the Company and National City (D)
Bank, as agent
10.16.2 Sixth Amendment to Credit Agreement among the Company and National City
Bank, as agent
*10.18 Employment Agreement by and between James R. Sadowski and Chart (D)
Management Company, Inc. dated November 30, 1995
*10.19 Form of the Chart Management Company, Inc. Incentive Compensation Plan (A)
11.1 Computation of Net Income (Loss) per Share
22.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
- ---------------
* Management contract or compensation plan or arrangement identified pursuant to
Item 14(c) of this Form 10-K Annual Report.
(A) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1993.
E-1
33
(B) Incorporated herein by reference to the appropriate exhibit to the Company's
Registration Statement on Form S-1 declared effective on December 3, 1992
(Reg. No. 33-52754).
(C) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1994.
(D) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1995.
E-2