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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 27, 1998
CHART INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-11442 34-1712937
(State or other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification No.)
5885 LANDERBROOK DRIVE, SUITE NO. 150, MAYFIELD HTS., OH 44124
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (440) 753-1490
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ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
On March 27, 1998, Chart Industries, Inc. (the "Company") acquired (the
"Acquisition") from IMI Marston Limited and IMI plc (collectively, "IMI")
substantially all of the assets, consisting primarily of real estate, plant and
equipment, certain intellectual property and contract rights, accounts
receivable, and inventory (the "Assets"), used in connection with IMI's
Industrial Heat Exchanger Group (the "Group"). The Acquisition was accomplished
pursuant to an Agreement for the Sale and Purchase of the Industrial Heat
Exchanger Group dated March 5, 1998 among IMI Kynoch Limited, IMI Marston
Limited, IMI plc, Chart Marston Limited and Chart Industries, Inc. (the
"Agreement"). Chart Marston Limited is the Company's newly formed U.K.
subsidiary formed for the purpose of owning and operating the Group utilizing
the Assets.
The Group manufactures and distributes industrial heat exchangers. The Group is
headquartered and employs approximately 244 employees at an office and
manufacturing location in Wolverhampton, U.K. The products manufactured by the
Group are sold to customers primarily in the industrial gas and hydrocarbon
industries. The Group had 1997 sales of approximately 18.7 million Pounds
Sterling (approximately US $30.7 million assuming 1 Pound Sterling equals
$1.639).
As consideration for the Acquisition, the Company paid IMI 21.0 million Pounds
Sterling. The Agreement also provides that if the Net Asset Value (as defined
in the Agreement) of the Group as of the closing date is 300,000 Pounds
Sterling more than 2,867,000 Pounds Sterling, the Company is obligated to pay
the difference between such Net Asset Value amount and 2,867,000 Pounds
Sterling, along with interest thereon, to IMI. The purchase price and other
terms of the Agreement were determined through arms-length negotiations. There
were no material relationships between IMI and the Company or any of their
affiliates, directors or officers.
Payment of the purchase price was financed by the Company from borrowings under
its multi-currency Credit Agreement, dated as of July 29, 1997, among the
Company, ALTEC International Limited Partnership, ALTEC, Inc., Chart Management
Company, Inc., Chart Industries Foreign Sales Corporation, Greenville Tube
Corporation and Process Systems International, Inc., Cryenco Sciences, Inc.
(added July 31, 1997), Cryenco, Inc. (added July 31, 1997), Chart International
Inc. (added March 5, 1998), National City Bank and NBD Bank as Banks (the
"Banks") and National City Bank, as agent for the Banks (the "Agent"), as
amended by the First Amendment to Credit Agreement, dated as of October 8, 1997
and the Second Amendment to Credit Agreement, dated as of March 5, 1998 (as so
amended, the "Credit Agreement"). The Company has pledged the shares of Chart
Marston Limited as security under the Credit Agreement.
The Company intends to operate the Group substantially as operated prior to the
Acquisition by the Company.
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ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
A) Financial Statements of the Business Acquired
INDUSTRIAL HEAT EXCHANGER GROUP (A DIVISION OF IMI MARSTON LTD)
AUDITED FINANCIAL STATEMENTS Page
Report of Independent Auditors 4
Balance Sheet as of December 31, 1997 5
Statement of Operations for the Year Ended December 31, 1997 6
Statement of Cash Flows for the Year Ended December 31, 1997 7
Notes to Financial Statements 8-10
B) Pro Forma Financial Information
CHART INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 1998 12
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Twelve Months Ended December 31, 1997 13
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements 14
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REPORT OF INDEPENDENT AUDITORS
Management
Industrial Heat Exchanger Group (A division of IMI Marston Ltd)
We have audited the accompanying balance sheet of the Industrial Heat Exchanger
Group (a division of IMI Marston Ltd) as of December 31, 1997, and the related
statements of operations and cash flows for the year ended December 31, 1997.
These financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Industrial Heat Exchanger
Group at December 31, 1997 and the results of their operations and their cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
May 28, 1998
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INDUSTRIAL HEAT EXCHANGER GROUP
(A DIVISION OF IMI MARSTON LTD)
BALANCE SHEET
(IN THOUSANDS)
December 31,1997
- ----------------
ASSETS
Current assets:
Accounts receivable, trade, net of
allowance of $248 $ 4,106
Inventories 3,311
-------
Total current assets 7,417
Plant and equipment, net 2,353
-------
TOTAL ASSETS $ 9,770
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LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable $ 2,892
Customer advances 1,507
Accrued compensation 619
Accrued expenses 830
-------
Total current liabilities 5,848
Parent Company Investment 3,922
-------
TOTAL LIABILITIES AND PARENT COMPANY INVESTMENT $ 9,770
=======
See accompanying notes.
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INDUSTRIAL HEAT EXCHANGER GROUP
(A DIVISION OF IMI MARSTON LTD)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year Ended December 31, 1997
- ---------------------------
Sales $ 30,659
Cost of sales 20,029
---------
Gross profit 10,630
Selling, general and administrative expenses 6,931
---------
Income before income taxes 3,699
Income tax expense 1,147
---------
Net income $ 2,552
=========
See accompanying notes.
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INDUSTRIAL HEAT EXCHANGER GROUP
(A DIVISION OF IMI MARSTON LTD)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31, 1997
- ----------------------------
OPERATING ACTIVITIES
Net income $ 2,552
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 425
Changes in operating assets and liabilities:
Accounts receivable 1,057
Inventories 760
Accounts payable 224
Customer advances (2,578)
Accrued compensation 175
Accrued expenses 261
----------
Net cash provided by operating activities 2,876
INVESTING ACTIVITIES
Capital expenditures (977)
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Net cash used by investing activities (977)
FINANCING ACTIVITIES
Parent Company Advances, net (1,899)
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Net cash used by financing activities $ (1,899)
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Net change in cash and cash equivalents $ 0
Cash and cash equivalents at beginning of year 0
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Cash and cash equivalents at end of year $ 0
==========
See accompanying notes.
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INDUSTRIAL HEAT EXCHANGER GROUP
(A DIVISION OF IMI MARSTON LTD)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A--NATURE OF OPERATIONS
The Industrial Heat Exchanger Group (the "Group") is a division of IMI Marston
Limited, a wholly-owned subsidiary of IMI plc (collectively, "IMI"). The Group
manufactures brazed aluminum heat exchangers for industrial cryogenic
applications for customers principally located in Europe and the United States.
Five customers accounted for 85.6 percent of sales in 1997. To reduce credit
risk for both foreign and domestic sales, the Group requires customer advances,
letters of credit and other such guarantees of payment.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The historical financial statements include the accounts of the Group. The
financial statements have been prepared in accordance with United States
generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Group considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market. The
Group records an allowance for excess and obsolete inventory based on periodic
reviews. The components of inventory are as follows:
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
Raw materials $ 862
Work in process 2,395
Finished goods 54
--------
$ 3,311
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PLANT AND EQUIPMENT
Plant and equipment is stated on the basis of cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The following table shows original costs and the estimated useful lives of the
different types of assets:
CLASSIFICATION ESTIMATED USEFUL LIFE DECEMBER 31, 1997
-------------- --------------------- -----------------
(IN THOUSANDS)
Machinery and equipment 5 - 10 years $ 5,066
Furniture and fixtures 5 - 10 years 1,589
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6,655
Less accumulated depreciation (4,302)
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Total plant and equipment $ 2,353
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NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized using the completed contract method, which results in the
deferral of revenue and costs until such time as contracts are complete. A
contract is considered complete when all costs, except insignificant items, have
been incurred and the units have been delivered to the customer.
INCOME TAXES
The operations of the Group are included in the consolidated income tax returns
filed by IMI. Income taxes included in the statement of operations have been
computed on a separate return basis and are based upon statutory rates in the
United Kingdom.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated at current exchange rates, and related
translation adjustments are included as a component of Parent Company
Investment. Income statement accounts are translated at the average rates during
the period.
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.
NOTE C--LEASES
Office space, production facilities and certain equipment are leased from IMI
under agreements which are classified as operating leases for financial
reporting purposes. Total rental expense charged to operations for the year
ended December 31, 1997 was $368,000.
At December 31, 1997, future minimum lease payments for non-cancelable operating
leases for the next five years totaled $718,000 and are payable as follows:
1998--$370,000; and 1999--$348,000.
NOTE D--RELATED PARTY TRANSACTIONS
The Parent Company Investment amount included in the balance sheet represents a
net balance as the result of various transactions between the Group and IMI.
There are no terms of settlement or interest charges associated with the account
balance. The balance is primarily the result of the Group's participation in
IMI's central cash management program, wherein all the Group cash receipts are
remitted to IMI and all cash disbursements are funded by IMI.
IMI provides various services to the Group such as administrative, treasury,
legal and insurance, and allows the Group to use certain assets and arrangements
such as land, buildings and utilities. The total cost of services provided to
the Group and charged to operations for the year ended December 31, 1997 was
$2,488,000. This amount is included in selling, general and administrative
expenses in the income statement. Amounts are allocated to the Group based upon
usage and annual fee arrangements.
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NOTE D--RELATED PARTY TRANSACTIONS (CONTINUED)
IMI allocates the cost of certain corporate fixed assets to the Group based upon
usage. At December 31, 1997 the Group was allocated $819,000 of corporate fixed
assets. Total depreciation expense on allocated corporate fixed assets charged
to operations for the year ended December 31, 1997 was $169,000.
IMI allocates the cost of utilities required to operate corporate fixed assets
to the Group based upon usage. Total utilities expense allocated by IMI and
charged to operations for the year ended December 31, 1997 was $887,000.
Employees of the Group participate in a defined benefit pension plan (the
"Plan") sponsored by IMI. Under the Plan, employees receive certain health,
disability, life insurance and retirement benefits. Total Plan expense charged
to operations is based upon a percentage of salary expense, and for the year
ended December 31, 1997 was $857,000.
NOTE E--SUBSEQUENT EVENT
On March 27, 1998, IMI sold substantially all of the assets (consisting
primarily of real estate, plant and equipment, certain intellectual property and
contract rights, accounts receivable and inventory) used in connection with the
Group to Chart Industries, Inc. for 21.0 million Pounds Sterling.
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B) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying Unaudited Pro Forma Condensed Consolidated Financial Statements
have been prepared based upon certain assumptions and include adjustments as
detailed in the Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements. The estimated fair market values reflected in the Unaudited Pro
Forma Condensed Consolidated Financial Statements are based on preliminary
estimates and assumptions and are subject to revision as more information
regarding asset and liability valuations becomes available. In management's
opinion, the preliminary allocation reflected herein is not expected to be
materially different from the final allocation.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations do not
assume any additional profitability resulting from the application of the
Company's revenue enhancement measures or cost reduction programs to the
historical results of the Group, nor do they assume increases in corporate
general and administrative expenses which may have resulted from the Company
managing the Group for the periods presented.
The accompanying Unaudited Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the Condensed Consolidated Financial
Statements of the Company and the related notes thereto as included in the
Company's Form 10-Q as of March 31, 1998. Such pro forma information is based on
historical data with respect to the Company and the Group. The pro forma
information is not necessarily indicative of the results that might have
occurred had such transactions actually taken place at the beginning of the
period specified and is not intended to be a projection of future results. The
pro forma information presented herein is provided to comply with the
requirements of the Securities and Exchange Commission. The pro forma
information does not reflect any adjustments to reflect the manner in which the
acquired entity is being or will be operated under the control of the Company.
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CHART
INDUSTRIES,INC. THE GROUP
MARCH 31, MARCH 31, PRO FORMA
1998 1998 ADJUSTMENTS TOTAL
---- ---- ----------- -----
Sales $ 56,104 $ 7,048 $ 63,152
Cost of products sold 35,740 4,370 40,110
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Gross profit 20,364 2,678 23,042
Selling, general &
administrative expenses 8,145 1,783 $ 143(1) 10,191
111(2)
9(3)
-------- -------- ------- --------
Operating income 12,219 895 (263) 12,851
Interest income (expense)-net 190 (611)(4) (421)
-------- -------- ------- --------
Income before income taxes 12,409 895 (874) 12,430
Income taxes 4,467 278 (249)(5) 4,496
-------- -------- ------- --------
Net income $ 7,942 $ 617 $ (625) $ 7,934
======== ======== ======= ========
Net income per share $ .49 N/A N/A $ .49
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Shares used in per share
calculations 16,148 N/A N/A 16,148
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Net income per share -
assuming dilution $ .48 N/A N/A $ .48
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Shares used in per share
calculations - assuming dilution 16,416 N/A N/A 16,416
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31,1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CHART
INDUSTRIES,INC. THE GROUP
DECEMBER 31, DECEMBER 31, PRO FORMA
1997 1997 ADJUSTMENTS TOTAL
---- ---- ----------- -----
Sales $ 192,249 $ 30,659 $ 222,908
Cost of products sold 131,009 20,029 151,038
--------- -------- ---------
Gross profit 61,240 10,630 71,870
Selling, general &
administrative expenses 26,206 6,931 $ 570(1) 34,183
442(2)
34(3)
--------- -------- -------- ---------
Operating income (loss) 35,034 3,699 (1,046) 37,687
Interest expense-net (350) (2,926)(4) (3,276)
--------- -------- -------- ---------
Income before income taxes 34,684 3,699 (3,972) 34,411
Income taxes 12,057 1,147 (1,130)(5) 12,074
--------- -------- -------- ---------
Net income $ 22,627 $ 2,552 $ (2,842) $ 22,337
========= ======== ======== =========
Net income per share $ 1.52 N/A N/A $ 1.50
========= =========
Shares used in per share
calculations 14,891 N/A N/A 14,891
========= =========
Net income per share -
assuming dilution $ 1.48 N/A N/A $ 1.47
========= =========
Shares used in per share
calculations - assuming dilution 15,240 N/A N/A 15,240
========= =========
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CHART INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 27, 1998, the Company completed its acquisition of the Group from IMI
through Chart Marston Limited, the Company's newly formed wholly-owned U.K.
subsidiary formed for the purpose of owning and operating the Group. The
Acquisition was accomplished pursuant to the Agreement. A copy of the Agreement
is filed as an Exhibit hereto.
The Group manufactures brazed aluminum heat exchangers for industrial cryogenic
applications.
Total consideration for the Acquisition consisted of the payment to IMI of 21.0
million Pounds Sterling.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS ADJUSTMENTS
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended March 31, 1998 and for the year ended
December 31, 1997 give effect to the Acquisition as if such Acquisition occurred
on January 1, 1997 by combining the Company's and Group's results of operations
for the three month period ended March 31, 1998 and for the twelve month period
ended December 31, 1997. Pro Forma adjustments have been calculated assuming the
average exchange rate for the three month period ended March 31, 1998 was 1
Pound Sterling equals $1.646 and for the twelve month period ended December 31,
1997 was 1 Pound Sterling equals $1.639.
(1) To record adjustment to amortization expense relative to the Company's
new basis in net assets acquired in conjunction with the Acquisition as
if said Acquisition had occurred January 1, 1997. The amortization
expense of $143,000 and $570,000 for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively, is resultant
from the amortization, over a 40-year life, of the 13.9 million Pounds
Sterling in additional goodwill recorded in conjunction with the
Acquisition.
(2) To record additional depreciation expense on buildings acquired and on
the write-up in historical value of the Group's plant and equipment to
reflect estimated fair market value assuming the Acquisition had
occurred January 1, 1997. The depreciation expense of $111,000 and
$442,000 for the three months ended March 31, 1998 and the year ended
December 31, 1997, respectively, is resultant from the depreciation on
a straight-line basis, over 30 years, of the 2.1 million Pounds
Sterling of buildings acquired, and over periods ranging from five to
ten years, of the 1.6 million Pounds Sterling write-up of plant and
equipment recorded in conjunction with the Acquisition.
(3) To record various adjustments to eliminate charges for services
provided by IMI to the Group, such as insurance, legal, and
administrative, and to record charges for estimated costs of the Group
obtaining these services from the Company or other third parties.
(4) To record additional interest expense of $611,000 and $2,926,000 for
the three months ended March 31, 1998 and the year ended December 31,
1997, respectively, which would have been incurred by the Company
assuming the Acquisition had occurred January 1, 1997. Interest expense
has been calculated based on the 21.0 million Pounds Sterling
utilization on the available line of credit used to fund total
consideration in conjunction with the Acquisition.
(5) To record the tax benefit reflecting an effective rate of 31.0 percent
for United Kingdom deductible expenses such as depreciation expense and
the various items recorded in Pro Forma adjustment (3), and 34.0
percent for United States deductible expenses such as interest expense.
The Company's management believes that these effective rates are
indicative of the Company's tax position assuming the Acquisition had
occurred on January 1, 1997. The goodwill amortization created by this
transaction is not tax deductible.
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C) EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement for the Sale and Purchase of the Industrial Heat Exchanger
Group dated March 5, 1998 among IMI Kynoch Limited, IMI Marston
Limited, IMI plc, Chart Marston Limited and Chart Industries, Inc.*
10.1 Second Amendment to Credit Agreement, dated as of March 5, 1998, among
the Chart Industries, Inc., ALTEC International Limited Partnership,
ALTEC, Inc., Chart Management Company, Inc., Chart Industries Foreign
Sales Corporation, Greenville Tube Corporation, Process Systems
International, Inc., Cryenco Sciences, Inc., Cryenco, Inc., Chart
International Inc., National City Bank and NBD Bank (the "Banks") and
National City Bank as agent for the Banks.*
10.2 Permitted User Agreement, dated as of March 27, 1998, between IMI
Marston Limited and Chart Marston Limited.*
23.1 Consent of Ernst & Young LLP.
* Previously filed.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS CURRENT REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THERUNTO DULY AUTHORIZED.
CHART INDUSTRIES, INC.
By: /s/ DON A. BAINES
DON A. BAINES
CHIEF FINANCIAL OFFICER AND TREASURER
Dated: June 9, 1998
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
2.1 Agreement for the Sale and Purchase of the Industrial Heat
Exchanger Group dated March 5, 1998 among IMI Kynoch
Limited, IMI Marston Limited, IMI plc, Chart Marston Limited
and Chart Industries, Inc.*
10.1 Second Amendment to Credit Agreement, dated as of March 5,
1998, among the Chart Industries, Inc., ALTEC International
Limited Partnership, ALTEC, Inc., Chart Management Company,
Inc., Chart Industries Foreign Sales Corporation, Greenville
Tube Corporation, Process Systems International, Inc.,
Cryenco Sciences, Inc., Cryenco, Inc., Chart International
Inc., National City Bank and NBD Bank (the "Banks") and
National City Bank as agent for the Banks.*
10.2 Permitted User Agreement, dated as of March 27, 1998,
between IMI Marston Limited and Chart Marston Limited.*
23.1 Consent of Ernst & Young LLP.
* Previously filed.
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