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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5885 Landerbrook Dr., Suite 150, Mayfield Heights, Ohio 44124
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's Telephone Number, Including Area Code: (440) 753-1490
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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 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____
At June 30, 1998, there were 24,226,406 outstanding shares of the Company's
Common Stock, $0.01 par value per share.
Page 1 of 15 sequentially numbered pages.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The information required by Rule 10-01 of Regulation S-X is
set forth on pages 3 through 8 of this Report on Form 10-Q.
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
June 30, December 31,
1998 1997
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ASSETS
Current Assets
Cash and cash equivalents $ 4,283 $ 22,095
Accounts receivable 38,037 31,636
Inventories, net 29,578 25,617
Other current assets 4,662 5,501
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Total Current Assets 76,560 84,849
Property, plant & equipment, net 40,394 27,241
Goodwill, net 39,775 15,698
Other assets, net 1,685 1,131
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TOTAL ASSETS $ 158,414 $ 128,919
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LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,854 $ 8,911
Customer advances 14,817 13,710
Billings in excess of contract revenue 933 3,030
Accrued expenses and other liabilities 23,097 21,514
Current portion of long-term debt 549 558
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Total Current Liabilities 49,250 47,723
Long-term debt 20,619 4,195
Deferred income taxes 544 544
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, 24,307,184 and 24,281,510 shares
issued at June 30, 1998 and December 31, 1997, respectively 162 162
Additional paid-in capital 43,261 42,787
Retained earnings 46,252 33,508
Treasury stock, at cost, 80,778 shares at June 30, 1998 (1,674)
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88,001 76,457
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 158,414 $ 128,919
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The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
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Sales $57,030 $41,758 $113,134 $84,198
Cost of products sold 36,934 28,284 72,674 58,556
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Gross Profit 20,096 13,474 40,460 25,642
Selling, general & administrative expenses 8,444 6,326 16,589 11,712
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Operating Income 11,652 7,148 23,871 13,930
Interest expense - net 583 26 393 18
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Income Before Income Taxes 11,069 7,122 23,478 13,912
Income taxes 3,844 2,421 8,311 4,730
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Net Income $7,225 $4,701 $15,167 $9,182
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Net Income per Common Share $0.30 $0.22 $0.63 $0.42
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Net Income per Common Share - $0.29 $0.21 $0.62 $0.41
assuming dilution
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Shares used in per share calculations 24,240 21,626 24,236 21,803
Shares used in per share calculations - 24,650 22,101 24,643 22,270
assuming dilution
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
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1998 1997 1998 1997
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OPERATING ACTIVITIES
Net income $7,225 $4,701 $15,167 $9,182
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,084 685 3,381 1,364
Contribution of stock to employee benefit plans 222 150 504 338
Increase (decrease) in cash resulting from changes in operating
assets and liabilities:
Accounts receivable 3,461 4,346 3,233 3,929
Inventory and other current assets (171) (1,580) (362) (105)
Accounts payable and accrued liabilities (5,055) (3,920) (4,354) (4,141)
Billings in excess of contract revenue and customer advances (2,863) (3,763) (5,046) (6,458)
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Net Cash Provided By Operating Activities 4,903 619 12,523 4,109
INVESTING ACTIVITIES
Capital expenditures (1,978) (2,119) (3,310) (4,239)
Acquisition of Chart Marston (35,324)
Acquisition of Cryenco land and buildings (3,500)
Other investing activities (501) 157 (489) 196
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Net Cash Used In Investing Activities (2,479) (1,962) (42,623) (4,043)
FINANCING ACTIVITIES
Borrowings on credit facility 7,500 18,471 10,250
Repayments on credit facility (1,660) (6,250) (1,660) (7,750)
Repayments of long-term debt (420) (99) (521) (196)
Treasury stock and stock option transactions (823) 117 (1,626) (5,373)
Dividends paid to shareholders (1,211) (876) (2,423) (1,767)
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Net Cash Provided by (Used In) Financing Activities (4,114) 392 12,241 (4,836)
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Net decrease in cash and cash equivalents (1,690) (951) (17,859) (4,770)
Effect of exchange rate changes on cash 47 47
Cash and cash equivalents at beginning of period 5,926 5,589 22,095 9,408
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,283 $4,638 $4,283 $4,638
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1998
Note A - Basis of Preparation
The accompanying unaudited condensed consolidated financial statements of Chart
Industries, Inc. and subsidiaries ("Chart" or the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Chart Industries,
Inc. and Subsidiaries' Annual Report on Form 10-K for the year ended December
31, 1997.
All share and per-share amounts have been adjusted to reflect the 3-for-2 stock
split effective June 30, 1998.
Note B - Inventories
The components of inventory consist of the following:
June 30, December 31,
1998 1997
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Raw materials $14,265 $12,971
Work in process 14,830 11,992
Finished goods 751 922
LIFO reserve (268) (268)
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$29,578 $25,617
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Note C - Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months ended
June 30, June 30,
1998 1997 1998 1997
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(dollars and shares in thousands, except per share amounts)
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Numerator:
Net income $7,225 $4,701 $15,167 $9,182
Denominator:
Denominator for basic earnings per share -
weighted average shares 24,240 21,626 24,236 21,803
Effect of dilutive securities:
Employee stock options and warrants 410 475 407 467
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Dilutive potential common shares 24,650 22,101 24,643 22,270
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Net income per share $0.30 $0.22 $0.63 $0.42
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Net income per share - assuming dilution $0.29 $0.21 $0.62 $0.41
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Note D - Revenue Recognition
The Company uses the percentage of completion method of accounting for
significant contracts. Otherwise, revenue is recognized when the products are
completed or shipped. Management performs a monthly assessment of major
significant contracts to determine if contract costs will exceed contract
revenues. For those projects where the estimated costs exceed estimated
revenues, appropriate estimated losses are recorded. The effects of any change
orders are accounted for when agreed to by Chart's customers.
Note E - Acquisitions
On March 27, 1998, the Company, through its wholly-owned subsidiary Chart
Marston Limited ("Chart Marston"), acquired the net assets of the industrial
heat exchanger division of IMI Marston Limited, a wholly-owned subsidiary of IMI
plc., for 21 million Pounds Sterling (approximately U.S. $34.6 million). The
Company borrowed 11 million Pounds Sterling (approximately U.S. $18.5 million)
to fund the acquisition. The preliminary allocation of the purchase price
included in the June 30, 1998 condensed consolidated balance sheet is based upon
management's best estimates and may be subject to further revisions.
On July 31, 1997, the Company acquired all of the outstanding shares of Cryenco
for $20.8 million.
The pro forma unaudited results of operations for the six months ended June 30,
1998 and 1997, assuming consummation of both acquisitions as of January 1, 1997,
and only the Chart Marston acquisition as of January 1, 1998, would not have
been materially different than those reported. The pro forma unaudited sales
would have been $120,182 and $113,932 for the six months ended June 30, 1998 and
1997, respectively.
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Note F- Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income." Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of Statement 130 had no impact on the
Company's net income or shareholders' equity. Statement 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
The Company did not incur any foreign currency translation adjustments prior to
its acquisition of Chart Marston on March 27, 1998. As a result, total
comprehensive income for the three months ended June 30, 1998 and 1997 was
$7,198 and $4,701, respectively. Total comprehensive income for the six months
ended June 30, 1998 and 1997 was $15,214 and $9,182, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
The Company's sales and profit growth for the second quarter and first half of
1998 were very strong and in line with Chart's expectations. The Company
continued to achieve good throughput and excellent project performance, and
coupled with a favorable mix of hydrocarbon processing equipment, again earned
high gross profit margins. The additions of Cryenco and Chart Marston
contributed to the substantial sales growth over the same periods of last year.
The Asian economic situation, continued softness in the industrial gas market,
and a strong dollar, particularly against the Japanese Yen, have adversely
affected the Company's order intake of baseload equipment (particularly brazed
aluminum heat exchangers) in both volume and gross margin. Some impact will be
reflected in late 1998, however, sustained conditions would affect the Company's
1999 outlook in this product area.
Mitigating the above are favorable trends in other businesses. The hydrocarbon
baseload business continues strong with many projects in quotation. The
distribution and storage equipment business and vacuum business are growing and
active in bidding. The Company's strategic growth plans continue to position
Chart for global growth through internal and acquisition routes.
Sales for the second quarter of 1998 were $57.0 million versus $41.8 million for
the second quarter of 1997, an increase of $15.3 million, or 36.6 percent. The
additions of Cryenco, acquired on July 31, 1997, and Chart Marston, acquired on
March 27, 1998, contributed $14.8 million in incremental sales to the second
quarter of 1998. Sales in Chart's core markets grew $18.2 million and offset a
$2.9 million decrease in sales to the special products market largely related to
the LIGO project successfully winding down.
Sales for the six months ended June 30, 1998 were $113.1 million versus $84.2
million for the six months ended June 30, 1997, an increase of $28.9 million, or
34.4 percent. Cryenco and Chart Marston contributed $21.8 million in incremental
sales to the first half of 1998. Sales in Chart's core markets grew $34.6
million, offsetting the $5.6 million decrease in sales to the special products
market related to the LIGO project successfully winding down.
Gross profit for the second quarter of 1998 was $20.1 million versus $13.5
million for the second quarter of 1997, an improvement of $6.6 million, or 49.1
percent. Gross profit margin for the second quarter of 1998 was 35.2 percent
versus 32.3 percent for the second quarter of 1997. Strong gross profit
performance continued in the second quarter of 1998, supported by hydrocarbon
processing equipment, which accounted for 25 percent of sales at a gross margin
of 45 percent. An additional gross margin contribution resulted from increased
profit recognition on LIGO as the project continues to successfully near
completion this year.
Gross profit for the six months ended June 30, 1998 of $40.5 million, or 35.8
percent of sales, increased $14.8 million from $25.6 million, or 30.5 percent of
sales, for the six months ended June 30, 1997. The shift in the sales mix to the
higher margin hydrocarbon processing equipment, combined with better
productivity and contributions from the LIGO project, led to the increase in
gross profit.
Selling, general and administrative (SG&A) expense for the second quarter of
1998 increased to $8.4 million from $6.3 million for the second quarter of 1997.
SG&A expense for the six months ended June 30, 1998 was $16.6 million versus
$11.7 million for the six months ended June 30, 1997. The increase in SG&A
expense was primarily due to the additions of Cryenco and Chart Marston and the
increased commission and incentive related expenses. As a percentage of sales,
SG&A expense was 14.8 percent for the second quarter of 1998, down from 15.1
percent for the second quarter of 1997.
Net interest expense for the second quarter of 1998 was $583,000 versus $26,000
for the second quarter of 1997. The Company's outstanding borrowings were $16.7
million at June 30, 1998 on its $45 million credit facility. Borrowings were
used to finance the Chart Marston acquisition. The Company was in compliance
with all covenants related to this facility at June 30, 1998.
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As a result of the foregoing, the Company reported net income for the second
quarter of 1998 of $7.2 million, or $.29 per share, versus $4.7 million, or $.21
per share, for the second quarter of 1997. Net income for the six months ended
June 30, 1998 was $15.2 million, or $.62 per share, versus, $9.2 million, or
$.41 per share, for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the second quarter of 1998 was $4.9 million
compared with $600,000 for the second quarter of 1997. For the six months ended
June 30, 1998, cash provided by operations was $12.5 million compared with $4.1
million for the six months ended June 30, 1997. The significant increase in
operating cash flow was due to the rise in net income and increased depreciation
and amortization resulting from recent acquisitions.
Capital expenditures for the second quarter of 1998 were $2.0 million compared
with $2.1 million for the corresponding quarter in 1997.
The Company forecasts sufficient cash flow from operations and available
borrowings to fund principal and interest payments, dividends and capital
expenditures.
BACKLOG
Chart's consolidated firm order backlog at June 30, 1998 was $134.8 million. The
Company's ending backlog for the first quarter of 1998 and the second quarter of
1997 was $144.0 million and $126.6 million, respectively. Orders for the second
and first quarters of 1998 totaled $47.8 million and $46.7 million,
respectively.
Industrial gas equipment backlog at June 30, 1998 was $70.1 million, down from
$75.9 million at March 31, 1998. Orders for the second quarter of 1998 totaled
$26.0 million, compared with $27.0 million for the first quarter of 1998.
Hydrocarbon processing equipment backlog at June 30, 1998 was $51.4 million
versus $53.2 million at March 31, 1998. Orders for the second quarter of 1998
were $12.9 million compared with $11.5 million for the first quarter of 1998.
The Company won a major multi-million dollar, baseload equipment hydrocarbon job
late in the second quarter of 1998. This dehydrogenation plant is for a
Malaysian project and includes brazed aluminum heat exchangers and significant
cold box engineering and manufacturing work for the Company.
Special products backlog at June 30, 1998 totaled $13.3 million, down from $15.2
million at March 31, 1998. The balance of the LIGO project, scheduled to be
completed in 1998, accounts for $3.8 million of the June 30, 1998 backlog. Chart
has won a major contract from Bharat Heavy Plate And Vessels of Visakhapatnam,
India for thermal vacuum equipment for a satellite testing chamber. This is the
second order of this type received by the Company within the last six months
from Asia. The value of these two contracts is in excess of $7.5 million.
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FORWARD-LOOKING STATEMENTS
The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
This Quarterly Report on Form 10-Q includes forward-looking statements relating
to the business of the Company. Forward-looking statements contained herein or
in other statements made by the Company are made based on management's
expectations and beliefs concerning future events impacting the Company and are
subject to uncertainties and factors relating to the Company's operations and
business environment, all of which are difficult to predict and many of which
are beyond the control of the Company, that could cause actual results of the
Company to differ materially from those matters expressed or implied by
forward-looking statements. The Company believes that the following factors,
among others, could affect its future performance and cause actual results of
the Company to differ materially from those expressed or implied by
forward-looking statements made by or on behalf of the Company: (a) general
economic, business and market conditions; (b) competition; (c) decreases in
spending by its industrial customers; (d) the loss of a major customer or
customers; (e) ability of the Company to identify, consummate and integrate the
operations of suitable acquisition targets; (f) ability of the Company to manage
its fixed-price contract exposure; (g) its relations with its employees; (h) the
extent of product liability claims asserted against the Company; (i) variability
in the Company's operating results; (j) the ability of the Company to attract
and retain key personnel; (k) the costs of compliance with environmental
matters; and (l) the ability of the Company to protect its proprietary
information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Company was held on
April 30, 1998. The following matter was voted on at the
meeting:
1. Election of Don A. Baines as a Director of the Company for
a term of three years. The nominee was elected as a
Director with the following votes:
Don A. Baines
For 14,950,454
Against -0-
Abstain 10,065
For a description of the bases used in tabulating the
above-referenced votes, see the Company's definitive Proxy
Statement used in connection with the Annual Meeting of
Stockholders on April 30, 1998.
The Company entered into a Rights Agreement, dated as of
May 1, 1998, between the Company and National City Bank as
Rights Agent (the "Rights Agreement"). Under the terms of
the Rights Agreement, one junior participating preferred
stock purchase right was issued as a dividend on each
outstanding share of the Company's Common Stock on June
15, 1998, to shareholders of record on June 1, 1998. The
rights are represented by and trade with the Common Stock,
and there is no separate certificate for the Rights.
Details of the plan were distributed in a mailing to
shareholders on June 15, 1998. The Rights are redeemable
by the Company's Board of Directors at a price of $.01 per
right at any time prior to the acquisition by a person or
group of beneficial ownership of 20% or more of the shares
of the Company's Common Stock.
Item 5. Other Information
None
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See the Exhibit Index on page 15 of this Form 10-Q.
(b) Reports on Form 8-K.
During the quarter ended June 30, 1998, the Company filed a
Current Report on Form 8-K dated April 13, 1998, which was
subsequently amended on Form 8-K/A dated June 9, 1998, to file
financial statements of the business acquired and pro forma
financial information related to the Company's acquisition of
the industrial heat exchanger division of IMI Marston Limited,
and a Current Report on Form 8-K dated April 28, 1998 to report
the results of operations for the three months ended March 31,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chart Industries, Inc.
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(Registrant)
Date: July 29, 1998 /s/Don A. Baines
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Don A. Baines
Chief Financial Officer and Treasurer
(Duly Authorized and Principal Financial Officer)
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EXHIBIT INDEX
Exhibit Number Description of Document
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27 Financial Data Schedule
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