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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 September 30, 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.
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(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)
35555 Curtis Boulevard, Eastlake, Ohio 44095
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's Telephone Number, Including Area Code: (216) 946-2525
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
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At September 30, 1996, there were 9,954,747 outstanding shares of the Company's
Common Stock, $0.01 par value per share.
Page 1 of 9 sequentially numbered pages.
1
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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 6 of this Report on Form 10-Q.
2
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
September 30, December 31,
1996 1995
ASSETS ------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $4,679 $229
Accounts receivable 26,509 26,614
Inventories 23,395 20,871
Other current assets 1,811 1,738
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Total Current Assets 56,394 49,452
Property, plant & equipment, net 16,460 11,734
Other assets, net 3,049 3,511
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TOTAL ASSETS $75,903 $64,697
==========================================
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $6,868 $7,764
Customer advances 10,172 7,408
Billings in excess of costs plus
estimated earnings 11,510 6,027
Accrued expenses and other liabilities 11,718 10,492
Current portion of long-term debt 390 2,007
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Total Current Liabilities 40,658 33,698
Long-term debt 8,536 12,566
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, 10,177,699 and 10,094,594 shares
issued at September 30, 1996 and December 31, 1995, respectively 102 101
Additional paid-in capital 17,717 17,024
Retained earnings 10,897 2,294
Treasury stock, at cost, 222,952 and 163,158 shares at September 30, 1996
and December 31, 1995, respectively (2,007) (986)
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26,709 18,433
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $75,903 $64,697
==================================================
The balance sheet at December 31, 1995 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.
</TABLE>
Page 3
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Sales $37,970 $26,730 $103,309 $81,461
Cost of products sold 26,693 19,464 72,231 59,720
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Gross Profit 11,277 7,266 31,078 21,741
Selling, general & administrative expense 5,326 3,765 14,616 13,399
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Operating Income 5,951 3,501 16,462 8,342
Interest expense - net 133 529 551 1,453
--------------------------------- --------------------------------------
Income Before Income Taxes 5,818 2,972 15,911 6,889
Income taxes 2,005 915 5,341 2,404
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Net Income $ 3,813 $ 2,057 $ 10,570 $ 4,485
================================= ======================================
Net Income per Common Share $ 0.38 $ 0.20 $ 1.04 $ 0.45
================================= ======================================
Shares used in per share calculations 10,143 10,098 10,124 10,057
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
Page 4
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $3,813 $2,057 $10,570 $4,485
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 717 735 2,139 2,072
Contribution of treasury stock to 401K plans 148 112 453 189
Deferred income taxes (110) 256 (220) (199)
Increase (decrease) in cash resulting from changes
in operating assets and liabilities:
Accounts receivable (6,642) (7,351) 105 (6,818)
Inventory and other current assets 1,366 2,072 (2,597) (2,564)
Accounts payable and accrued liabilities (590) (486) 550 2,664
Billings in excess of costs plus estimated
earnings and customer advances 746 3,652 8,247 2,209
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Net Cash (Used In) Provided By Operating Activities (552) 1,047 19,247 2,038
INVESTING ACTIVITIES
Capital expenditures (1,286) (750) (2,895) (1,676)
Purchase of land and building at PSI (3,578)
Other investing activities 8 (307) 70 (99)
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Net Cash Used In Investing Activities (1,278) (1,057) (6,403) (1,775)
FINANCING ACTIVITIES
Borrowings under Industrial Revenue Bond 5,000 5,000
Repayments of long-term debt (94) (339) (3,147) (1,015)
Repayments on credit facility (11,500) (8,000) (35,500) (25,000)
Borrowings on credit facility 13,500 9,500 28,000 28,500
Treasury stock and employee stock option activity (265) (197) (647) (211)
Dividends/distributions paid to shareholders (701) (696) (2,100) (2,090)
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Net Cash Provided by (Used In) Financing Activities 5,940 268 (8,394) 184
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Net increase (decrease) in cash and cash equivalents 4,110 258 4,450 447
Cash and cash equivalents at beginning of period 569 395 229 206
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,679 $653 $4,679 $653
============================ =================================
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1996
Note A - Basis of Preparation
The accompanying unaudited condensed consolidated financial statements 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 nine-month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. 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, 1995.
Note B - Inventories
The components of inventory consist of the following:
September 30, December 31,
1996 1995
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Raw materials $ 11,415 $12,538
Work in process 12,600 8,784
Finished goods 12 181
LIFO reserve (632) (632)
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$ 23,395 $20,871
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Note C - Revenue Recognition
Chart Industries, Inc. ("Chart" or the "Company") uses the percentage of
completion method of accounting for significant contracts. In other cases,
revenue is recognized using the completed contract method. 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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Sales for the three-month period ended September 30, 1996, were $38 million
versus $26.7 million for the comparable 1995 period, an increase of $11.2
million, or 42.1 percent. Sales growth was primarily driven by a $10.1 million
increase in sales of brazed aluminum heat exchangers, cryogenic tanks and
coldbox assemblies to the air separation equipment market. Compared with the
second quarter of 1996, sales for the third quarter of 1996 rose $7.4 million,
or 24 percent, also as a result of increased activity in the air separation
market.
Sales for the nine months ended September 30, 1996 were $103.3 million versus
$81.5 million for the comparable 1995 period, an increase of $21.8 million or
26.8 percent. The increase in sales comes mainly from the brazed aluminum heat
exchanger and cryogenic tank businesses.
Gross profit for the three-month period ended September 30, 1996, was $11.3
million versus $7.3 million for the comparable period in 1995, an improvement of
$4 million, or 55.2 percent, reflecting increased sales of the Company products,
particularly brazed aluminum heat exchangers, cryogenic tanks, cold boxes, and
LIGO progress. The gross profit margin of 29.7 percent represents a 2.5
percentage point improvement over the same quarter in 1995, and is the second
best quarterly performance in the Company's history, falling slightly below the
record 32 percent reported for the 1996 second quarter. Improved productivity,
good product mix, favorable capacity utilization and increased LIGO
contributions contributed to the strong gross margin performance and offset
start-up investments at Chart Coastal and cost problems on several new product
programs.
As a percentage of sales, selling, general and administrative (SG&A) expense was
consistent at 14 percent for the third quarter of 1996 versus 14.1 percent and
14.3 percent, for the third quarter of 1995 and the second quarter of 1996,
respectively. SG&A expense for the three-month period ended September 30, 1996,
was $5.3 million, approximately $1.6 million higher than in the third quarter of
1995. Compared with the second quarter of 1996, SG&A expense for the 1996 third
quarter increased $900,000 as a result of a special project to increase
throughput at ALTEC and an increase in bonus and profit sharing expense.
Net interest expense for the three-month period ended September 30, 1996, was
$133,000 versus $529,000 and $181,000, for the third quarter of 1995 and the
second quarter of 1996, respectively. Benefiting from strong cash flow in the
first half of 1996, the Company reduced its debt level, and as a result interest
charges declined in year-over-year and consecutive quarterly comparison. Chart
obtained a $5 million IRB for plant expansion in Wisconsin during the 1996 third
quarter; however, this had little impact on net interest as the funds are held
in an interest-bearing escrow account until expenditures are incurred.
The 1996 third-quarter effective tax rate of 34.5 percent reflects the favorable
tax structure of the Company. The Company expects an on-going effective tax rate
between 34 and 36 percent into 1997.
Chart reported net income for the three-month period ended September 30, 1996,
of $3.8 million, or $.38 per share, versus $2.1 million, or $.20 per share, for
the third quarter of 1995, and $3.5 million, or $.35 per share, for the second
quarter of 1996. For the ninth consecutive quarter, Chart reported improved
profitability.
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Chart's nine-month net income of $10.6 million, or $1.04 per share, surpasses
the Company's best annual performance and represents an increase of $6.1
million, or 135.7 percent, over the same period of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the three-month period ended September 30, 1996,
was $552,000 compared to $1 million provided by operations in 1995's third
quarter. The Company's 1996 third-quarter cash flow reflects current earnings
being completely offset by an increase in accounts receivable. The Company
expects increased cash flow in the fourth quarter as the receivables, which
built up from record third quarter sales, are collected.
During the first nine months of 1996, cash flow provided by operations was $19.2
million, an improvement of $17.2 million over 1995's same period figure of $2
million. The large cash flow in 1996 is due roughly half to earnings improvement
and half to improved customer advances and progress payments which resulted as
business conditions improved and as strategic initiatives to reduce working
capital took effect.
Capital expenditures for the third quarter of 1996 were $1.3 million compared to
$750,000 for the same period in 1995. The majority of these 1996 expenditures
relate to the plant expansion at ALTEC and the purchase of equipment for Chart
Coastal Fabrication as it nears expected operating levels.
As the Company has experienced strong financial results and maintains an outlook
for further growth, the Board of Directors approved an increase in the quarterly
dividend to $.09. This is an increase of 29% over the previous quarterly
dividend of $.07.
The Company expects sufficient cash flow from operations and available
borrowings to fund interest payments, dividends, capital expenditures, and the
repayment of scheduled maturities of debt from the IRB in Wisconsin. As of
September 30, 1996, the Company's borrowings on its $25 million credit facility
totaled $4 million, an increase of $2 million since June 30, 1996. The Company
was in compliance with all covenants related to this facility as of September
30, 1996.
BACKLOG
Chart's consolidated firm order backlog at September 30, 1996, was $125.5
million versus $124.4 million at June 30, 1996. The Company's backlog at the end
of the 1996 third quarter was the highest in Chart's history, despite record
sales during this same quarter.
Air separation equipment bookings continued at strong levels, with orders
totaling $18.3 million for the 1996 third quarter. The strong order level
virtually offset the record sales of $19.4 million, accounting for the
relatively steady backlog of $44.7 million at September 30, 1996.
Hydrocarbon processing equipment backlog stood at $37.7 million on September 30,
1996, an increase of $3.8 million over June 30, 1996, levels. New orders during
the quarter totaled $11 million against sales of $6.9 million. The largest
orders in this sector were for heat exchangers supporting natural gas and LNG
processing.
8
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Cryogenic and high vacuum equipment backlog was $41.2 million at September 30,
1996. This represents a slight decrease from the previous quarter as work
continued on LIGO, but was partially offset by slightly higher order volume.
Specialty products backlog totaled $2 million at September 30, 1996, a decrease
from $2.6 million at June 30, 1996, reflecting larger shipments for pipe hangers
and supports.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes since the filing of Chart's 10-K
covering 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Not Applicable.
(b) Reports on Form 8-K.
The Company did not file a current report on Form 8-K
during the third quarter ended September 30, 1996.
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: November 12, 1996 /s/Don A. Baines
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Don A. Baines
Chief Financial Officer and Treasurer
(Duly Authorized and Principal Financial Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,679
<SECURITIES> 0
<RECEIVABLES> 26,509
<ALLOWANCES> 0
<INVENTORY> 23,395
<CURRENT-ASSETS> 56,394
<PP&E> 16,460
<DEPRECIATION> 0
<TOTAL-ASSETS> 75,903
<CURRENT-LIABILITIES> 40,658
<BONDS> 8,536
<COMMON> 102
0
0
<OTHER-SE> 26,607
<TOTAL-LIABILITY-AND-EQUITY> 75,903
<SALES> 103,309
<TOTAL-REVENUES> 103,309
<CGS> 72,231
<TOTAL-COSTS> 72,231
<OTHER-EXPENSES> 14,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551
<INCOME-PRETAX> 15,911
<INCOME-TAX> 5,341
<INCOME-CONTINUING> 10,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,570
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
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