<PAGE> 1
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, 1997
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)
34799 Curtis Boulevard, Eastlake, Ohio 44095
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's Telephone Number, Including Area Code: (440) 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, 1997, there were 14,445,415 outstanding shares of the Company's
Common Stock, $0.01 par value per share.
Page 1 of 12 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 7 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>
<CAPTION>
September 30, December 31,
1997 1996
------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $434 $4,304
Restricted cash $1,885 5,104
Accounts receivable 32,886 25,922
Inventories 24,750 21,727
Other current assets 3,181 3,630
----------------------------------
Total Current Assets 63,136 60,687
Property, plant & equipment, net 26,927 17,882
Other assets, net 16,243 2,627
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TOTAL ASSETS $106,306 $81,196
==================================
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $8,334 $8,582
Customer advances 13,739 12,698
Billings in excess of contract revenue 3,426 11,444
Accrued expenses and other liabilities 17,194 14,955
Current portion of long-term debt 545 361
----------------------------------
Total Current Liabilities 43,238 48,040
Long-term debt 26,372 4,469
Deferred income taxes 579 591
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, 15,338,198 and 15,304,800 shares
issued at September 30, 1997 and December 31, 1996, respectively 153 102
Additional paid-in capital 19,361 18,118
Retained earnings 26,599 14,321
Treasury stock, at cost, 892,783 and 543,878 shares at
September 30, 1997 and December 31, 1996, respectively (9,996) (4,445)
----------------------------------
36,117 28,096
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $106,306 $81,196
==================================
</TABLE>
The balance sheet at December 31, 1996 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.
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,
1997 1996 1997 1996
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Sales $51,939 $37,970 $136,137 $103,309
Cost of products sold 35,278 26,693 93,834 72,231
------------------------------- -------------------------------
Gross Profit 16,661 11,277 42,303 31,078
Selling, general & administrative expense 7,356 5,326 19,068 14,616
------------------------------- -------------------------------
Operating Income 9,305 5,951 23,235 16,462
Interest expense - net 358 133 376 551
------------------------------- -------------------------------
Income Before Income Taxes 8,947 5,818 22,859 15,911
Income taxes 3,156 2,005 7,886 5,341
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Net Income $5,791 $3,813 $14,973 $10,570
=============================== ===============================
Net Income per Common Share $0.39 $0.25 $1.01 $0.70
=============================== ===============================
Shares used in per share calculations 14,806 15,215 14,834 15,186
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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,
---------------------- ----------------------
1997 1996 1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,791 $ 3,813 $ 14,973 $ 10,570
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,000 717 2,364 2,139
Contribution of treasury stock to 401K plans 152 148 490 453
Deferred income taxes (12) (110) (12) (220)
Increase (decrease) in cash resulting from changes
in operating assets and liabilities:
Accounts receivable (5,496) (6,642) (1,567) 105
Inventory and other current assets 3,313 1,366 3,208 (2,597)
Accounts payable and accrued liabilities 3,262 (590) (879) 550
Billings in excess of contract revenue and
customer advances (519) 746 (6,977) 8,247
---------------------- ----------------------
Net Cash Provided By (Used In) Operating Activities 7,491 (552) 11,600 19,247
INVESTING ACTIVITIES
Capital expenditures (1,422) (1,286) (5,661) (2,895)
Acquisition of Cryenco (net of cash acquired) (20,128) (20,128)
Purchase of land and building at PSI (3,578)
Other investing activities 43 8 239 70
---------------------- ----------------------
Net Cash Used In Investing Activities (21,507) (1,278) (25,550) (6,403)
FINANCING ACTIVITIES
Borrowings under Industrial Revenue Bond 5,000 5,000
Repayments of long-term debt (190) (94) (386) (3,147)
Repayments on credit facility (22,250) (11,500) (30,000) (35,500)
Borrowings on credit facility 35,000 13,500 45,250 28,000
Treasury stock and stock option transactions 14 (265) (5,359) (647)
Dividends (877) (701) (2,644) (2,100)
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Net Cash Provided by (Used In) Financing Activities 11,697 5,940 6,861 (8,394)
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (2,319) 4,110 (7,089) 4,450
Cash and cash equivalents at beginning of period 4,638 569 9,408 229
---------------------- ----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,319 $ 4,679 $ 2,319 $ 4,679
====================== ======================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1997
Note A - Basis of Preparation
The accompanying unaudited condensed consolidated financial statements of Chart
Industries, Inc. ("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 nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
All share and per-share amounts have been adjusted for a 3-for-2 stock split
which was distributed to shareholders on June 30, 1997.
Note B - Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------------------
<S> <C> <C>
Raw materials $ 12,063 $11,507
Work in process 12,789 10,536
Finished goods 239 25
LIFO reserve (341) (341)
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$ 24,750 $21,727
======================
</TABLE>
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Note C - Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in basic
earnings per share for the nine-months ended September 30, 1997 and 1996 of
$1.03 and $.71 per share, respectively. Fully diluted earnings per share for
these quarters should not be materially different then the currently disclosed
earnings per share.
Note D - Revenue Recognition
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.
Note E - Acquisition of Cryenco Sciences, Inc.
On July 31, 1997, the Company purchased the common stock, preferred stock and
common stock warrants of Cryenco Sciences, Inc. (a manufacturer of cryogenic
tanks) for $20.8 million. The pro forma unaudited results of operations for the
nine months ended September 30, 1997 and September 30, 1996, assuming
consummation of the acquisition as of January 1, 1996, are as follows:
<TABLE>
<CAPTION>
Nine Months ended September 30,
1997 1996
(000's omitted, except per share)
---------------- -------------------
<S> <C> <C>
Sales $152,428 $127,309
Net Income 14,562 10,032
Net Income per Common Share .98 .66
</TABLE>
Note F - Subsequent Event
The Company completed a stock offering on October 8, 1997. Of the 3,220,000
shares of Common Stock sold, 1,720,000 were offered by the Company, including
the full over-allotment provision, and 1,500,000 were offered by certain
stockholders. The entire stock sale was priced to the public at $21.00 per
share. The proceeds to the Company from the stock sale were used to repay the
outstanding borrowings on the Company's $45 million credit facility.
7
<PAGE> 8
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, 1997, were $51.9 million
versus $38 million for the comparable quarter last year, an increase of $14.0
million, or 36.8 percent. Increased activity in the hydrocarbon processing
market led to a $9.7 million increase in sales of brazed aluminum heat
exchangers, cryogenic tanks and coldbox assemblies. The remainder of the sales
growth for the quarter was, in large part, the contribution of Cryenco Sciences,
acquired on July 31, 1997.
Sales for the nine months ended September 30, 1997 were $136.1 million versus
$103.3 million for the comparable 1996 period, an increase of $32.8 million or
31.8 percent. As in the quarterly analysis, the increase in sales comes mainly
from the brazed aluminum heat exchanger businesses in both industrial gases and
hydrocarbon processing.
Gross profit for the 1997 third quarter was $16.7 million, an improvement of
$5.4 million or 47.7 percent from $11.3 million for the comparable period in
1996. The gross profit margin of 32.1 percent represents a 2.4 percentage point
improvement over the same quarter in 1996, and is the second best quarterly
performance in the Company's history, falling only slightly below the record
32.3 percent reported for the 1997 second quarter. Improved productivity, good
product mix and favorable capacity utilization contributed to the strong gross
margin performance. Gross profit for the nine months ended September 30, 1997
was $42.3 million versus $31.1 million for the comparable 1996 period, an
increase of $11.2 million. Strong market conditions, particularly in the
industrial gas equipment market and increasingly in the hydrocarbon processing
equipment market, continued to support good pricing and higher throughput.
As a percentage of sales, selling, general and administrative (SG&A) expense was
14.2 percent for the third quarter of 1997 versus 14 percent for the third
quarter of 1996. SG&A expense for the three-month period ended September 30,
1997, was $7.4 million, approximately $2 million higher than in the third
quarter of 1996. Compared with the third quarter of 1996, SG&A expense for the
1997 third quarter included the addition of Cryenco, increased selling costs as
the Company continues to pursue new opportunities, and increased
compensation-related expenses that are tied to profitability.
Net interest expense for the 1997 third quarter was $358,000 versus $133,000 and
$26,000, for the third quarter of 1996 and the second quarter of 1997,
respectively. The increase in interest expense is the result of debt assumed in
the acquisition of Cryenco. With the completion of the stock offering in early
October, the Company has repaid all outstanding borrowings on its $45 million
credit facility.
The 1997 third-quarter effective tax rate of 35.3 percent reflects the favorable
tax structure of the Company. The Company expects an on-going effective tax rate
between 34 and 36 percent into 1998.
8
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Chart reported net income for the three-month period ended September 30, 1997,
of $5.8 million, or $.39 per share, versus $3.8 million, or $.25 per share, for
the third quarter of 1996, and $4.7 million, or $.32 per share, for the second
quarter of 1997. It is the thirteenth consecutive quarter that Chart reported
improved profitability. Year-to-date net income of $15 million, or $1.01 per
share, represents an increase of 41.7 percent from the $10.6 million, or $.70
per share reported for the first nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the three-month period that ended September
30, 1997, was $7.5 million compared with $.6 million used for 1996's third
quarter and $.6 million provided for 1997's second quarter. The nine month 1997
cash provided by operations is $11.6 million compared to $19.2 million in 1996.
The Company's 1996 cash flow represented earnings in addition to significant
cash flow from customer advances and milestone billings on many jobs in backlog,
especially the LIGO project. The large cash flow in 1996 compared to 1997 was
due to the large customer advances and progress payments which resulted as
business conditions improved and as strategic initiatives to reduce working
capital took effect. The current year reflects more normal levels of working
capital needs and the positive effect of higher earnings levels.
Capital expenditures for the third quarter of 1997 were $1.4 million compared
with $1.3 million for the same period in 1996. The level of capital expenditures
in 1997 is related to the expansion at the ALTEC facility. These expenditures
have been and will continue to be funded, for the most part, from an Industrial
Revenue Bond.
On July 31, 1997, the Company completed the acquisition of Cryenco Sciences,
Inc. Total consideration for the merger consisted of $ 20.8 million for all the
outstanding common stock, preferred stock, and common stock warrants.
The Company expects sufficient cash flow from operations to fund interest
payments, dividends, capital expenditures, and the repayment of scheduled
maturities of debt from the IRB. The Company was in compliance with all
covenants related to this facility as of September 30, 1997. As of September 30,
1997, the Company's borrowings on its $45 million credit facility totaled $22
million. Proceeds from the recently-completed stock offering were used to repay
these borrowings.
BACKLOG
Chart's consolidated firm order backlog at September 30, 1997, was $125.6
million versus $126.6 million at June 30, 1997. The Company successfully
increased throughput in its operations, but the acquisition of Cryenco added
$11.5 million to backlog.
Industrial gas equipment bookings continued at strong levels, with orders
totaling $17.5 million for the 1997 third quarter. Record sales of $23.4 million
outpaced orders, but with the acquisition of Cryenco, this market ended with
record backlog of $55.6 million.
9
<PAGE> 10
Hydrocarbon processing equipment backlog stood at $50.5 million on September 30,
1997, a decrease of $2.7 million over June 30, 1997 levels. This sector
continues to see high demand in the ethylene, natural gas and LNG areas of the
market.
Special products backlog totaled $19.6 million at September 30, 1997 and is
largely made up of the backlog related to the LIGO project and several other
vacuum-related projects.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
10
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See the Exhibit Index on page 12 of this Form 10-Q.
(b) Reports on Form 8-K.
The Company filed current reports on Form 8-K dated July
31, 1997 and September 17, 1997.
11
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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.
-----------------------------------
(Registrant)
Date: November 11, 1997 /s/Don A. Baines
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Don A. Baines
Chief Financial Officer and Treasurer
12
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EXHIBIT INDEX
Exhibit Number Description of Document
-------------- -----------------------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 434
<SECURITIES> 0
<RECEIVABLES> 32,886
<ALLOWANCES> 0
<INVENTORY> 24,750
<CURRENT-ASSETS> 63,136
<PP&E> 26,927
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,306
<CURRENT-LIABILITIES> 43,238
<BONDS> 26,372
0
0
<COMMON> 153
<OTHER-SE> 35,964
<TOTAL-LIABILITY-AND-EQUITY> 106,306
<SALES> 136,137
<TOTAL-REVENUES> 136,137
<CGS> 93,834
<TOTAL-COSTS> 93,834
<OTHER-EXPENSES> 19,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376
<INCOME-PRETAX> 22,859
<INCOME-TAX> 7,886
<INCOME-CONTINUING> 14,973
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,973
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
