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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, 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)
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
- --------------------------------------------------------------------------------
(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 June 30, 1997, there were 14,427,843 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>
June 30, December 31,
1997 1996
------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $41 $4,304
Restricted cash $4,597 5,104
Accounts receivable 21,993 25,922
Inventories 19,984 21,727
Other current assets 5,478 3,630
----------------------------------
Total Current Assets 52,093 60,687
Property, plant & equipment, net 20,864 17,882
Other assets, net 2,324 2,627
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TOTAL ASSETS $75,281 $81,196
==================================
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $5,755 $8,582
Customer advances 15,359 12,698
Billings in excess of contract revenue 2,325 11,444
Accrued expenses and other liabilities 13,641 14,955
Current portion of long-term debt 2,896 361
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Total Current Liabilities 39,976 48,040
Long-term debt 4,238 4,469
Deferred income taxes 591 591
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, 15,325,800 and 15,304,800 shares
issued at June 30, 1997 and December 31, 1996, respectively 102 102
Additional paid-in capital 18,709 18,118
Retained earnings 21,736 14,321
Treasury stock, at cost, 897,957 and 543,878 shares at
June 30, 1997 and December 31, 1996, respectively (10,071) (4,445)
----------------------------------
30,476 28,096
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $75,281 $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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Sales $41,758 $30,612 $84,198 $65,339
Cost of products sold 28,284 20,828 58,556 45,538
------------------------------- -------------------------------
Gross Profit 13,474 9,784 25,642 19,801
Selling, general & administrative expense 6,326 4,383 11,712 9,290
------------------------------- -------------------------------
Operating Income 7,148 5,401 13,930 10,511
Interest expense, net 26 181 18 418
------------------------------- -------------------------------
Income Before Income Taxes 7,122 5,220 13,912 10,093
Income taxes 2,421 1,672 4,730 3,336
------------------------------- -------------------------------
Net Income $4,701 $3,548 $9,182 $6,757
=============================== ===============================
Net Income per Common Share $0.32 $0.23 $0.62 $0.45
=============================== ===============================
Shares used in per share calculations 14,733 15,195 14,846 15,167
</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>
Six Months Ended
June 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,182 $ 6,757
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,364 1,422
Contribution of treasury stock to 401K plans 338 305
Deferred income taxes 0 (110)
Increase (decrease) in cash resulting from changes in
operating assets and liabilities:
Accounts receivable 3,929 6,747
Inventory and other current assets (105) (3,963)
Accounts payable and accrued liabilities (4,141) 1,140
Billings in excess of contract revenue and
customer advances (6,458) 7,501
--------------------------
Net Cash Provided By Operating Activities 4,109 19,799
INVESTING ACTIVITIES
Capital expenditures (4,239) (1,609)
Purchase of land and building at PSI 0 (3,578)
Other investing activities 196 62
--------------------------
Net Cash Used In Investing Activities (4,043) (5,125)
FINANCING ACTIVITIES
Repayments of long-term debt (196) (3,053)
Repayments on credit facility (7,750) (24,000)
Borrowings on credit facility 10,250 14,500
Treasury stock and stock option transactions (5,373) (382)
Dividends/distributions paid to shareholders (1,767) (1,399)
--------------------------
Net Cash Used In Financing Activities (4,836) (14,334)
--------------------------
Net increase (decrease) in cash and cash equivalents (4,770) 340
Cash and cash equivalents at beginning of period 9,408 229
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,638 $ 569
==========================
</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)
June 30, 1997
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 six-month period ended June 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>
June 30, December 31,
1997 1996
----------------------
<S> <C> <C>
Raw materials $ 10,080 $11,507
Work in process 10,220 10,536
Finished goods 25 25
LIFO reserve (341) (341)
----------------------
$ 19,984 $21,727
======================
</TABLE>
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 six-months ended June 30, 1997 and 1996 of $.63 and
$.45 per share, respectively. Fully diluted earnings per share for these
quarters should not be materially different then the currently disclosed
earnings per share.
6
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Note D - 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.
Note E - Subsequent Event
On July 31, 1997, the Company completed the acquisition of Cryenco Sciences,
Inc. ("Cryenco") (NASD: CSCI). Total consideration for the merger consisted of
$20.7 million for all outstanding common stock, preferred stock, and common
stock warrants.
7
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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 that ended June 30, 1997, were $41.8 million
versus $30.6 million for the comparable 1996 period, an increase of $11.1
million, or 36.4 percent. The growth in sales was primarily the result of the
continued strength in brazed aluminum heat exchanger sales for both the air
separation and hydrocarbon processing equipment markets. Also showing strong
sales for the quarter compared to last year's second quarter, were NRU coldboxes
and high-vacuum equipment related to the LIGO project.
Sales for the six months ended June 30, 1997 were $84.2 million versus $65.3
million for the comparable 1996 period, an increase of $18.9 million or 28.9
percent. As in the quarterly analysis, the increase in sales comes mainly from
the brazed aluminum heat exchanger businesses in both air separation and
hydrocarbon processing.
Gross profit for the three-month period that ended June 30, 1997 was $13.5
million versus $9.8 million for the comparable period in 1996, an improvement of
$3.7 million, or 37.7 percent. For the first quarter of 1997, gross profit was
$12.2 million. Gross profit for the six months ended June 30, 1997 was $25.6
million versus $19.8 million for the comparable 1996 period, an increase of $5.8
million. Strong market conditions, particularly in the air separation equipment
market and increasingly in the hydrocarbon processing equipment market,
continued to support good pricing and higher throughput. Gross profit margin for
the three-month period that ended June 30, 1997, was 32.3 percent and tracks
well to the excellent 32 percent performance for the 1996 second quarter. Second
quarter performance also reflects recovery from 28.7 percent for the 1997 first
quarter. Products supporting this strong second quarter margin performance
included brazed aluminum heat exchangers, cold box design and fabrication, and
certain high-vacuum products including LIGO fabrication and cryopumps.
Selling, general and administrative (SG&A) expense for the three-month period
that ended June 30, 1997, was $6.3 million, approximately $1.9 million higher
than the second quarter of 1996 and $900,000 higher than the first quarter of
1997. The increase in SG&A expense in the second quarter of 1997 compared with
the year-ago quarter was primarily the result of increased efforts to position
the Company better in both its product and financial markets. As a percentage of
sales, SG&A expense was 15.1 percent for the second quarter of 1997 versus 14.3
percent and 12.7 percent for the second quarter of 1996 and the first quarter of
1997, respectively.
Net interest expense for the three-month period that ended June 30, 1997, was
$26,000 versus $181,000 for the second quarter of 1996. For the first quarter of
1997, the Company reported net interest income of $8,000. The company has
significantly reduced its level of borrowings from last year but still has
borrowings from time to time as cash needs vary.
As a result of the foregoing, Chart reported record net income for the
three-month period that ended June 30, 1997, of $4.7 million, or $.32 per
share, versus $3.6 million, or $.23 per share for the second quarter of 1996
and $4.5 million, or $.30 per share, for the first quarter of 1997. The
improvement in net income from the previous quarter represents the company's
twelfth consecutive quarter of improved profitability. The six month 1997 net
income was $9.2 million or $.62 per share, compared to $6.8 million or $.45 per
share in 1996.
8
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the three-month period that ended June 30,
1997, was $619,000 compared with $10.4 million for 1996's second quarter and
$3.5 million for 1997's first quarter. The six month 1997 cash provided by
operations was $4.1 million compared to $19.8 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. During the second quarter of 1997, much of the work
progressed against the aforementioned milestone billings, thus incurring costs
without new inflows of cash. This trend is expected to continue into the third
quarter when Chart will reach several major milestones on the LIGO project.
Capital expenditures for the second quarter of 1997 were $2.1 million compared
with $847,000 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 the recent
Industrial Revenue Bond.
The company anticipates sufficient cash flow from operations and available
borrowings to fund interest payments, dividends, the acquisition of Cryenco and
planned capital expenditures. As of June 30, 1997, the company's borrowings on
its $25 million credit facility totaled $2.5 million. The company negotiated a
new $45 million credit facility to enable it to complete the acquisition of
Cryenco.
BACKLOG
Chart's consolidated firm order backlog at June 30, 1997, was $126.6 million
versus $118.1 million at March 31, 1997.
AIR SEPARATION EQUIPMENT bookings continued at strong levels, with orders
totaling $19.4 million for the 1997 second quarter. Backlog at June 30, 1997,
was $45.4 million after supporting strong quarterly sales of $16.9 million.
HYDROCARBON PROCESSING EQUIPMENT backlog reached $53.2 million at June 30, 1997,
an increase of $13.8 million over March 31, 1997 levels. New orders during the
quarter totaled $23.0 million against sales of $9.8 million. The new orders
included numerous brazed aluminum heat exchangers and LNG Core-in-Kettle(R)
units as well as an order to fabricate several large coldboxes for export to
Trinidad. The company has experienced strong demand for hydrocarbon processing
equipment, including the innovative Core-in-Kettle(R) products from the growth
of the international ethylene market.
9
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CRYOGENIC AND HIGH-VACUUM EQUIPMENT backlog was $24.9 million at the end of the
1997 second quarter, with the LIGO project accounting for $16.5 million of this
backlog. New orders totaled $2.5 million, reflecting continued demand for
Chart's standard cryogenic products, including helium systems and large
cryopumps.
SPECIALTY PRODUCTS backlog totaled $3.1 million at June 30, 1997, down $1.1
million from the first quarter of 1997.
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 a current report on Form 8-K dated May
1, 1997 announcing the proposed acquisition of Cryenco
Sciences Inc.
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: August 11, 1997 /s/Don A. Baines
------------------- -------------------------------------------------
Don A. Baines
Chief Financial Officer and Treasurer
(Duly Authorized and Principal Financial Officer)
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,638
<SECURITIES> 0
<RECEIVABLES> 21,993
<ALLOWANCES> 0
<INVENTORY> 19,984
<CURRENT-ASSETS> 52,093
<PP&E> 20,864
<DEPRECIATION> 0
<TOTAL-ASSETS> 75,281
<CURRENT-LIABILITIES> 39,976
<BONDS> 0
<COMMON> 0
102
0
<OTHER-SE> 30,374
<TOTAL-LIABILITY-AND-EQUITY> 75,281
<SALES> 84,198
<TOTAL-REVENUES> 84,198
<CGS> 58,556
<TOTAL-COSTS> 58,556
<OTHER-EXPENSES> 11,712
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<NET-INCOME> 9,182
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
