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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11442
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CHART INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 34-1712937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5885 LANDERBROOK DR. SUITE 150, CLEVELAND, 44124
OHIO (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (440) 753-1490
------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, New York Stock Exchange
par value $.01 per
share
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
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 for 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of January 29, 1999, the registrant had 23,598,324 shares of Common Stock
outstanding. As of that date, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $63,292,249 (based upon the closing
price of $7.875 per share of Common Stock on the New York Stock Exchange on
January 29, 1999). For purposes of this calculation, the registrant deems the
8,037,111 shares of Common Stock held by all of its Directors and executive
officers to be the shares of Common Stock held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on May 6, 1999 are
incorporated by reference into Part III of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K is
as of December 31, 1998.
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<PAGE>
PART I
ITEM 1. BUSINESS; ITEM 2. PROPERTIES; AND ITEM 3. LEGAL PROCEEDINGS.
THE COMPANY
Chart Industries, Inc. (the "Company" or "Chart") was organized in June 1992
as a Delaware corporation to serve as a holding company for the operations
described herein. As used herein, the terms "Company" or "Chart" mean Chart
Industries, Inc., its subsidiaries and its predecessors, unless the context
otherwise indicates. The Company's executive offices are located at 5885
Landerbrook Drive, Suite 150, Cleveland, Ohio 44124, and its telephone number is
(440) 753-1490.
The Company's sales for the year ended December 31, 1998 reached $229.4
million, an increase of 19.3 percent over sales of $192.2 million in 1997. The
Company's net income in 1998 improved to $28.2 million from $22.6 million in
1997, an increase of 24.7 percent. In March 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.
Including Chart Marston's results on a pro forma basis as if acquired January 1,
1998, the Company's sales and net income for 1998 would have been $236.5 million
and $28.1 million, respectively. Management believes that global expansion of
the industrial gas and hydrocarbon processing markets presents attractive
opportunities for growth. Management anticipates demand for the Company's
products in the industrial gas market to increase over the next several years,
driven principally by global industrialization, heightened environmental
standards and demands for increased purity of gas products and increased
efficiency in gas production. In the hydrocarbon processing market, management
expects continued strong domestic and international growth, stemming in part
from increased global demand for liquefied natural gas ("LNG") and ethylene.
RECENT DEVELOPMENT
On February 16, 1999, the Company announced it had signed a definitive
merger agreement with MVE Holdings, Inc. ("MVE"). Under the agreement, a wholly
owned Chart subsidiary will merge with MVE. The Company expects the transaction
to be completed within 60 days. The closing is subject to certain regulatory
approvals and satisfaction of usual and customary closing conditions. The
purchase price is approximately $240 million including assumed debt. The Company
has received a financing commitment from Chase Manhattan Bank for a $300 million
credit facility.
MVE manufactures vacuum-insulated containment vessels and equipment for
storing, transporting and using cryogenic liquids. These engineered products
serve worldwide customers in the industrial gas, restaurant, medical,
agricultural and liquid natural gas alternative fuels industries. MVE's products
include a wide range of standard cryogenic storage tanks, specialty tanks,
dewars, liquid cylinders, mobile units, transportation equipment, medical
respiratory products (including liquid oxygen systems), equipment for producing
carbonated beverages and equipment used to store and transport biological matter
and other temperature-sensitive substances.
BUSINESS
GENERAL
The Company is a leading supplier of standard and custom-built industrial
process equipment, primarily for cryogenic (low-temperature) applications. The
Company has developed a particular expertise in cryogenic systems and equipment,
which operate at low temperatures sometimes approaching absolute zero (0 DEG.
Kelvin/ -273 DEG. Centigrade/ -459 DEG. Fahrenheit). The majority of the
Company's products, including heat exchangers, cold boxes, cryogenic tanks and
other cryogenic components, are used in the processing, liquefaction, storage
and transportation of gases and hydrocarbons.
2
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SEGMENTS AND PRODUCTS
The Company's operations are organized within three segments: Process
Systems and Equipment ("PS&E"), Distribution, Storage and Applications Equipment
("DS&A") and Special Products ("SP").
PROCESS SYSTEMS AND EQUIPMENT SEGMENT
The Company's principal products within the PS&E segment, which is focused
on the process equipment used by the major industrial gas, natural gas and
petrochemical companies in the production of their products and accounted for 54
percent of sales in 1998, include the following:
HEAT EXCHANGERS. The Company is the leading designer and manufacturer of
cryogenic heat exchangers. Using technology pioneered by the Company, heat
exchangers are incorporated into systems such as cold boxes to facilitate the
progressive cooling and liquefaction of air or hydrocarbon mixtures for the
subsequent recovery or purification of component gases. In the industrial gas
market, heat exchangers are used to obtain high purity atmospheric gases, such
as oxygen, nitrogen and argon, which have numerous diverse industrial
applications. In hydrocarbon processing industries, heat exchangers allow
producers to obtain both purified forms of hydrocarbons and a variety of gas
by-products, such as methane, ethane, propane and ethylene, which are
commercially marketable for various industrial or residential uses. Heat
exchangers are customized to the customer's order and range in price from
$30,000 for a relatively simple unit to as high as $10 million for a major
project.
Management anticipates continued strong demand for its heat exchangers,
resulting substantially from increased activity in the petrochemical and liquid
natural gas segments of the hydrocarbon processing market. In particular,
management believes that continuing efforts by less developed countries to
broaden their industrial base present a promising source of demand for the
Company's heat exchangers. Demand for heat exchangers in developed countries is
expected to continue as firms upgrade their facilities for greater efficiency
and regulatory compliance. To ensure adequate capacity for anticipated growth in
demand for heat exchangers, the Company acquired Chart Marston in March 1998 and
completed significant capital improvements to the Company's existing facilities.
The Company's principal competitors for heat exchangers are Linde, Sumitomo,
Kobe and Nordon. Management believes that the Company is the only producer of
large brazed aluminum heat exchangers in the United States, and with the
addition of Chart Marston, has the leading market share in the global heat
exchanger market. Major customers for the Company's heat exchangers in the
industrial gas market include Air Liquide, Air Products, BOC, MG Industries and
Praxair. In the hydrocarbon processing market, major customers include AMOCO,
ARCO, EXXON and contractors such as ABB Randall, Bechtel and M.W. Kellogg.
COLD BOXES. The Company is a leading designer and fabricator of cold boxes.
Cold boxes are highly engineered systems used to significantly reduce the
temperature of gas mixtures to the point where component gases liquefy and can
be separated and purified for further use in multiple industrial, scientific and
commercial applications. In the industrial gas market, cold boxes are used to
separate air into its major atmospheric components, including nitrogen, oxygen
and argon, and are used in a diverse range of applications such as the
quick-freezing of food, wastewater treatment and industrial welding. In the
hydrocarbon processing market, the Company's cold box systems are used in
natural gas processing and in the petrochemical industry. The construction of a
cold box generally consists of one or more heat exchangers and other equipment
packaged in a "box" consisting of metal framing and a complex system of piping
and valves. Cold boxes, which are designed and fabricated to order, sell in the
price range of $500,000 to $10 million, with the majority of cold boxes priced
between $1 million and $2 million.
3
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The Company has a number of competitors for fabrication of cold boxes,
including E.S. Fox, Ivor J. Lee, McShane and NAPTech. In addition, the Company's
customers may decide to purchase the majority of the components and fabricate
cold boxes themselves. Principal customers for the Company's cold boxes include
Air Liquide, ABB Randall, AMOCO, Bechtel, BOC, MG Industries, M.W. Kellogg, Mesa
Petroleum and Praxair.
DISTRIBUTION, STORAGE AND APPLICATIONS EQUIPMENT SEGMENT
Representing 28 percent of the Company's sales in 1998, the products
supplied by the DS&A segment are driven by end-user demands for transportation,
storage and handling of liquids, and include the following:
CRYOGENIC STORAGE TANKS. The Company is a leading supplier of cryogenic
tanks, trailers, intermodal containers and railcars. Using sophisticated vacuum
insulation systems placed between inner and outer tanks, these tanks are able to
store and transport liquefied industrial gases and hydrocarbon gases at
temperatures nearing absolute zero. The Company has experienced substantial
growth in its storage tank sales as the demand for liquefied industrial gases
and liquefied hydrocarbon gases has increased. Customers for the Company's
cryogenic storage tanks include industrial gas producers, chemical producers,
manufacturers of electrical components and businesses in the oil and natural gas
industries. Prices for the Company's cryogenic storage tanks range from $25,000
to $500,000. Principal customers for the Company's cryogenic storage tanks are
AGA, Air Liquide, Air Products, BOC, Jack B. Kelly and Praxair. The Company
competes chiefly with MVE and Harsco for cryogenic storage tank customers.
CRYOGENIC COMPONENTS. The Company's line of cryogenic components, including
high-pressure cryogenic pumps, valves, vacuum jacketed piping systems and
specialty components, are recognized in the market for their reliability,
quality and performance. These products are sold to the Company's heat exchanger
and cold box customers in the industrial gas and hydrocarbon processing
industries, as well as to a diverse group of customers in those and other
industries. The Company competes with a number of suppliers of cryogenic
components, including MVE, Cryogenic Industries, CCI and Acme Cryogenics.
SPECIAL PRODUCTS SEGMENT
SPECIAL PRODUCTS. The Company designs and manufactures thermal vacuum
systems marketed to a customer base that includes the aerospace industry,
government agencies, universities and national research facilities. The Company
is a leading domestic supplier of space simulation systems used to test
satellites and related components. The Company also manufactures large vacuum
chambers for telescope mirror aluminizing, a process in which aluminum is
vaporized to coat the surface of a large telescope mirror to restore its
reflectivity. Management believes that the Company, as a pioneer in the
development of this technology, has supplied the majority of these systems
worldwide. The Company's major competitors in the market for thermal vacuum
products and systems for aerospace and research applications include Tenney
Vacuum and Bemco.
The Company's experience and technological advancements in the high-vacuum
area resulted in its involvement, beginning in 1995 and concluding in December
1998, in equipping the Laser Interferometer Gravitational-Wave Observatory
("LIGO") project, a scientific research project sponsored by the National
Science Foundation and jointly managed by the Massachusetts Institute of
Technology and the California Institute of Technology. The observatories will be
dedicated to the detection and measurement of cosmic gravitational waves and the
harnessing of these waves for scientific research. The Company supplied all of
the required LIGO vacuum equipment, including vacuum chambers, large pipe
spools, valves, vacuum pumps, controllers and modular clean rooms. Management
believes that expertise in the field of high vacuum technology developed by the
Company through its involvement in the LIGO project may have a number of new
commercial applications.
4
<PAGE>
The Company produces small diameter stainless steel tubing for sale to
distributors to satisfy their customers' requirements for quick delivery. The
Company's manufacturing strategy is to focus on custom sizes and smaller
production runs, which management believes gives the Company a competitive
advantage in providing a superior quality product while meeting customer demands
for dependable, fast delivery. With its production and marketing efforts
directed principally to customers relying on prompt delivery, the Company is
able to compete primarily on the basis of service rather than price. Numerous
manufacturers of stainless steel tubing are able to compete with the Company in
this market.
MARKET OVERVIEW
The markets served by the Company's principal products are the industrial
gas and hydrocarbon processing markets. All categories of the Company's
cryogenic products, including heat exchangers, cold boxes, cryogenic tanks and
cryogenic components, serve both of these markets.
Management believes that the global expansion of the industrial gas and
hydrocarbon processing markets presents attractive opportunities for growth. To
date, the sources of the Company's international business principally have been
its large domestic-based customers who are aggressively expanding into
international markets, and large foreign-based companies with significant U.S.
operations. In 1998, approximately 30 percent of the Company's sales were
destined for use at job sites outside the United States. To position the Company
to take advantage of anticipated growth opportunities in the industrial gas and
hydrocarbon processing markets abroad, management recently has concentrated its
efforts on enhancing the Company's international presence.
The industrial gas market is the largest market served by the Company,
representing approximately 54 percent of its sales in 1998. The top world
producers of industrial gases have been among the Company's largest customers
for each of the last three years. Producers of industrial gases separate
atmospheric air into its component gases using cryogenic processes. The
resultant liquid gases are then stored and transported for ultimate use by a
wide variety of customers in the petrochemical, electronics, glass, paper,
metals, food, fertilizer, welding, enhanced oil recovery and medical industries.
Industrial gas producers use heat exchangers and cold boxes to produce liquid
gases, and cryogenic tanks and components, including pumps, valves and piping,
to store, transport and distribute liquid gases to end users.
Representing approximately 28 percent of the Company's sales in 1998, the
hydrocarbon processing market consists of petrochemical and natural gas
processors. Natural gas processing involves the separation and purification of
natural gas for the production of liquid gas end products such as methane (when
liquefied, LNG), ethane, propane and butane, and by-products such as helium,
which have numerous commercial and industrial applications. In the petrochemical
industry, cryogenic separation and purification processes are required to
produce ethylene (the basic building block of plastics), propylene and numerous
other primary hydrocarbons having industrial uses. Like the industrial gas
market, the hydrocarbon processing market uses all of the categories of the
Company's cryogenic products in the gas separation and purification processes
and the subsequent storage and distribution of liquid gases. Major customers for
the Company's products in the hydrocarbon processing markets are large
multinational firms in the oil and gas industry and large engineering and
construction concerns.
In addition to the industrial gas and hydrocarbon processing markets, the
Company also serves certain special market niches, the largest of which is
vacuum systems. Vacuum equipment is supplied principally to the satellite
testing market, which has developed worldwide. Vacuum equipment also is supplied
to observatories for telescope mirror coating. Under the Company's largest
single contract to date, the Company supplied sophisticated vacuum equipment to
the LIGO project, a government funded gravitational observatory research
project. The Company anticipates continued growth in its share of the market for
large sophisticated vacuum systems.
5
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ENGINEERING AND PRODUCT DEVELOPMENT
The Company's engineering and product development activities are primarily
associated with assisting in the design of products or modifications to execute
specific customer orders. The Company's engineering, technical and marketing
employees actively assist customers in specifying their needs and in determining
appropriate products to meet those needs. For example, the Company's product
development activities led to the introduction of the
Core-in-Kettle-Registered Trademark- heat exchanger in 1990, which has been met
with widespread customer acceptance by the hydrocarbon processing market. The
Company also has invested in the development of new heat exchanger fins to
enhance the performance of its products. Portions of the Company's engineering
expenditures typically are charged to customers either as a separate item or as
a part of product cost. The Company does not devote a material amount of
resources to unfunded research and development activities.
COMPETITION
Management believes the Company can compete effectively for new projects
around the world and that it is a leading competitor in its markets. Competition
is based primarily on performance and the ability to provide the design,
engineering, fabrication and manufacturing capabilities required to complete
projects in a timely and cost-efficient manner. Contracts are usually awarded on
a competitive bid basis. Quality, technical expertise and timeliness of
completion are the principal competitive factors within the industry. Price and
terms of sale are also important competitive factors but only after technical
expertise and ability to perform has been established. Because reliable market
share data is not available, it is difficult to estimate the Company's exact
position in its markets, although the Company believes it ranks among the
leaders in its markets.
MARKETING
The Company's principal operating units currently market products and
services in North America primarily through 49 direct sales personnel, and
supplement these direct sales through independent sales representatives and
distributors. The technical and custom design nature of the Company's products
requires a professional, highly trained sales force. Each salesperson is
expected to develop a highly specialized knowledge of one product or group of
products within a segment of the Company and to sell that product or group of
products in all markets in which the product is used, rather than to sell many
products from different segments to a single market. Substantially all of the
Company's sales personnel have engineering or technical experience.
The Company uses independent sales representatives nearly exclusively to
conduct its sales in the foreign countries which the Company serves. These
independent sales representatives supplement the Company's direct sales force in
dealing with language and cultural matters. The Company's domestic and foreign
independent sales representatives earn commissions on sales, which vary by
product type.
6
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ORDERS AND BACKLOG
The Company considers orders to be those for which the Company has received
a signed purchase order or other written contract from the customer. Such orders
are included in backlog until recognized as revenue or cancelled. The table
below sets forth orders and backlog by segment for the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ORDERS
Process Systems and Equipment................................................ $ 82,404 $ 98,867 $ 97,236
Distribution, Storage and Applications Equipment............................. 59,836 45,862 34,560
Special Products............................................................. 29,895 35,361 33,895
---------- ---------- ----------
Total.................................................................... $ 172,135 $ 180,090 $ 165,691
---------- ---------- ----------
---------- ---------- ----------
BACKLOG
Process Systems and Equipment................................................ $ 63,688 $ 79,963 $ 74,658
Distribution, Storage and Applications Equipment............................. 25,161 29,403 19,322
Special Products............................................................. 7,274 18,115 34,298
---------- ---------- ----------
Total.................................................................... $ 96,123 $ 127,481 $ 128,278
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company experienced a decline in orders from the PS&E segment in 1998.
This decline was primarily due to the Asian economic situation, softness in the
industrial gas market and a strong U.S. dollar compared to the Japanese yen in
the first half of the year. The inclusion of Chart Marston for a full year in
1999 should result in increased orders in the PS&E segment. Orders from the DS&A
segment continued to increase in 1998, assisted by the inclusion of a full year
of results for Cryenco Sciences, Inc. ("Cryenco") which was acquired by the
Company in July 1997. The reduction in special products orders and backlog is
primarily due to completion of the $39 million LIGO project in December 1998.
All of the December 31, 1998 backlog is scheduled to be recognized as sales
during 1999. The Company's backlog fluctuates from time to time and the amounts
set forth above are not necessarily indicative of future backlog levels or the
rate at which backlog will be recognized as sales.
CUSTOMERS
Ten customers accounted for 50 percent of consolidated sales in 1998. The
Company's sales to particular customers fluctuate from period to period.
Approximately 30 percent of sales are destined to be used in foreign countries.
To reduce credit risk for both foreign and domestic sales the Company requires
customer advances, letters of credit and other such guarantees of payment. For
certain foreign customers the Company also purchases credit and political risk
insurance. Management believes the Company's relationships with its customers
are good.
PATENTS AND TRADEMARKS
Although the Company has a number of patents, trademarks and licenses
related to its business, no one of them or related group of them is considered
by the Company to be of such importance that its expiration or termination would
have a material adverse effect on the Company's business. In general, the
Company depends upon technological capabilities, manufacturing quality control
and application of know-how, rather than patents or other proprietary rights, in
the conduct of its business.
The Company holds a group of patents for its Ryan/Holmes technology, which
is used primarily in treating associated gases produced from tertiary oil
recovery projects. In addition to fabricating recovery plants on a turnkey basis
for customers, the Company also grants licenses under this technology to
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customers for use in their own construction and operation of such facilities.
The revenues received by the Company attributable to this technology are not
material.
The Company also has a licensing agreement with Praxair under which the
Company licenses technology related to the design of nitrogen rejection units, a
type of cold box used in the natural gas processing industry to purify methane
by the removal of nitrogen. The agreement provides for the joint marketing by
the Company and Praxair of products using the licensed technology, prohibits the
sale of such products to certain competitors of Praxair and may be terminated by
either party upon not less than six months' notice to the other party.
RAW MATERIALS AND SUPPLIERS
The Company manufactures most of the products it sells. The raw materials
used in manufacturing include aluminum fin stock, brazing sheets, bars, strip,
heads, plate and piping, carbon steel heads and plate and 9 percent nickel steel
heads and plate. Most raw materials are available from multiple sources of
supply.
Commodity metals used by the Company have experienced fluctuations in price.
The Company has generally been able to recover the costs of price increases
through its contracts with customers. The Company foresees no acute shortages of
any raw materials which would have a material adverse effect on its operations.
EMPLOYEES
As of December 31, 1998, the Company had approximately 1,180 domestic
employees and 230 international employees, including approximately 390 salaried,
360 union hourly and 660 non-union hourly employees. The salaried employees
included approximately 130 engineers and draft-persons and 260 other
professional, technical and clerical personnel.
The Company is a party to two collective bargaining agreements through its
operating subsidiaries. The agreement of ALTEC International Limited Partnership
("ALTEC") with the International Association of Machinists and Aerospace Workers
covering 272 employees expires February 3, 2001. Process Engineering's agreement
with the International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers covering 89 employees expires August 27, 1999.
Since the acquisition of each of its operating units, the Company has not had
any work stoppages or strikes. The Company believes its employee relations are
good.
FACILITIES
The Company occupies ten principal locations totaling approximately 1
million square feet, with the majority, approximately 882,000 square feet,
devoted to manufacturing, assembly and storage. Of these manufacturing
facilities, approximately 643,000 square feet are owned and 239,000 square feet
are occupied under operating leases. The Company considers its manufacturing
facilities sufficient to meet its current and planned operational needs. The
Company leases approximately 4,500 square feet for its
8
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executive offices in Cleveland, Ohio. The following table sets forth certain
information about the Company's facilities:
<TABLE>
<CAPTION>
LOCATION SEGMENT SQ. FT. OWNERSHIP USE
- -------------------------------------------------------------- --------------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
LaCrosse, Wisconsin........................................... PS&E 134,000 Owned Manufacturing
10,000 Owned Office
Wolverhampton, England........................................ PS&E 133,500 Owned Manufacturing
4,900 Owned Office
Westborough, Massachusetts.................................... PS&E/SP 51,900 Owned Manufacturing
33,200 Owned Office
New Iberia, Louisiana......................................... PS&E 62,400 Leased Manufacturing
Plaistow, New Hampshire....................................... DS&A 154,000 Owned Manufacturing
10,400 Owned Office
Denver, Colorado.............................................. DS&A 108,900 Leased Manufacturing
15,400 Leased Office
87,200 Owned Manufacturing
16,600 Owned Office
Columbus, Ohio................................................ DS&A/SP 46,200 Leased Manufacturing
Costa Mesa, California........................................ DS&A 21,900 Leased Manufacturing
Clarksville, Arkansas......................................... SP 82,500 Owned Manufacturing
2,800 Owned Office
Greenville, Pennsylvania...................................... SP 2,100 Leased Office
Cleveland, Ohio............................................... Corporate 4,500 Leased Office
Headquarters
</TABLE>
GOVERNMENT CONTRACTS
In 1998, approximately 4 percent of the Company's revenues were derived from
contracts or subcontracts with, or funded by, the United States government,
primarily related to the LIGO project. This percentage is expected to decrease
in future years with the successful completion of the LIGO project in December
1998. These contracts and subcontracts contain standard provisions permitting
the government to terminate them at its option, without cause. In the event of
such termination, the Company is entitled to receive reimbursement on the basis
of work completed (costs incurred plus a reasonable profit). In addition, these
contracts and subcontracts are subject to renegotiations of profits. The Company
has no knowledge of any pending or threatened renegotiations or termination of
any material government contract or subcontract.
ENVIRONMENTAL MATTERS
The Company's operations involve and have involved the handling and use of
substances, such as various cleaning fluids used to remove grease from metal,
that are subject to federal, state and local environmental laws and regulations
that impose limitations on the discharge of pollutants into the soil, air and
water, and establish standards for their storage and disposal. The Company
monitors and reviews its procedures and policies for compliance with
environmental laws. Company management is familiar with these regulations, and
supports an ongoing capital investment program to maintain the Company's
adherence to required standards.
As part of its ongoing environmental compliance and monitoring programs, the
Company is voluntarily developing work plans for remediation of environmental
conditions involving certain of its operating facilities. Based upon the
Company's study of the known conditions and its prior experience in
investigating and correcting environmental conditions, the Company estimates
that the potential costs of these site remediation efforts will not have a
material adverse effect on the Company's financial position or liquidity.
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Approximately $2.0 million is recorded at December 31, 1998 as reserves for
known environmental matters. Expenditures relating to these remediation efforts
are expected to be made primarily in the next 18 to 24 months, if the necessary
regulatory agency approvals of the Company's work plans are obtained. Although
the Company believes it has adequately provided for the cost of all known
environmental conditions, the applicable regulatory agencies could insist upon
different and more costly remediative measures than those the Company believes
are adequate or required by existing law. Except for its continuing remediative
efforts described above, the Company believes that it is currently in
substantial compliance with all known material and applicable environmental
regulations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information as of December 31, 1998, regarding each of the Company's
executive officers is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Arthur S. Holmes.................... 57 Chairman, Chief Executive Officer and a Director
James R. Sadowski................... 57 President and Chief Operating Officer
Don A. Baines....................... 55 Chief Financial Officer, Treasurer and a Director
</TABLE>
ARTHUR S. HOLMES has been Chairman and Chief Executive Officer of the
Company since its formation in June 1992, and was President until December 1993.
He also has been President and the principal owner of Holmes Investment
Services, Inc. ("HIS"), a management consulting firm, since 1989. Mr. Holmes is
currently the Chairman and Chief Executive Officer of ALTEC, and served as
President of ALTEC from 1985 through 1989. From 1978 through 1985, he served in
a variety of managerial capacities for Koch Process Systems, Inc., the
predecessor of Process Systems International, Inc. ("PSI"), most recently as
Vice President-Manager of the Gas Processing Division. Mr. Holmes is the
co-inventor of the Company's patented Ryan/Holmes technology. See
"Business--Patents and Trademarks". Mr. Holmes holds a BS and an MS in Chemical
Engineering from the Pennsylvania State University and an MBA from Northeastern
University.
JAMES R. SADOWSKI has been President and Chief Operating Officer of the
Company since December 1993. Prior to joining the Company, Mr. Sadowski served
as Group Vice President of Parker Hannifin Corporation's Bertea Aerospace Group
("Bertea") from 1991 to 1993. Prior to his service at Bertea he served in
various managerial capacities at Parker Hannifin Corporation and TRW Inc. Mr.
Sadowski holds a BS in Engineering/Science from Case Institute of Technology and
an MS degree from the same institution in Mechanical Engineering.
DON A. BAINES has been Chief Financial Officer of ALTEC since 1986 and has
been the Chief Financial Officer and Treasurer of the Company since its
formation in June 1992. He also has served as Chief Financial Officer for HIS
since 1989. From 1986 through 1989, Mr. Baines served as Vice President, Manager
of Finance for ALTEC. From 1976 through 1985, Mr. Baines served in a variety of
managerial capacities, most recently Controller, in the Process/Transport
Division of the Trane Company, which included the predecessor of ALTEC. Mr.
Baines is a Certified Public Accountant and holds a BBA in Accounting from St.
Edward's University, Austin, Texas.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Quarterly Stock Prices and Dividends
<TABLE>
<CAPTION>
QUARTER HIGH LOW DIVIDEND
- ------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1997
1st.......................................................... $ 11.389 $ 7.555 $ .04
2nd.......................................................... 12.278 8.833 .04
3rd.......................................................... 14.333 11.583 .04
4th.......................................................... 17.375 13.417 .05
</TABLE>
<TABLE>
<CAPTION>
QUARTER HIGH LOW DIVIDEND
- ------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1998
1st.......................................................... $ 19.958 $ 10.750 $ .05
2nd.......................................................... 23.292 14.417 .05
3rd.......................................................... 15.938 6.063 .05
4th.......................................................... 9.750 5.125 .05
</TABLE>
Chart Industries Common Stock is traded on the New York Stock Exchange under
the symbol "CTI". The information in the table above has been adjusted to
reflect the three-for-two split of the Common Stock effected as a 50 percent
share dividend in June 1998.
Shareholders of record on January 29, 1999 numbered 1,902. The Company
estimates that an additional 3,590 shareholders own stock held for their
accounts at brokerage firms and financial institutions.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................................. $ 229,423 $ 192,249 $ 148,400 $ 112,479 $ 84,258
Gross profit.......................................... 77,657 61,240 45,002 30,775 15,808
Selling, general and administrative expense........... 33,502 26,206 21,745 18,108 15,020
Restructuring charge.................................. 2,151
Operating income (loss)............................... 44,155 35,034 23,257 12,667 (1,363)
Net interest expense.................................. 901 350 623 1,858 996
Income tax expense (benefit).......................... 15,039 12,057 7,605 3,746 (896)
Net income (loss)..................................... 28,215 22,627 15,029 7,063 (1,463)
EARNINGS PER COMMON SHARE:
Net income (loss)(1).................................. $ 1.17 $ 1.01 $ .67 $ .31 ($ .07)
Net income (loss)--assuming dilution(1)............... $ 1.16 $ .99 $ .66 $ .31 ($ .07)
OTHER FINANCIAL DATA:
Income from continuing operations before interest
expense, income taxes, depreciation and
amortization........................................ $ 51,181 $ 38,545 $ 25,965 $ 15,409 $ 1,335
Depreciation and amortization......................... 7,026 3,511 2,708 2,742 2,698
Dividends............................................. 4,821 3,858 3,002 2,787 2,764
Dividends per share(1)................................ $ .20 $ .17 $ .13 $ .12 $ .12
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash............ $ 2,169 $ 22,095 $ 9,408 $ 229 $ 206
Working capital....................................... 23,152 36,994 12,647 17,750 15,483
Total assets.......................................... 158,205 128,919 81,196 66,506 54,881
Total debt............................................ 11,325 4,468 4,830 14,573 18,080
Long-term debt, less current portion.................. 10,894 4,063 4,469 12,566 16,073
Shareholders' equity.................................. 93,154 76,457 28,096 18,433 14,364
</TABLE>
- ------------------------
(1) The per-share data has been adjusted to reflect the three-for-two split of
the Common Stock effected as a 50 percent stock dividend in June 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
In 1998, Chart Industries experienced a 24.7 percent increase in net income
over the prior year. This increase can primarily be attributed to the accretive
acquisitions of Chart Marston and Cryenco and the highly profitable orders
received in 1997 for industrial gas and hydrocarbon processing equipment,
including heat exchangers, cold boxes, cryogenic tanks and assorted system
components.
The tremendous increase in demand experienced in prior years for both
industrial gas and hydrocarbon processing equipment sold by the Company's PS&E
and DS&A segments slowed down in 1998. New orders in these two segments were
$142.2 million in 1998 compared to $144.7 million and $131.8 million in 1997 and
1996, respectively. Backlog in these two segments at December 31, 1998 totaled
$88.8 million and the Company's total consolidated backlog was $96.1 million.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
QUARTERLY BACKLOG
<S> <C>
12/31/92 47.3
3/31/93 39.1
6/30/93 35.8
9/30/93 36.1
12/31/93 41.1
3/31/94 38.9
6/30/94 44.3
9/30/94 48.5
12/31/94 53.8
3/31/95 58.2
6/30/95 57.3
9/30/95 97.7
12/31/95 111
3/31/96 112.9
6/30/96 124.4
9/30/96 125.5
12/31/96 128.3
3/31/97 118.1
6/30/97 126.6
9/30/97 125.6
12/31/97 127.5
3/31/98 144
6/30/98 134.8
9/30/98 107.3
12/31/98 96.1
</TABLE>
OPERATING RESULTS
The following table sets forth, for the periods indicated, the percentage
relationship to the Company's sales each line item represents.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Sales.............................................. 100.0% 100.0% 100.0%
Cost of products sold.............................. 66.2 68.1 69.7
Gross profit....................................... 33.8 31.9 30.3
Selling, general and administrative expense........ 14.6 13.6 14.7
Operating income................................... 19.2 18.3 15.6
Interest expense, net.............................. .4 .2 .4
Income taxes....................................... 6.5 6.3 5.1
Net income......................................... 12.3 11.8 10.1
</TABLE>
13
<PAGE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
SEGMENT ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SALES
Process Systems and Equipment............................................ $ 124,609 $ 93,562 $ 65,946
Distribution, Storage and Applications Equipment......................... 64,078 47,143 38,396
Special Products......................................................... 40,736 51,544 44,058
---------- ---------- ----------
Total.................................................................. $ 229,423 $ 192,249 $ 148,400
---------- ---------- ----------
---------- ---------- ----------
GROSS PROFIT
Process Systems and Equipment............................................ $ 47,273 $ 34,040 $ 22,080
Distribution, Storage and Applications Equipment......................... 17,275 13,422 10,432
Special Products......................................................... 13,109 13,778 12,490
---------- ---------- ----------
Total.................................................................. $ 77,657 $ 61,240 $ 45,002
---------- ---------- ----------
---------- ---------- ----------
GROSS PROFIT MARGIN
Process Systems and Equipment............................................ 37.9% 36.4% 33.5%
Distribution, Storage and Applications Equipment......................... 27.0% 28.5% 27.2%
Special Products......................................................... 32.2% 26.7% 28.3%
Total.................................................................. 33.8% 31.9% 30.3%
</TABLE>
YEARS ENDED DECEMBER 31, 1998 AND 1997
Sales for 1998 were $229.4 million, an increase of $37.2 million or 19.3
percent over 1997. The largest increase in sales occurred in the PS&E segment,
with 1998 sales exceeding 1997 sales by $31.0 million, of which $23.4 million
was attributable to incremental sales of brazed aluminum heat exchangers by
Chart Marston.
Sales in the DS&A segment increased $16.9 million over the prior year,
primarily on the strength of industrial gas equipment sales at Cryenco, which
were up $12.9 million.
Special products sales declined by $10.8 million in 1998. Much of the sales
decline in this segment is the result of the winding down of the LIGO project,
which was successfully completed in December 1998.
Gross profit for 1998 increased $16.4 million or 26.8 percent from 1997
levels. The gross margin increased from 31.9 percent in 1997 to 33.8 percent in
1998. As in sales, a large portion of the improvement in both gross profit and
in gross margin came from the PS&E segment. The most dramatic improvement came
as a result of increased volume and price in the brazed aluminum heat exchanger
market.
Selling, general and administrative ("SG&A") expense totaled $33.5 million
for 1998, an increase of $7.3 million from 1997. The increase in SG&A expense is
largely driven by the variable expenses of profit sharing, management incentive
compensation and selling commissions, all of which are closely tied to
profitability and sales levels. In addition, the acquisition of Chart Marston
added $3.6 million of SG&A expense during the nine months its results were
included in the Company's results. As a percentage of sales, SG&A expense
increased from 13.6 percent in 1997 to 14.6 percent in 1998. The increase in
SG&A expense as a percentage of sales in 1998 is partially caused by expenses
related to merger and acquisition activity the Company engaged in throughout the
year.
Net interest expense increased to $901,000 during 1998 from $350,000 during
1997. The increase in interest expense is due to the increase in debt incurred
in connection with the acquisition of Chart Marston.
14
<PAGE>
As a result of the continued growth of the Company's brazed aluminum heat
exchanger operations and the addition of Chart Marston, total employment
increased 9.3 percent to 1,410 employees. The Company believes that this
increase is appropriately commensurate with the Company's annual revenue growth
which has exceeded 19 percent in each of the last four years.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Sales for 1997 were $192.2 million, an increase of $43.8 million or 29.5
percent over 1996. By far, the largest increase in sales occurred in the PS&E
segment, with 1997 sales exceeding 1996 sales by $27.6 million, of which $15.8
million was attributable to increased sales of brazed aluminum heat exchangers
and the remainder to increased sales of cold box assemblies.
Sales in the DS&A segment increased $8.7 million over the prior year, almost
entirely in cryogenic tanks and trailers, primarily due to the acquisition of
Cryenco.
Special products sales increased by $7.5 million in 1997. Much of the sales
improvement in this segment is the result of vacuum equipment being supplied to
the LIGO project, the sales of which totaled approximately $17.8 million during
1997, as well as increased sales of cryogenic components.
Gross profit for 1997 increased $16.2 million or 36.1 percent from 1996
levels. The gross margin increased from 30.3 percent in 1996 to 31.9 percent in
1997. As in sales, a large portion of the improvement in both gross profit and
in gross margin came from the PS&E segment. The most dramatic improvement came
as a result of increased volume and price in the brazed aluminum heat exchanger
market. However, the cold box engineering and fabrication market also responded
with better productivity and volume.
Selling, general and administrative expense totaled $26.2 million for 1997,
an increase of $4.5 million from 1996. However, as a percentage of sales, SG&A
expense decreased from 14.7 percent in 1996 to 13.6 percent in 1997. This
improvement is the result of increasing volume relative to the fixed overhead.
The $4.5 million increase in SG&A expense is largely driven by the variable
expenses of profit sharing, management incentive compensation and selling
commissions, all of which are closely tied to profitability and sales levels. In
addition, the acquisition of Cryenco added $1.4 million of SG&A expense during
the five months its results were included in the Company's results.
Net interest expense declined during 1997. The 1997 expense is related both
to the debt resulting from the acquisition of Cryenco, which was outstanding for
approximately one quarter before the proceeds from the stock offering were used
to pay down all borrowings under the credit facility, and the IRB which remained
outstanding throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations in 1998 was $30.9 million compared to $22.7
million in 1997 and $32.9 million in 1996. As the Company takes on large orders
and progresses through completion, there could be large fluctuations in cash
flows depending on negotiated payment terms with customers. The Company is
currently well positioned in regard to its working capital needs, due to
significant progress payments by its customers and net income which offsets the
need for additional inventory required to complete the Company's current level
of backlog.
Capital expenditures in 1998, 1997 and 1996 were $10.0 million, $7.1 million
and $8.4 million, respectively. In 1998, the Company paid $3.5 million to
acquire land and buildings used by its Cryenco facility. The 1997 capital
expenditures relate primarily to the expansion of capacity at the Company's
ALTEC facility, as well as general throughput enhancing expenditures at the
Company's other operations.
On March 27, 1998, the Company, through its wholly-owned subsidiary Chart
Marston, acquired the net assets of the industrial heat exchanger division of
IMI Marston Limited, a wholly-owned subsidiary of
15
<PAGE>
IMI plc, for 21 million Pounds Sterling (approximately U.S. $35.3 million). The
Company borrowed 11 million Pounds Sterling (approximately U.S. $18.5 million)
to fund the acquisition.
On July 31, 1997, the Company acquired all of the shares outstanding of
Cryenco, a Denver, Colorado based manufacturer of cryogenic tanks and related
products for the transportation, storage and dispensing of LNG and liquefied
argon, oxygen and nitrogen. Consideration for the acquisition included the
payment of $19.6 million to purchase the common stock outstanding and certain
warrants of Cryenco, the payment of $685,000 to redeem its preferred stock
outstanding and the assumption of approximately $6.2 million of indebtedness.
The Company also assumed Cryenco's obligations under other warrants, which were
converted into warrants to purchase Common Stock of the Company, and were
recorded in the Company's accounts at an estimated fair value of $436,000.
The Company completed a stock offering on October 9, 1997. Of the 4,830,000
shares of Common Stock sold, 2,580,000 were offered by the Company and 2,250,000
were offered by certain stockholders. Consideration for the sale of all shares
sold in the offering (excluding underwriter discounts and expenses) was $14.00
per share. The proceeds to the Company from the stock sale were used to repay
the outstanding borrowings under the Company's $45 million credit facility (the
"Credit Facility").
In November 1996, the Board of Directors authorized a program to repurchase
2,250,000 shares of the Company's Common Stock. The amount and timing of share
purchases will depend on market conditions, share price and other factors. The
Company reserves the right to discontinue the repurchase program at any time. In
1998, 1997 and 1996, 909,433, 562,725 and 329,175 shares, respectively, were
acquired under the program.
On February 16, 1999, the Company announced the signing of a definitive
merger agreement with MVE Holdings, Inc. To finance the acquisition the Company
has negotiated a $300 million credit facility with Chase Manhattan Bank.
The Company forecasts that cash generated by operations, borrowings under
its Credit Facility, which now extends through May 30, 2000, and access to
capital markets will be sufficient to satisfy its working capital, dividend,
capital expenditure and debt repayment requirements and to finance continued
growth through acquisition.
Dividends totaling $4.8 million, or $.20 per share, $3.9 million, or $.17
per share, and $3.0 million, or $.13 per share, were paid during 1998, 1997 and
1996, respectively. Any future declarations of dividends are at the sole
discretion of the Company's Board of Directors. No assurance can be given as to
whether dividends may be declared in the future, and if declared, the amount and
timing of such dividends.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 Problem is the result of the inability of hardware, software
and control systems to properly recognize and process two-digit references to
specific years, beginning with the year 2000. The Year 2000 Problem could result
in system failures or miscalculations causing disruptions of the operations of
the Company, its suppliers and its customers.
In 1997, the Company completed a preliminary assessment of its critical
software systems and determined that none of these systems could not be made
compliant. In June 1998, the Company initiated a formal assessment plan for all
non-critical software systems by identifying a lead person at each of its
locations to be responsible for ensuring that the location will be compliant.
The first phase of the formal assessment plan, which was completed in the third
quarter of 1998, included an inventory of all information technology systems and
control systems with embedded chip technology. Results of the inventory
indicated that all information technology systems are or should be compliant by
the year 2000, primarily because none of these systems involve internally
developed software and compliant versions are readily available. The Company
produces a limited number of products utilizing control systems with embedded
16
<PAGE>
chip technology, and is contacting the vendors who provide these embedded chips
to determine compliance. This project will be completed in the second quarter of
1999. Based upon the Company's review of systems using embedded chip technology
within its existing facilities, the Company is reasonably sure that its
facilities are materially year 2000 compliant. The Company believes that the
third parties whose Year 2000 Problems pose the greatest risks for the Company
include its banks that maintain depository accounts, its payroll processing
company, its suppliers of the major materials used in production processes, its
utility providers and its providers of freight services. The Company has
communicated with these third parties to determine if they have an effective
plan in place to address the Year 2000 Problem, and has received positive
responses from the majority of these third parties. However, the Company
provides no assurance that these third parties will be year 2000 compliant or
that their noncompliance will not have a material adverse effect on the Company.
The Company currently estimates that it will spend less than $1 million to
ensure that its information technology systems are compliant, of which more than
half has been committed or spent through December 31, 1998. Accordingly, the
Company expects cash flow from operations and available borrowings to be
sufficient to fund these expenditures.
Based upon the results of year 2000 compliance efforts underway, the Company
believes that all critical information technology systems and control systems
with embedded chip technology will be compliant and will allow the Company to
continue to operate beyond the year 2000 without a material adverse effect on
its results of operations or financial position. However, unanticipated problems
which may be identified in the ongoing year 2000 preparation program could
result in an undetermined financial risk. Based upon the Company's assessment of
its year 2000 compliance and the indicated compliance of the third parties it
has contacted to date, the Company is developing contingency plans as deemed
necessary.
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 Annual Report on Form 10-K 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) the Company's 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; (l) the ability of the Company to protect its proprietary information;
and (m) disruption of the Company's business or operations resulting from the
Year 2000 Problem.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Chart Industries, Inc.
We have audited the accompanying consolidated balance sheets of Chart
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chart
Industries, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 8, 1999
18
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 2,169 $ 22,095
Accounts receivable, net of allowances of $775 and $707............ 37,336 31,636
Inventories, net................................................... 29,803 25,617
Unbilled contract revenue.......................................... 2,911 2,520
Deferred income taxes.............................................. 1,845 2,134
Other current assets............................................... 2,047 847
--------- ---------
TOTAL CURRENT ASSETS................................................. 76,111 84,849
Property, plant and equipment, net................................... 40,536 27,241
Goodwill, net........................................................ 31,568 15,698
Other intangible assets, net......................................... 9,990 1,131
--------- ---------
TOTAL ASSETS......................................................... $ 158,205 $ 128,919
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................... $ 11,540 $ 8,878
Customer advances.................................................. 13,011 13,710
Billings in excess of contract revenue............................. 2,194 3,030
Accrued salaries, wages and benefits............................... 10,578 9,340
Warranty reserves.................................................. 4,374 4,809
Other current liabilities.......................................... 10,831 7,683
Current portion of long-term debt.................................. 431 405
--------- ---------
TOTAL CURRENT LIABILITIES............................................ 52,959 47,855
Revolving credit facility............................................ 7,250
Other long-term debt................................................. 3,644 4,063
Deferred income taxes................................................ 1,198 544
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, 24,321,917 and 24,281,510 shares issued at December
31, 1998 and 1997, respectively.................................. 243 162
Additional paid-in capital......................................... 43,367 43,256
Retained earnings.................................................. 56,352 33,039
Accumulated other comprehensive income............................. (358)
Treasury stock, at cost, 732,452 shares at December 31, 1998....... (6,450)
--------- ---------
93,154 76,457
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 158,205 $ 128,919
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Sales........................................................................ $ 229,423 $ 192,249 $ 148,400
Cost of products sold........................................................ 151,766 131,009 103,398
---------- ---------- ----------
Gross profit................................................................. 77,657 61,240 45,002
Selling, general and administrative expense.................................. 33,502 26,206 21,745
---------- ---------- ----------
Operating income............................................................. 44,155 35,034 23,257
Interest expense, net........................................................ (901) (350) (623)
---------- ---------- ----------
Income before income taxes................................................... 43,254 34,684 22,634
Income tax expense (benefit):
Current.................................................................... 14,096 12,874 8,566
Deferred................................................................... 943 (817) (961)
---------- ---------- ----------
15,039 12,057 7,605
---------- ---------- ----------
Net income................................................................... $ 28,215 $ 22,627 $ 15,029
---------- ---------- ----------
---------- ---------- ----------
Net income per share......................................................... $ 1.17 $ 1.01 $ .67
---------- ---------- ----------
---------- ---------- ----------
Shares used in per share calculations........................................ 24,084 22,336 22,376
---------- ---------- ----------
---------- ---------- ----------
Net income per share--assuming dilution...................................... $ 1.16 $ .99 $ .66
---------- ---------- ----------
---------- ---------- ----------
Shares used in per share calculations--assuming dilution..................... 24,426 22,860 22,779
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
SHARES COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
----------- ------ ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at January 1, 1996.............. 9,931 $101 $17,024 $ 2,294 $ (986) $18,433
Net income............................ 15,029 15,029
Dividends ($.13 per share)............ (3,002) (3,002)
Treasury stock acquisitions........... (255) (3,732) (3,732)
Stock options, net of tax benefit..... 115 1 737 28 766
Contribution of stock to employee
benefit plans....................... 50 357 245 602
----------- ------ ---------- -------- ------------- -------- -------------
Balance at December 31, 1996............ 9,841 102 18,118 14,321 (4,445) 28,096
Net income............................ 22,627 22,627
Dividends ($.17 per share)............ (3,858) (3,858)
Treasury stock acquisitions........... (252) (5,646) (5,646)
Stock options, net of tax benefit..... 39 1 469 470
Conversion of Cryenco warrants........ 436 436
Three for two stock split............. 4,809 51 (51)
Contribution of stock to employee
benefit plans....................... 31 571 95 666
Stock offering........................ 1,720 17 33,649 33,666
Retirement of treasury shares......... (9) (9,987) 9,996
----------- ------ ---------- -------- ------------- -------- -------------
Balance at December 31, 1997............ 16,188 162 43,256 33,039 -- 76,457
Net income............................ 28,215 28,215
Other comprehensive income, net of tax:
Foreign currency translation
adjustments....................... $ (358) (358)
-------------
Comprehensive income.................. 27,857
Dividends ($.20 per share)............ (4,821) (4,821)
Treasury stock acquisitions........... (844) (8,278) (8,278)
Stock options, net of tax benefit..... 65 77 706 783
Three for two stock split............. 8,079 81 (81)
Contribution of stock to employee
benefit plans....................... 101 (77) 1,122 1,045
Other................................. 111 111
----------- ------ ---------- -------- ------------- -------- -------------
Balance at December 31, 1998............ 23,589 $243 $43,367 $56,352 $ (358) $(6,450) $93,154
----------- ------ ---------- -------- ------------- -------- -------------
----------- ------ ---------- -------- ------------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................................................... $ 28,215 $ 22,627 $ 15,029
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 7,026 3,511 2,708
Deferred income taxes........................................................ 943 (817) (961)
Contribution of stock to employee benefit plans.............................. 1,045 666 602
Increase (decrease) in cash resulting from changes in operating assets and
liabilities:
Accounts receivable........................................................ 3,807 (323) 692
Inventory and other current assets......................................... (2,895) 126 (1,383)
Accounts payable and other current liabilities............................. (1,666) 4,325 5,468
Billings in excess of contract revenue and customer advances............... (5,541) (7,402) 10,707
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................... 30,934 22,713 32,862
INVESTING ACTIVITIES
Capital expenditures........................................................... (10,006) (7,140) (8,446)
Acquisition of Chart Marston................................................... (35,324)
Acquisition of Cryenco, net of cash acquired................................... (20,128)
Other investing activities..................................................... 60 195 474
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......................................... (45,270) (27,073) (7,972)
FINANCING ACTIVITIES
Principal payments on long-term debt........................................... (405) (835) (3,243)
Repayments on credit facility.................................................. (36,357) (54,750) (44,750)
Borrowings on credit facility.................................................. 43,594 48,000 33,250
Borrowing under Industrial Revenue Bond........................................ 5,000
Purchase of treasury stock..................................................... (8,278) (5,646) (3,732)
Stock offering................................................................. 33,666
Stock options exercised........................................................ 783 470 766
Dividends paid to shareholders................................................. (4,821) (3,858) (3,002)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............................ (5,484) 17,047 (15,711)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. (19,820) 12,687 9,179
Effect of exchange rate changes on cash.......................................... (106)
Cash and cash equivalents at beginning of year................................... 22,095 9,408 229
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................................... $ 2,169 $ 22,095 $ 9,408
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--NATURE OF OPERATIONS
The Company is involved in the engineering and manufacturing of industrial
equipment and systems for the cryogenic and process industries and various
research applications. Substantially all of the Company's sales and trade
accounts receivable are related to the industrial gas, hydrocarbon and chemical
processing and power generation industries and laboratories related to space and
high physics research located throughout the world. To reduce credit risk for
both foreign and domestic sales the Company requires customer advances, letters
of credit and other such guarantees of payment. For certain foreign customers
the Company also purchases credit and political risk insurance. Sales to U.S.
government funded projects accounted for 4 percent, 12 percent and 11 percent of
consolidated sales in 1998, 1997 and 1996, respectively.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated in consolidation. Certain items in previous
financial statements have been reclassified to conform to 1998 presentation.
CASH AND CASH EQUIVALENTS: The Company considers all investments with an
initial maturity of three months or less when purchased to be cash equivalents.
The December 31, 1998 balance includes commercial paper, money market
investments, overnight repurchase agreements and cash.
GOODWILL AND OTHER INTANGIBLE ASSETS: All intangible assets are carried at
cost less applicable amortization. Goodwill represents the excess of purchase
price over the fair value of net assets acquired in purchase business
combinations. Goodwill is amortized using the straight-line method over the
periods of expected benefit, but not in excess of 40 years. Total amortization
expense of all intangibles was $1,397,000, $376,000 and $507,000 in 1998, 1997
and 1996, respectively. Accumulated amortization for all intangibles was
$2,142,000 and $745,000 at December 31, 1998 and 1997, respectively.
INVENTORIES: Inventories are stated at the lower of cost or market with
cost being determined by both the last-in, first-out ("LIFO") method
(approximately 51 percent and 54 percent of total inventory at December 31, 1998
and 1997, respectively), and the first-in, first-out ("FIFO") method. The
components of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Raw materials and supplies........................................... $ 14,785 $ 12,971
Work in process...................................................... 13,955 11,992
Finished goods....................................................... 1,273 922
LIFO reserve......................................................... (210) (268)
--------- ---------
$ 29,803 $ 25,617
--------- ---------
--------- ---------
</TABLE>
STOCK SPLIT: All shares of Common Stock (except for transactions affecting
shares outstanding in the Consolidated Statements of Shareholders' Equity) and
per share amounts have been adjusted to give retroactive effect to a
three-for-two stock split effected in the form of a 50 percent stock dividend
distributed on June 30, 1998 to shareholders of record on June 16, 1998.
23
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated on
the basis of cost. Expenditures for maintenance, repairs and renewals are
charged to expense as incurred, whereas major betterments are capitalized. The
cost of applicable assets is depreciated over their estimated useful lives.
Depreciation is computed using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. The following table
shows original costs and the estimated useful lives by classification of assets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
CLASSIFICATION EXPECTED USEFUL LIFE 1998 1997
- -------------------------------------------------------------- ------------------------- --------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Land and buildings............................................ 20-35 years (buildings ) $ 20,986 $ 11,992
Machinery and equipment....................................... 3-12 years 34,993 26,415
Furniture and fixtures........................................ 3-5 years 4,665 3,831
Construction in process....................................... 1,094 794
--------- ---------
61,738 43,032
Less accumulated depreciation................................. (21,202) (15,791)
--------- ---------
Total Property, Plant and Equipment........................... $ 40,536 $ 27,241
--------- ---------
--------- ---------
</TABLE>
Property, plant and equipment along with the intangible assets are
periodically evaluated for impairment. The Company assesses impairment for each
of its operating units by measuring future cash flows against the carrying value
of these long-lived assets. If the future undiscounted cash flows are less than
the carrying amount, an impairment reserve is recorded.
REVENUE RECOGNITION: The Company uses the percentage of completion method
of accounting for significant contracts. Earned revenue is based on the
percentage that incurred costs to date bear to total estimated costs at
completion after giving effect to the most current estimates. Earned revenue on
contracts in process totaled $94.9 million through December 31, 1998. Timing of
amounts billed on contracts varies from contract to contract causing high
variation in working capital needs. Amounts billed on percentage of completion
contracts in process total $90.4 million at December 31, 1998. The cumulative
impact of revisions in total cost estimates during the progress of work is
reflected in the period in which these changes become known. Earned revenue
reflects the original contract price adjusted for agreed upon claims and change
orders, if any. Losses expected to be incurred on contracts in process, after
consideration of estimated minimum recoveries from claims and change orders, are
charged to income as soon as such losses are known. For less significant
contracts, revenue is recognized when products are completed or shipped.
COMPREHENSIVE INCOME: Effective January 1, 1998, the Company adopted
Financial Accounting Standards Board ("FASB") 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 did not impact 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, prior year financial statements did not require reclassification to
conform to the requirements of Statement 130.
24
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OPERATING SEGMENTS: Effective January 1, 1998, the Company adopted FASB
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Statement 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise." Statement 131 establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers. The adoption of
Statement 131 did not affect results of operations or financial position, but
did affect the disclosure of segment information.
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, especially in regard to the percentage of completion method of
revenue recognition.
DEFERRED INCOME TAXES: The Company and its subsidiaries file a consolidated
federal income tax return. Deferred income taxes are provided for temporary
differences between financial reporting and the consolidated tax return in
accordance with the liability method.
NET INCOME PER SHARE: In 1997, the FASB issued Statement No. 128, "Earnings
per Share." Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform with Statement 128.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net income:.................................................................... $ 28,215 $ 22,627 $ 15,029
Denominator:
Denominator for basic earnings per share--weighted average shares.............. 24,084 22,336 22,376
Effect of dilutive securities:
Employee stock options and warrants............................................ 342 524 403
--------- --------- ---------
Dilutive potential common shares................................................. 24,426 22,860 22,779
--------- --------- ---------
--------- --------- ---------
Net income per share............................................................. $ 1.17 $ 1.01 $ .67
--------- --------- ---------
--------- --------- ---------
Net income per share--assuming dilution.......................................... $ 1.16 $ .99 $ .66
--------- --------- ---------
--------- --------- ---------
</TABLE>
EMPLOYEE STOCK OPTIONS: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
25
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--FINANCING ARRANGEMENTS
The Company currently maintains a consolidated multi-currency credit and
revolving loan facility (the "Credit Facility") which provides for loans of up
to the equivalent of $45 million, of which $15 million may be available for the
issuance of letters of credit and bank guarantees. The Company had borrowings of
$7.25 million outstanding under the Credit Facility at December 31, 1998. The
Credit Facility extends to May 30, 2000. The Credit Facility provides the bank
with a secured interest in substantially all of the property, plant and
equipment of the Company.
Under the terms of the Credit Facility, loans (including draws under any
proposed letters of credit) will bear interest, at the Company's option, at a
rate equal to the bank's base rate (7.75 percent at December 31, 1998) or LIBOR
plus .625 percent per annum. Based on the Company's financial position, the
Company and its banks have agreed to adjust the LIBOR differential on a set
schedule. The Company is also required to pay a commitment fee of .375 percent
per annum on the total amount of the Credit Facility, payable quarterly in
arrears.
The Credit Facility contains certain covenants and conditions which impose
limitations on the Company and its operating units, including meeting certain
financial tests and the maintenance of certain financial ratios on a
consolidated basis such as: minimum current ratio, minimum net worth, maximum
leverage, minimum interest coverage ratio and minimum fixed charge ratio. As of
December 31, 1998, the Company was in compliance with all covenants and
conditions. The Company has letters of credit outstanding and bank guarantees
totaling $11.8 million supported by the Credit Facility.
As part of the expansion of the ALTEC facility, the Company issued
Industrial Development Revenue Bonds ("IRB") totaling $5 million during 1996
($4.1 million and $4.4 million outstanding at December 31, 1998 and 1997,
respectively). The bonds are collateralized by the equipment related to the
expansion. The interest rate on the bonds is 6.3 percent and maturities in the
next five years are as follows: 1999-- $431,000; 2000--$459,000, 2001--$489,000;
2002--$521,000; 2003--$555,000; and a final maturity in 2006.
Interest paid was $1,561,000, $709,000 and $688,000 in 1998, 1997 and 1996
respectively.
NOTE D--ACQUISITIONS
On March 27, 1998, the Company, through its wholly-owned subsidiary 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. $35.3 million). The Company borrowed 11 million
Pounds Sterling (approximately U.S. $18.5 million) to fund the acquisition.
On July 31, 1997, the Company acquired all of the shares outstanding of
Cryenco, a Denver, Colorado based manufacturer of cryogenic tanks and related
products for the transportation, storage and dispensing of LNG and liquefied
argon, oxygen and nitrogen. Consideration for the acquisition included the
payment of $19.6 million to purchase the common stock outstanding and certain
warrants of Cryenco, the payment of $685,000 to redeem its preferred stock
outstanding and the assumption of approximately $6.2 million of indebtedness.
The Company also assumed Cryenco's obligations under other warrants, which were
converted into warrants to purchase Common Stock of the Company, and were
recorded as additional paid-in capital at an estimated fair value of $436,000.
The above acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair values. This treatment
resulted in approximately $15.9 million and $15.2 million of purchase price in
excess of net
26
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--ACQUISITIONS (CONTINUED)
assets acquired (goodwill) for Chart Marston and Cryenco, respectively. Such
excess is being amortized on a straight-line basis over 40 years. Chart
Marston's and Cryenco's results of operations have been included in the
consolidated results of operations since the date of acquisition.
The unaudited pro forma results of operations for 1998 and 1997, assuming
consummation of both acquisitions as of January 1, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Sales.............................................................. $ 236,471 $ 238,995
Net income......................................................... 28,101 21,375
Net income per share............................................... 1.17 .96
Net income per share--assuming dilution............................ 1.15 .94
</TABLE>
NOTE E--INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1998, the
Company had net operating loss carryforwards for income tax purposes of $665,000
that expire in years 2003 through 2006. These carryforwards resulted from the
Company's 1991 acquisition of Process Engineering and are subject to Separate
Return Limitation Year (SRLY) and Section 382 limitations imposed by the
Internal Revenue Service Code of 1986, as amended, and the regulations
thereunder. Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment....................................... $ 2,411 $ 2,315
Inventory........................................................... 1,537 1,292
Pensions............................................................ 371 283
Other--net.......................................................... 195 134
--------- ---------
TOTAL DEFERRED TAX LIABILITIES.................................... $ 4,514 $ 4,024
--------- ---------
--------- ---------
Deferred tax assets:
Accruals and reserves............................................... $ 4,643 $ 5,323
Net operating loss carryforwards.................................... 233 282
Other--net.......................................................... 285 9
--------- ---------
TOTAL DEFERRED TAX ASSETS......................................... $ 5,161 $ 5,614
--------- ---------
--------- ---------
</TABLE>
27
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................................... $ 12,844 $ 11,908 $ 7,936
State....................................................... 793 966 630
Foreign..................................................... 459 -- --
--------- --------- ---------
14,096 12,874 8,566
Deferred:
Federal..................................................... 821 (750) (850)
State....................................................... 77 (67) (111)
Foreign..................................................... 45 -- --
--------- --------- ---------
943 (817) (961)
--------- --------- ---------
$ 15,039 $ 12,057 $ 7,605
--------- --------- ---------
--------- --------- ---------
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
tax rates to income tax expense is:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates............. $ 15,139 35.0% $ 12,139 35.0% $ 7,922 35.0%
State income taxes, net of federal tax
benefit............................... 566 1.3 584 1.7 337 1.5
Effective tax rate differential of
earnings outside of U.S............... (267) (.6)
Reversal of valuation allowance......... (370) (1.6)
Federal tax benefit of Foreign Sales
Corp.................................. (617) (1.4) (528) (1.5) (213) (.9)
Other--net.............................. 218 .5 (138) (.4) (71) (.4)
--------- --- --------- --- --------- ---
$ 15,039 34.8% $ 12,057 34.8% $ 7,605 33.6%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
The Company paid approximately $12.4 million, $11.1 million and $8.0 million
of income taxes in 1998, 1997 and 1996, respectively.
28
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--EMPLOYEE BENEFIT PLANS
The Company has two defined benefit pension plans which cover certain hourly
and salary employees. The Company's funding policy is to contribute at least the
minimum funding amounts required by law. Plan assets consist primarily of U.S.
Treasury notes and corporate stocks and bonds. Effective December 31, 1998, the
Company adopted FASB Statement No. 132, "Employers' Disclosures about Pensions
and other Postretirement Benefits." The disclosures required by Statement 132
supersede previous disclosure requirements without affecting measurement or
recognition criteria. Accordingly, all disclosures for prior periods shown below
have been restated to conform to the disclosure requirements of Statement 132.
The actuarially computed combined pension cost included the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................................... $ 227 $ 321 $ 281
Interest cost......................................................... 383 336 302
Actual return on plan assets.......................................... (183) (574) (290)
Net amortization and deferrals........................................ (194) 265 18
--------- --------- ---------
TOTAL PENSION COST.................................................... $ 233 $ 348 $ 311
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1998 the Company curtailed its pension plan related to certain of the
union employees at ALTEC and recognized $161,000 of expense in addition to the
normal pension cost disclosed above. As a result of this curtailment, the
Company is making contributions to a multiemployer pension plan maintained by
the union. The Company now makes contributions to two union supported
multiemployer pension plans with expenses totaling $297,000, $66,000 and $51,000
in 1998, 1997 and 1996, respectively.
29
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth changes in the benefit obligation, plan assets,
funded status of the plans and amounts recognized in the balance sheets as of
December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Change in Benefit Obligation:
January 1............................................................... $ 5,366 $ 4,659
Service cost.......................................................... 227 321
Interest cost......................................................... 383 336
Benefits paid......................................................... (223) (205)
Actuarial gains and losses............................................ 390 255
--------- ---------
December 31 Benefit Obligation.......................................... $ 6,143 $ 5,366
--------- ---------
--------- ---------
Change in Plan Assets:
Fair Value at January 1................................................. $ 5,113 $ 4,401
Actual return......................................................... 183 574
Contributions......................................................... 594 343
Benefits paid......................................................... (223) (205)
--------- ---------
Fair Value at December 31............................................... $ 5,667 $ 5,113
--------- ---------
--------- ---------
Funded Status of the Plans.............................................. $ (476) $ (253)
Unrecognized actuarial loss........................................... 1,307 626
Unrecognized prior service cost....................................... 162
--------- ---------
Net Pension Asset Reconized............................................. $ 831 $ 535
--------- ---------
--------- ---------
Prepaid Benefit Cost.................................................... $ 1,052 $ 817
Accrued Benefit Liability............................................... (221) (282)
--------- ---------
Total Pension Asset Recognized.......................................... $ 831 $ 535
--------- ---------
--------- ---------
</TABLE>
The assumptions used in determining pension cost and funded status
information are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ---------
<S> <C> <C>
Discount rate......................................................... 6.5%-6.75% 7%
Weighted average rate of increase in compensation..................... 3%-5% 4%-5%
Expected long-term weighted average rate of return on plan assets..... 8% 8%
</TABLE>
As a result of the Chart Marston acquisition the Company assumed
responsibility for certain pension liabilities for current employees. The
Company and the Seller are currently preparing and reviewing the actuarial data
related to the transfer of these liabilities and the related assets from the
Seller's plan to Chart Marston. The Company expects this transfer to occur in
March 1999. At this time the Company has insufficient information to prepare a
reconciliation of the expected funded status but does not expect a material
excess or shortfall in the funded status.
The Company has a defined contribution savings plan that covers most of its
employees. Company contributions to the plan are based on employee contributions
and the level of Company match and discretionary contributions. Expenses under
the plan totaled $1,583,000, $1,314,000 and $1,127,000 for the years 1998, 1997
and 1996, respectively.
30
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--STOCK OPTION PLANS
In July 1992, the Company adopted a Key Employee Stock Option Plan which
provides for the granting of options to purchase shares of Common Stock to
certain key employees of the Company. In May 1997, shareholders approved an
increase of 562,500 shares in the number of shares authorized for the Key
Employee Stock Option Plan. These nonqualified stock options vest in equal
annual installments over a five year period from the date of grant and are
exercisable for up to 10 years at an option price determined by the Compensation
Committee of the Board of Directors.
Certain information for 1998, 1997 and 1996 relative to the Key Employee
Stock Option Plan is summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year...................... 936,557 $ 6.35 730,125 $ 3.81 680,246 $ 1.17
Granted............................................... 431,250 9.33 257,718 13.09 270,000 6.26
Exercised............................................. (63,620) 2.31 (46,786) 3.88 (220,121) .71
Expired or canceled................................... (267,750) 14.57 (4,500) 7.05 --
---------- ----------- ----------- ----------- ---------- -----
Outstanding at end of year............................ 1,036,437 $ 5.71 936,557 $ 6.35 730,125 $ 3.81
---------- ----------- ----------- ----------- ---------- -----
---------- ----------- ----------- ----------- ---------- -----
Exercisable at end of year............................ 427,872 322,599 192,375
---------- ----------- ----------
---------- ----------- ----------
Weighted-average fair value of options granted during
the year............................................ $ 3.98 $ 5.15 $ 2.46
----------- ----------- -----
----------- ----------- -----
Participants at end of year........................... 70 57 35
---------- ----------- ----------
---------- ----------- ----------
Available for future grant at end of year............. 197,763 361,276 51,987
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$.08 to $25.78. The weighted-average remaining contractual life of those options
is 7.6 years. Certain information for ranges of exercise prices is summarized
below:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED
---------------------------- AVERAGE
NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICE OF SHARES PRICE LIFE OF SHARES PRICE
- --------------------------------------------------------------- ---------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Less than $5................................................... 369,125 $ 2.48 5.4 306,125 $ 2.42
$5 to less than $10............................................ 657,404 7.32 8.9 111,839 6.77
Equal to or greater than $10................................... 9,908 19.30 8.6 9,908 19.30
---------- -----------
1,036,437 5.71 7.6 427,872 3.95
---------- -----------
---------- -----------
</TABLE>
In May 1996, the shareholders approved the 1996 Outside Directors Stock
Option Plan, which provides for the granting of options to purchase up to
168,750 shares of Common Stock, supplementing the previously authorized 1995 and
1994 Outside Directors Stock Option Plans (collectively, the "Outside Directors
Stock Option Plans"). The option price for options granted under the Outside
Directors Stock
31
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--STOCK OPTION PLANS (CONTINUED)
Option Plans to outside directors will be equal to the fair market value of a
share of Common Stock on the date of grant. These nonqualified stock options
vest in equal annual installments over a three year period from the date of
grant and are exercisable for a period of ten years.
Certain information for 1998, 1997 and 1996 relative to the Outside
Directors Stock Option Plans is summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............. 63,750 $ 6.72 52,500 $ 2.63 67,500 $ 1.91
Granted...................................... 33,750 18.75 33,750 10.41 22,500 3.50
Exercised.................................... (15,000) 7.38 (22,500) 2.71 (37,500) 1.86
Expired or canceled..........................
----------- ----------- ----------- ----------- ----------- -----
Outstanding at end of year................... 82,500 $ 11.52 63,750 $ 6.72 52,500 $ 2.63
----------- ----------- ----------- ----------- ----------- -----
----------- ----------- ----------- ----------- ----------- -----
Exercisable at end of year................... 48,750 15,000 0
----------- ----------- -----------
----------- ----------- -----------
Weighted-average fair value of options
granted during the year.................... $ 7.99 $ 3.03 $ 1.01
----------- ----------- -----
----------- ----------- -----
Participants at end of year.................. 3 3 2
----------- ----------- -----------
----------- ----------- -----------
Available for future grant at end of year.... 78,750 112,500 146,250
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
which also requires that the information be determined as if the Company had
accounted for its employee stock options granted subsequent to December 31,
1994, under the fair value method of Statement 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate............................................................ 4.7% 6.7% 6.7%
Dividend yield..................................................................... 2.5% 2.0% 2.0%
Market price volatility factor..................................................... 50.0% 38.0% 38.0%
Weighted average expected life of Key Employee options............................. 6 years 6 years 6 years
Weighted average expected life of Outside Directors options........................ 3 years 3 years 3 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's Key Employee and Outside Directors stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of these stock
options.
32
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--STOCK OPTION PLANS (CONTINUED)
The Company's pro forma disclosures showing the estimated fair value of the
options, amortized to expense over the options' vesting periods are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Pro forma net income............................................. $ 27,460 $ 22,251 $ 14,909
Pro forma net income per share................................... $ 1.14 $ 1.00 $ .67
Pro forma net income per share--assuming dilution................ $ 1.12 $ .97 $ .65
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
NOTE H--LEASE COMMITMENTS
The Company incurred $1,940,000, $1,533,000 and $774,000 of rental expense
under operating leases in 1998, 1997 and 1996, respectively. At December 31,
1998, future minimum lease payments for non-cancelable operating leases for the
next five years totaled $5.9 million and are payable as follows:
1999--$1,511,000; 2000--$1,417,000; 2001--$1,099,000; 2002--$974,000; and
2003--$944,000.
NOTE I--CONTINGENCIES
The Company's operating units are parties, in the ordinary course of their
businesses, to various legal actions related to performance under contracts,
product liability and other matters, several of which actions claim substantial
damages. The Company believes these legal actions will not have a material
effect on the Company's financial position or liquidity. The Company is subject
to federal, state and local environmental laws and regulations concerning, among
other matters, waste water effluents, air emissions and handling and disposal of
hazardous materials such as cleaning fluids.
As part of its ongoing environmental compliance and monitoring programs, the
Company is voluntarily developing work plans for remediation of environmental
conditions involving certain of its operating facilities. Based upon the
Company's study of the known conditions and its prior experience in
investigating and correcting environmental conditions, the Company estimates
that the potential costs of these site remediation efforts will not have a
material adverse effect on the Company's financial position or liquidity.
Approximately $2.0 million is recorded in other current liabilities at December
31, 1998 as reserves for known environmental matters. Expenditures relating to
these remediation efforts are expected to be made primarily in the next 18 to 24
months, if the necessary regulatory agency approvals of the Company's work plans
are obtained. Although the Company believes it has adequately provided for the
cost of all known environmental conditions, the applicable regulatory agencies
could insist upon different and more costly remediative measures than those the
Company believes are adequate or required by existing law. Otherwise, the
Company believes that it is currently in substantial compliance with all known
material and applicable environmental regulations.
33
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--OPERATING SEGMENTS
The Company has three reportable segments: process systems and equipment
("PS&E"), distribution, storage and applications equipment ("DS&A") and special
products. The Company's reportable segments are business units that offer
different products. The reportable segments are each managed separately because
they manufacture and distribute distinct products with different production
processes. The PS&E segment consists of three operating units that sell brazed
aluminum heat exchangers and coldboxes to industrial gas, natural gas and
petrochemical processing companies who use them for the liquefaction and
separation of industrial and natural gases. The DS&A segment consists of three
operating units that sell cryogenic tanks, trailers, intermodal containers,
railcars, pumps, valves and vacuum jacketed piping systems to various companies
for the storage and transportation of both industrial and natural gases. The
special products segment consists of two operating units that sell thermal
vacuum systems, space simulation systems used to test satellites and large
vacuum chambers for telescope mirror aluminizing to the aerospace industry,
government agencies, universities and national research facilities, and one
operating unit that sells small diameter stainless steel tubing to distributors
requiring quick delivery. Due to the nature of the products that each operating
segment sells, there are no intersegment sales.
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest expense and income taxes. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
<TABLE>
<CAPTION>
1998
--------------------------------------------------
SPECIAL
PS&E DS&A PRODUCTS TOTALS
---------- --------- --------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers............................. $ 124,609 $ 64,078 $ 40,736 $ 229,423
Depreciation and amortization expense........................ 3,557 2,346 784 6,687
Operating income before interest expense and income taxes.... 30,806 8,796 7,026 46,628
Segment assets............................................... 68,342 55,930 20,696 144,968
Capital expenditures......................................... 2,292 6,667 788 9,747
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------
SPECIAL
PS&E DS&A PRODUCTS TOTALS
---------- --------- --------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers............................. $ 93,562 $ 47,143 $ 51,544 $ 192,249
Depreciation and amortization expense........................ 1,476 1,282 736 3,494
Operating income before interest expense and income taxes.... 22,626 8,351 6,875 37,852
Segment assets............................................... 34,895 50,017 20,238 105,150
Capital expenditures......................................... 4,791 1,054 1,295 7,140
</TABLE>
34
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1996
--------------------------------------------------
SPECIAL
PS&E DS&A PRODUCTS TOTALS
---------- --------- --------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers............................. $ 65,946 $ 38,396 $ 44,058 $ 148,400
Depreciation and amortization expense........................ 1,098 679 712 2,489
Operating income before interest expense and income taxes.... 13,137 6,800 6,551 26,488
Segment assets............................................... 34,493 21,341 20,916 76,750
Capital expenditures......................................... 6,903 492 1,051 8,446
</TABLE>
GEOGRAPHIC INFORMATION:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
---------- ----------- ---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
United States................................... $ 205,997 $ 48,621 $ 192,249 $ 44,070 $ 148,400 $ 20,509
Non U.S. Countries.............................. 23,426 33,473
---------- ----------- ---------- ----------- ---------- -----------
Total........................................... $ 229,423 $ 82,094 $ 192,249 $ 44,070 $ 148,400 $ 20,509
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
</TABLE>
RECONCILIATION OF OPERATING INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reportable segments.......................................... $ 46,628 $ 37,852 $ 26,488
Headquarters................................................. (2,473) (2,818) (3,231)
--------- --------- ---------
Total........................................................ $ 44,155 $ 35,034 $ 23,257
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECONCILIATION OF TOTAL ASSETS:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reportable segments........................................ $ 144,968 $ 105,150 $ 76,750
Headquarters............................................... 13,237 23,769 4,446
---------- ---------- ---------
Total...................................................... $ 158,205 $ 128,919 $ 81,196
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
35
<PAGE>
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--QUARTERLY DATA (UNAUDITED)
Selected quarterly data for the years ended December 31, 1998 and 1997 are
as follows. Gross profit amounts reported below for the first three quarters of
1998 differ from amounts previously reported in the Company's Forms 10-Q,
primarily due to certain reclassification adjustments made between cost of sales
and SG&A expense for Chart Marston in order to conform their reporting to that
of the Company's other subsidiaries.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales..................................................... $ 56,104 $ 57,030 $ 57,823 $ 58,466 $ 229,423
Gross profit.............................................. 20,560 19,412 19,061 18,624 77,657
Operating income.......................................... 12,219 11,652 10,506 9,778 44,155
Net income................................................ 7,942 7,225 6,727 6,321 28,215
Net income per share...................................... .33 .30 .28 .27 1.17
Net income per share--assuming dilution................... .32 .29 .28 .26 1.16
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales..................................................... $ 42,440 $ 41,758 $ 51,939 $ 56,112 $ 192,249
Gross profit.............................................. 12,168 13,474 16,661 18,937 61,240
Operating income.......................................... 6,782 7,148 9,305 11,799 35,034
Net income................................................ 4,481 4,701 5,791 7,654 22,627
Net income per share...................................... .21 .22 .27 .32 1.01
Net income per share--assuming dilution................... .20 .21 .26 .31 .99
</TABLE>
NOTE L--SUBSEQUENT EVENT (UNAUDITED)
On February 16, 1999, the Company announced it had signed a definitive
merger agreement with MVE Holdings, Inc. ("MVE"). Under the agreement, a wholly
owned Chart subsidiary will merge with MVE. The Company expects the transaction
to be completed within 60 days. The closing is subject to certain regulatory
approvals and satisfaction of usual and customary closing conditions. The
purchase price is approximately $240 million including assumed debt. The Company
has received a financing commitment from Chase Manhattan Bank for a $300 million
credit facility.
MVE manufactures vacuum-insulated containment vessels and equipment for
storing, transporting and using cryogenic liquids. These engineered products
serve worldwide customers in the industrial gas, restaurant, medical,
agricultural and liquid natural gas alternative fuels industries. MVE's products
include a wide range of standard cryogenic storage tanks, specialty tanks,
dewars, liquid cylinders, mobile units, transportation equipment, medical
respiratory products (including liquid oxygen systems), equipment for producing
carbonated beverages and equipment used to store and transport biological matter
and other temperature-sensitive substances.
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
registrant's definitive Proxy Statement to be used in connection with the Annual
Meeting of Stockholders to be held on May 6, 1999 (the "1999 Proxy Statement")
is incorporated herein by reference. Information regarding executive officers of
the registrant is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference to
"Election of Directors" and "Executive Compensation" in the 1999 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by reference to
"Stock Ownership of Principal Holders and Management" in the 1999 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<S> <C> <C>
(a)(1) Report of Independent Auditors...................................................................... 18
Consolidated Balance Sheets at December 31, 1998 and 1997........................................... 19
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996..................................................................................... 20
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998,
1997 and 1996..................................................................................... 21
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996..................................................................................... 22
Notes to Consolidated Financial Statements.......................................................... 23
(a)(2) Exhibits
See the Index to Exhibits at page E-1 of this Form 10-K Annual Report.
(b) Financial Statement Schedules.
No financial statement schedules required.
(c) Reports on Form 8-K.
None.
</TABLE>
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
CHART INDUSTRIES, INC.
By: /s/ ARTHUR S. HOLMES
------------------------------------------
Arthur S. Holmes,
CHAIRMAN & CHIEF EXECUTIVE OFFICER
</TABLE>
Date: February 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman and Chief
/s/ ARTHUR S. HOLMES Executive Officer February 26,
- ----------------------------------- (Principal Executive 1999
Arthur S. Holmes Officer)
Chief Financial Officer,
/s/ DON A. BAINES Treasurer and a Director
- ----------------------------------- (Principal Financial February 26,
Don A. Baines Officer and Principal 1999
Accounting Officer)
/s/ RICHARD J. CAMPBELL
- ----------------------------------- Director February 26,
Richard J. Campbell 1999
/s/ LAZZARO G. MODIGLIANI
- ----------------------------------- Director February 26,
Lazzaro G. Modigliani 1999
/s/ ROBERT G. TURNER, JR.
- ----------------------------------- Director February 26,
Robert G. Turner, Jr. 1999
38
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Plan and Agreement of Merger, dated April 30, 1997, by and among the Company, Greenville Tube
Corporation, Chart Acquisition Company, Inc. and Cryenco Sciences, Inc....................... (G)
2.2 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 the
Company...................................................................................... (I)
3.1 Amended and Restated Certificate of Incorporation of the Company as filed with the Secretary of
State of Delaware on December 3, 1992........................................................ (A)
3.2 Amended and Restated By-Laws of the Company.................................................... (A)
4.1 Specimen certificate of the Company's Common Stock............................................. (B)
4.2 Form of Warrant Agreements of various dates, between Cryenco Sciences, Inc. and various warrant
holders...................................................................................... (G)
4.3 Form of Amendment No. 1 to Warrant Agreement between Cryenco Sciences, Inc. and the Company and
various warrant holders...................................................................... (G)
4.4 Form of Warrant Certificate.................................................................... (G)
4.5 Rights Agreement, dated as of May 1, 1998, between the Company and National City Bank, as
Rights Agent................................................................................. (J)
10.2 Form of Indemnity Agreement of the Company..................................................... (B)
*10.4 Key Employees Stock Option Plan of the Company................................................. (B)
*10.5 1994 Stock Option Plan for Outside Directors of the Company.................................... (C)
*10.5.1 1995 Stock Option Plan for Outside Directors of the Company.................................... (D)
*10.5.2 1996 Stock Option Plan for Outside Directors of the Company.................................... (E)
*10.5.3 1997 Stock Option and Incentive Plan........................................................... (F)
*10.5.4 1997 Stock Bonus Plan.......................................................................... (F)
10.5.5 Deferred Compensation Plan.....................................................................
10.6 License Agreement by and between PSI and Koch Industries, Inc., dated August 30, 1991, relating
to the Ryan/Holmes Technology................................................................ (B)
10.8 Lease by and between Koch Process Systems, Inc. and PSI, dated August 1991..................... (B)
10.9 Permitted User Agreement dated as of March 27, 1998, between IMI Marston Limited and Chart
Marston Limited.............................................................................. (I)
10.12 Employment Agreement by and between Charles E. Downs and Greenville Tube dated March 4, 1991... (B)
10.13 1989-1992 Labor Agreement by and between ALTEC and District Lodge 66 of the International
Association of Machinists and Aerospace Workers, AFL-CIO, dated March 30, 1989, as extended
by 1992-1995 Labor Agreement Extension, dated January 29, 1991 and by 1995-1998 Labor
Agreement Extension dated March 16, 1995..................................................... (D)
10.14 Agreement by and between Process Engineering and The International Brotherhood of Boilermakers,
Iron Ship Builders, Blacksmiths, Forgers & Helpers Local Lodge No. 752 of the AFL-CIO,
effective July 21, 1996...................................................................... (E)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
10.16 Credit Agreement, dated as of July 29, 1997, by and among the Company, ALTEC International
Limited Partnership, ALTEC, Inc., Chart Management Company, Inc., Chart Industries Foreign
Sales Corporation, Greenville Tube Corporation, Process Systems International Inc., National
City Bank and NBD Bank (the "Banks") and National City Bank as Agent for the Banks........... (G)
10.16.1 First Amendment to Credit Agreement, dated as of October 8, 1997, between the Company, 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. and Cryenco, Inc.; National City Bank and NBD
Bank; and National City Bank, as Agent for the Banks......................................... (H)
10.16.2 Second Amendment to Credit Agreement, dated as of March 5, 1998, by and among the Company,
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 and National City
Bank as Agent for the Banks.................................................................. (I)
10.17 Third Amendment to Credit Agreement, dated as of July 25, 1998, by and among the Company,
ALTEC, Inc., Chart Management Company, Inc., Chart Industries Foreign Sales Corporation,
Greenville Tube Corporation, Process Systems International Inc., Cryenco Sciences, Inc.,
Cryenco, Inc., Chart UK Investments Limited Partnership and Chart Marston Limited, National
City Bank and NBD Bank and National City Bank as Agent for the Banks.........................
*10.18 Employment Agreement by and between James R. Sadowski and Chart Management Company, Inc. dated
November 30, 1995............................................................................ (D)
21.1 Subsidiaries of the Registrant.................................................................
23.1 Consent of Ernst & Young LLP...................................................................
27.1 Financial Data Schedule........................................................................
</TABLE>
- ------------------------
* Management contract or compensation plan or arrangement identified pursuant
to Item 14(c) of this Form 10-K Annual Report.
(A) Incorporated herein by reference to the appropriate exhibit to the Company's
Registration Statement on Form S-1 (Reg. No. 333-35321).
(B) Incorporated herein by reference to the appropriate exhibit to the Company's
Registration Statement on Form S-1 (Reg. No. 33-52754).
(C) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1994.
(D) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1995.
(E) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1996.
(F) Incorporated herein by reference to the appropriate exhibit to the Company's
Registration Statement on Form S-8 (Reg. No. 333-32535).
40
<PAGE>
(G) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 8-K dated July 31, 1997.
(H) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 8-K dated October 8, 1997.
(I) Incorporated herein by reference to the appropriate exhibit to the Company's
Form 8-K dated March 27, 1998.
(J) Incorporated herein by reference to the appropriate exhibit to the Company's
Registration Statement on Form 8-A filed June 3, 1998.
41
<PAGE>
TRUST AGREEMENT
BETWEEN
CHART INDUSTRIES, INC.
[SPONSOR]
AND
FIDELITY MANAGEMENT TRUST COMPANY
[TRUSTEE]
DATED AS OF NOVEMBER 11, 1997
IMPORTANT NOTE
THIS TRUST AGREEMENT MAY ONLY BE USED IN CONJUNCTION WITH THE CORPORATEPLAN FOR
RETIREMENT SELECT PLAN ADOPTION AGREEMENT AND BASIC PLAN DOCUMENT. AN EMPLOYER
MAY NOT RELY SOLELY ON SAID DOCUMENTS TO ENSURE THAT THE PLAN IS "UNFUNDED AND
MAINTAINED PRIMARILY FOR THE PURPOSE OF PROVIDING DEFERRED COMPENSATION TO A
SELECT GROUP OF MANAGEMENT OR HIGHLY COMPENSATED EMPLOYEES" AND EXEMPT FROM
PARTS 2 THROUGH 4 OF TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974 WITH RESPECT TO THE EMPLOYER'S PARTICULAR SITUATION. FIDELITY MANAGEMENT
TRUST COMPANY, ITS AFFILIATES AND EMPLOYEES MAY NOT PROVIDE YOU WITH LEGAL
ADVICE IN CONNECTION WITH THE EXECUTION OF THIS DOCUMENT. THIS DOCUMENT SHOULD
BE REVIEWED BY YOUR ATTORNEY AND/OR ACCOUNTANT PRIOR TO EXECUTION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
SECTION 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1
1.Trust.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1
(a) Establishment. . . . . . . . . . . . . . . . . . . . . . . . ..1
(b) Grantor Trust. . . . . . . . . . . . . . . . . . . . . . . . ..1
(c) Trust Assets.. . . . . . . . . . . . . . . . . . . . . . . . ..1
(d) Non-Assignment.. . . . . . . . . . . . . . . . . . . . . . . ..1
SECTION 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2
2. Payments to Sponsor. . . . . . . . . . . . . . . . . . . . . . . . ..2
SECTION 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2
3. Disbursements. . . . . . . . . . . . . . . . . . . . . . . . . . . ..2
(a) Directions from Administrator. . . . . . . . . . . . . . . . ..2
(b) Limitations. . . . . . . . . . . . . . . . . . . . . . . . . ..2
SECTION 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2
4. Investment of Trust. . . . . . . . . . . . . . . . . . . . . . . . ..2
(a) Selection of Investment Options. . . . . . . . . . . . . . . ..2
(b) Available Investment Options.. . . . . . . . . . . . . . . . ..2
(c) Investment Direction.. . . . . . . . . . . . . . . . . . . . ..3
(d) Mutual Funds.. . . . . . . . . . . . . . . . . . . . . . . . ..3
(e) Trustee Powers.. . . . . . . . . . . . . . . . . . . . . . . ..4
SECTION 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..5
5. Recordkeeping and Administrative Services to be Performed. . . . . ..5
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . ..5
(b) Accounts.. . . . . . . . . . . . . . . . . . . . . . . . . . ..5
(c) Inspection and Audit . . . . . . . . . . . . . . . . . . . . ..5
(d) Effect of Plan Amendment . . . . . . . . . . . . . . . . . . ..5
(e) Returns, Reports and Information . . . . . . . . . . . . . . ..6
SECTION 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..6
6. Compensation and Expenses. . . . . . . . . . . . . . . . . . . . . ..6
SECTION 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..6
7. Directions and Indemnification . . . . . . . . . . . . . . . . . . ..6
(a) Identity of Administrator. . . . . . . . . . . . . . . . . . ..6
(b) Directions from Administrator. . . . . . . . . . . . . . . . ..6
(c) Directions from Sponsor. . . . . . . . . . . . . . . . . . . ..6
(d) Indemnification. . . . . . . . . . . . . . . . . . . . . . . ..7
(e) Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . ..7
SECTION 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..7
8. Resignation or Removal if Trustee. . . . . . . . . . . . . . . . . ..7
(a) Resignation. . . . . . . . . . . . . . . . . . . . . . . . . ..7
(b) Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . ..7
SECTION 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..7
9. Successor Trustee. . . . . . . . . . . . . . . . . . . . . . . . . ..7
(a) Appointment. . . . . . . . . . . . . . . . . . . . . . . . . ..7
(b) Acceptance.. . . . . . . . . . . . . . . . . . . . . . . . . ..7
(c) Corporate Action.. . . . . . . . . . . . . . . . . . . . . . ..8
SECTION 10.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8
10. Termination.. . . . . . . . . . . . . . . . . . . . . . . . . . . ..8
SECTION 11.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8
11. Resignation, Removal, and Termination Notices.. . . . . . . . . . ..8
<PAGE>
<CAPTION>
<S> <C>
SECTION 12.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8
12. Duration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8
SECTION 13.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8
13. Insolvency of Sponsor . . . . . . . . . . . . . . . . . . . . . . ..8
SECTION 14.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..9
14. Amendment or Modification . . . . . . . . . . . . . . . . . . . . ..9
SECTION 15.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
15. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
(a) Performance by Trustee, its Agents or Affiliates . . . . . . .10
(b) Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . .10
(c) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
(d) Successors and Assigns . . . . . . . . . . . . . . . . . . . .10
(e) Partial Invalidity.. . . . . . . . . . . . . . . . . . . . . .10
(f) Section Headings.. . . . . . . . . . . . . . . . . . . . . . .10
SECTION 16.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
16. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . .11
(a) Massachusetts Law Controls.. . . . . . . . . . . . . . . . . .11
(b) Trust Agreement Controls.. . . . . . . . . . . . . . . . . . .11
</TABLE>
<PAGE>
TRUST AGREEMENT, dated as of the 11th day of November,1997, between CHART
INDUSTRIES, INC., a Delaware corporation, having an office at 34799 Curtis
Boulevard, Eastlake, Ohio 44095 (the "SPONSOR"), and FIDELITY MANAGEMENT TRUST
COMPANY, a Massachusetts trust company, having an office at 82 Devonshire
Street, Boston, Massachusetts 02109 (the "TRUSTEE").
WITNESSETH:
WHEREAS, THE SPONSOR IS THE SPONSOR OF THE CHART INDUSTRIES, INC. VOLUNTARY
DEFERRED INCOME PLAN (THE "PLAN"); AND
WHEREAS, THE SPONSOR WISHES TO ESTABLISH AN IRREVOCABLE TRUST AND TO
CONTRIBUTE TO THE TRUST ASSETS THAT SHALL BE HELD THEREIN, SUBJECT TO THE CLAIMS
OF SPONSOR'S CREDITORS IN THE EVENT OF SPONSOR'S INSOLVENCY, AS HEREIN DEFINED,
UNTIL PAID TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES IN SUCH MANNER AND AT
SUCH TIMES AS SPECIFIED IN THE PLAN; AND
WHEREAS, IT IS THE INTENTION OF THE SPONSOR THAT THIS TRUST SHALL
CONSTITUTE AN UNFUNDED ARRANGEMENT AND SHALL NOT AFFECT THE STATUS OF THE PLAN
AS AN UNFUNDED PLAN MAINTAINED FOR THE PURPOSE OF PROVIDING DEFERRED
COMPENSATION FOR A SELECT GROUP OF MANAGEMENT OR HIGHLY COMPENSATED EMPLOYEES
FOR PURPOSES OF TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
("ERISA"); AND
WHEREAS, IT IS THE INTENTION OF THE SPONSOR TO MAKE CONTRIBUTIONS TO THE
TRUST TO PROVIDE ITSELF WITH A SOURCE OF FUNDS TO ASSIST IT IN THE MEETING OF
ITS LIABILITIES UNDER THE PLAN; AND
WHEREAS, THE TRUSTEE IS WILLING TO HOLD AND INVEST THE AFORESAID ASSETS IN
TRUST AMONG SEVERAL INVESTMENT OPTIONS SELECTED BY THE SPONSOR; AND
WHEREAS, THE SPONSOR WISHES TO HAVE THE TRUSTEE PERFORM CERTAIN MINISTERIAL
RECORDKEEPING AND ADMINISTRATIVE FUNCTIONS UNDER THE PLAN; AND
WHEREAS, THE EMPLOYER OR SUCH OTHER INDIVIDUAL NAMED IN THE PLAN IS THE
ADMINISTRATOR OF THE PLAN; AND
WHEREAS, THE TRUSTEE IS WILLING TO PERFORM RECORDKEEPING AND ADMINISTRATIVE
SERVICES FOR THE PLAN IF THE SERVICES ARE PURELY MINISTERIAL IN NATURE AND ARE
PROVIDED WITHIN A FRAMEWORK OF PLAN PROVISIONS, GUIDELINES AND INTERPRETATIONS
CONVEYED IN WRITING TO THE TRUSTEE BY THE ADMINISTRATOR.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING PREMISES AND THE MUTUAL
COVENANTS AND AGREEMENTS SET FORTH BELOW, THE SPONSOR AND THE TRUSTEE AGREE AS
FOLLOWS:
<PAGE>
SECTION 1.
1.TRUST.
(a) ESTABLISHMENT.
The Sponsor hereby establishes a trust (hereinafter the "Trust"), with the
Trustee. The Trust shall consist of an initial contribution of money or
other property acceptable to the Trustee in its sole discretion, made by
the Sponsor or transferred from a previous trustee under the Plan, such
additional sums of money as shall from time to time be delivered to the
Trustee under the Plan, all investments made therewith and proceeds
thereof, and all earnings and profits thereon, less the payments that are
made by the Trustee as provided herein, without distinction between
principal and income. The Trustee hereby accepts the Trust on the terms
and conditions set forth in this Agreement. In accepting this Trust, the
Trustee shall be accountable for the assets received by it, subject to the
terms and conditions of this Agreement.
(b) GRANTOR TRUST.
The Trust is intended to be a grantor trust, of which the Sponsor is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(c) TRUST ASSETS.
The principal of the Trust, and any earnings thereon shall be held separate
and apart from other funds of the Sponsor and shall be used exclusively for
the uses and purposes of Plan participants and general creditors as herein
set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plan and this Trust Agreement
shall be mere unsecured contractual rights of Plan participants and their
beneficiaries against the Sponsor. Any assets held by the Trust will be
subject to the claims of the Sponsor's general creditors under federal and
state law in the event of Insolvency, as defined in Section 13(a).
(d) NON-ASSIGNMENT.
Benefit payments to Plan participants and their beneficiaries funded under
this Trust may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered, or subjected to attachment, garnishment,
levy, execution, or other legal or equitable process.
<PAGE>
SECTION 2.
2. PAYMENTS TO SPONSOR.
Except as provided under Section 13, the Sponsor shall have no right to
retain or divert to others any of the Trust assets before all payment of
benefits have been made to the participants and their beneficiaries
pursuant to the terms of the Plan.
SECTION 3.
3. DISBURSEMENTS.
(a) DIRECTIONS FROM ADMINISTRATOR.
The Trustee shall disburse monies to the Sponsor for benefit payments in
the amounts that the Administrator directs from time to time in writing.
The Trustee shall have no responsibility to ascertain any direction's
compliance with the terms of the Plan or of any applicable law. The
Trustee shall not be responsible for making benefit payments to
participants under the Plan, nor shall the Trustee be responsible for any
Social Security or Federal, State or local income tax reporting or
withholding with respect to such Plan benefits.
(b) LIMITATIONS.
The Trustee shall not be required to make any disbursement in excess of the
net realizable value of the assets of the Trust at the time of the
disbursement. The Trustee shall not be required to make any disbursement
in cash unless the Administrator has provided a written direction as to the
assets to be converted to cash for the purpose of making the disbursement.
SECTION 4.
4. INVESTMENT OF TRUST.
(a) SELECTION OF INVESTMENT OPTIONS.
The Trustee shall have no responsibility for the selection of investment
options under the Trust and shall not render investment advice to any
person in connection with the selection of such options.
(b) AVAILABLE INVESTMENT OPTIONS.
In accordance with Section 1.14 of the Plan, the Sponsor shall direct the
Trustee as to the investment options available under the Trust provided,
however, that the Trustee shall not be considered a fiduciary with
investment discretion. The Sponsor may add additional investment options
with the consent of the Trustee and upon amendment of the Plan.
2
<PAGE>
(c) INVESTMENT DIRECTION.
In order to provide for an accumulation of assets comparable to the
contractual liabilities accruing under the Plan, the Sponsor may direct the
Trustee in writing to invest the assets held in the Trust to correspond to
the hypothetical investments made for Participants under the Plan. Such
directions may be made by Plan participants by use of the telephone
exchange system maintained for such purposes by the Trustee or its agent.
In the event that the Trustee fails to receive a proper direction from the
Sponsor or from Participants, the assets in question shall be invested in
Fidelity Retirement Money Market Fund, or such other fund designated by the
Sponsor for this purpose, until the Trustee receives a proper direction.
(d) MUTUAL FUNDS.
The Sponsor hereby acknowledges that it has received from the Trustee a
copy of the prospectus for each Mutual Fund selected by the Sponsor as a
Plan investment option. Trust investment in Mutual Funds shall be subject
to the following limitations:
(i) EXECUTION OF PURCHASES AND SALES.
Purchase and sales of Mutual Funds (other than for Exchanges) shall be made
on the date on which the Trustee receives from the Sponsor in good order
all information and documentation necessary to accurately effect such
purchases and sales (or in the case of a purchase, the subsequent date on
which the Trustee has received a wire transfer of funds necessary to make
such purchase). Exchanges of Mutual Funds shall be made on the same
business day that the Trustee receives a proper direction if received
before 4:00 p.m. eastern time; if the direction is received after 4:00 p.m.
eastern time, the exchange shall be made the following day.
(ii) VOTING.
At the time of mailing of notice of each annual or special stockholders'
meeting of any Mutual Fund, the Trustee shall send a copy of the notice and
all proxy solicitation materials to each Plan participant who has shares of
the Mutual Fund credited to the participant's account, together with a
voting direction form for return to the Trustee or its designee. The
participant shall have the right to direct the Trustee as to the manner in
which the Trustee is to vote the shares credited to the participant's
accounts (both vested and unvested). The Trustee shall vote the shares as
directed by the participant. The Trustee shall not vote shares for which
it has received no directions from the participant. During the participant
recordkeeping reconciliation ("transition") period, the Sponsor shall have
the right to direct the Trustee as to the manner in which the Trustee is to
vote the shares of the Mutual Funds in the Trust. With respect to all
rights other than the right to vote, the Trustee shall follow the
directions of the participant and if no such directions are received, the
directions of the Sponsor. The Trustee shall have no duty to solicit
directions from participants or the Sponsor.
3
<PAGE>
(e) TRUSTEE POWERS.
The Trustee shall have the following powers and authority:
(i) Subject to paragraphs (b),(c) and (d) of this Section 4,
to sell, exchange, convey, transfer, or otherwise dispose of any property
held in the Trust, by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the application of the
purchase money or other property delivered to the Trustee or to inquire
into the validity, expediency, or propriety of any such sale or other
disposition.
(ii) To cause any securities or other property held as part of
the Trust to be registered in the Trustee's own name, in the name of one or
more of its nominees, or in the Trustee's account with the Depository Trust
Company of New York and to hold any investments in bearer form, but the
books and records of the Trustee shall at all times show that all such
investments are part of the Trust.
(iii) To keep that portion of the Trust in cash or cash balances
as the Sponsor or Administrator may, from time to time, deem to be in the
best interest of the Trust.
(iv) To make, execute, acknowledge, and deliver any and all
documents of transfer or conveyance and to carry out the powers herein
granted.
(v) To settle, compromise, or submit to arbitration any
claims, debts, or damages due to or arising from the Trust; to commence or
defend suits or legal or administrative proceedings; to represent the Trust
in all suits and legal and administrative hearings; and to pay all
reasonable expenses arising from any such action, from the Trust if not
paid by the Sponsor.
(vi) To employ legal, accounting, clerical, and other
assistance as may be required in carrying out the provisions of this
Agreement and to pay their reasonable expenses and compensation from the
Trust if not paid by the Sponsor.
(vii) To do all other acts although not specifically mentioned
herein, as the Trustee may deem necessary to carry out any of the foregoing
powers and the purposes of the Trust.
Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could
give this trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
4
<PAGE>
SECTION 5.
5. RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED
(a) GENERAL.
The Trustee shall perform those recordkeeping and administrative functions
described in the CORPORATEplan for Retirement Select Plan Service Agreement
between the Trustee and the Sponsor ("Service Agreement").
(b) ACCOUNTS.
The Trustee shall keep accurate accounts of all investments, receipts,
disbursements, and other transactions hereunder and shall report the value
of the assets held in the Trust as of the last day of each fiscal quarter
of the Plan and, if not on the last day of a fiscal quarter, the date on
which the Trustee resigns or is removed as provided in Section 8 of this
Agreement or is terminated as provided in Section 10 (the "Reporting
Date"). Within thirty(30) days following each Reporting Date or within
sixty (60) days in the case of a Reporting date caused by the resignation
or removal of the Trustee, or the termination of this Agreement, the
Trustee shall file with the Administrator a written account setting forth
all investments, receipts, disbursements, and other transactions effected
by the Trustee between the Reporting Date and the prior Reporting Date, and
setting forth the value of the Trust as of the Reporting date. Except as
otherwise required under applicable law, upon the expiration of six(6)
months from the date of filing such account with the Administrator, the
Trustee shall have no liability or further accountability to anyone with
respect to the propriety of its acts or transactions shown in such account,
except with respect to such acts or transactions as to which the Sponsor
shall within such six(6) month period file with the Trustee written
objections.
(c) INSPECTION AND AUDIT.
All records generated by the Trustee in accordance with paragraphs(a) and
(b) shall be open to inspection and audit, during the Trustee's regular
business hours prior to the termination of this Agreement, by the
Administrator or any person designated by the Administrator. Upon the
resignation or removal of the Trustee or the termination of this Agreement,
the Trustee shall provide to the Administrator, at no expense to the
Sponsor, in the format regularly provided to the Administrator, a statement
of each participant's accounts as of the resignation, removal, or
termination, and the Trustee shall provide to the Administrator or the
Plan's new recordkeeper such further records as are reasonable, at the
Sponsor's expense.
(d) EFFECT OF PLAN AMENDMENT.
The Trustee's provision of the recordkeeping and administrative services
set forth in this Section 5 shall be conditioned on the Sponsor delivering
to the Trustee a copy of any amendment to the Plan as soon as
administratively feasible following the amendment's adoption, and on the
Administrator providing the Trustee on a timely basis with all the
information the Administrator deems necessary for the Trustee to perform
the recordkeeping and administrative services and such other information as
the Trustee may reasonably request.
<PAGE>
(e) RETURNS, REPORTS AND INFORMATION.
The Administrator shall be responsible for the preparation and filing of
all returns, reports, and information required of the Trust or Plan by law
including but not limited to any annual fiduciary tax return. The Trustee
shall provide the Administrator with such information as the Administrator
may reasonably request to make these filings. The Administrator shall also
be responsible for making any disclosures to participants required by law.
SECTION 6.
6. COMPENSATION AND EXPENSES.
As consideration for its services, the Trustee shall be entitled to the
fees computed and billed in accordance with the Service Agreement. All
expenses of the Trustee relating directly to the acquisition and
disposition of investments constituting part of the Trust, and all taxes of
any kind whatsoever that may be levied or assessed under existing or future
laws upon or in respect of the Trust or the income thereof, shall be a
charge against and paid from the appropriate Plan participants' accounts.
SECTION 7.
7. DIRECTIONS AND INDEMNIFICATION
(a) IDENTITY OF ADMINISTRATOR.
The Trustee shall be fully protected in relying on the fact that the
Administrator under the Plan is the individual or persons named as such
above or such other individuals or persons as the Sponsor may notify the
Trustee in writing.
(b) DIRECTIONS FROM ADMINISTRATOR.
Whenever the Administrator provides a direction to the Trustee, the Trustee
shall not be liable for any loss, or by reason of any breach, arising from
the direction if the direction is contained in a writing (or is oral and
immediately confirmed in written) signed by any individual whose name and
signature have been submitted (and not withdrawn) in writing to the Trustee
in the Service Agreement provided the Trustee reasonably believes the
signature of the individual to be genuine. Such direction may be made via
EDT in accordance with procedures agreed to by the Administrator and the
Trustee; provided, however, that the Trustee shall be fully protected in
relying on such direction as if it were a direction made in writing by the
Administrator. The Trustee shall have no responsibility to ascertain any
direction's (i) accuracy, (ii) compliance with the terms of the Plan or any
applicable law, or (iii) effect for tax purposes or otherwise.
(c) DIRECTIONS FROM SPONSOR
The Trustee shall not be liable for any loss which arises from the
Sponsor's exercise or non-exercise of rights under Section 4 over the
assets in a participant's account.
6
<PAGE>
(d) INDEMNIFICATION.
The Sponsor shall indemnify the Trustee against, and hold the Trustee
harmless from, any and all loss, damage, penalty, liability, cost, and
expense, including without limitation, reasonable attorneys' fees and
disbursements, that may be incurred by, imposed upon, or asserted against
the Trustee by reason of any claim, regulatory proceeding or litigation
arising from any act done or omitted to be done by any individual or person
with respect to the Plan or Trust, excepting only any and all loss, etc.,
to the extent or failure to properly discharge its responsibilities under
this Agreement or applicable law arising solely from the Trustee's
negligence or bad faith.
(e) SURVIVAL.
The provisions of this Section 7 shall survive the termination of this
Agreement.
SECTION 8.
8. RESIGNATION OR REMOVAL IF TRUSTEE.
(a) RESIGNATION.
The Trustee may resign at any time upon sixty (60) days' notice in writing
to the Sponsor, unless a shorter period of notice is agreed upon by the
Sponsor.
(b) REMOVAL.
The Sponsor may remove the Trustee at any time upon sixty(60) days' notice
in writing to the Trustee, unless a shorter period of notice is agreed upon
by the Trustee.
SECTION 9.
9. SUCCESSOR TRUSTEE.
(a) APPOINTMENT.
If the office of Trustee becomes vacant for any reason, the Sponsor may in
writing appoint a successor trustee under this Agreement. The successor
trustee shall have all of the rights, powers, privileges, obligations,
duties, liabilities, and immunities granted to the Trustee under this
Agreement. The successor trustee and predecessor trustee shall not be
liable for the acts or omissions of the other with respect to the Trust.
(b) ACCEPTANCE.
When the successor trustee accepts its appointment under this Agreement,
title to and possession of the Trust assets shall immediately vest in the
successor trustee without any further action on the part of the predecessor
trustee. The predecessor trustee shall execute all instruments and do all
acts that reasonably may be necessary or reasonably may be requested in
writing by the Sponsor or the successor trustee to vest title to all Trust
assets in the successor trustee or to deliver all Trust assets to the
successor trustee.
7
<PAGE>
(c) CORPORATE ACTION.
Any successor of the Trustee or successor trustee, through sale or transfer
of the business or trust department of the Trustee or successor trustee, or
through reorganization, consolidation, or merger, or any similar
transaction, shall, upon consummation of the transaction, become the
successor trustee under the Agreement.
SECTION 10.
10. TERMINATION.
This Agreement may be terminated at any time by the Sponsor upon sixty (60)
days' notice in writing to the Trustee. On the date of the termination of
this Agreement, the Trustee shall forthwith transfer and deliver to such
individual or entity as the Sponsor shall designate, all cash and assets
then constituting the Trust. If, by the termination date, the Sponsor has
not notified the Trustee in writing as to whom the assets and cash are to
be transferred and delivered, the Trustee may bring an appropriate action
or proceeding for leave to deposit the assets and cash in a court of
competent jurisdiction. The Trustee shall be reimbursed by the Sponsor for
all costs and expenses of the action or proceeding including, without
limitation, reasonable attoneys' fees and disbursements.
SECTION 11.
11. RESIGNATION, REMOVAL, AND TERMINATION NOTICES.
All notices of resignation, removal, or termination under this Agreement
must be in writing and mailed to the party to which the notice is being
given by certified or registered mail, return receipt requested, to the
Sponsor at the address designated in the Service Agreement, and to the
Trustee at the afore-mentioned address or to such other addresses as the
parties have notified each other of in the foregoing manner.
SECTION 12.
12. DURATION.
This Trust shall continue in effect without limit as to time, subject,
however, to the provisions of this Agreement relating to amendment,
modification, and termination thereof.
SECTION 13.
13. INSOLVENCY OF SPONSOR.
(a) Trustee shall cease disbursement of funds for payment of benefits
to Plan participants and their beneficiaries if the Sponsor is Insolvent.
Sponsor shall be considered "Insolvent" for purposes of this Trust
Agreement if (i) Sponsor is unable to pay its debts as they become due or
(ii) Sponsor is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code.
8
<PAGE>
(b) All times during the continuance of this Trust, the principal and
income of the Trust shall be subject to claims of general creditors of the
Sponsor under federal and state Law as set forth below.
(i) The Board of Directors and the Chief Executive Officer of
the Sponsor shall have the duty to inform Trustee in writing of Sponsor's
Insolvency. If a person claiming to be a creditor of the Sponsor alleges
in writing to trustee that Sponsor has become Insolvent, Trustee shall
determine whether Sponsor is Insolvent and pending such determination,
Trustee shall discontinue disbursements for payment of benefits to Plan
participants or their beneficiaries.
(ii) Unless Trustee has actual knowledge of Sponsor's
Insolvency, or has received notice from Sponsor or a person claiming to be
a creditor alleging that Company is Insolvent, Trustee shall have no duty
to inquire whether Sponsor is Insolvent. Trustee may in all events rely on
such evidence concerning Sponsor's solvency as may be furnished to Trustee
and that provides Trustee with a reasonable basis for making a
determination concerning Sponsor's solvency.
(iii) If at any time Trustee has determined that Sponsor is
Insolvent, Trustee shall discontinue disbursements for payments to Plan
participants or their beneficiaries and shall hold the assets of the Trust
for the benefit of Sponsor's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan participants or
their beneficiaries to pursue their rights as general creditors of Sponsor
with respect to benefits due under the Plan or otherwise.
(iv) Trustee shall resume disbursement for the payment of
benefits to Plan participants or their beneficiaries in accordance with
Section 2 of this Trust Agreement only after Trustee has determined that
Sponsor is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to (a) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Plan participants or their beneficiaries under the terms of the Plan for
the period of such discontinuance, less the aggregate amount of any
payments made to Plan participants or their beneficiaries by Sponsor in
lieu of the payments provided for hereunder during any such period of
discontinuance.
SECTION 14.
14. AMENDMENT OR MODIFICATION.
This agreement may be amended or modified at any time and from time to time
only by an instrument executed by both the Sponsor and the Trustee.
9
<PAGE>
SECTION 15.
15. GENERAL
(a) PERFORMANCE BY TRUSTEE, ITS AGENTS OR AFFILIATES.
The sponsor acknowledges and authorizes that the services to be provided
under this Agreement shall be provided by the Trustee, its agents or
affiliates, including Fidelity Investments Institutional Operations Company
or its successor, and that certain of such services may be provided
pursuant to one or more other contractual agreements or relationships.
(b) ENTIRE AGREEMENT.
This Agreement contains all of the terms agreed upon between the parties
with respect to the subject matter hereof.
(c) WAIVER.
No waiver by either party of any failure or refusal to comply with an
obligation hereunder shall be deemed a waiver of any other or subsequent
failure or refusal to so comply.
(d) SUCCESSORS AND ASSIGNS.
The stipulations in this Agreement shall inure to the benefit of, and shall
bind, the successors and assigns of the respective parties.
(e) PARTIAL INVALIDITY.
If any term or provision of this Agreement or the application thereof to
any person or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such
term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
(f) SECTION HEADINGS.
The headings of the various sections and subsections of this Agreement have
been inserted only for the purposes of convenience and are not part of this
Agreement and shall not be deemed in any manner to modify, explain, expand
or restrict any of the provisions of this Agreement.
10
<PAGE>
SECTION 16.
16. GOVERNING LAW.
(a) MASSACHUSETTS LAW CONTROLS.
This Agreement is being made in the Commonwealth of Massachusetts, and the
Trust shall be administered as a Massachusetts trust. The validity,
construction, effect and administration of this Agreement shall be governed
by and interpreted in accordance with the laws of the Commonwealth of
Massachusetts, except to the extent those laws are superseded under Section
514 of ERISA.
(b) TRUST AGREEMENT CONTROLS.
The Trustee is not a party to the Plan, and in the event of any conflict
between the provisions of the Plan and the provisions of this Agreement,
the provisions of this Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
[SPONSOR]
By /s/ JOHN T. ROMAIN
--------------------------------
Controller
FIDELITY MANAGEMENT TRUST COMPANY
[TRUSTEE]
By /s/ TINA L. SMITH
--------------------------------
Authorized Signatory
11
<PAGE>
Exhibit 10.17
THIRD AMENDMENT
TO
CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "Amendment") is executed
at Cleveland, Ohio as of July 25, 1998 by and among CHART INDUSTRIES, INC., a
Delaware Corporation ("Parent"), ALTEC INTERNATIONAL LIMITED PARTNERSHIP
("Altec"), ALTEC, INC. ("AI"), CHART MANAGEMENT COMPANY, INC. ("Chart
Management"), CHART INDUSTRIES FOREIGN SALES CORPORATION ("Chart Foreign"),
GREENVILLE TUBE CORPORATION ("Greenville"), PROCESS SYSTEMS INTERNATIONAL,
INC. ("PSI"), CRYENCO SCIENCES, INC. ("Sciences"), CRYENCO, INC. ("CI"),
CHART UK INVESTMENTS LIMITED PARTNERSHIP ("Chart UK"), and CHART MARSTON LTD.
("Chart Martson")("The Parent, Altec, AI, Chart Management, Chart Foreign,
Greenville, PSI, Sciences, CI, Chart UK and Chart Marston being referred to
collectively as the Borrowing Group") and NATIONAL CITY BANK("NCB") and NBD
BANK ("NBD") (NCB and NBD being referred to jointly as the "Banks" and singly
as a "Bank") and NATIONAL CITY BANK, as agent for the Banks ("the Agent").
WHEREAS, the Borrowing Group, the Banks and the Agent entered into a credit
agreement dated as of July 29, 1997, as amended by a First Amendment to Credit
Agreement dated as of October 8, 1997 and a Second Amendment to Credit Agreement
dated March 5, 1998 (collectively, the "Credit Agreement"; all terms used in the
Credit Agreement being used herein with the same meaning); and
WHEREAS, the Borrowing Group and the Banks want to make certain changes in
the Credit Agreement.
NOW, THEREFORE, the Borrowing Group and the Banks agree as follows:
1. AMENDMENT TO SECTION 7.19. Section 7.19 is hereby amended by deleting
the reference to "Forty-One Million Dollars ($41,000,000.00)" and replacing it
with "Forty-Five Million Dollars ($45,000,000.00)."
2. REPRESENTATIONS AND WARRANTIES. The Borrowing Group hereby represents
and warrants to Banks that:
<PAGE>
(A) The articles of incorporation and the code of regulations or
by-laws of each member of the Borrowing Group has not been amended since the
execution of the Second Amendment to Credit Agreement;
(B) The Board of Directors of each member of the Borrowing Group has
authorized the execution, delivery and performance of this Amendment by such
member;
(C) None of the representations and warranties made in Article IV of
the Credit Agreement has ceased to be true and complete in any material respect
as of the date hereof; and
(D) As of the date hereof no Possible Default or Event of Default has
occurred that is continuing.
3. ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS. The Borrowing Group
acknowledges and agrees that, as of the date hereof, all of its outstanding
Obligations to the Bank are owed without any offset, defense, claim or
counterclaim of any nature whatsoever.
4. REFERENCES. On and after the effective date of this Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", or
words of like import referring to the Credit Agreement, and each reference in
the Revolving Notes to the "Credit Agreement", "thereof", or words of like
import referring to the Credit Agreement shall mean and refer to the Credit
Agreement as amended hereby. The Credit Agreement, as amended by this
Amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects. The execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of the Banks under the Credit Agreement or constitute a waiver
of any provision of the Credit Agreement except as specifically set forth
herein.
5. COUNTERPARTS AND GOVERNING LAW. This Amendment may be executed in any
number of counterparts, each counterpart to be executed by one or more of the
parties but, when taken together, all counterparts shall constitute one
agreement. This Amendment, and the respective rights and obligations of the
parties hereto, shall be construed in accordance with and governed by Ohio law.
2
<PAGE>
IN WITNESS WHEREOF, the Borrowing Group and the Banks have executed this
Amendment at the time and place first above mentioned.
CHART INDUSTRIES, INC. CHART MANAGEMENT COMPANY, INC.
By: /s/ Don A. Baines By: /s/ Don A. Baines
------------------------------- -------------------------------
Don A. Baines, Don A. Baines,
Treasurer and CFO Secretary and Treasurer
ALTEC INTERNATIONAL LIMITED CHART INDUSTRIES FOREIGN SALES
PARTNERSHIP CORPORATION
By: CHART MANAGEMENT COMPANY, INC. By: /s/ Don A. Baines
its sole general partner -------------------------------
Don A. Baines,
Secretary and Treasurer
By: /s/ Don A. Baines
-------------------------------
Don A. Baines, Secretary and
Treasurer
ALTEC, INC. PROCESS SYSTEMS INTERNATIONAL, INC.
By: /s/ Don A. Baines By: /s/ Don A. Baines
------------------------------- -------------------------------
Don A. Baines, Assistant Don A. Baines, Assistant
Secretary Clerk
GREENVILLE TUBE CORPORATION CRYENCO SCIENCES, INC.
By: /s/ Don A. Baines By: /s/ Don A. Baines
------------------------------- -------------------------------
Don A. Baines, Assistant Don A. Baines, Secretary and
Secretary Treasurer
3
<PAGE>
CRYENCO, INC.
By: /s/ Don A. Baines
-------------------------------
Don A. Baines, Secretary,
Treasurer and Chief
Financial Officer
NATIONAL CITY BANK
By: /s/ Anthony J. DiMare
-------------------------------
Anthony J. DiMare,
Senior Vice President
NBD BANK
By: /s/ Paul R. DeMelo
-------------------------------
Paul R. DeMelo, Vice President
NATIONAL CITY BANK, as Agent
By: /s/ Anthony J. DiMare
-------------------------------
Anthony J. DiMare,
Senior Vice President
4
<PAGE>
The undersigned hereby execute this Third Amendment to Credit Agreement in order
to acknowledge that each of them is a "Company" and a "Subsidiary" and therefore
bound by the terms and conditions of the Credit Agreement, as amended hereby,
applicable to Companies and Subsidiaries, including, without limitation, the
negative covenants contained in Article VII of the Credit Agreement, subject to
exception as provided herein. Notwithstanding the foregoing neither of the
undersigned is a member of the Borrowing Group nor liable for any payment
obligations under the Credit Agreement, as amended hereby.
CHART UK INVESTMENTS LIMITED PARTNERSHIP
By: Chart Management, Inc.
By: /s/ Don A. Baines
-------------------------------
Don A. Baines, Secretary
and Treasurer
CHART MARSTON LTD.
By: /s/ Don A. Baines
-------------------------------
Don A. Baines, Director
5
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT AND JURISDICTION OF INCORPORATION OR
ORGANIZATION
<TABLE>
<S> <C>
ALTEC, Inc. (Non-Operating) Wisconsin
ALTEC International Limited Partnership Delaware
Chart Management Company, Inc. Ohio*
CHD, Inc. (Non-Operating) Delaware
Chart Industries Foreign Sales Corporation Virgin Islands
Greenville Tube Corporation Arkansas
Process Systems International, Inc. Massachusetts
Cryenco Sciences, Inc. Delaware
Cryenco, Inc. Colorado
Cryenex, Inc. Delaware
Chart International, Inc. Delaware
Chart Marston England
Chart UK Investments Limited Partnership England
</TABLE>
* General partner for ALTEC International Limited Partnership, a Delaware
limited partnership, and Chart UK Investments Limited Partnership, an English
limited partnership.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-58446 and No. 333-08665) pertaining to the Chart
Industries, Inc. Key Employees Stock Option Plan, (Form S-8 No. 33-92340)
pertaining to the Chart Industries, Inc. 1994 Stock Option Plan for Outside
Directors and 1995 Stock Option Plan for Outside Directors, (Form S-8 No.
333-08667) pertaining to the Chart Industries, Inc. 1996 Stock Option Plan
for Outside Directors, (Form S-8 No. 333-32535) pertaining to the Chart
Industries, Inc. 1997 Stock Option and Incentive Plan and the Chart
Industries, Inc. 1997 Stock Bonus Plan, (Form S-3 No. 333-35321) pertaining
to the Chart Industries, Inc. registration for sale of 2,800,000 shares of
Common Stock, and (Form S-3/A No. 333-44621) pertaining to the Chart
Industries, Inc. registration for resale of 89,715 shares of Common Stock of
our report dated February 8, 1999, with respect to the consolidated financial
statements of Chart Industries, Inc. and subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 1998.
/S/ ERNST & YOUNG LLP
Cleveland, Ohio
February 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 2,169 22,095
<SECURITIES> 0 0
<RECEIVABLES> 37,336 31,636
<ALLOWANCES> 775 707
<INVENTORY> 29,803 25,617
<CURRENT-ASSETS> 76,111 84,849
<PP&E> 61,738 43,032
<DEPRECIATION> 21,202 15,791
<TOTAL-ASSETS> 158,205 128,919
<CURRENT-LIABILITIES> 52,959 47,855
<BONDS> 10,894 4,063
0 0
0 0
<COMMON> 243 162
<OTHER-SE> 92,911 76,295
<TOTAL-LIABILITY-AND-EQUITY> 158,205 128,919
<SALES> 229,423 192,249
<TOTAL-REVENUES> 229,423 192,249
<CGS> 151,766 131,009
<TOTAL-COSTS> 151,766 131,009
<OTHER-EXPENSES> 33,502 26,206
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 901 350
<INCOME-PRETAX> 43,254 34,684
<INCOME-TAX> 15,039 12,057
<INCOME-CONTINUING> 28,215 22,627
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28,215 22,627
<EPS-PRIMARY> 1.17 1.01<F1>
<EPS-DILUTED> 1.16 .99<F1>
<FN>
<F1>BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN ADJUSTED TO REFLECT THE
THREE-FOR-TWO SPLIT OF THE COMMON STOCK EFFECTED IN THE FORM OF A 50 PERCENT
STOCK DIVIDEND DISTRIBUTED ON JUNE 30,1998.
</FN>
</TABLE>
