-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sm3O5Tpii7sWWqKa6g/xQnY4S5QSyfsL9MzZQ6Ski7Vh8mPZ11t9N1QsoG9b45CW yuLc8CiVxg4Feie216fhmA== 0001047469-99-007542.txt : 19990301 0001047469-99-007542.hdr.sgml : 19990301 ACCESSION NUMBER: 0001047469-99-007542 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHART INDUSTRIES INC CENTRAL INDEX KEY: 0000892553 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 341712937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11442 FILM NUMBER: 99551262 BUSINESS ADDRESS: STREET 1: 5885 LANDERBROOK DRIVE STREET 2: SUITE 150 CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 4407531490 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 ------------------------ CHART INDUSTRIES, INC. (Exact name of registrant as specified in its charter) 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)
Registrant's telephone number, including area code: (440) 753-1490 ------------------------ Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock, New York Stock Exchange par value $.01 per share
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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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 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 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 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 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.
DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) 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 ---------- ---------- ---------- ---------- ---------- ----------
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 7 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 executive offices in Cleveland, Ohio. The following table sets forth certain information about the Company's facilities:
LOCATION SEGMENT SQ. FT. OWNERSHIP USE - -------------------------------------------------------------- --------------- --------- ----------- ---------------- 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
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. 9 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:
NAME AGE POSITION - ------------------------------------ --- --------------------------------------------------------------------- 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
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 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Quarterly Stock Prices and Dividends
QUARTER HIGH LOW DIVIDEND - ------------------------------------------------------------- --------- --------- ----------- 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
QUARTER HIGH LOW DIVIDEND - ------------------------------------------------------------- --------- --------- ----------- 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
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 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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
- ------------------------ (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 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTERLY BACKLOG 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
OPERATING RESULTS The following table sets forth, for the periods indicated, the percentage relationship to the Company's sales each line item represents.
YEARS ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- 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
13 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 SEGMENT ANALYSIS
YEARS ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) 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%
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 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 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 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 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 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------- 1998 1997 --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 19 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 20 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED ADDITIONAL OTHER TOTAL SHARES COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' OUTSTANDING STOCK CAPITAL EARNINGS INCOME STOCK EQUITY ----------- ------ ---------- -------- ------------- -------- ------------- (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 ----------- ------ ---------- -------- ------------- -------- ------------- ----------- ------ ---------- -------- ------------- -------- -------------
The accompanying notes are an integral part of these consolidated financial statements. 21 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 22 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:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- ---------
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 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:
DECEMBER 31, -------------------- CLASSIFICATION EXPECTED USEFUL LIFE 1998 1997 - -------------------------------------------------------------- ------------------------- --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- ---------
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 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:
1998 1997 1996 --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 --------- --------- --------- --------- --------- ---------
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 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 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:
1998 1997 ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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
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:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- ---------
27 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:
YEARS ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- --------- --------- ---------
The reconciliation of income taxes computed at the U.S. federal statutory tax rates to income tax expense is:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------- 1998 1997 1996 ---------------------- ---------------------- ---------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------- ----------- --------- ----------- --------- ----------- (DOLLARS IN THOUSANDS) 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% --------- --- --------- --- --------- --- --------- --- --------- --- --------- ---
The Company paid approximately $12.4 million, $11.1 million and $8.0 million of income taxes in 1998, 1997 and 1996, respectively. 28 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:
1998 1997 1996 --------- --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- --------- --------- ---------
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 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:
1998 1997 --------- --------- (DOLLARS IN THOUSANDS) 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 --------- --------- --------- ---------
The assumptions used in determining pension cost and funded status information are as follows:
1998 1997 ------------- --------- 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%
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 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:
1998 1997 1996 ----------------------- ------------------------ ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE ---------- ----------- ----------- ----------- ---------- ----------- 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 ---------- ----------- ---------- ---------- ----------- ----------
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:
OUTSTANDING EXERCISABLE ---------------------------------------- ------------------------ WEIGHTED AVERAGE WEIGHTED ---------------------------- AVERAGE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE EXERCISE PRICE OF SHARES PRICE LIFE OF SHARES PRICE - --------------------------------------------------------------- ---------- ----------- --------------- ----------- ----------- 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 ---------- ----------- ---------- -----------
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 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:
1998 1997 1996 ------------------------ ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE ----------- ----------- ----------- ----------- ----------- ----------- 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 ----------- ----------- ----------- ----------- ----------- -----------
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:
1998 1997 1996 --------- --------- --------- 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
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 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:
1998 1997 1996 --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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
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 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.
1998 -------------------------------------------------- SPECIAL PS&E DS&A PRODUCTS TOTALS ---------- --------- --------------- ---------- (DOLLARS IN THOUSANDS) 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
1997 -------------------------------------------------- SPECIAL PS&E DS&A PRODUCTS TOTALS ---------- --------- --------------- ---------- (DOLLARS IN THOUSANDS) 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
34 CHART INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE J--OPERATING SEGMENTS (CONTINUED)
1996 -------------------------------------------------- SPECIAL PS&E DS&A PRODUCTS TOTALS ---------- --------- --------------- ---------- (DOLLARS IN THOUSANDS) 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
GEOGRAPHIC INFORMATION:
1998 1997 1996 ----------------------- ----------------------- ----------------------- LONG-LIVED LONG-LIVED LONG-LIVED REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS ---------- ----------- ---------- ----------- ---------- ----------- (DOLLARS IN THOUSANDS) 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 ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
RECONCILIATION OF OPERATING INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES:
1998 1997 1996 --------- --------- --------- (DOLLARS IN THOUSANDS) Reportable segments.......................................... $ 46,628 $ 37,852 $ 26,488 Headquarters................................................. (2,473) (2,818) (3,231) --------- --------- --------- Total........................................................ $ 44,155 $ 35,034 $ 23,257 --------- --------- --------- --------- --------- ---------
RECONCILIATION OF TOTAL ASSETS:
1998 1997 1996 ---------- ---------- --------- (DOLLARS IN THOUSANDS) Reportable segments........................................ $ 144,968 $ 105,150 $ 76,750 Headquarters............................................... 13,237 23,769 4,446 ---------- ---------- --------- Total...................................................... $ 158,205 $ 128,919 $ 81,196 ---------- ---------- --------- ---------- ---------- ---------
35 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.
YEAR ENDED DECEMBER 31, 1998 ------------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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
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 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.
(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.
37 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. CHART INDUSTRIES, INC. By: /s/ ARTHUR S. HOLMES ------------------------------------------ Arthur S. Holmes, CHAIRMAN & CHIEF EXECUTIVE OFFICER
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 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------- 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)
39
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------- 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........................................................................
- ------------------------ * 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 (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 EX-10.5-5 2 EXHIBIT 10.5.5 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. TABLE OF CONTENTS
SECTION PAGE 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 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
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: 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. 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 (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 (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 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. (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 (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 (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 (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 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 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 EX-10.17 3 THIRD AMENDMENT TO CREDIT AGREEMENT 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: (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 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 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 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 EX-21.1 4 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT AND JURISDICTION OF INCORPORATION OR ORGANIZATION 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
* General partner for ALTEC International Limited Partnership, a Delaware limited partnership, and Chart UK Investments Limited Partnership, an English limited partnership. EX-23.1 5 EXHIBIT 23.1 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 EX-27.1 6 EXHIBIT 27.1
5 1,000 YEAR YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 2,169 22,095 0 0 37,336 31,636 775 707 29,803 25,617 76,111 84,849 61,738 43,032 21,202 15,791 158,205 128,919 52,959 47,855 10,894 4,063 0 0 0 0 243 162 92,911 76,295 158,205 128,919 229,423 192,249 229,423 192,249 151,766 131,009 151,766 131,009 33,502 26,206 0 0 901 350 43,254 34,684 15,039 12,057 28,215 22,627 0 0 0 0 0 0 28,215 22,627 1.17 1.01 1.16 .99 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.
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