UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 1-11442
CHART INDUSTRIES,
INC.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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34-1712937
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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One Infinity Corporate Centre Drive,
Suite 300, Garfield Heights, Ohio
(Address of Principal
Executive Offices)
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44125-5370
(Zip Code)
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Registrant’s telephone number, including area code:
(440) 753-1490
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01
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The NASDAQ Stock Market LLC
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Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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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
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No
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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.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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The aggregate market value of the voting common equity held by
non-affiliates computed by reference to the price of $28.44 per
share at which the common equity was last sold, as of the last
business day of the registrant’s most recently completed
second fiscal quarter was $773,340,565.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes
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No
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As of February 15, 2008, there were 28,227,743 outstanding
shares of the Company’s common stock, par value $0.01 per
share.
Documents
Incorporated by Reference
Portions of the following document is incorporated by reference
into Part III of this Annual Report on
Form 10-K:
the definitive Proxy Statement to be used in connection with the
Registrant’s Annual Meeting of Stockholders to be held on
May 20, 2008 (the “2008 Proxy Statement”).
Except as otherwise stated, the information contained in this
Annual Report on
Form 10-K
is as of December 31, 2007.
PART I
THE
COMPANY
Overview
Chart Industries, Inc. (the “Company,”
“Chart” or “we”) is a leading independent
global manufacturer of highly engineered equipment used in the
production, storage and end-use of hydrocarbon and industrial
gases, based on our sales and the estimated sales of our
competitors. We supply engineered equipment used throughout the
global liquid gas supply chain. The largest portion of end-use
applications for our products is energy-related, accounting for
approximately 59% of sales and 67% of orders in 2007, and 85% of
backlog at December 31, 2007. We are a leading manufacturer
of standard and engineered equipment primarily used for
low-temperature and cryogenic applications. We have developed an
expertise in cryogenic systems and equipment, which operate at
low temperatures sometimes approaching absolute zero (0
kelvin; — 273° Centigrade; — 459°
Fahrenheit). The majority of our products, including vacuum
insulated containment vessels, heat exchangers, cold boxes and
other cryogenic components, are used throughout the liquid gas
supply chain for the purification, liquefaction, distribution,
storage and end-use of hydrocarbon and industrial gases.
Our primary customers are large, multinational producers and
distributors of hydrocarbon and industrial gases and their
suppliers. We sell our products and services to more than 2,000
customers worldwide. We have developed long-standing
relationships with leading companies in the gas production, gas
distribution, gas processing, liquefied natural gas or LNG,
chemical and industrial gas industries, including Air Products,
Praxair, Airgas, Air Liquide, The Linde Group or Linde, JGC
Corporation or JGC, Bechtel Corporation, Jacobs Engineering
Group, Inc. or Jacobs, ExxonMobil, British Petroleum or BP,
ConocoPhillips, Saudi Aramco, Shaw Stone & Webster,
ABB Lummus, Uhde, CTCI Corporation or CTCI, Toyo, Samsung,
Technip, Daelim, and Energy World Corporation or EWC, many of
whom have been purchasing our products for over 20 years.
We have attained this position by capitalizing on our low-cost
global manufacturing footprint, technical expertise and
know-how, broad product offering, reputation for quality, and by
focusing on attractive, growing markets. We have an established
sales and customer support presence across the globe and low
cost manufacturing operations in the United States, Central
Europe and China. For the year ended December 31, 2007, the
year ended December 31, 2006, and the combined year ended
December 31, 2005, we generated sales of
$666.4 million, $537.5 million, and
$403.1 million, respectively.
The following charts show the proportion of our revenues
generated by each operating segment as well as our estimate of
the proportion of revenue generated by end-user for the year
ended December 31, 2007.
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Sales By Segment
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Sales By End-User
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Segments
and Products
We operate in three segments: (i) Energy &
Chemicals or E&C, (ii) Distribution and Storage or
D&S and (iii) BioMedical. While each segment
manufactures and markets different cryogenic equipment and
systems to distinct end-users, they all share a reliance on our
heat transfer and low temperature storage know-how and
expertise. The E&C and D&S segments manufacture
products used primarily in energy-related and general industrial
applications, such as the separation, liquefaction, distribution
and storage of hydrocarbon and industrial gases. Through our
BioMedical segment, we supply cyrogenic equipment used in the
storage and distribution of biological materials and oxygen,
used primarily in the medical, biological research and animal
breeding industries.
Further information about these segments is located in
Note L to the Company’s consolidated financial
statements included in Item 8 of this Annual Report on
Form 10-K.
Energy
and Chemicals Segment
Our principal products within the E&C segment, which
accounted for 38% of sales for the year ended December 31,
2007, are focused on engineered equipment and systems for the
energy and chemicals markets, primarily heat exchangers,
Core-in-Kettles
®
,
cold boxes, process systems and LNG vacuum insulated pipe. These
products are used by major natural gas, petrochemical processing
and industrial gas companies in the production of their
products. Our products in the E&C segment include the
following:
Heat
Exchangers and
Core-in-Kettles
®
We are a leading designer and manufacturer of cryogenic brazed
aluminum and air cooled heat exchangers. Using technology
pioneered by us, our brazed aluminum heat exchangers are
incorporated into cold boxes to facilitate the progressive
cooling and liquefaction of air or hydrocarbon mixtures for the
subsequent recovery or purification of component gases. In
hydrocarbon processing industries, our brazed aluminum heat
exchangers allow producers to obtain purified hydrocarbon
by-products, such as methane, ethane, propane and ethylene,
which are commercially marketable for various industrial or
residential uses. In the industrial gas market, our brazed
aluminum heat exchangers are used to obtain high purity
atmospheric gases, such as oxygen, nitrogen and argon, which
have numerous diverse industrial applications.
Our air cooled heat exchangers are used in multiple markets to
cool fluids to allow for further processing or to provide
condensing of fluids, including the hydrocarbon, petrochemical,
natural gas processing, and power generation. We recently
entered into a joint venture in Saudi Arabia for local
manufacturing and marketing of air cooled exchangers for Middle
Eastern markets. Our compact
Core-in-Kettle
®
heat exchangers are designed to replace
shell-and-tube
exchangers, offering significantly more heat transfer surface
per unit volume and greatly improving the efficiency of
chillers, vaporizers, reboilers and condensers in hydrocarbon
applications including ethylene, propylene and LNG. Brazed
aluminum and air cooled heat exchangers are engineered to the
customer’s requirements and range in price from $20,000 to
$2.5 million or more depending on the scope and complexity
of the project.
The heat exchanger markets have seen significant demand over the
last few years, resulting primarily from increased activity in
the LNG and natural gas segments of the hydrocarbon processing
market as well as the Asian industrial gas market. Other key
global drivers involve developing Gas to Liquids or GTL and
clean coal processes including Coal to Liquids or CTL and
Integrated Gasification and Combined Cycle or IGCC power
projects. In the future, management believes that continuing
efforts by petroleum producing countries to better utilize
stranded natural gas and previously flared gases, as well as
efforts to broaden their industrial base, and the developing
clean coal initiatives globally present a promising source of
demand for our heat exchangers and cold box systems. In
addition, demand for heat exchangers and cold boxes in developed
countries is expected to continue as firms upgrade their
facilities for greater efficiency and regulatory compliance.
Our principal competitors for brazed aluminum heat exchangers
are Linde, Sumitomo, Kobe and Nordon, and we face competition
from a variety of competitors for air cooled heat exchangers.
Management believes that we are the only producer of large
brazed aluminum heat exchangers in the United States and that we
are a leader in the global cryogenic heat exchanger market.
Major customers for our heat exchangers in the industrial gas
market include Air Liquide, Air Products and Praxair. In the
hydrocarbon processing market, major customers and end-users
include BP, ExxonMobil, Saudi Aramco, ConocoPhillips and
contractors such as JGC, Bechtel, Jacobs, Kellogg Brown Root or
KBR, Technip, ABB Lummus, Toyo, Shaw Stone & Webster
and Samsung.
Cold
Boxes
We are 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 hydrocarbon processing market, our cold box systems are
used in natural gas processing and in the petrochemical
2
industry. In the industrial gas market, cold boxes are used to
separate air into its major atmospheric components, including
nitrogen, oxygen and argon, where the gases are used in a
diverse range of applications such as metal production and heat
treating, enhanced oil and gas production, chemical and oil
refining, the quick-freezing of food, wastewater treatment and
industrial welding. The construction of a cold box generally
consists of one or more brazed aluminum 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 $1 million to $20 million, with the
majority of cold boxes priced between $1 million and
$5 million.
We have a number of competitors for fabrication of cold boxes,
including Linde, Air Products, Praxair, Air Liquide and many
smaller fabrication-only facilities around the world. Principal
customers and end-users for our cold boxes include Air Liquide,
ABB Lummus, BP, Bechtel, Saudi Aramco, Jacobs, JGC, Technip,
Toyo, Shaw Stone and Webster, Samsung and KBR.
Process
Systems
We are a leading designer, engineer and manufacturer of highly
engineered hydrocarbon process systems specifically for those
markets requiring proprietary cryogenic technology. These
“Concept-to-Reality”
process systems incorporate many of our own core products,
including brazed aluminum heat exchangers,
Core-in-Kettles
®
,
cold boxes, vessels, pipe work and air cooled heat
exchangers. These systems, which are custom engineered and
manufactured to order, typically sell in the price range of
$5 million to over $100 million, depending on the
scope and complexity of the project, with the majority of the
systems priced between $5 million and $60 million.
Our principal markets include nitrogen rejection or NRU, propane
dehydrogenation or PDH, HYCO/hydrogen recovery, LNG and
Ryan-Holmes
CO
2
bulk removal technology for enhanced oil recovery and
CO
2
sequestration.
We have a number of competitors for our process systems
including Linde, Air Products, and other smaller engineering,
procurement, construction, or EPC, firms to whom we also act as
a supplier of equipment including heat exchangers and cold
boxes. Principal customers and end-users for our process systems
include Energy World Corporation, ABB Lummus, ExxonMobil,
Jacobs, Shaw Stone and Webster, CTCI, Samsung, Uhde and KBR.
LNG
Vacuum Insulated Pipe
This product line consists of vacuum insulated pipe, or VIP,
used for LNG transportation within both export and import
terminals. This is a growing market as new LNG infrastructure is
added around the world. LNG VIP is fabricated to order with
projects varying in size from $500,000 to $25 million. Our
competitors in the LNG VIP market include Technip and ITP. In
general, our customers are the major EPC firms, such as Technip
and Bechtel. LNG VIP competes directly with mechanically
insulated pipe which takes longer to install and requires higher
maintenance over its life.
Distribution
and Storage Segment
Through our D&S segment, which accounted for 48% of our
sales for the year ended December 31, 2007, we are a
leading supplier of cryogenic equipment to the global bulk and
packaged industrial gas markets. Demand for the products
supplied by this segment is driven primarily by the significant
installed base of users of cryogenic liquids as well as new
applications and distribution technologies for cryogenic
liquids. Our products span the entire spectrum of the industrial
gas market from small customers requiring cryogenic packaged
gases to large users requiring custom engineered cryogenic
storage systems. Our products in the D&S segment include
the following:
Cryogenic
Bulk Storage Systems
We are a leading supplier of cryogenic bulk storage systems of
various sizes ranging from 500 gallons to 180,000 gallons. Using
sophisticated vacuum insulation systems placed between inner and
outer vessels, these bulk storage systems are able to store and
transport liquefied industrial gases and hydrocarbon gases at
temperatures from −100° Fahrenheit to temperatures
nearing absolute zero. End use customers for our cryogenic
storage tanks include industrial gas producers and distributors,
chemical producers, manufacturers of electrical components,
health care organizations, food processors and businesses in the
oil and natural gas industries. Prices for our
3
cryogenic bulk storage systems range from $10,000 to
$1 million. Global industrial gas producers and
distributors, including Air Products, Air Liquide, Linde,
Airgas, Praxair and Messer, are significant customers for our
cryogenic bulk storage systems. On a worldwide basis, we compete
primarily with Taylor-Wharton International or Taylor-Wharton in
this product area. Taylor-Wharton was acquired by Windpoint
Partners in December 2007 when they acquired the Harsco GasServ
group of technology businesses from Harsco Corporation. In the
European and Asian markets, we compete with several suppliers
owned by the global industrial gas producers as well as
independent regional suppliers.
Cryogenic
Packaged Gas Systems
We are a leading supplier of cryogenic packaged gas systems of
various sizes ranging from 160 liters to 2,000 liters.
Cryogenic liquid cylinders are used extensively in the packaged
gas industry to allow smaller quantities of liquid to be easily
delivered to the customers of the industrial gas distributors on
a
full-for-empty
or fill on site basis. Principal customers for our liquid
cylinders are the same global industrial gas producers and the
North American industrial gas distributors who purchase our
cryogenic bulk storage systems. We compete on a worldwide basis
primarily with Taylor-Wharton in this product area. We have
developed two technologies in the packaged gas product area:
ORCA Micro-Bulk systems and
Tri-fecta
®
Laser Gas assist systems. ORCA Micro-Bulk systems bring the ease
of use and distribution economics of bulk gas supply to
customers formerly supplied by high pressure or cryogenic liquid
cylinders. The ORCA Micro-Bulk system is the substantial market
leader in this growing product line. The
Tri-fecta
®
Laser Gas assist system was developed to meet the “assist
gas” performance requirements for new high powered lasers
being used in the metal fabrication industry.
Cryogenic
Systems and Components
Our line of cryogenic components, including VIP, engineered bulk
gas installations and specialty liquid nitrogen end-use
equipment are recognized in the market for their reliability,
quality and performance. These products are sold to industrial
gas producers, as well as to a diverse group of distributors,
resellers and end users. We compete with a number of suppliers
of cryogenic systems and components, including Acme Cryogenics,
Vacuum Barrier Corporation and others.
LNG
Applications
We supply cryogenic solutions for the storage, distribution,
vaporization, and application of LNG. LNG may be utilized as a
primary source of heat or power at industrial or residential
complexes located away from a natural gas pipeline. LNG may also
be used for peak shaving or as a back up supply at remote
locations. We refer to this as a Virtual Pipeline as the natural
gas pipeline is replaced with cryogenic containers to deliver
the gas to the end user. We supply cryogenic trailers, bulk
storage tanks, tap-off facilities, and vaporization equipment
specially configured for LNG into Virtual Pipeline applications.
LNG may also be used as a fuel to power vehicles. LNG vehicle
fueling applications consist of LNG and liquid/compressed
natural gas refueling systems for centrally fueled fleets of
vehicles powered by natural gas, such as fleets operated by
metropolitan transportation authorities, refuse haulers and
heavy-duty truck fleets. We sell LNG applications around the
world from all D&S facilities to numerous end users, energy
companies, and gas distributors. Competition for LNG
applications is based primarily on product design, customer
support and service, dependability and price. Our competitors
tend to be regionally focused or product specific while Chart is
able to supply a broad range of solutions required by LNG
applications.
Beverage
Liquid
CO
2
Systems
This product line consists primarily of vacuum insulated, bulk
liquid
CO
2
containers used for beverage carbonation in restaurants,
convenience stores and cinemas, in sizes ranging from 100 pounds
to 750 pounds of liquid
CO
2
storage. We also manufacture and market non-insulated, bulk
fountain syrup containers for
side-by-side
installation with our
CO
2
systems. Our beverage systems are sold to national restaurant
chains, soft drink companies and
CO
2
distributors. Our primary competitors for our bulk liquid
CO
2
beverage delivery systems are Taylor-Wharton and other producers
of high-pressure gaseous
CO
2
cylinders.
4
Cryogenic
Services
We operate three locations in the United States providing
installation, service and maintenance of cryogenic products
including storage tanks, liquid cylinders, cryogenic trailers,
cryogenic pumps and VIP.
BioMedical
Segment
The BioMedical segment, which accounted for 14% of our sales for
the year ended December 31, 2007, consists of various
product lines built around our core competencies in cryogenics,
but with a focus on the medical and biological users of the
liquids and gases instead of the large producers and
distributors of cryogenic liquids. Our products in the
BioMedical segment include the following:
Medical
Products
Our medical oxygen product line is comprised of a limited range
of medical respiratory products, including liquid oxygen systems
and ambulatory oxygen systems, both of which are used for the
in-home supplemental oxygen treatment of patients with chronic
obstructive pulmonary diseases, such as bronchitis, emphysema
and asthma.
Individuals for whom supplemental oxygen is prescribed generally
receive an oxygen system from a home healthcare provider,
medical equipment dealer, or gas supplier. The provider or
physician usually selects which type of oxygen system to
recommend to its customers: liquid oxygen systems, oxygen
concentrators or high-pressure oxygen cylinders. Of these
modalities, physicians generally believe that liquid oxygen
offers greater long-term therapeutic benefits by providing the
option of increased patient ambulation.
Our primary competitor in the medical products line is the
Puritan-Bennett brand product of Covidien Ltd., or Covidien. In
June 2007, Covidien became the parent company of the former
healthcare business of Tyco International Ltd. We believe that
competition for liquid oxygen systems is based primarily upon
product quality, performance, reliability,
ease-of-service
and price and we focus our marketing strategies on these
considerations.
Biological
Storage Systems
This product line consists of vacuum insulated containment
vessels for the storage of biological materials. The primary
markets for this product line include medical laboratories,
biotech/pharmaceutical, research facilities, blood and tissue
banks, veterinary laboratories, large-scale repositories and
artificial insemination, particularly in the beef and dairy
industry.
The significant competitors for biological storage systems
include a few large companies worldwide, such as Taylor-Wharton,
Air Liquide and IBP. These products are sold through multiple
channels of distribution specifically applicable to each market
sector. The distribution channels range from highly specialized
cryogenic storage systems providers to general supply and
catalogue distribution operations to breeding service providers.
Historically, competition in this field has been focused on
design, reliability and price. Additionally, we believe our
understanding of the end-user’s applications and concerns
enables us to sell a “total value” package.
Alternatives to vacuum insulated containment vessels include
mechanical, electrically powered refrigeration.
MRI
Components
The basis of the MRI technique is that the magnetic properties
of certain nuclei of the human body can be detected, measured
and converted into images for analysis. MRI equipment uses
high-strength magnetic fields, applied radio waves and
high-speed computers to obtain cross-sectional images of the
body. The major components of the MRI assembly are a series of
concentric thermal shields and a supercooled electromagnet
immersed in a liquid helium vessel, a cryostat, that maintains a
constant, extremely low temperature (4 kelvin; −452°
Fahrenheit) to achieve superconductivity. We manufacture large
cryostats, various cryogenic interfaces, electrical
feed-throughs and various other MRI components that are used to
transfer power
and/or
cryogenic fluids from the exterior of the MRI unit to the
various layers of the cryostat and superconducting magnet. We
currently sell all of our MRI components to General Electric or
GE, a leading worldwide manufacturer of MRI equipment.
5
Engineering
and Product Development
Our engineering and product development activities are focused
on developing new and improved solutions and equipment for the
users of cryogenic liquids. Our engineering, technical and
marketing employees actively assist customers in specifying
their needs and in determining appropriate products to meet
those needs. Portions of our engineering expenditures typically
are charged to customers, either as separate items or as
components of product cost.
Competition
We believe we can compete effectively around the world and that
we are a leading competitor in our markets. Competition is based
primarily on performance and the ability to provide the design,
engineering and manufacturing capabilities required in a timely
and cost-efficient manner. Contracts are usually awarded on a
competitive bid basis. Quality, technical expertise and
timeliness of delivery are the principal competitive factors
within the industry. Price and terms of sale are also important
competitive factors. Because independent third-party prepared
market share data is not available, it is difficult to know for
certain our exact position in our markets, although we believe
we rank among the leaders in each of the markets we serve. We
base our statements about industry and market positions on our
reviews of annual reports and published investor presentations
of our competitors and augment this data with information
received by marketing consultants conducting competition
interviews and our sales force and field contacts.
Marketing
We market our products and services throughout the world
primarily through direct sales personnel and through independent
sales representatives and distributors. The technical and custom
design nature of our products requires a professional, highly
trained sales force. While each salesperson and sales
representative is expected to develop a highly specialized
knowledge of one product or group of products within one of our
segments, each salesperson and certain sales representatives are
able to sell many products from different segments to a single
customer. We use independent sales representatives and
distributors to market our products and services in certain
foreign countries that we serve and in certain North American
markets. These independent sales representatives supplement our
direct sales force in dealing with language and cultural
matters. Our domestic and foreign independent sales
representatives earn commissions on sales, which vary by product
type.
Backlog
The dollar amount of our backlog as of December 31, 2007,
December 31, 2006 and December 31, 2005 was
$475.3 million, $319.2 million and
$233.6 million, respectively. Backlog is comprised of the
portion of firm signed purchase orders or other written
contractual commitments received from customers that we have not
recognized as revenue under the percentage of completion method
or based upon shipment. Backlog can be significantly affected by
the timing of orders for large products, particularly in the
E&C segment, and the amount of backlog at December 31,
2007 described above is not necessarily indicative of future
backlog levels or the rate at which backlog will be recognized
as sales. Orders included in our backlog may include customary
cancellation provisions under which the customer could cancel
all or part of the order at times subject to the payment of
certain costs
and/or
penalties. For further information about our backlog, including
backlog by segment, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Customers
We sell our products to gas producers, distributors and
end-users across the industrial gas, hydrocarbon and chemical
processing industries in countries throughout the world. Sales
to Air Liquide in 2007 represented approximately 10% of our
consolidated sales. No single customer exceeded 10% of
consolidated sales in 2006 or 2005. Sales to our top ten
customers accounted for 45%, 42% and 39% of consolidated sales
in 2007, 2006 and 2005, respectively. Our sales to particular
customers fluctuate from period to period, but the global
producers and distributors of hydrocarbon and industrial gases
and their suppliers tend to be a consistently large source of
revenue for us. Our supply contracts are generally contracts for
“requirements” only. While our customers may be
obligated
6
to purchase a certain percentage of their supplies from us,
there are generally no minimum requirements. Also, many of our
contracts may be cancelled on as little as one month’s
notice. To minimize credit risk from trade receivables, we
review the financial condition of potential customers in
relation to established credit requirements before sales credit
is extended and monitor the financial condition of customers to
help ensure timely collections and to minimize losses. In
addition, for certain domestic and foreign customers,
particularly in the E&C segment, we require advance
payments, letters of credit and other such guarantees of
payment. Certain customers also require us to issue letters of
credit or performance bonds, particularly in instances where
advance payments are involved, as a condition of placing the
order. We believe our relationships with our customers are
generally good.
Intellectual
Property
Although we have a number of patents, trademarks and licenses
related to our business, no one of them or related group of them
is considered by us to be of such importance that its expiration
or termination would have a material adverse effect on our
business. In general, we depend upon technological capabilities,
manufacturing quality control and application of know-how,
rather than patents or other proprietary rights, in the conduct
of our business.
Raw
Materials and Suppliers
We manufacture most of the products we sell. The raw materials
used in manufacturing include aluminum products (including
sheets, bars, plate and piping), stainless steel products
(including sheets, plates, heads and piping), palladium oxide,
carbon steel products (including sheets, plates and heads), 9%
nickel steel products (including heads and plates), valves and
gauges and fabricated metal components. Most raw materials are
available from multiple sources of supply. We believe our
relationships with our raw material suppliers and other vendors
are generally good. The commodity metals we use have experienced
significant cost increases. We have generally been able to
recover these cost increases through product price increases and
surcharges in our contracts with customers. However, there are
no assurances that we will be able to recover future increases
in commodity metal costs through our customer contracts. We
foresee no acute shortages of any raw materials that would have
a material adverse effect on our operations.
Employees
As of January 31, 2008, we had 2,751 employees,
including 1,723 domestic employees and 1,028 international
employees. These employees consisted of 987 salaried, 365
bargaining unit hourly and 1,399 non-bargaining unit hourly.
We are a party to one collective bargaining agreement with the
International Association of Machinists and Aerospace Workers
covering 365 employees at our La Crosse, Wisconsin
heat exchanger facility. In February 2007, we entered into a new
three-year agreement to replace the previous agreement, which
expired at that time. In connection with the negotiation of the
new collective bargaining agreement for our La Crosse,
Wisconsin facility described above, we experienced a work
stoppage from the time that the previous agreement expired on
February 3, 2007, until the terms of the new agreement were
reached on February 7, 2007. The brief work stoppage had no
material impact on the Company, and we continue to believe that
our relationships with our employees are generally good.
Environmental
Matters
Our operations have historically included and currently include
the handling and use of hazardous and other regulated
substances, such as various cleaning fluids used to remove
grease from metal, that are subject to federal, state and local
environmental laws and regulations. These regulations impose
limitations on the discharge of pollutants into the soil, air
and water, and establish standards for their handling,
management, use, storage and disposal. We monitor and review our
procedures and policies for compliance with environmental laws
and regulations. Our management is familiar with these
regulations, and supports an ongoing program to maintain our
adherence to required standards.
7
We are involved with environmental compliance, investigation,
monitoring and remediation activities at certain of our owned or
formerly owned manufacturing facilities and at one owned
facility that is leased to a third party. We believe that we are
currently in substantial compliance with all known environmental
regulations. We accrue for certain environmental
remediation-related activities for which commitments or
remediation plans have been developed and for which costs can be
reasonably estimated. These estimates are determined based upon
currently available facts regarding each facility. Actual costs
incurred may vary from these estimates due to the inherent
uncertainties involved. Future expenditures relating to these
environmental remediation efforts are expected to be made over
the next 14 years as ongoing costs of remediation programs.
Although we believe we have adequately provided for the cost of
all known environmental conditions, additional contamination or
changes in regulatory posture could result in more costly
remediation measures than budgeted, or those we believe are
adequate or required by existing law. We believe that any
additional liability in excess of amounts accrued which may
result from the resolution of such matters will not have a
material adverse effect on our financial position, liquidity,
cash flows or results of operations.
Available
Information
Additional information about the Company is available at
http://www.chart-ind.com. On the Investor Relations page of the
website, the public may obtain free copies of the Company’s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably
practicable following the time that they are filed with, or
furnished to, the Securities and Exchange Commission
(“SEC”). Additionally, the Company has posted its Code
of Ethical Business Conduct and Officer Code of Ethics on its
website, which are also available free of charge to any
shareholder interested in obtaining a copy. This Form 10-K and
reports filed with the SEC are also accessible through the
SEC’s website at www.sec.gov.
Investing in our common stock involves substantial risk. You
should carefully consider the risks described below as well as
the other information contained in this Annual Report on
Form 10-K
in evaluating your investment in us. If any of the following
risks actually occur, our business, financial condition,
operating results or cash flows could be harmed materially.
Additional risks, uncertainties and other factors that are not
currently known to us or that we believe are not currently
material may also adversely affect our business, financial
condition, operating results or cash flows. In any of these
cases, you may lose all or part of your investment in us.
Risks
Related to our Business
The
markets we serve are subject to cyclical demand, which could
harm our business and make it difficult to project long-term
performance.
Demand for our products depends in large part upon the level of
capital and maintenance expenditures by many of our customers
and end users, in particular those customers in the global
hydrocarbon and industrial gas markets. These customers’
expenditures historically have been cyclical in nature and
vulnerable to economic downturns. Decreased capital and
maintenance spending by these customers could have a material
adverse effect on the demand for our products and our business,
financial condition and results of operations. In addition, this
historically cyclical demand limits our ability to make accurate
long-term predictions about the performance of our company.
For example, certain of our core businesses underperformed in
the years prior to 2004 due to a general downturn in capital
spending in the global and domestic industrial gas markets.
While we have experienced growth in demand since late 2003 in
the global hydrocarbon and industrial gas markets, this growth
may not continue and our businesses’ performance may not be
markedly better or may be worse in the future. For example,
while we have recently experienced increased order activity for
smaller and mid-size LNG projects and industrial gas plants, we
have experienced delay in the receipt of some large LNG
liquefier and GTL projects resulting from industry cost growth,
constrained resources and local political uncertainty. Likewise,
an overall economic downturn in the United States could
have a negative impact on our domestic D&S business, which
historically has been sensitive to domestic capital spending. In
addition, changing world economic and political conditions may
reduce the
8
willingness of our customers and prospective customers to commit
funds to purchase our products and services. Further, in 2005,
the U.S. government announced the reduction of the amount
of dollars it offered as reimbursement to our customers for
purchasing our medical oxygen therapy products, which has
adversely affected demand for these products.
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The
loss of, or significant reduction or delay in, purchases by our
largest customers could reduce our revenues and
profitability.
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Sales to Air Liquide accounted for approximately 10% of our
total sales for the year ended December 31, 2007 and a
small number of customers has accounted for a substantial
portion of our historical net sales. For example, sales to our
top ten customers accounted for 45%, 42% and 39% of consolidated
sales in 2007, 2006 and 2005, respectively. We expect that a
limited number of customers will continue to represent a
substantial portion of our sales for the foreseeable future.
While our sales to particular customers fluctuate from period to
period, the global producers and distributors of hydrocarbon and
industrial gases and their suppliers tend to be a consistently
large source of revenue for us.
The loss of any of our major customers or a decrease or delay in
orders or anticipated spending by such customers could
materially reduce our revenues and profitability. Our largest
customers could also engage in business combinations, which
could increase their size, reduce their demand for our products
as they recognize synergies or rationalize assets and increase
or decrease the portion of our total sales concentration to any
single customer. For example Linde and BOC engaged in a business
combination in 2006. Additionally, we currently sell all of our
magnetic resonance imaging, or MRI, components to GE, a leading
worldwide manufacturer of MRI equipment, which accounted for
approximately $6.6 million in sales for the year ended
December 31, 2007. The loss of, or significant reduction
in, purchases of our MRI components by GE could reduce revenues
and profitability in our BioMedical segment.
We may
be unable to compete successfully in the highly competitive
markets in which we operate.
Although many of our products serve niche markets, a number of
our direct and indirect competitors in these markets are major
corporations, some of which have substantially greater
technical, financial and marketing resources than we, and other
competitors may enter these markets. Any increase in competition
may cause us to lose market share or compel us to reduce prices
to remain competitive, which could result in reduced sales and
earnings. Companies, or their divisions, that operate in our
industry include Air Products, Kobe, Linde, Nordon,
Puritan-Bennett, Sumitomo and Taylor-Wharton. Additionally, we
compete with several suppliers owned by global industrial gas
producers and many smaller fabrication-only facilities around
the world. Increased competition with these companies could
prevent the institution of price increases or could require
price reductions or increased spending on research and
development, and marketing and sales, any of which could
materially reduce our revenues, profitability or both. In the
event of an industry downturn, customers who typically outsource
their need for cryogenic systems to us may use their excess
capacity to produce such systems themselves. We also compete in
the sale of a limited number of products with certain of our
major customers.
As a
global business, we are exposed to economic, political and other
risks in different countries which could materially reduce our
revenues, profitability or cash flows, or materially increase
our liabilities.
Since we manufacture and sell our products worldwide, our
business is subject to risks associated with doing business
internationally. In 2007, 58% of our sales were made in
international markets. Our future results could be harmed by a
variety of factors, including:
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changes in foreign currency exchange rates;
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exchange controls and currency restrictions;
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changes in a specific country’s or region’s political,
social or economic conditions, particularly in emerging markets;
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civil unrest, turmoil or outbreak of disease in any of the
countries in which we operate;
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tariffs, other trade protection measures and import or export
licensing requirements;
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potentially negative consequences from changes in U.S. and
international tax laws;
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difficulty in staffing and managing geographically widespread
operations;
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differing labor regulations;
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requirements relating to withholding taxes on remittances and
other payments by subsidiaries;
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different regulatory regimes controlling the protection of our
intellectual property;
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restrictions on our ability to own or operate subsidiaries, make
investments or acquire new businesses in these jurisdictions;
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restrictions on our ability to repatriate dividends from our
foreign subsidiaries;
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difficulty in collecting international accounts receivable;
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difficulty in enforcement of contractual obligations under
non-U.S. law;
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transportation delays or interruptions;
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changes in regulatory requirements; and
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the burden of complying with multiple and potentially
conflicting laws.
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Our international operations also expose us to different local
political and business risks and challenges. For example, we are
faced with potential difficulties in staffing and managing local
operations and we have to design local solutions to manage
credit and legal risks of local customers and distributors. In
addition, because some of our international sales are to
suppliers that perform work for foreign governments, we are
subject to the political risks associated with foreign
government projects. For example, certain foreign governments
may require suppliers for a project to obtain products solely
from local manufacturers or may prohibit the use of products
manufactured in certain countries.
International growth and expansion into emerging markets, such
as China, Central and Eastern Europe, India and the Middle East,
may cause us difficulty due to greater regulatory barriers than
in the United States, the necessity of adapting to new
regulatory systems, problems related to entering new markets
with different economic, social and political systems, and
significant competition from the primary participants in these
markets, some of which may have substantially greater resources
than us.
Our overall success as a global business depends, in part, upon
our ability to succeed in differing economic, social and
political conditions. We may not succeed in developing and
implementing policies and strategies to counter the foregoing
factors effectively in each location where we do business and
the foregoing factors may cause a reduction in our revenues,
profitability or cash flows, or cause an increase in our
liabilities.
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If we
are unable to successfully manage our growth, it may place a
significant strain on our management and administrative
resources and lead to increased costs and reduced
profitability.
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We expect to continue to expand our operations in the United
States and abroad, particularly in China, the Czech Republic and
Middle East. Our ability to operate our business successfully
and implement our strategies depends, in part, on our ability to
allocate our resources optimally in each of our facilities in
order to maintain efficient operations as we expand. Ineffective
management of our growth could cause manufacturing
inefficiencies, increase our operating costs, place significant
strain on our management and administrative resources and
prevent us from implementing our business plan.
For example, we have invested or plan to invest approximately
$15 million in new capital expenditures in the United
States and China in 2007 and 2008 related to the expected growth
of our E&C and D&S segments. If we fail to implement
these capital projects in a timely and effective manner, we may
lose the opportunity to obtain some customer orders. Even if we
effectively implement these projects, the orders needed to
support the capital expenditure may not be obtained, may be
delayed, or may be less than expected, which may result in sales
or
10
profitability at lower levels than anticipated. For example,
while we invested significantly in the expansion of our E&C
segment in recent years, we experienced delay in some of the
orders initially anticipated to support the cold box portion of
that expansion, which resulted in the underutilization of some
of our capacity. In addition, potential cost overruns, delays or
unanticipated problems in any capital expansion could make the
expansion more costly than originally predicted.
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If we
lose our senior management or other key employees, our business
may be adversely affected.
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Our ability to successfully operate and grow our business and
implement our strategies is largely dependent on the efforts,
abilities and services of our senior management and other key
employees. Our future success will also depend on, among other
factors, our ability to attract and retain qualified personnel,
such as engineers and other skilled labor, either through direct
hiring or the acquisition of other businesses employing such
professionals. Our products, many of which are highly
engineered, represent specialized applications of cryogenic or
low temperature technologies and know-how, and many of the
markets we serve represent niche markets for these specialized
applications. Accordingly, we rely heavily on engineers,
salespersons, business unit leaders, senior management and other
key employees who have experience in these specialized
applications and are knowledgeable about these niche markets,
our products, and our company. Additionally, we may modify our
management structure from time to time, as we did in 2007 in our
E&C segment, which may create marketing, operational and
other business risks. The loss of the services of these senior
managers or other key employees, any modification of our
management structure or the failure to attract or retain other
qualified personnel could reduce the competitiveness of our
business or otherwise impair our business prospects.
Fluctuations
in the prices and availability of raw materials and our exposure
to fixed-price contracts including exposure to fixed pricing on
long-term customer contracts, could negatively impact our
financial results.
The pricing and availability of raw materials for use in our
businesses can be volatile due to numerous factors beyond our
control, including general, domestic and international economic
conditions, labor costs, production levels, competition,
consumer demand, import duties and tariffs and currency exchange
rates. This volatility can significantly affect the availability
and cost of raw materials for us, and may, therefore, increase
the short-term or long-term costs of raw materials.
The commodity metals we use, including aluminum and stainless
steel, have experienced significant upward fluctuations in
price. On average, over half of our cost of sales is represented
by the cost of commodities metals. We have generally been able
to recover the cost increases through price increases to our
customers; however, during periods of rising prices of raw
materials, such as in 2005, 2006 and 2007, we may be unable to
pass a portion of such increases on to our customers.
Conversely, when raw material prices decline, customer demands
for lower prices could result in lower sale prices and, to the
extent we have existing inventory, lower margins. As a result,
fluctuations in raw material prices could result in lower
revenues and profitability.
In addition, a substantial portion of our sales is derived from
fixed-price contracts for large system projects, which may
involve long-term fixed price commitments to customers. We have
experienced difficulties in executing contracts of this kind in
the past. For example, we recently executed two large projects
each involving over $30 million of revenue on which our
margins deteriorated significantly. On one of these projects, we
experienced significant cost overruns that resulted in
significant project losses. The other project was disrupted by a
storm and related damage, and the customer made the decision in
early 2007 to repair the damage through costly purchases of new
replacement materials and has asserted we are responsible for
these and other repairs. We may be required to pay for some of
these or other repair costs in the future to the extent the
customer successfully asserts that we are responsible for the
damage, which we would contest vigorously.
To the extent that any of our fixed-price contracts are delayed,
our subcontractors fail to perform, contract counterparties
successfully assert claims against us, the original cost
estimates in these or other contracts prove to be inaccurate or
the contracts do not permit us to pass increased costs on to our
customers, profitability from a particular contract may decrease
or project losses may be incurred, which, in turn, could
decrease our revenues and
11
overall profitability. The uncertainties associated with our
fixed-price contracts make it more difficult to predict our
future results and exacerbate the risk that our results will not
match expectations, which has happened in the past.
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We may
fail to successfully acquire or integrate companies that provide
complementary products or technologies.
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A component of our business strategy is the acquisition of
businesses that complement our existing products and services.
Such a strategy involves the potential risks inherent in
assessing the value, strengths, weaknesses, contingent or other
liabilities and potential profitability of acquisition
candidates and in integrating the operations of acquired
companies. In addition, any acquisition of a foreign business
may increase our exposure to certain risks inherent in doing
business outside the United States.
From time to time, we may have acquisition discussions with
potential target companies both domestically and
internationally. If a large acquisition opportunity arises and
we proceed, a substantial portion of our cash and surplus
borrowing capacity could be used for the acquisition or we may
seek additional debt or equity financing.
Potential acquisition opportunities become available to us from
time to time, and we engage periodically in discussions or
negotiations relating to potential acquisitions, including
acquisitions that may be material in size or scope to our
business. Any acquisition may or may not occur and, if an
acquisition does occur, it may not be successful in enhancing
our business for one or more of the following reasons:
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Any business acquired may not be integrated successfully and may
not prove profitable;
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The price we pay for any business acquired may overstate the
value of that business or otherwise be too high;
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We may fail to achieve acquisition synergies; or
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The focus on the integration of operations of acquired entities
may divert management’s attention from the
day-to-day
operation of our businesses.
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Inherent in any future acquisition is the risk of transitioning
company cultures and facilities. The failure to efficiently and
effectively achieve such transitions could increase our costs
and decrease our profitability.
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If we
are unable to continue our technological innovation in our
business and successful introduction of new commercial products,
our profitability could be adversely affected.
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The industries we serve, particularly the energy and biomedical
industries, experience periodic technological change and product
improvement. Manufacturers periodically introduce new
generations of products or require new technological capacity to
develop customized products or respond to industry developments
or needs. Our future growth will depend on our ability to gauge
the direction of the commercial and technological progress in
our markets, as well as our ability to acquire new product
technology or fund and successfully develop, manufacture and
market products in this constantly changing environment. We must
continue to identify, develop, manufacture and market innovative
products on a timely basis to replace existing products in order
to maintain our profit margins and competitive position. We may
not be successful in acquiring and developing new products or
technology and any of our new products may not be accepted by
our customers. If we fail to keep pace with evolving
technological innovations in the markets we serve, our
profitability may decrease.
We
carry significant goodwill and indefinite-lived intangible
assets on our balance sheet, which are subject to impairment
testing and could subject us to significant charges to earnings
in the future if impairment occurs.
As of December 31, 2007, we had goodwill and
indefinite-lived intangible assets of $282.5 million, which
represented approximately 34% of our total assets. The value of
these assets may increase in the future if we complete
acquisitions as part of our overall business strategy. Goodwill
and indefinite-lived intangible assets are not amortized, but
are tested for impairment annually or more often if events or
changes in circumstances indicate a potential impairment may
exist. Factors that could indicate that our goodwill or
indefinite-lived intangible assets are impaired include a
decline in stock price and market capitalization, lower than
projected operating results and cash flows, and slower growth
rates in our industry. To test for impairment, a model to
estimate the fair market value of
12
our reporting segments has been developed. This fair market
value model incorporates our estimates of future operating
results and cash flows, estimates of allocations of certain
assets and cash flows among reporting segments, estimates of
future growth rates and our judgment regarding the applicable
discount rates to use to discount those estimated operating
results and cash flows. If impairment is determined to exist, we
are required to record a charge to earnings in our financial
statements, which may be significant. While we do not presently
anticipate that any of our goodwill or indefinite-lived
intangible assets will be impaired in the foreseeable future, if
an impairment is determined to exist and we are required to
record a charge to earnings, it may result in significantly
decreased profitability and shareholders’ equity.
We may
be required to make material expenditures in order to comply
with environmental, health and safety laws, or incur additional
liabilities under these laws.
We are subject to numerous environmental, health and safety laws
and regulations that impose various environmental controls on us
or otherwise relate to environmental protection and various
health and safety matters, including the discharge of pollutants
in the air and water, the handling, use, treatment, storage and
clean-up
of
solid and hazardous materials and wastes, the investigation and
remediation of soil and groundwater affected by hazardous
substances and the requirement to obtain and maintain permits
and licenses. These laws and regulations often impose strict,
retroactive and joint and several liability for the costs of,
and damages resulting from, cleaning up our, or our
predecessors’, past or present facilities and third party
disposal sites. Compliance with these laws generally increases
the costs of transportation and storage of raw materials and
finished products, as well as the costs of storing and disposing
waste, and could decrease our liquidity and profitability and
increase our liabilities. Health and safety and other laws in
the jurisdictions in which we operate impose various
requirements on us including state licensing requirements that
may benefit our customers. If we are found to have violated any
of these laws, we may become subject to corrective action orders
and fines or penalties, and incur substantial costs, including
substantial remediation costs and commercial liability to our
customers. Further, we also could be subject to future liability
resulting from conditions that are currently unknown to us that
could be discovered in the future.
We are currently remediating or developing work plans for
remediation of environmental conditions involving certain
current or former facilities. For example, the discovery of
contamination arising from historical industrial operations at
our Clarksville, Arkansas property has exposed us, and in the
future may continue to expose us, to remediation obligations. To
date, our environmental remediation expenditures and costs for
otherwise complying with environmental laws and regulations have
not been material, but the uncertainties associated with the
investigation and remediation of contamination and the fact that
such laws or regulations change frequently makes predicting the
cost or impact of such laws and regulations on our future
operations uncertain. Stricter environmental, safety and health
laws, regulations or enforcement policies could result in
substantial costs and liabilities to us and could subject us to
more rigorous scrutiny. Consequently, compliance with these laws
could result in significant expenditures as well as other costs
and liabilities that could decrease our liquidity and
profitability and increase our liabilities.
The
insolvency of a formerly consolidated subsidiary could have a
material adverse impact on our liquidity and financial
position.
In March 2003, our U.K. subsidiary, Chart Heat Exchangers
Limited, or CHEL, which previously operated the closed
Wolverhampton, United Kingdom manufacturing facility, filed for
a voluntary administration under the U.K. Insolvency Act of
1986. Additionally, we received information that indicated that
CHEL’s net pension plan obligations had increased
significantly, primarily due to a decline in plan asset values
and interest rates, as well as increased plan liabilities,
resulting in an estimated plan deficit as of March 2003. Based
on our financial condition in March 2003, we determined not to
advance funds to CHEL to fund CHEL’s obligations.
Since CHEL was unable to fund its net pension deficit, the
trustees of the CHEL pension plan took action to wind up the
plan. No claims related to the CHEL insolvency presently are
pending or have been brought against us by persons impacted by
the insolvency. Nevertheless, claims may be asserted against us
related to these matters. To the extent we are found to have
significant liability with respect to CHEL’s obligations,
such liability could have a material adverse impact on our
liquidity, profitability and financial condition as a result of
CHEL’s insolvency.
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Due to
the nature of our business and products, we may be liable for
damages based on product liability and warranty
claims.
Due to the high pressures and low temperatures at which many of
our products are used and the fact that some of our products are
relied upon by our customers or end users in their facilities or
operations, or are manufactured for relatively broad consumer
use, we face an inherent risk of exposure to claims in the event
that the failure, use or misuse of our products results, or is
alleged to result, in bodily injury, property damage or economic
loss. We believe that we meet or exceed existing professional
specification standards recognized or required in the industries
in which we operate. We are subject to claims from time to time,
some of which are substantial but none of which historically
have had a material adverse effect on our financial condition or
results of operations, and we may be subject to claims in the
future. Although we currently maintain product liability
coverage, which we believe is adequate for the continued
operation of our business, such insurance may become difficult
to obtain or be unobtainable in the future on terms acceptable
to us and generally does not cover warranty claims. A successful
product liability claim or series of claims against us,
including one or more consumer claims purporting to constitute
class actions, in excess of our insurance coverage or a
significant warranty claim or series of claims against us could
materially decrease our liquidity and impair our financial
condition.
Increases
in labor costs, potential labor disputes and work stoppages at
our facilities could materially decrease our revenues and
profitability.
Our financial performance is affected by the availability of
qualified personnel and the cost of labor. As of
January 31, 2008, we had 2,751 employees, including
987 salaried, 365 bargaining unit hourly and 1,399
non-bargaining unit hourly employees. Employees represented by a
union were subject to one collective bargaining agreement in the
United States that expired in February 2007. A new three-year
agreement was entered into in February 2007, and expires in
February 2010. In connection with negotiating this new
collective bargaining agreement, we experienced a work stoppage
from the time that the previous agreement expired on
February 3, 2007 until the terms of the new agreement were
reached on February 7, 2007. If we are unable to enter into
new, satisfactory labor agreements with our unionized employees
when necessary in the future or other labor controversies or
union organizing efforts arise, we could experience a
significant disruption to our operations, lose business or
experience an increase in our operating expenses, which could
reduce our profit margins.
Fluctuations
in exchange and interest rates may affect our operating
results.
Fluctuations in the value of the U.S. dollar may decrease
our sales or earnings. Because our consolidated financial
results are reported in U.S. dollars, if we generate sales
or earnings in other currencies, the translation of those
results into U.S. dollars can result in a significant
increase or decrease in the amount of those sales or earnings.
We also bid for certain foreign projects in U.S. dollars.
If the U.S. dollar strengthens relative to the value of the
local currency, we may be less competitive on those projects. In
addition, our debt service requirements are primarily in
U.S. dollars and a portion of our cash flow is generated in
euros or other foreign currencies. Significant changes in the
value of the foreign currencies relative to the U.S. dollar
could limit our ability to meet interest and principal payments
on our debt and impair our financial condition.
In addition, fluctuations in currencies relative to the
U.S. dollar may make it more difficult to perform
period-to-period
comparisons of our reported results of operations. For purposes
of accounting, the assets and liabilities of our foreign
operations, where the local currency is the functional currency,
are translated using period-end exchange rates, and the revenues
and expenses of our foreign operations are translated using
average exchange rates during each period.
In addition to currency translation risks, we incur currency
transaction risk whenever we or one of our subsidiaries enters
into either a purchase or a sales transaction using a currency
other than the local currency of the transacting entity. Given
the volatility of exchange rates, we may not be able to
effectively manage our currency
and/or
translation risks. Volatility in currency exchange rates may
decrease our revenues and profitability and impair our financial
condition. We have purchased and may continue to purchase
foreign currency forward purchase and sales contracts to manage
the risk of adverse currency fluctuations.
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Our
operations could be impacted by the effects of hurricanes or
other severe weather, which could be more severe than the damage
and impact that our New Iberia, Louisiana operations encountered
from hurricanes in 2005.
Some of our operations, including our operations in New Iberia,
Louisiana and Houston, Texas, are located in geographic regions
and physical locations that are susceptible to physical damage
and longer-term economic disruption from hurricanes or other
severe weather. We also could make significant capital
expenditures in hurricane-susceptible or other severe weather
locations from time to time. These weather events can disrupt
our operations, result in damage to our properties and
negatively affect the local economy in which these facilities
operate. In 2005, for example, our New Iberia, Louisiana
operations encountered some damage from the storm surge and
flooding caused by Hurricane Rita. Future hurricanes or other
severe weather may cause production or delivery delays as a
result of the physical damage to the facilities, the
unavailability of employees and temporary workers, the shortage
of or delay in receiving certain raw materials or manufacturing
supplies and the diminished availability or delay of
transportation for customer shipments, any of which may have an
adverse affect on our revenues and profitability. Although we
maintain insurance subject to certain deductibles, which may
cover some of our losses, that insurance may become unavailable
or prove to be inadequate.
Failure
to protect our intellectual property and know-how could reduce
or eliminate any competitive advantage and reduce our sales and
profitability.
We rely on a combination of internal procedures, nondisclosure
agreements, intellectual property rights assignment agreements,
licenses, patents, trademarks and copyright law to protect our
intellectual property and know-how. Our intellectual property
rights may not be successfully asserted in the future or may be
invalidated, circumvented or challenged. For example, we
frequently explore and evaluate potential relationships and
projects with other parties, which often requires that we
provide the potential partner with confidential technical
information. While confidentiality agreements are typically put
in place, there is a risk the potential partner could violate
the confidentiality agreement and use our technical information
for its own benefit or the benefit of others or compromise the
confidentiality. In addition, the laws of certain foreign
countries in which our products may be sold or manufactured do
not protect our intellectual property rights to the same extent
as the laws of the United States. For example, we are
increasing our manufacturing capabilities and sales in China,
where laws may not protect our intellectual property rights to
the same extent as in the United States. Failure or inability to
protect our proprietary information could result in a decrease
in our sales or profitability.
We have obtained and applied for some U.S. and foreign
trademark and patent registrations and will continue to evaluate
the registration of additional trademarks and patents, as
appropriate. We cannot guarantee that any of our pending
applications will be approved. Moreover, even if the
applications are approved, third parties may seek to oppose or
otherwise challenge them. A failure to obtain registrations in
the United States or elsewhere could limit our ability to
protect our trademarks and technologies and could impede our
business. The patents in our patent portfolio are scheduled to
expire between 2008 and 2025.
In addition, we may be unable to prevent third parties from
using our intellectual property rights and know-how without our
authorization or from independently developing intellectual
property that is the same as or similar to ours, particularly in
those countries where the laws do not protect our intellectual
property rights as fully as in the United States. We compete in
a number of industries (for example, heat exchangers and
cryogenic storage) that are small or specialized, which makes it
easier for a competitor to monitor our activities and increases
the risk that ideas will be stolen. The unauthorized use of our
know-how by third parties could reduce or eliminate any
competitive advantage we have developed, cause us to lose sales
or otherwise harm our business or increase our expenses as we
attempt to enforce our rights.
We may
be subject to claims that our products or processes infringe the
intellectual property rights of others, which may cause us to
pay unexpected litigation costs or damages, modify our products
or processes or prevent us from selling our
products.
Although it is our intention to avoid infringing or otherwise
violating the intellectual property rights of others, third
parties may nevertheless claim (and in the past have claimed)
that our processes and products infringe their
15
intellectual property and other rights. For example, a third
party has claimed that we may infringe certain patents related
to cryogenic pipe technology and may have breached an
undertaking relating to same, although we believe that these
claims are without merit. In addition, our BioMedical business
manufactures products for relatively broad consumer use, is
actively marketing these products in multiple jurisdictions
internationally and risks infringing technologies that may be
protected in one or more of these international jurisdictions as
the scope of our international marketing efforts expands. Our
strategies of capitalizing on growing international demand as
well as developing new innovative products across multiple
business lines present similar infringement claim risks both
internationally and in the United States as we expand the scope
of our product offerings and markets. We compete with other
companies for contracts in some small or specialized industries,
which increases the risk that the other companies will develop
overlapping technologies leading to an increased possibility
that infringement claims will arise. Whether or not these claims
have merit, we may be subject to costly and time-consuming legal
proceedings, and this could divert our management’s
attention from operating our businesses. In order to resolve
such proceedings, we may need to obtain licenses from these
third parties or substantially re-engineer or rename our
products in order to avoid infringement. In addition, we might
not be able to obtain the necessary licenses on acceptable
terms, or at all, or be able to reengineer or rename our
products successfully.
We are
subject to regulations governing the export of our
products.
Due to our significant foreign sales, our export activities are
subject to regulation, including the U.S. Treasury
Department’s Office of Foreign Assets Control’s
regulations. While we believe we are in compliance with these
regulations, we may currently or may in the future be in
violation of these regulations. Any violations may subject us to
government scrutiny, investigation and civil and criminal
penalties and may limit our ability to export our products.
Additional
liabilities related to taxes could adversely impact our
financial results, financial condition and cash
flow.
We are subject to tax and related obligations in the
jurisdictions in which we operate or do business, including
state, local, federal and foreign taxes. The taxing rules of the
various jurisdictions in which we operate or do business often
are complex and subject to varying interpretations. Tax
authorities may challenge tax positions that we take or
historically have taken, and may assess taxes where we have not
made tax filings or may audit the tax filings we have made and
assess additional taxes, as they have done from time to time in
the past. Some of these assessments may be substantial, and also
may involve the imposition of substantial penalties and
interest. For example, a state in which we operate has asserted
that we may be liable for substantial state income taxes,
penalties and interest related to our operations in the state
from 1993 to 2000. If the state issued a formal assessment, we
would vigorously contest it, including through administrative
and court proceedings, but we may be unsuccessful and ultimately
required to pay additional taxes, penalties and interest. The
payment of substantial additional taxes, penalties or interest
resulting from these assessments could materially and adversely
impact our results of operations, financial condition and cash
flow.
As a
provider of products to the U.S. government, we are subject to
federal rules, regulations, audits and investigations, the
violation or failure of which could adversely affect our
business.
We sell certain of our products to the U.S. government and,
therefore, we must comply with and are affected by laws and
regulations governing purchases by the U.S. government.
Government contract laws and regulations affect how we do
business with our government customers and, in some instances,
impose added costs on our business. For example, a violation of
specific laws and regulations could result in the imposition of
fines and penalties or the termination of our contracts or
debarment from bidding on contracts. In some instances, these
laws and regulations impose terms or rights that are more
favorable to the government than those typically available to
commercial parties in negotiated transactions.
16
Risks
Related to our Leverage
Our
substantial leverage and significant debt service obligations
could adversely affect our financial condition, limit our
ability to raise additional capital to fund our operations,
limit our ability to react to changes in the economy or our
industry, impact the way we operate our business, expose us to
interest rate risk to the extent of our variable rate debt and
prevent us from fulfilling our debt service
obligations.
We are substantially leveraged and have significant debt service
obligations. Our financial performance could be affected by our
substantial leverage. As of December 31, 2007, our total
indebtedness was $250.0 million. In addition, at that date,
we had approximately $36.0 million of letters of credit and
bank guarantees outstanding and borrowing capacity of
approximately $79.0 million under the revolving portion of
our senior secured credit facility, after giving effect to the
letters of credit and bank guarantees outstanding. We may also
incur additional indebtedness in the future. This high level of
indebtedness could have important negative consequences to us
and you, including:
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•
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we may have difficulty generating sufficient cash flow to pay
interest and satisfy our debt obligations;
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•
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we may have difficulty obtaining financing in the future for
working capital, capital expenditures, acquisitions or other
purposes;
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•
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we will need to use a substantial portion of our available cash
flow to pay interest and principal on our debt, which will
reduce the amount of money available to finance our operations
and other business activities;
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•
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some of our debt, including our borrowings under our senior
secured credit facility, has variable rates of interest, which
exposes us to the risk of increased interest rates;
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•
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our debt level increases our vulnerability to general economic
downturns and adverse industry conditions;
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•
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our debt level could limit our flexibility in planning for, or
reacting to, changes in our business and in our industry in
general;
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•
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our substantial amount of debt and the amount we must pay to
service our debt obligations could place us at a competitive
disadvantage compared to our competitors that have less debt;
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•
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our customers may react adversely to our significant debt level
and seek or develop alternative suppliers; and
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•
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our failure to comply with the financial and other restrictive
covenants in our debt instruments which, among other things,
require us to maintain specified financial ratios and limit our
ability to incur debt and sell assets, could result in an event
of default that, if not cured or waived, could have a material
adverse effect on our business or prospects.
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Our net cash flow generated from operating activities was
$82.5 million, $36.4 million and $30.3 million
(on a combined basis) for the years 2007, 2006 and 2005,
respectively. Our current level of indebtedness requires that we
use a substantial portion of our cash flow from operations to
pay interest on our indebtedness, which will reduce the
availability of cash to fund working capital requirements,
capital expenditures, research and development or other general
corporate or business activities, including future acquisitions.
In addition, a portion of our indebtedness bears interest at
variable rates. If market interest rates increase, debt service
on our variable-rate debt will rise, which would adversely
affect our cash flow.
Our business may not generate sufficient cash flow from
operations and future borrowings may not be available to us
under our senior secured credit facility or otherwise in an
amount sufficient to permit us to pay the principal and interest
on our indebtedness or fund our other liquidity needs. We may be
unable to refinance any of our debt, including our senior
secured credit facility or our senior subordinated notes, on
commercially reasonable terms. See “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources.”
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to sell assets,
seek additional capital or seek to restructure or refinance our
indebtedness. These alternative measures may not be successful
and may not permit us to meet our scheduled debt service
obligations. Our senior secured
17
credit facility and the indenture under which our senior
subordinated notes were issued restrict our ability to use the
proceeds from asset sales. We may be unable to consummate those
asset sales to raise capital or sell assets at prices that we
believe are fair and proceeds that we do receive may be
inadequate to meet any debt service obligations then due.
We may
still be able to incur substantially more debt. This could
further exacerbate the risks that we face.
We may be able to incur substantial additional indebtedness in
the future. The terms of our debt instruments do not fully
prohibit us from doing so. The revolving credit portion of our
senior secured credit facility provides commitments of up to
$115.0 million, approximately $79.0 million of which
would have been available for future borrowings (after giving
effect to letters of credit and bank guarantees outstanding) as
of December 31, 2007. We may also further increase the size
of our senior secured credit facility or refinance with higher
borrowing limits. If new debt is added to our current debt
levels, the related risks that we now face could intensify.
The
senior secured credit facility and the indenture governing our
senior subordinated notes contain a number of restrictive
covenants which limit our ability to finance future operations
or capital needs or engage in other business activities that may
be in our interest.
The senior secured credit facility and the indenture governing
our senior subordinated notes impose, and the terms of any
future indebtedness may impose, operating and other restrictions
on us and our subsidiaries. Such restrictions affect or will
affect, and in many respects limit or prohibit, among other
things, our ability and the ability of our subsidiaries to:
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incur additional indebtedness;
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•
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create liens;
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•
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pay dividends and make other distributions in respect of our
capital stock;
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•
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redeem or buy back our capital stock;
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•
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make certain investments or certain other restricted payments;
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•
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sell certain kinds of assets;
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•
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enter into certain types of transactions with
affiliates; and
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•
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effect mergers or consolidations.
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The senior secured credit facility also requires us to achieve
certain financial and operating results and maintain compliance
with specified financial ratios. Our ability to comply with
these ratios may be affected by events beyond our control.
The restrictions contained in the senior secured credit facility
and the indenture governing our senior subordinated notes could:
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•
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limit our ability to plan for or react to market or economic
conditions or meet capital needs or otherwise restrict our
activities or business plans; and
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•
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adversely affect our ability to finance our operations,
acquisitions, investments or strategic alliances or other
capital needs or to engage in other business activities that
would be in our interest.
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A breach of any of these covenants or our inability to comply
with the required financial ratios could result in a default
under our senior secured credit facility
and/or
the
indenture governing our senior subordinated notes. If an event
of default occurs under our senior secured credit facility,
which includes an event of default under the indenture governing
our senior subordinated notes the lenders could elect to:
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•
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declare all borrowings outstanding, together with accrued and
unpaid interest, to be immediately due and payable;
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18
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•
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require us to apply all of our available cash to repay the
borrowings; or
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•
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prevent us from making debt service payments on the notes;
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any of which would result in an event of default under our
senior subordinated notes. The lenders will also have the right
in these circumstances to terminate any commitments they have to
provide further financing.
If we were unable to repay or otherwise refinance these
borrowings when due, our lenders could sell the collateral
securing the senior secured credit facility, which constitutes
substantially all of our and our domestic wholly-owned
subsidiaries’ assets.
We are
a holding company and we may depend upon cash from our
subsidiaries to service our debt. If we do not receive cash from
our subsidiaries, we may be unable to meet our
obligations.
We are a holding company and all of our operations are conducted
through our subsidiaries. Accordingly, we may be dependent upon
the earnings and cash flows from our subsidiaries to provide the
funds necessary to meet our debt service obligations. If we
could not have access to the cash flows of our subsidiaries, we
may be unable to pay the principal or interest on our debt. In
addition, certain of our subsidiaries are holding companies that
rely on subsidiaries of their own as a source of funds to meet
any obligations that might arise.
Generally, the ability of a subsidiary to make cash available to
its parent is affected by its own operating results and is
subject to applicable laws and contractual restrictions
contained in its debt instruments and other agreements.
Moreover, there may be restrictions on payments by our
subsidiaries to us under applicable laws, including laws that
require companies to maintain minimum amounts of capital and to
make payments to shareholders only from profits. As a result,
although our subsidiaries may have cash, we may be unable to
obtain that cash to satisfy our obligations and make payments to
our stockholders, if any.
Risks
Related to the Trading Market for Our Common Stock
Provisions
in our amended and restated certificate of incorporation and
amended and restated bylaws and Delaware law may discourage a
takeover attempt.
Provisions contained in our amended and restated certificate of
incorporation and amended and restated bylaws and Delaware law
could make it more difficult for a third party to acquire us.
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws and Delaware law
impose various procedural and other requirements, which could
make it more difficult for stockholders to effect certain
corporate actions. For example, our amended and restated
certificate of incorporation authorizes our board of directors
to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock, without any
vote or action by our stockholders. Therefore, our board of
directors can authorize and issue shares of preferred stock with
voting or conversion rights that could adversely affect the
voting or other rights of holders of our common stock. These
rights may have the effect of delaying or deterring a change of
control of our company. These provisions could limit the price
that certain investors might be willing to pay in the future for
shares of our common stock.
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Item 1B.
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Unresolved
Staff Comments.
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Not Applicable.
We occupy 23 principal facilities totaling approximately
2.1 million square feet, with the majority devoted to
manufacturing, assembly and storage. Of these manufacturing
facilities, approximately 1.6 million square feet are owned
and 0.5 million square feet are occupied under operating
leases. We consider our manufacturing facilities sufficient to
meet our current and planned operational needs in the BioMedical
segment. However, we have commenced the expansion of our
E&C and D&S segment facilities over the next few years
to meet significant current order backlog levels and expected
growth in business as both we and our competitors reach
capacity. We lease approximately 15,200 square feet for our
corporate office in Garfield Heights, Ohio. Our major owned
facilities in the United States are subject to mortgages
securing our senior secured credit facility.
19
The following table sets forth certain information about
facilities occupied by us as of January 31, 2008:
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Square
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Location
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Segment
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Feet
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Ownership
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Use
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La Crosse, Wisconsin
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Energy & Chemicals
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149,000
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Owned
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Manufacturing/Office
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New Iberia, Louisiana
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Energy & Chemicals
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62,400
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Leased
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Manufacturing
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New Iberia, Louisiana
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Energy & Chemicals
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35,000
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Leased
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Manufacturing
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The Woodlands, Texas
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Energy & Chemicals
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29,000
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Leased
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Office
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Tulsa, Oklahoma
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Energy & Chemicals
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58,500
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Owned
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Manufacturing/Office
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Tulsa, Oklahoma
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Energy & Chemicals
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140,000
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Leased
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Manufacturing/Office
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Wolverhampton, United Kingdom
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Energy & Chemicals
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1,600
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Leased
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Office
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Changzhou, China
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Distribution & Storage
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60,000
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Leased
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Manufacturing/Office
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Changzhou, China
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Distribution & Storage
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260,000
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Owned
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Manufacturing/Office
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Decin, Czech Republic
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Distribution & Storage
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638,000
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Owned
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Manufacturing/Office
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Houston, Texas
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Distribution & Storage
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22,000
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Owned
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Service
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Shanghai, China
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Distribution & Storage
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1,900
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Leased
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Office
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Solingen, Germany
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Distribution & Storage
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4,500
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Leased
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Office/Service/Warehouse
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Plaistow, New Hampshire
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Distribution & Storage
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4,800
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Leased
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Office
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Canton, Georgia
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Distribution & Storage/BioMedical
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154,000
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Owned
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Manufacturing/Office
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Jasper, Georgia
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Distribution & Storage/BioMedical
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32,500
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Leased
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Warehouse/Service
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New Prague, Minnesota
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Distribution & Storage/BioMedical
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237,000
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Owned
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Manufacturing/Service/Office
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New Prague, Minnesota
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Distribution & Storage
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31,000
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Leased
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Office
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Denver, Colorado
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BioMedical
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109,000
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Owned
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Manufacturing
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Marietta, Georgia
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BioMedical
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11,100
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Leased
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Office/Lab
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Bracknell, United Kingdom
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BioMedical
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12,500
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Leased
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Office/Warehouse
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Lidcombe, Australia
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BioMedical
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2,400
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Leased
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Office/Warehouse
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Garfield Heights, Ohio
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Corporate
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15,200
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Leased
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Office
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Clarksville, Arkansas(1)
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Discontinued operation
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110,000
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Owned
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Manufacturing/Office
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(1)
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This facility is leased from us, with a purchase option, by the
company that owns certain assets of the former Greenville Tube
LLC stainless steel tubing business.
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Regulatory
Environment
We are subject to federal, state and local regulations relating
to the discharge of materials into the environment, production
and handling of our hazardous and regulated materials and our
products and the conduct and condition of our production
facilities. We do not believe that these regulatory requirements
have had a material effect upon our capital expenditures,
earnings or competitive position. We are not anticipating any
material capital expenditures in 2008 that are directly related
to regulatory compliance matters. We are also not aware of any
pending or potential regulatory changes that would have a
material adverse impact on our business.
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Item 3.
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Legal
Proceedings.
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We are occasionally subject to various legal actions related to
performance under contracts, product liability, taxes and other
matters, several of which actions claim substantial damages, in
the ordinary course of its business. Based on the Company’s
historical experience in litigating these claims, as well as the
Company’s current assessment of the underlying merits of
the claims and applicable insurance, if any, we currently
believe the resolution of these other legal claims will not have
a material adverse effect on our financial position, liquidity,
cash flows or results of operations. Future developments may,
however, result in resolution of these legal claims in a way
that could have a material adverse effect. See Item 1A.
“Risk Factors”.
20
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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Not Applicable.
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Item 4A.
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Executive
Officers of the Registrant*.
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The name, age and positions of each Executive Officer of the
Company as of February 1, 2008 are as follows:
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Name
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Age
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Position
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Samuel F. Thomas
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56
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Chairman, Chief Executive Officer and President
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Michael F. Biehl
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52
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Executive Vice President, Chief Financial Officer and Treasurer
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Matthew J. Klaben
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38
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Vice President, General Counsel and Secretary
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James H. Hoppel, Jr.
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43
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Chief Accounting Officer, Controller and Assistant Treasurer
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*
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Included pursuant to Instruction 3 to Item 401(b) of
Regulation S-K.
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Samuel F. Thomas
has served as Chairman of our
Board since 2007 and as Chief Executive Officer and President
and as a member of our board of directors since October 2003.
Prior to joining our company, Mr. Thomas was Executive Vice
President of Global Consumables at ESAB Holdings Ltd., a
provider of welding consumables and equipment. In addition to
his most recent position at ESAB, Mr. Thomas was
responsible for ESAB North America during his employment at ESAB
Holdings Ltd. Prior to joining ESAB in February 1999,
Mr. Thomas was Vice President of Friction Products for
Federal Mogul, Inc. Prior to its acquisition by Federal Mogul in
1998, Mr. Thomas was employed by T&N plc from 1976 to
1998, where he served from 1991 as chief executive of several
global operating divisions, including industrial sealing,
camshafts and friction products.
Michael F. Biehl
has been our Executive Vice
President since April 2006, served as our Chief Accounting
Officer from October 2002 until March 2006, and has been our
Chief Financial Officer and Treasurer since July 2001. Prior to
joining us, Mr. Biehl served as Vice President, Finance and
Treasurer at Oglebay Norton Company, an industrial minerals
mining and processing company. Prior to joining Oglebay Norton
in 1992, Mr. Biehl worked in the audit practice of
Ernst & Young LLP in Cleveland, Ohio from 1978 to 1992.
Matthew J. Klaben
is our Vice President, General
Counsel and Secretary. Prior to joining us in March 2006,
Mr. Klaben was a partner at the law firm of Calfee,
Halter & Griswold LLP in Cleveland, Ohio from January
2005 until March 2006, and an associate from April 1998 until
December 2004. Before that, Mr. Klaben was an associate at
the law firm of Jones Day in Cleveland, Ohio from September 1995
until April 1998.
James H. Hoppel, Jr.
is our Chief Accounting
Officer, Controller and Assistant Treasurer and has served in
this position since April 2006. Mr. Hoppel joined Chart in
November 2004 as our Controller. Prior to joining us,
Mr. Hoppel served as Vice President, Finance for W.W.
Holdings, LLC, a manufacturer and distributor of doors and
hardware. Before that, Mr. Hoppel held various finance and
accounting positions with different organizations, including the
transaction services and audit practices of Pricewaterhouse
Coopers LLP in Cleveland, Ohio.
21
PART II
|
|
|
|
Item 5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
The Company’s common stock is traded on the Nasdaq Global
Select Market under the symbol “GTLS.” Prior to 2008,
the common stock traded on the Nasdaq Global Market. The high
and low sales prices for the shares of common stock for the
periods indicated are set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High and Low Sales Price
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
First quarter(1)
|
|
$
|
18.89
|
|
|
$
|
14.94
|
|
|
|
—
|
|
|
|
—
|
|
|
Second quarter(1)
|
|
|
30.57
|
|
|
|
17.00
|
|
|
|
—
|
|
|
|
—
|
|
|
Third quarter
|
|
|
33.20
|
|
|
|
24.51
|
|
|
$
|
16.60
|
|
|
$
|
11.43
|
|
|
Fourth quarter
|
|
|
36.19
|
|
|
|
25.87
|
|
|
|
16.33
|
|
|
|
11.16
|
|
|
Year
|
|
|
36.19
|
|
|
|
14.94
|
|
|
|
16.60
|
|
|
|
11.16
|
|
|
|
|
|
|
(1)
|
|
Trading in our common stock commenced on July 26, 2006.
|
As of February 1, 2008, there were approximately 16 holders
of record of our common stock. Since many holders hold shares in
“street name,” we believe that there is a
significantly larger number of beneficial owners of our common
stock than the number of record holders.
We do not currently intend to pay any cash dividends on our
common stock, and instead intend to retain earnings, if any, for
future operations, potential acquisitions and debt reduction.
The amounts available to us to pay cash dividends are restricted
by our senior secured credit facility. The indenture governing
the notes also limits our ability to pay dividends. Any decision
to declare and pay dividends in the future will be made at the
discretion of our board of directors and will depend on, among
other things, our results of operations, financial condition,
cash requirements, contractual restrictions and other factors
that our board of directors may deem relevant.
|
|
|
|
Item 6.
|
Selected
Financial Data.
|
The financial statements referred to as the Pre-Predecessor
Company financial statements include the consolidated audited
financial statements of Chart Industries, Inc. and its
subsidiaries prior to our Chapter 11 bankruptcy
proceedings. Our emergence from Chapter 11 bankruptcy
proceedings resulted in a new reporting entity and the adoption
of Fresh-Start accounting in accordance with the American
Institute of Certified Public Accountants Statement of Position
90-7,
“Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code.” The financial statements referred to
as the Predecessor Company financial statements include the
consolidated audited financial statements of Chart Industries,
Inc. and its subsidiaries after our emergence from
Chapter 11 bankruptcy proceedings and prior to the
Acquisition, as defined below. The financial statements referred
to as the Company financial statements include the consolidated
audited financial statements of Chart Industries, Inc. and its
subsidiaries after the Acquisition.
On August 2, 2005, we entered into an agreement and plan of
merger with certain of our stockholders, First Reserve Fund X,
L.P. or First Reserve, and CI Acquisition, Inc., which provided
for the sale of shares of Chart by certain of its stockholders
to CI Acquisition, Inc. and the merger of CI Acquisition, Inc.
with and into Chart, with Chart surviving the merger as a
wholly-owned indirect subsidiary of First Reserve. We refer to
the stock purchase, merger and related financing thereof
collectively as the “Acquisition”. The Acquisition
closed on October 17, 2005.
The following table sets forth the selected historical
consolidated financial information as of the dates and for each
of the periods indicated. The Pre-Predecessor Company selected
historical consolidated financial data as of and for the nine
months ended September 30, 2003 is derived from our audited
financial statements for such period, which has been audited by
Ernst & Young LLP, an independent registered public
accounting firm, and which is not included in this Annual Report
on
Form 10-K.
The Predecessor Company selected historical consolidated
financial data as of and for the three months ended
December 31, 2003, as of and for the year ended
December 31, 2004 and as
22
of October 16, 2005 is derived from audited financial
statements for such period, which have been audited by
Ernst & Young LLP, and which are not included in this
Annual Report on
Form 10-K.
The Predecessor Company selected historical consolidated
financial data for the period from January 1, 2005 to
October 16, 2005 is derived from our audited financial
statements for such periods incorporated by reference into
Item 8 of this Annual Report on
Form 10-K,
which have been audited by Ernst & Young LLP. The
Company selected historical consolidated financial data as of
December 31, 2005 is derived from our audited financial
statements for such period, which have been audited by Ernst
& Young LLP, and which are not included in this Annual
Report on Form 10-K. The Company selected historical financial
consolidated data for the period from October 17, 2005 to
December 31, 2005, as of and for the year ended
December 31, 2006, and as of and for the year ended
December 31, 2007 are derived from our audited financial
statements for such period incorporated by reference into
Item 8 of this Annual Report on
Form 10-K,
which have been audited by Ernst & Young LLP.
You should read the following table together with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated
financial statements and related notes, included elsewhere in
this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre- Predecessor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Months
|
|
|
|
Months
|
|
|
Year
|
|
|
January 1,
|
|
|
|
October 17,
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
Year Ended
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
197,017
|
|
|
|
$
|
68,570
|
|
|
$
|
305,576
|
|
|
$
|
305,497
|
|
|
|
$
|
97,652
|
|
|
$
|
537,454
|
|
|
$
|
666,395
|
|
|
Cost of sales(1)
|
|
|
141,240
|
|
|
|
|
52,509
|
|
|
|
211,770
|
|
|
|
217,284
|
|
|
|
|
75,733
|
|
|
|
382,535
|
|
|
|
476,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
55,777
|
|
|
|
|
16,061
|
|
|
|
93,806
|
|
|
|
88,213
|
|
|
|
|
21,919
|
|
|
|
154,919
|
|
|
|
189,541
|
|
|
Selling, general and administrative expenses(2).(3)
|
|
|
44,211
|
|
|
|
|
14,147
|
|
|
|
53,374
|
|
|
|
59,826
|
|
|
|
|
16,632
|
|
|
|
87,652
|
|
|
|
104,056
|
|
|
Restructuring and other operating expenses, net(4)(5)
|
|
|
13,503
|
|
|
|
|
994
|
|
|
|
3,353
|
|
|
|
7,528
|
|
|
|
|
217
|
|
|
|
396
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,714
|
|
|
|
|
15,141
|
|
|
|
56,727
|
|
|
|
67,354
|
|
|
|
|
16,849
|
|
|
|
88,048
|
|
|
|
104,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,937
|
)
|
|
|
|
920
|
|
|
|
37,079
|
|
|
|
20,859
|
|
|
|
|
5,070
|
|
|
|
66,871
|
|
|
|
85,181
|
|
|
Interest expense, net(6)
|
|
|
10,300
|
|
|
|
|
1,344
|
|
|
|
4,712
|
|
|
|
4,164
|
|
|
|
|
5,556
|
|
|
|
26,997
|
|
|
|
23,820
|
|
|
Other expense (income)
|
|
|
(3,737
|
)
|
|
|
|
(350
|
)
|
|
|
(465
|
)
|
|
|
659
|
|
|
|
|
409
|
|
|
|
(533
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,563
|
|
|
|
|
994
|
|
|
|
4,247
|
|
|
|
4,823
|
|
|
|
|
5,965
|
|
|
|
26,464
|
|
|
|
23,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes and
minority interest
|
|
|
(8,500
|
)
|
|
|
|
(74
|
)
|
|
|
32,832
|
|
|
|
16,036
|
|
|
|
|
(895
|
)
|
|
|
40,407
|
|
|
|
61,319
|
|
|
Income tax (benefit) expense
|
|
|
1,755
|
|
|
|
|
(125
|
)
|
|
|
10,134
|
|
|
|
7,159
|
|
|
|
|
(441
|
)
|
|
|
13,044
|
|
|
|
17,319
|
|
|
(Loss) income from continuing operations before minority interest
|
|
|
(10,255
|
)
|
|
|
|
51
|
|
|
|
22,698
|
|
|
|
8,877
|
|
|
|
|
(454
|
)
|
|
|
27,363
|
|
|
|
44,000
|
|
|
Minority interest, net of taxes and other
|
|
|
(63
|
)
|
|
|
|
(20
|
)
|
|
|
(98
|
)
|
|
|
(19
|
)
|
|
|
|
(52
|
)
|
|
|
(468
|
)
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(10,318
|
)
|
|
|
|
31
|
|
|
|
22,600
|
|
|
|
8,858
|
|
|
|
|
(506
|
)
|
|
|
26,895
|
|
|
|
44,156
|
|
|
Income from discontinued operation, including gain on sale, net
of tax(7)
|
|
|
3,233
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(7,085
|
)
|
|
|
$
|
31
|
|
|
$
|
22,600
|
|
|
$
|
8,858
|
|
|
|
$
|
(506
|
)
|
|
$
|
26,895
|
|
|
$
|
44,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per share data(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.27
|
)
|
|
|
$
|
0.01
|
|
|
$
|
4.22
|
|
|
$
|
1.65
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.70
|
|
|
$
|
1.64
|
|
|
Diluted (loss) earnings per share
|
|
|
(0.27
|
)
|
|
|
$
|
0.01
|
|
|
$
|
4.10
|
|
|
$
|
1.57
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.65
|
|
|
$
|
1.61
|
|
|
Weighted average shares — basic
|
|
|
26,336
|
|
|
|
|
5,325
|
|
|
|
5,351
|
|
|
|
5,366
|
|
|
|
|
7,952
|
|
|
|
15,835
|
|
|
|
26,872
|
|
|
Weighted average shares — diluted
|
|
|
26,336
|
|
|
|
|
5,325
|
|
|
|
5,516
|
|
|
|
5,649
|
|
|
|
|
7,952
|
|
|
|
16,269
|
|
|
|
27,493
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre- Predecessor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Months
|
|
|
|
Months
|
|
|
Year
|
|
|
January 1,
|
|
|
|
October 17,
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
Year Ended
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
$
|
19,466
|
|
|
|
$
|
4,988
|
|
|
$
|
35,059
|
|
|
$
|
15,641
|
|
|
|
$
|
14,635
|
|
|
$
|
36,398
|
|
|
$
|
82,507
|
|
|
Cash provided by (used in) investing activities
|
|
|
15,101
|
|
|
|
|
154
|
|
|
|
(3,317
|
)
|
|
|
(20,799
|
)
|
|
|
|
(362,250
|
)
|
|
|
(38,664
|
)
|
|
|
(18,541
|
)
|
|
Cash (used in) provided by financing activities
|
|
|
(15,907
|
)
|
|
|
|
(13,976
|
)
|
|
|
(35,744
|
)
|
|
|
1,708
|
|
|
|
|
348,489
|
|
|
|
9,235
|
|
|
|
7,444
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(9)
|
|
$
|
9,260
|
|
|
|
$
|
2,225
|
|
|
$
|
8,490
|
|
|
$
|
6,808
|
|
|
|
$
|
4,396
|
|
|
$
|
22,449
|
|
|
$
|
18,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre- Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
Company
|
|
|
|
|
As of
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,815
|
|
|
|
$
|
18,600
|
|
|
$
|
14,814
|
|
|
$
|
11,470
|
|
|
|
$
|
11,326
|
|
|
|
18,854
|
|
|
|
92,869
|
|
|
Working capital(10)
|
|
|
35,826
|
|
|
|
|
47,161
|
|
|
|
51,292
|
|
|
|
43,486
|
|
|
|
|
59,561
|
|
|
|
73,290
|
|
|
|
61,484
|
|
|
Total assets
|
|
|
299,745
|
|
|
|
|
299,637
|
|
|
|
307,080
|
|
|
|
343,107
|
|
|
|
|
635,641
|
(11)
|
|
|
724,875
|
(11)
|
|
|
825,754
|
(11)
|
|
Long-term debt
|
|
|
122,537
|
|
|
|
|
109,081
|
|
|
|
76,406
|
|
|
|
74,480
|
|
|
|
|
345,000
|
|
|
|
290,000
|
|
|
|
250,000
|
|
|
Total debt
|
|
|
126,012
|
|
|
|
|
112,561
|
|
|
|
79,411
|
|
|
|
80,943
|
|
|
|
|
347,304
|
|
|
|
290,750
|
|
|
|
250,000
|
|
|
Shareholders’ equity
|
|
|
89,865
|
|
|
|
|
90,807
|
|
|
|
115,640
|
|
|
|
121,321
|
|
|
|
|
116,330
|
|
|
|
219,734
|
|
|
|
327,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The three months ended December 31, 2003 and the period
from October 17, 2005 to December 31, 2005 include
non-cash inventory valuation charges of $5.4 million and
$8.9 million, respectively, related to Fresh-Start and
purchase accounting.
|
|
|
|
(2)
|
|
Includes amortization expense related to intangible assets for
the nine months ended September 30, 2003, the three months
ended December 31, 2003, the year ended December 31,
2004, the period from January 1, 2005 to October 16,
2005, the period October 17, 2005 to December 31,
2005, and the years ended December 31, 2006 and 2007 of
$1.2 million, $0.7 million, $2.8 million,
$2.7 million, $3.0 million, $15.4 million and
$11.0 million, respectively.
|
|
|
|
(3)
|
|
Includes charges (income), net of insurance recoveries, related
to Hurricane Rita of $1.1 million, $0.4 million and
($2.3) million for the period January 1, 2005 to
October 16, 2005, the period from October 17, 2005 to
December 31, 2005 and the year ended December 31,2006,
respectively.
|
|
|
|
(4)
|
|
In March 2003, we completed the closure of our Wolverhampton,
United Kingdom manufacturing facility, operated by CHEL. On
March 28, 2003, CHEL filed for voluntary administration
under the U.K. Insolvency Act of 1986. CHEL’s application
for voluntary administration was approved on April 1, 2003
and an administrator was appointed. In accordance with
SFAS No. 94, “Consolidation of All Majority-Owned
Subsidiaries,” we are not consolidating the accounts or
financial results of CHEL subsequent to March 28, 2003 due
to the assumption of control of CHEL by the insolvency
administrator. Effective March 28, 2003, we recorded a
non-cash impairment charge of $13.7 million to write off
our net investment in CHEL.
|
|
|
|
(5)
|
|
In September 2003, in accordance with Fresh-Start accounting,
all assets and liabilities were adjusted to their fair values.
The adjustment to record the assets and liabilities at fair
value resulted in net other income of $5.7 million for the
nine months ended September 30, 2003.
|
|
|
|
(6)
|
|
Includes derivative contracts valuation income or expense for
interest rate collars to manage interest exposure relative to
term debt.
|
|
|
|
(7)
|
|
This discontinued operation relates to the sale of our former
Greenville Tube, LLC business in July 2003.
|
24
|
|
|
|
|
(8)
|
|
The basic and diluted loss and earnings per share for the nine
months ended September 30, 2003, the three months ended
December 31, 2003 and the period October 17, 2005 to
December 31, 2005 are the same because incremental shares
issuable upon conversion are anti-dilutive.
|
|
|
|
(9)
|
|
Includes financing costs amortization for the nine months ended
September 30, 2003 and the period from October 17,
2005 to December 31, 2005, the year ended December 31,
2006 and the year ended December 31, 2007 of
$1.7 million, $0.3 million, $1.5 million and
$1.6 million, respectively.
|
|
|
|
(10)
|
|
Working capital is defined as current assets excluding cash
minus current liabilities excluding short-term debt.
|
|
|
|
(11)
|
|
Includes $236.7 million of goodwill and $154.1 million
of finite-lived and indefinite-lived intangible assets as of
December 31, 2005. Includes $247.1 million of goodwill
and $146.6 million of finite-lived and indefinite-lived
intangible assets as of December 31, 2006. Includes
$248.5 million of goodwill and $135.7 million of
finite-lived and indefinite-lived assets as of December 31,
2007.
|
|
|
|
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following discussion and analysis of our results of
operations includes periods prior to the consummation of the
Acquisition, and periods after the consummation of the
Acquisition. Accordingly, the discussion and analysis of all
historical periods does not reflect fully the significant impact
that the Acquisition did have on us, including significantly
increased leverage and liquidity requirements. You should read
the following discussion of our results of operations and
financial condition in conjunction with the “Selected
Financial Data” section and our consolidated financial
statements and related notes appearing elsewhere in this Annual
Report on
Form 10-K.
Actual results may differ materially from those discussed below.
This discussion contains forward-looking statements. See
“Forward-Looking Statements” at the end of this
discussion and Item 1A. “Risk Factors” for a
discussion of certain of the uncertainties, risks and
assumptions associated with these statements.
Overview
We are a leading independent global manufacturer of highly
engineered equipment used in the production, storage and end-use
of hydrocarbon and industrial gases. The largest portion of
end-use applications for our products is energy-related. We are
a leading manufacturer of standard and engineered equipment
primarily used for low-temperature and cryogenic applications.
We have developed an expertise in cryogenic systems and
equipment, which operate at low temperatures sometimes
approaching absolute zero (0 kelvin; −273°
Centigrade; −459° Fahrenheit). The majority of our
products, including vacuum insulated containment vessels, heat
exchangers, cold boxes and other cryogenic components, are used
throughout the liquid gas supply chain for the purification,
liquefaction, distribution, storage and consumption of
hydrocarbon and industrial gases.
For the year ended December 31, 2007, we experienced
significant increases in our backlog, orders, sales, gross
profit and operating income compared to the year ended
December 31, 2006. These increases were primarily due to
continued growth in the global hydrocarbon processing and
industrial gas markets served by our Energy and Chemicals
(“E&C”) and Distribution and Storage
(“D&S”) segments. Backlog as of December 31,
2007 was $475.3 million compared to $319.2 million as
of December 31, 2006, representing an increase of
$156.1 million or 48.9%. Orders for the year ended
December 31, 2007 were $826.8 million compared to
$605.8 for the year ended December 31, 2006, representing
an increase of $221.0 million or 36.5%. Sales for 2007 were
$666.4 million compared to sales of $537.5 million for
2006, reflecting an increase of $128.9 million, or 24.0%.
Gross profit for the year ended December 31, 2007 was
$189.5 million, or 28.4% of sales, as compared to
$155.0 million, or 28.8% of sales, for the year ended
December 31, 2006. In addition to volume increases in all
three of our operating segments, the timing of product price
increases in our D&S and Biomedical segments, and foreign
currency translation were also contributing factors for our
growth in sales and gross profit in 2007 as compared to 2006.
Operating income for the year ended December 31, 2007 was
$85.2 million compared to $66.9 million for the year
ended December 31, 2006.
25
Operating
Results
The following table sets forth the percentage relationship that
each line item in our consolidated statements of operations
represents to sales for the period from January 1, 2005 to
October 16, 2005, the period from October 17, 2005 to
December 31, 2005, the year ended December 31, 2006
and the year ended December 31, 2007. The Predecessor
Company and the Company are further described in Item 6
“Selected Financial Data” of our audited financial
statements and related notes thereto in Item 8 included
elsewhere in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
January 1,
|
|
|
|
October 17,
|
|
|
|
|
|
|
|
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
Year Ended
|
|
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Cost of sales(1)
|
|
|
71.1
|
|
|
|
|
77.6
|
|
|
|
71.2
|
|
|
|
71.6
|
|
|
Gross profit
|
|
|
28.9
|
|
|
|
|
22.4
|
|
|
|
28.8
|
|
|
|
28.4
|
|
|
Selling, general and administrative expense(2)(3)(4)(5)(6)
|
|
|
18.7
|
|
|
|
|
13.9
|
|
|
|
13.4
|
|
|
|
13.9
|
|
|
Amortization expense
|
|
|
0.9
|
|
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
1.6
|
|
|
Acquisition expenses(7)
|
|
|
2.2
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Employee separation and plant closure costs
|
|
|
0.3
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
(Loss) on sales of assets
|
|
|
—
|
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
Operating income
|
|
|
6.8
|
|
|
|
|
5.2
|
|
|
|
12.4
|
|
|
|
12.8
|
|
|
Interest expense, net
|
|
|
(1.4
|
)
|
|
|
|
(5.7
|
)
|
|
|
(4.7
|
)
|
|
|
(3.3
|
)
|
|
Financing costs amortization
|
|
|
—
|
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
Derivative contracts valuation income (expense)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency (loss) income
|
|
|
(0.2
|
)
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
Income tax expense (benefit)
|
|
|
2.3
|
|
|
|
|
(0.5
|
)
|
|
|
2.4
|
|
|
|
2.6
|
|
|
Income (loss) before minority interest
|
|
|
2.9
|
|
|
|
|
(0.4
|
)
|
|
|
5.1
|
|
|
|
6.6
|
|
|
Minority interest, net of taxes
|
|
|
—
|
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
Net income (loss)
|
|
|
2.9
|
|
|
|
|
(0.4
|
)
|
|
|
5.0
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes non-cash inventory valuation charges of
$0.6 million and $8.9 million, representing, 0.2% and
9.2% of sales, for the period January 1, 2005 to
October 16, 2005 and the period October 17, 2005 to
December 31, 2005, respectively.
|
|
|
|
(2)
|
|
Includes $1.5 million, representing 0.5% of sales, for
claim settlements, professional fees incurred by us related to
our debt restructuring and bankruptcy reorganization activities
for the period January 1, 2005 to October 16, 2005.
|
|
|
|
(3)
|
|
Includes stock-based compensation expense of $9.5 million,
$0.4 million, $1.9 million and $9.0 million,
representing 3.1%, 0.4%, 0.4%, and 1.4% of sales, for the period
January 1, 2005 to October 16, 2005, the period
October 17, 2005 to December 31, 2005, the year ended
December 31, 2006, the year ended December 31, 2007,
respectively.
|
|
|
|
(4)
|
|
Includes charges (income), net of insurance recoveries, related
to Hurricane Rita of $1.1 million, $0.4 million and
$(2.3) million, representing 0.3%, 0.4% and (0.4)% of
sales, for the period January 1, 2005 to October 16,
2005, the period October 17, 2005 to December 31, 2005
and year ended December 31, 2006, respectively.
|
|
|
|
(5)
|
|
Includes a charge for the write-off of purchased in-process
research and development of $2.8 million, or 0.1% of sales,
and a charge for the settlement of former shareholders’
appraisal rights claims related to the Acquisition of
$0.5 million, or 0.5% of sales, for the period
January 1, 2005 to October 16, 2005 and the period
October 17, 2005 to December 31, 2005, respectively
|
|
|
|
(6)
|
|
Includes amortization expense for intangible assets of
$2.7 million, $3.0 million, $15.4 million and
$10.9 million, representing 0.9%, 3.0%, 2.8% and 1.6%, for
the period January 1, 2005 to October 16, 2005, the
period
|
26
|
|
|
|
|
|
|
October 17, 2005 to December 31, 2005, the year ended
December 31, 2006 and the year ended December 31,
2007, respectively.
|
|
|
|
|
|
(7)
|
|
Represents expenses, primarily professional fees, incurred by us
related to the Acquisition.
|
Segment
Information
The following table sets forth sales, gross profit, gross profit
margin and operating income or loss for our operating segments
for the periods indicated during the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
January 1,
|
|
|
|
October 17,
|
|
|
|
|
|
|
|
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
|
|
|
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
86,920
|
|
|
|
$
|
34,135
|
|
|
$
|
190,673
|
|
|
$
|
253,672
|
|
|
Distribution and Storage
|
|
|
161,329
|
|
|
|
|
47,832
|
|
|
|
268,303
|
|
|
|
322,565
|
|
|
BioMedical
|
|
|
57,248
|
|
|
|
|
15,685
|
|
|
|
78,478
|
|
|
|
90,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
305,497
|
|
|
|
$
|
97,652
|
|
|
$
|
537,454
|
|
|
$
|
666,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
23,391
|
|
|
|
$
|
10,494
|
|
|
$
|
39,676
|
|
|
$
|
58,102
|
|
|
Distribution and Storage
|
|
|
47,120
|
|
|
|
|
8,861
|
|
|
|
87,283
|
|
|
|
100,673
|
|
|
BioMedical
|
|
|
17,702
|
|
|
|
|
2,564
|
|
|
|
27,960
|
|
|
|
30,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88,213
|
|
|
|
$
|
21,919
|
|
|
$
|
154,919
|
|
|
$
|
189,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
|
26.9
|
%
|
|
|
|
30.7
|
%
|
|
|
20.8
|
%
|
|
|
22.9
|
%
|
|
Distribution and Storage
|
|
|
29.2
|
%
|
|
|
|
18.5
|
%
|
|
|
32.5
|
%
|
|
|
31.2
|
%
|
|
BioMedical
|
|
|
30.9
|
%
|
|
|
|
16.4
|
%
|
|
|
35.6
|
%
|
|
|
34.1
|
%
|
|
Total
|
|
|
28.9
|
%
|
|
|
|
22.4
|
%
|
|
|
28.8
|
%
|
|
|
28.4
|
%
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
13,717
|
|
|
|
$
|
5,092
|
|
|
$
|
18,957
|
|
|
$
|
33,821
|
|
|
Distribution & Storage
|
|
|
27,005
|
|
|
|
|
3,947
|
|
|
|
54,545
|
|
|
|
66,167
|
|
|
BioMedical
|
|
|
8,343
|
|
|
|
|
714
|
|
|
|
15,969
|
|
|
|
17,788
|
|
|
Corporate
|
|
|
(28,206
|
)
|
|
|
|
(4,683
|
)
|
|
|
(22,600
|
)
|
|
|
(32,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,859
|
|
|
|
$
|
5,070
|
|
|
$
|
66,871
|
|
|
$
|
85,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations for the Year Ended December 31, 2007 Compared
to the Year Ended
December 31, 2006
Sales
Sales for 2007 were $666.4 compared to $537.5 million for
2006, reflecting an increase of $128.9 million, or 24.0%.
E&C segment sales were $253.7 million for 2007
compared to $190.7 for 2006, representing an increase of
$63.0 million, or 33.0%. This increase in sales for 2007
was primarily due to higher volume, particularly large heat
exchanger and process systems projects, which were driven by
continued growth in the LNG and natural gas segments of the
hydrocarbon processing market and an additional
$21.3 million of air cooled heat exchanger sales as a
result of the acquisition of Cooler Service Corporation
(“CSC”) in the second quarter of 2006. D&S
segment sales were $322.5 million for the year ended
December 31, 2007 compared to $268.3 million for 2006,
reflecting an increase of $54.2 million, or 20.2%. Bulk
storage and packaged gas system sales increased
$28.4 million and $25.8 million, respectively, for
2007 mostly as a result of higher volume, and were favorably
affected by continued
27
growth in the global industrial gas market, product prices
increases to absorb escalating raw material costs, and to a
lesser extent favorable foreign currency translation of
$8.7 million due to the weaker U.S. dollar compared to
the Euro and Czech Koruna. BioMedical segment sales for the year
ended December 31, 2007 were $90.2 million,
representing an increase of $11.7 million, or 14.9%,
compared to sales of $78.5 million in 2006. Biological
storage systems sales increased $9.3 million primarily due
to higher volume in both the U.S. and international
markets. MRI and other product sales increased $1.1 million
due to higher volume. Medical respiratory product sales
increased $1.3 million primarily as a result of higher
volume in international markets, offset partially by decreased
demand in the U.S. market due to changes in
U.S. government reimbursement for liquid oxygen therapy
systems.
Gross
Profit and Margin
Gross profit for the year ended December 31, 2007 was
$189.5 million, or 28.4% of sales compared to
$155.0 million, or 28.8% of sales for the year ended
December 31, 2006, reflecting an increase of
$34.5 million. E&C segment gross profit increased
$18.4 million and the related margin increased
2.1 percentage points, respectively, in 2007 compared with
2006. The increase in gross profit was mostly attributable to
higher sales volume for brazed aluminum heat exchanger and
process systems projects and air cooled heat exchangers, while
the related margin increased primarily due to a favorable change
in project mix for process systems. D&S segment gross
profit increased $13.4 million in 2007 compared to 2006 due
to higher sales volume for bulk storage systems and to a lesser
extent favorable currency translation due the weaker
U.S. dollar compared to the Euro and Czech Koruna. D&S
segment gross profit margin declined 1.3 percentage points
for 2007 compared to 2006 due to higher raw material costs and
surcharges, and a change in product mix for bulk storage
systems. BioMedical segment gross profit increased
$2.8 million in 2007 compared to 2006 primarily due to
higher sales volume across all product lines. BioMedical segment
gross profit margin declined in 2007 by 1.5 percentage
points compared to 2006 primarily due to higher raw material
costs.
Selling,
General and Administrative (“SG&A”)
Expenses
SG&A expenses for 2007 were $92.6 million, or 13.9% of
sales compared to $72.2 million, or 13.4% of sales for
2006. E&C segment SG&A expenses were
$19.8 million, or 7.8% of sales for 2007 versus
$14.0 million, or 7.3% of sales for 2006. The increase of
$5.8 million reflects additional employee-related and
infrastructure expenses incurred by the E&C segment to
support the growth in business. Also, during 2006 the E&C
segment received $2.2 million of insurance proceeds, net of
costs, related to the settlement of an insurance claim for
losses and costs incurred primarily in 2005 at its New Iberia,
Louisiana facility as a result of Hurricane Rita. D&S
segment SG&A expenses in 2007 were $29.0 million, or
9.0% of sales compared to $25.5 million, or 9.5% of sales
in 2006. This increase was primarily due to higher
employee-related and infrastructure expenses to support business
growth in international operations during 2007. BioMedical
segment SG&A expenses were $11.2 million, or 12.4% of
sales for 2007, representing an increase of $1.0 million
compared to SG&A expenses for 2006 of $10.2 million,
or 13.0% of sales. Corporate SG&A expenses for 2007 were
$32.6 million compared to $22.5 million for 2006. The
increase was primarily driven by an increase of
$7.1 million of stock-based compensation expense related
mostly to the vesting of the performance-based options in
conjunction with the secondary stock offering completed in June
2007. Also contributing to the increase was higher
employee-related and infrastructure costs to support business
growth, and the incurrence of secondary stock offering expenses
and increased Sarbanes-Oxley implementation related expenses
totaling $1.6 million.
Amortization
Expense
Amortization expense for 2007 was $10.9 million, or 1.6% of
sales, compared to $15.4 million, or 2.9% of sales, for
2006. Amortization expense decreased due to certain intangible
assets being fully amortized prior to December 31, 2007.
For 2007, amortization expense for the E&C, D&S and
BioMedical segments was $4.1 million, $5.1 million and
$1.7 million, respectively, compared to $6.7 million,
$6.9 million and $1.8 million, respectively, for 2006.
28
Employee
Separation and Plant Closure Costs
For 2007, employee separation and plant closure costs were
$0.3 million compared to $0.4 million in 2006. These
costs were related to the idle D&S segment Plaistow, New
Hampshire facility that was sold in the fourth quarter of 2007.
Loss
on Disposal of Assets, Net
For the year ended December 31, 2007, the Company
recognized a $0.5 million loss primarily related to a
leased facility that was vacated by the Company’s E&C
segment during 2007.
Operating
Income (Loss)
As a result of the foregoing, operating income for 2007 was
$85.2 million, or 12.8% of sales, representing an increase
of $18.3 million compared to operating income of
$66.9 million, or 12.4% of sales for 2006. For 2007,
operating income (loss) for the E&C, D&S and
BioMedical segments and Corporate were $33.8 million, or
13.3% of sales, $66.2 million, or 20.5% of sales,
$17.8 million, or 19.7% of sales, and ($32.6) million,
respectively. For 2006, operating income (loss) for the
E&C, D&S and BioMedical segments and Corporate were
$19.0 million, or 10.0% of sales, $54.5 million, or
20.2% of sales, $16.0 million, or 20.3% of sales, and
$(22.6) million, respectively.
Interest
Expense, Net
For the year ended December 31, 2007, net interest expense
was $22.2 million compared to $25.5 million for the
year ended December 31, 2006. The decrease of
$3.3 million is primarily attributable to the reduction in
the outstanding balance of the term loan portion of our senior
secured credit facility as a result of voluntary principal
payments during 2007 and 2006 totaling $90.0 million. The
principal payments were funded by proceeds from the secondary
stock offering completed in June 2007 and proceeds from warrant
and option exercises and the Company’s Initial Public
Offering (“IPO”) in July 2006. Interest income
increased $0.4 million in 2007 compared to 2006 as a result
of higher cash balances. The decrease in interest expense during
2007 was partially offset by higher interest rates on our senior
secured credit facility and additional interest incurred on our
senior subordinated notes, since the exchange offer related to
our senior subordinated notes was not completed until April
2007, at which time this penalty interest ceased accruing.
Further information regarding the Company’s debt is located
in Note C to the Company’s consolidated financial
statements included in Item 8 of this Annual Report on
Form 10-K.
Other
Expense and Income
For the years ended December 31, 2007 and 2006,
amortization of deferred financing costs was $1.6 million
and $1.5 million, respectively. This increase in
amortization expense was attributable to additional deferred
loan costs incurred for the amendment on the senior secured
credit facility in connection with the IPO.
Income
Tax Expense
Income tax expense for 2007 was $17.3 million and the
effective tax rate was 28.2% compared to income tax expense for
2006 of $13.0 million and an effective tax rate of 32.3%.
The decrease in the effective tax rate in 2007 was primarily
attributable to an increase in foreign investment tax credits,
an increase in the amount of foreign income subject to tax
holidays, a decrease in enacted tax rates in certain foreign
countries, and lower effective domestic state tax rates.
Net
Income
As a result of the foregoing, net income for the year ended
December 31, 2007 was $44.2 million compared to net
income of $26.9 million for the year ended
December 31, 2006 representing an increase of 64.3%.
29
Results
of Operations for the Year Ended December 31,
2006
Sales
Sales for the year ended December 31, 2006 were
$537.5 million. E&C segment sales were
$190.7 million and benefited from higher volume,
particularly large heat exchanger and process systems projects,
which were driven by continued growth in the LNG and natural gas
segments of the hydrocarbon processing market and
$17.8 million of air cooled heat exchanger sales as a
result of the acquisition of CSC in the second quarter of 2006.
D&S segment sales were $268.3 million as both bulk
storage and packaged gas system volume were favorably affected
by continued growth in the global industrial gas market and
product prices increases to absorb escalating raw material costs
and to a lesser extent favorable foreign currency translation of
$4.3 million as a result of the weaker U.S. dollar
compared to the Czech Koruna. BioMedical segment sales for the
year ended December 31, 2006 were $78.5 million and
benefited primarily from continued growth in medical respiratory
product volume due to higher demand in international markets and
volume growth in both the domestic and international biological
storage systems. U.S. medical respiratory products sales
were negatively impacted in 2006 by U.S. Government
reimbursement reductions for liquid oxygen therapy systems
announced in 2005.
Gross
Profit and Margin
Gross profit for the year ended December 31, 2006 was
$155.0 million, or 28.8% of sales. E&C segment gross
profit was $40.0 million, or 20.8% of sales. The gross
profit was favorably affected by the higher volume of large heat
exchanger and process systems projects and the inclusion of the
air cooled heat exchanger sales as explained above. The margin,
however, was unfavorably impacted by lower margins on certain
process projects, and in particular two complex long-term field
installation projects. D&S segment gross profit was
$87.0 million, or 32.5% of sales. The gross profit and
related margin benefited from higher sales volume, particularly
for bulk storage systems, timing of bulk storage system and
packaged gas system price increases to absorb escalating raw
material costs, and to a lesser extent manufacturing
productivity improvements. BioMedical segment gross profit was
$28.0 million, or 35.6% of sales, and was favorably
impacted by higher sales volume and improved manufacturing
productivity, particularly for the medical respiratory product
line. In 2005, the transition of the medical respiratory product
line manufacturing from our closed Burnsville, Minnesota
facility to our Canton, Georgia facility was completed.
SG&A
SG&A expenses for the year ended December 31, 2006
were $72.2 million, or 13.4% of sales. E&C segment
SG&A expenses were $14.0 million, or 7.3% of sales.
During 2006, the E&C segment incurred additional
employee-related and infrastructure expenses to support the
growth in business. Also, the E&C segment received
$2.2 million of insurance proceeds, net of costs, related
to the settlement of an insurance claim for losses incurred
primarily in 2005 at its New Iberia, Louisiana facility as a
result of Hurricane Rita. These proceeds partially offset the
increase in SG&A expenses in 2006. D&S segment
SG&A expenses in 2006 were $25.5 million, or 9.5% of
sales. The D&S segment had growth in employee-related and
infrastructure expenses to support their business growth. In
2006, BioMedical segment SG&A expenses were
$10.2 million, or 13.0% of sales. Corporate SG&A
expenses for the year ended December 31, 2006 were
$22.5 million and were unfavorably affected by higher
employee-related and infrastructure expenses primarily to
support the growth in business and higher public company
expenses, particularly Sarbanes-Oxley implementation expenses,
since the IPO in July 2006. In addition, all operating segments
and Corporate were unfavorably impacted by higher health care
expenses.
Amortization
Expense
Amortization expense for the year ended December 31, 2006
was $15.4 million, or 2.9% of sales. The amortization
expense relates to finite-lived intangible assets that were
recorded at fair value on October 17, 2005 as a result of
the Acquisition. Amortization expense for the E&C, D&S
and BioMedical segments was $6.7 million, $6.9 million
and $1.8 million, respectively.
30
Employee
Separation and Plant Closure Costs
For the year ended December 31, 2006, employee separation
and plant closure costs were $0.4 million and were related
to the idle D&S segment Plaistow, New Hampshire facility
that was being held for sale.
Operating
Income (Loss)
As a result of the foregoing, operating income for the year
ended December 31, 2006 was $66.9 million, or 12.4% of
sales. Operating income (loss) for the E&C, D&S and
BioMedical segments and Corporate were $19.0 million, or
10.0% of sales, $54.5 million, or 20.2% of sales,
$16.0 million, or 20.3% of sales, and ($22.6) million,
respectively.
Interest
Expense, Net
For the year ended December 31, 2006, interest expense, net
was $25.5 million and is primarily attributable to the
senior secured credit facility entered into and senior
subordinated notes issued on October 17, 2005 in
conjunction with the Acquisition. The senior secured credit
facility has a variable interest rate and the senior
subordinated notes have a
9
1
/
8
%
interest rate. The registration rights agreement required the
Company to file an Exchange Offer Registration Statement and
complete the exchange offer for the senior subordinated notes by
August 14, 2006. Since the exchange offer was not completed
when required, additional interest at a rate of 0.25% above
the stated rate was incurred for the
90-day
period ending November 11, 2006, and additional interest at
a rate 0.50% above the stated rate was incurred commencing
November 12, 2006 and additional interest at a rate of
0.75% above the stated rate for the
90-day
period commencing February 10, 2007. The exchange offer was
completed in April 2007 at which time this penalty interest
ceased accruing. Further information regarding the
Company’s debt is located in Note C to the
Company’s consolidated financial statements included in
Item 8 of this Annual Report on
Form 10-K.
Other
Expense and Income
Amortization of deferred financing costs was $1.5 million
for the year ended December 31, 2006 and is attributable to
the senior secured credit facility entered into and senior
subordinated issued on October 17, 2005 in conjunction with
the Acquisition.
For the year ended December 31, 2006, net foreign currency
gains were $0.5 million and were the result of transactions
in currencies other than functional currencies across all
business segments.
Income
Tax Expense
Income tax expense for the year ended December 31, 2006 was
$13.0 million at an effective tax rate of 32.3%. Our income
taxes were favorably affected by higher mix of foreign earnings,
foreign tax credits and research and development tax credits.
Net
Income
As a result of the foregoing, net income for the year ended
December 31, 2006 was $26.9 million.
October 17,
2005 to December 31, 2005 Period
Sales
Sales for the period October 17, 2005 to December 31,
2005 were $97.6 million. E&C segment sales were
$34.1 million and benefited from volume increases in both
heat exchangers and process systems, primarily due to continued
demand growth in the hydrocarbon processing market. D&S
segment sales were $47.8 million as bulk storage systems
and packaged gas systems volume remained strong due to stable
demand in the global industrial gas market and higher product
pricing. BioMedical segment sales for the period
October 17, 2005 to December 31, 2005 were
$15.7 million. Sales of medical respiratory products were
unfavorably affected by lower volume in the United States, and
in particular to one of our major customers, due to announced
reductions in government
31
reimbursement programs for liquid oxygen therapy systems. This
unfavorable volume trend in U.S. medical respiratory
product sales was partially offset by continued volume growth in
medical respiratory product sales in Europe and Asia and
biological storage systems sales in the U.S., Europe and Asia as
we further penetrated these markets. On an annual basis, 2005
U.S. medical respiratory product sales were 45% of total
medical respiratory product sales and in 2004 U.S. medical
respiratory products sales represented 61% of total medical
respiratory sales. In addition, annual 2005 biological storage
systems sales increased 16% compared to 2004 annual sales.
Gross
Profit and Margin
For the period October 17, 2005 to December 31, 2005,
gross profit was $21.9 million, or 22.4% of sales. Overall,
the gross profit was favorably affected by higher volumes in the
D&S and E&C segments. The E&C gross profit of
$10.5 million, or 30.7% of sales, benefited from the
completion of a high margin ethylene heat exchanger and process
system emergency order. The D&S segment gross profit of
$8.9 million, or 18.5% of sales, was also favorably
impacted by improved product pricing. The BioMedical gross
profit of $2.6 million, or 16.4% of sales, benefited from
productivity improvements at the Canton, Georgia facility
related to the manufacturing of medical respiratory products.
The BioMedical segment margins in the period January 1,
2005 to October 16, 2005 were negatively impacted by higher
costs related to inefficiencies from
ramping-up
production of the medical respiratory product line after
completing the move from the Burnsville, Minnesota facility to
the Canton, Georgia facility. In addition, overall company gross
profit included an $8.9 million, or 9.1% of sales, charge
for the fair value adjustment of finished goods and
work-in-process
inventory recorded under purchase accounting as a result of the
Acquisition. This fair value inventory adjustment was charged to
cost of sales as the inventory was sold. The D&S and
BioMedical segments’ gross profit charges were
$6.4 million, or 13.4% of sales, and $2.5 million, or
15.9% of sales, respectively, for this fair value inventory
adjustment. The E&C segment was not required to record an
inventory fair value adjustment due to the use of the percentage
of completion method for revenue recognition in this segment.
SG&A
SG&A expenses for the period October 17, 2005 to
December 31, 2005 were $13.6 million, or 14.0% of
sales. SG&A expenses for the E&C segment were
$4.3 million, or 12.6% of sales, and were affected by
higher marketing and employee-related costs to support the
business growth and $0.4 million of losses and charges
related to damage caused by Hurricane Rita at our New Iberia,
Louisiana facilities. D&S segment SG&A expenses for
the period October 17, 2005 to December 31, 2005 were
$3.2 million, or 6.7% of sales, and were affected by higher
marketing and employee-related costs to support business growth.
SG&A expenses for the BioMedical segment were
$1.5 million, or 9.6% of sales, for the period
October 17, 2005 to December 31, 2005. Corporate
SG&A expenses for the period October 17, 2005 to
December 31, 2005 were $4.6 million and included a
charge of $0.5 million for the settlement of former
shareholders’ appraisal rights claims as a result of the
Acquisition.
Amortization
Expense
Amortization expense for the period October 17, 2005 to
December 31, 2005 was $3.0 million, or 3.1% of sales.
The amortization expense relates to finite-lived intangible
assets that were recorded at fair value on October 17, 2005
as a result of the Acquisition. Amortization expense for the
E&C, D&S and BioMedical segments were
$1.0 million, $1.7 million and $0.3 million,
respectively.
Employee
Separation and Plant Closure Costs
For the period October 17, 2005 to December 31, 2005,
we recorded $0.1 million of employee separation and plant
closure costs, primarily related to the closure of the D&S
segment Plaistow, New Hampshire and BioMedical segment
Burnsville, Minnesota facilities.
Operating
Income
As a result of the foregoing, operating income for the period
October 17, 2005 to December 31, 2005 was
$5.1 million, or 5.2% of sales.
32
Other
Expenses and Income
Net interest expense and amortization of deferred financing
costs for the period October 17, 2005 to December 31,
2005, was $5.6 million and $0.3 million, respectively,
and related to the senior secured credit facility that was
entered into, and the notes that were issued, on
October 17, 2005 in connection with the Acquisition.
Foreign
Currency Loss
We recorded $0.1 million of foreign currency losses due to
certain of our subsidiaries entering into transactions in
currencies other than their functional currencies.
Income
Tax Expense
Income tax benefit of $0.4 million for the period
October 17, 2005 to December 31, 2005 represents taxes
on both domestic and foreign earnings at an annual effective
income tax rate of 49.3%. Our taxes were affected by tax
benefits from foreign sales and research and development and
foreign tax credits.
Net
Loss
As a result of the foregoing, we reported a net loss for the
period October 17, 2005 to December 31, 2005 of
$0.5 million.
January 1,
2005 to October 16, 2005 Period
Sales
Sales for the period January 1, 2005 to October 16,
2005 were $305.5 million. E&C segment sales were
$86.9 million and benefited from volume increases in both
heat exchangers and process systems as a result of strong order
levels over the past several quarters, which have included three
large orders each of approximately $20.0 million, driven by
continued growth in the LNG and natural gas segments of the
hydrocarbon processing market. D&S segment sales were
$161.3 million as bulk storage systems and packaged gas
systems volume remained strong due to continued demand growth in
the global industrial gas market. Other factors contributing
favorably to D&S segment sales for this period were higher
product pricing, and favorable foreign currency translation of
approximately $3.5 million as a result of the weaker
U.S. dollar compared to the Euro and Czech Koruna.
BioMedical segment sales were $57.2 million. Sales of
medical respiratory products were unfavorably affected by lower
volume in the United States, and in particular to one of our
major customers, primarily resulting from announced
U.S. government reimbursement reductions for liquid oxygen
therapy systems. This unfavorable volume trend in
U.S. medical respiratory product sales was partially offset
by continued sales volume growth in medical respiratory product
sales in Europe and Asia and biological storage systems in the
United States, Europe and Asia as we further penetrated
these markets. See the discussion under the caption
“— October 17, 2005 to December 31,
2005 period — Sales” above for information
regarding the BioMedical segment volume trends.
Gross
Profit and Margin
For the period January 1, 2005 to October 16,
2005 gross profit was $88.2 million, or 28.9% of
sales. Overall, gross profit was favorably affected by higher
volumes in the D&S and E&C segments, while gross
profit margin was unfavorably affected by higher manufacturing
costs in the BioMedical segment and a shift in product mix in
the E&C segment. The gross profit margins in the E&C
segment of $23.4 million, or 26.9% of sales, during the
period saw overall mix shifts in sales from higher margin heat
exchanger projects to lower margin process systems projects and
also a shift within heat exchangers to lower margin projects. In
addition, the D&S segment gross profit of
$47.1 million, or 29.2% of sales, benefited from price
increases that were implemented during the year to offset higher
raw material steel costs that had been incurred in previous
years. Gross profit in the BioMedical segment of
$17.7 million, or 30.9% of sales, deteriorated primarily
due to lower U.S. medical respiratory product volume,
higher manufacturing costs and inventory valuation adjustments
of $0.6 million primarily in the first half of 2005, as
33
a result of lower productivity associated with moving the
medical respiratory product line manufacturing from Burnsville,
Minnesota to Canton, Georgia. This transition and
ramp-up
of
manufacturing to the productivity levels previously being
achieved at the Burnsville, Minnesota facility took most of 2005
to complete and cost more than originally planned.
SG&A
SG&A expenses for the period January 1, 2005 to
October 16, 2005 were $57.1 million, or 18.7% of
sales. E&C segment SG&A expenses were
$9.4 million, or 10.8% of sales, and were affected by
higher marketing and employee-related costs to support business
growth, and also included $1.1 million of losses and
charges related to damage caused by Hurricane Rita at our New
Iberia, Louisiana facilities. SG&A expenses for the
D&S segment were $18.0 million, or 11.1% of sales and
were affected by higher marketing and employee-related costs to
support business growth, and also included a $2.8 million
charge for the write-off of in-process research and development
related to the acquisition of Changzhou CEM Cryo Equipment Co.,
Ltd. (“CEM”). SG&A expenses for the BioMedical
segment were $7.0 million, or 12.2% of sales for the period
January 1, 2005 to October 16, 2005. Corporate
SG&A expenses were $22.7 million and included a
$1.1 million charge for the settlement of a finders’
fee claim asserted by a former shareholder in connection with
our 2003 bankruptcy reorganization, and $9.5 million of
stock-based compensation expense. A significant portion of this
stock-based compensation was incurred as a result of the vesting
of stock options in conjunction with the Acquisition.
Amortization
Expense
Amortization expense for the period January 1, 2005 to
October 16, 2005 was $2.7 million, or 0.9% of sales,
and related to finite-lived intangible assets that were recorded
in September 2003 under Fresh-Start accounting and the CEM
acquisition in 2005. Amortization expense for the E&C,
D&S and BioMedical segment was $0.1 million,
$1.5 million and $1.1 million, respectively.
Acquisition
Expenses
During the period January 1, 2005 to October 16, 2005,
we incurred $6.6 million of investment banking, legal and
other professional fees related to the Acquisition.
Employee
Separation and Plant Closure Costs
For the period January 1, 2005 to October 16, 2005, we
recorded $1.1 million of employee separation and plant
closure costs, primarily related to the closure of the D&S
segment Plaistow, New Hampshire and BioMedical segment
Burnsville, Minnesota facilities. The costs (benefits) recorded
for this period by the E&C, D&S and BioMedical
segments, and by Corporate were $0.1 million,
$0.5 million, $0.6 million and ($0.1 million),
respectively.
Gain
on Sale of Assets
We recorded a net gain on the sale of assets of
$0.1 million, including a gain recorded at Corporate of
$1.7 million on the settlement of a promissory note
receivable related to the 2003 sale of our former Greenville
Tube, LLC stainless tubing business, a loss of $0.5 million
recorded at Corporate for the write down of the Plaistow
facility held for sale to its estimated fair value and a
$1.2 million loss for the write-off of several assets that
were deemed to be impaired. This impairment loss was
$0.1 million, $0.9 million and $0.2 million for
the E&C segment, BioMedical segment and Corporate,
respectively.
Operating
Income
As a result of the foregoing, operating income for the period
January 1, 2005 to October 16, 2005 was
$20.9 million, or 6.8% of sales.
34
Net
Interest Expense
Net interest expense for the period January 1, 2005 to
October 16, 2005 was $4.2 million. We experienced
higher interest expense during this period as a result of higher
interest rates and the increase in the outstanding balance under
the revolving credit line of our then existing credit facility.
Foreign
Currency Loss
We recorded $0.7 million of foreign currency losses due to
certain of our subsidiaries entering into transactions in
currencies other than their functional currencies.
Income
Tax Expense
Income tax expense of $7.2 million for the period
January 1, 2005 to October 16, 2005 represents taxes
on both domestic and foreign earnings at an annual effective
income tax rate of 44.6%. Our income tax expense was unfavorably
impacted by approximately $1.4 million due to the
non-deductible charge for purchased in-process research and
development of $2.8 million and Acquisition costs of
$1.2 million.
Net
Income
As a result of the foregoing, we reported net income of
$8.9 million for the period January 1, 2005 to
October 16, 2005.
Orders
and Backlog
We consider orders to be those for which we have received a firm
signed purchase order or other written contractual commitment
from the customer. Backlog is comprised of the portion of firm
signed purchase orders or other written contractual commitments
received from customers that we have not recognized as revenue
upon shipment or under the percentage of completion method.
Backlog can be significantly affected by the timing of orders
for large projects, particularly in the E&C segment, and is
not necessarily indicative of future backlog levels or the rate
at which backlog will be recognized as sales. Orders included in
our backlog may include customary cancellation provisions under
which the customer could cancel part or all of the order at
times subject to the payment of certain costs
and/or
penalties. Our backlog as of December 31, 2007, 2006 and
2005 was $475.3 million, $319.2 million and
$233.6 million, respectively. This significant increase in
backlog is primarily attributable to the growth in the global
industrial gas and the LNG and natural gas segments of the
hydrocarbon processing markets served by the E&C and
D&S segments.
The table below sets forth orders and backlog by segment for the
periods indicated:
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|
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|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
January 1,
|
|
|
|
October 17,
|
|
|
|
|
|
|
|
|
|
|
2005 to
|
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|
|
2005 to
|
|
|
|
|
|
|
|
|
|
|
October 16
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
130,786
|
|
|
|
$
|
67,232
|
|
|
$
|
230,460
|
|
|
$
|
408,020
|
|
|
Distribution & Storage
|
|
|
191,188
|
|
|
|
|
45,859
|
|
|
|
296,136
|
|
|
|
324,698
|
|
|
BioMedical
|
|
|
62,396
|
|
|
|
|
13,768
|
|
|
|
79,171
|
|
|
|
94,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
384,370
|
|
|
|
$
|
126,859
|
|
|
$
|
605,767
|
|
|
$
|
826,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
114,633
|
|
|
|
$
|
147,732
|
|
|
$
|
207,668
|
|
|
$
|
358,784
|
|
|
Distribution & Storage
|
|
|
83,194
|
|
|
|
|
79,524
|
|
|
|
105,070
|
|
|
|
107,011
|
|
|
BioMedical
|
|
|
8,388
|
|
|
|
|
6,383
|
|
|
|
6,415
|
|
|
|
9,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
206,215
|
|
|
|
$
|
233,639
|
|
|
$
|
319,153
|
|
|
$
|
475,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Orders for 2007 were $826.8 million compared to
$605.8 million for 2006, representing an increase of
$221.0 million, or 36.5%. E&C segment orders were
$408.0 million in 2007 and increased $177.5 million or
approximately 77% compared to 2006. This growth in orders was
driven by continued demand across E&C’s target
markets, including LNG, petrochemical, natural gas processing
and industrial gas and $38.2 million of additional air
cooled exchangers. The E&C segment received process system
orders totaling in excess of $130.0 million in 2007 for
four LNG liquefaction trains to be installed in Southeast Asia.
In addition, the E&C segment received an order in the
fourth quarter of 2007 in excess of $25 million for an
ethylene cold box in the Middle East and orders in excess of
$20 million for brazed aluminum heat exchangers for air
separation plants in China and Southeast Asia. D&S segment
orders for 2007 were $324.7 million compared to
$296.1 million for 2006. D&S orders were consistently
strong during 2007 due to continued demand in the global
industrial gas market. Bulk storage system and packaged gas
system orders for the year were $199.3 million and
$125.4 million, respectively. Orders for the BioMedical
segment for 2007 were $94.1 million, an increase of
$14.9 million compared to orders for the year ended
December 31, 2006. Orders for medical respiratory products,
biological storage systems, and MRI components and other liquid
oxygen products were $37.6 million, $43.2 million and
$13.2 million, respectively. The medical respiratory
products and biological systems orders were driven by continued
penetration and growth of the international markets.
Orders for the year ended December 31, 2006 were
$605.8 million. E&C segment orders were
$230.5 million and benefited from the continued strength of
the global industrial gas and LNG and natural gas segments of
the hydrocarbon gas processing market and $19.9 million of
air cooled heat exchangers from the acquisition of CSC in May
2006. In addition, the E&C segment received in the fourth
quarter of 2006 a process systems order in excess of
$40 million for a significant overseas LNG project in West
Africa. D&S segment orders for 2006 were
$296.1 million and were driven by continued growth in the
global industrial gas market. Bulk storage system and packaged
gas system orders were $187.6 million and
$108.5 million, respectively. Orders for the BioMedical
segment for the year ended December 31, 2006 were
$79.2 million. Orders for medical respiratory products,
biological storage systems, and MRI components and other liquid
oxygen products were $34.0 million, $32.5 million and
$12.7 million, respectively. The medical respiratory
products and biological systems orders were driven by continued
penetration and growth of the international markets.
For the period October 17, 2005 to December 31, 2005,
orders were $126.9 million. E&C segment orders of
$67.2 million remained strong during this period and
included several large heat exchanger and LNG systems orders,
including an air separation heat exchanger order of
$16.0 million. D&C segment orders of
$45.9 million were driven by continued strong packaged gas
system orders. Bulk storage systems and packaged gas systems
orders were $26.9 million and $18.9 million,
respectively for this period. BioMedical segment orders were
$13.8 million during this period as medical respiratory
orders in the European and Asian market and U.S. biological
storage system products order levels remained strong, while
U.S. medical respiratory product orders continued to
decline. This decline is explained further below.
Orders for the period January 1, 2005 to October 16,
2005 were $384.4 million. E&C segment orders of
$130.8 million remained strong during this period and
included a $21.0 million LNG VIP order and a
$10.7 million hydrocarbon processing heat exchanger order.
D&C segment orders of $191.2 million were driven by
continued strong bulk storage systems orders and strong packaged
gas system orders, which were $118.5 million and
$72.7 million, respectively. This strong order level in the
D&S segment was driven by continued demand in the global
industrial gas markets served by us. BioMedical segment orders
were $62.4 million, as orders for international medical
respiratory products and U.S. biological storage system
products continued favorable growth trends due to both continued
market penetration and market growth. U.S. medical
respiratory product orders during this period were unfavorably
impacted by lower orders from a significant customer and
announced government reimbursement reductions for liquid oxygen
therapy systems.
Liquidity
and Capital Resources
On July 31, 2006, we completed our IPO of 12,500,000 shares
of our common stock for cash proceeds, before expenses, of
$175.3 million. We used $25.0 million of the net proceeds to
repay a portion of the term loan under our senior secured credit
facility. The remaining $150.3 million of net proceeds was used
to pay a dividend to our stockholders existing immediately prior
to the IPO, consisting of affiliates of First Reserve and
certain members of
36
management. On August 25, 2006, a stock dividend of
1,875,000 shares was issued to the stockholders existing
immediately prior to the completion of the IPO.
Debt
Instruments and Related Covenants
In connection with the Acquisition, the Company entered into a
$240.0 million senior secured credit facility, which was later
amended upon completion of the IPO in July 2006. The senior
secured credit facility consists of a $180.0 million term loan
facility and a $115.0 million revolving credit facility, of
which the entire $115.0 million may be used for the issuance of
letters of credit and bank guarantees and $55.0 million may be
used for letters of credit extending more than one year from
their date of issuance. The term loan facility matures on
October 17, 2012 and the revolving credit facility matures
on October 17, 2010.
On June 12, 2007, the Company completed a secondary offering of
12.6 million shares. The secondary shares were sold by FR X
Chart Holdings LLC and certain members of the Company’s
management. Our underwriters exercised their option to acquire
1.9 million shares to cover over-allotments in full as part of
the offering. The net proceeds of $38.0 million received by the
Company from the exercise of the over-allotment option were used
to make a $40.0 million voluntary principal payment under the
term loan portion of the senior secured credit facility.
As of December 31, 2007, the Company had $80.0 million
outstanding under the term loan portion of the senior secured
credit facility, $170.0 million outstanding under our
senior subordinated notes and $36.0 million of letters of
credit and bank guarantees supported by the revolving portion of
the senior credit facility. Availability on the revolving
portion of the senior secured credit facility was
$79.0 million at December 31, 2007. The Company is in
compliance with all covenants, including its financial
covenants, under the senior secured credit facility and senior
subordinated notes.
The registration rights agreement related to the senior
subordinated notes required the Company to file an Exchange
Offer Registration Statement and complete the exchange offer for
the senior subordinated notes by August 14, 2006. Since the
exchange offer was not completed when required, additional
interest at a rate of 0.25% was incurred for the
90-day
period commencing August 14, 2006, additional interest at a
rate of 0.50% was incurred for the
90-day
period commencing November 12, 2006 and additional interest
at a rate of 0.75% was incurred for the
90-day
period commencing February 10, 2007. The exchange offer was
completed on April 6, 2007 and the additional interest
ceased accruing as of that date.
Chart Ferox, a.s., or Ferox, our wholly-owned subsidiary that
operates in the Czech Republic, maintains secured revolving
credit facilities with borrowing capacity including overdraft
protection, of up to $9.6 million, of which $4.4 million is
available only for letters of credit and bank guarantees.
Our debt and related covenants are further described in Note C
to our consolidated financial statements included elsewhere in
this report.
Sources
and Uses of Cash
Years
Ended December 31, 2007 and 2006
Cash provided by operating activities for the year ended
December 31, 2007 was $82.5 million compared to cash
provided of $36.4 million for the year ended
December 31, 2006. The increase of $46.1 million was
driven by increased net income of $17.3 million, non-cash
operating activity increases of $4.4 million, particularly
stock-based compensation expense, and cash generated from
improved working capital management of $24.4 million.
Cash used by investing activities for the years ended
December 31, 2007 and 2006 was $18.5 million and
$38.7 million, respectively. Capital expenditures for 2007
were $19.0 million compared with $22.3 million for
2006. The 2007 capital expenditures were primarily for continued
expansion of the E&C segment brazed aluminum heat exchanger
facility in La Crosse, Wisconsin and the D&S segment
facility in China to support business growth and normal
equipment purchases and replacements to increase automation and
improve efficiency across all facilities. The 2006 capital
expenditures primarily consisted of E&C segment brazed
aluminum heat exchanger and process system facility expansions
and D&S segment bulk tank facility expansions. In 2007,
$1.6 million of cash was used to purchase the remaining
interest of Chart Ferox a.s. and $2.1 million of cash
proceeds were received
37
from the sale of the Plaistow, New Hampshire facility that was
closed in 2004. In 2006, $15.9 million of cash was used to
acquire CSC.
For the year ended December 31, 2007, cash provided by
financing activities was $7.4 million compared to cash
provided of $9.2 million for the year ended
December 31, 2006. During 2007, $38.3 million of
proceeds were received from the exercise of the
underwriters’ over-allotment option in conjunction with the
Company’s secondary stock offering completed in June, 2007
and $4.8 million in proceeds were received from the
exercise of stock options. In May 2007, the Company received
$1.3 million in contributions from its joint venture
partners to fund a new joint venture based in China for
manufacture of cryogenic trailers. Also in 2007,
$40.0 million of cash was used for a voluntary principal
prepayment under the term loan portion of our senior secured
credit facility. In 2006, $211.7 million in proceeds was
received from the IPO and warrant and option exercises. A cash
dividend of $150.3 million was paid in 2006 to stockholders
existing immediately prior to the completion of the IPO. Also in
2006, $55.0 million was used for voluntary principal
prepayments under the term loan portion of our senior secured
credit facility and $1.5 million was used to repay seller
notes related to the Changzhou CEM Cryo
Equipment Co. Ltd. (“CEM”) acquisition.
October 17,
2005 to December 31, 2005 Period
Cash provided by operating activities for the period
October 17, 2005 to December 31, 2005 was
$14.6 million, which included cash provided by changes in
working capital components of $3.5 million.
During the period October 17, 2005 to December 31,
2005, we used $362.3 million of cash for investing
activities. Cash of $356.6 million was used to pay proceeds
to our former shareholders as a result of the Acquisition and
$5.6 million was used for capital expenditures.
The significant capital expenditures were for the construction
of the new manufacturing facility in China, the expansion of the
biological storage product line manufacturing facility in New
Prague, Minnesota and reinvestment to upgrade existing
facilities to support business growth.
Cash provided by financing activities for the period
October 17, 2005 to December 31, 2005, was
$348.5 million. In connection with the Acquisition, we
received proceeds of $350.0 million from the senior secured
credit facility and senior subordinated notes and proceeds of
$111.3 million from the sale of stock to affiliates of
First Reserve. These proceeds were used to pay our former
shareholders, repay $76.5 million of long-term debt under
our senior credit facility entered into in 2003, or 2003 Credit
Facility, pay former stock option holders $15.8 million and
pay financing and transaction costs of $11.6 million and
$1.8 million, respectively. In addition, we made a
voluntary principal prepayment of $5.0 million on the term
loan.
January 1,
2005 to October 16, 2005 Period
Cash provided by operating activities for the period
January 1, 2005 to October 16, 2005 was
$15.6 million and included cash used in working capital
components of $10.6 million to support the growth in
business, particularly in the E&C and D&S segments.
During the period January 1, 2005 to October 16, 2005,
we used $20.8 million of cash for investing activities.
Cash of $12.0 million, net of cash acquired, was used to
acquire 100% of the equity interest in CEM. The CEM acquisition
is further described in the notes to our consolidated financial
statements included elsewhere in Item 8 of this Annual
Report on
Form 10-K.
Cash used for capital expenditures for the period was
$11.0 million. The significant capital expenditures were
for the construction of the new manufacturing facility in China,
the expansion of the biological storage product line
manufacturing facility in New Prague, Minnesota and
reinvestments to upgrade existing facilities to support growth
in our businesses. In addition, we received proceeds of
$1.7 million from the settlement of a promissory note
related to the 2003 sale of our former Greenville Tube, LLC
stainless steel tubing business.
For the period January 1, 2005 to October 16, 2005,
$1.7 million of cash was provided by financing activities.
We borrowed $18.9 million under our revolving credit
facilities, including $10.0 million in the second quarter
of 2005 under the revolving credit portion of the 2003 Credit
Facility to finance our acquisition of CEM. In addition, we made
net payments under the revolving credit portion of our 2003
Credit Facility and other revolving credit facilities of
$15.9 million and $1.9 million of scheduled principal
payments under the term loan portion of the 2003
38
Credit Facility, and $1.1 million of payments on other
long-term debt. Proceeds from the sale of stock during this
period were $1.7 million.
Cash
Requirements
The Company does not anticipate any unusual cash requirements
for working capital needs for the year ending December 31,
2008. We expect capital expenditures for 2008 to be in the range
of $18.0 to $20.0 million and primarily for continued
expansion and automation at existing manufacturing facilities to
support business growth and improve efficiency.
In 2008, the Company is forecasting to use approximately
$21.3 million for scheduled interest payments under the
senior secured credit facility and senior subordinated notes. We
are not required to make any scheduled principal payments in
2008 under the term loan portion of our senior secured credit
facility or senior subordinated notes, but we will consider
making voluntary principal payments on our senior secured credit
facility or repurchasing our senior subordinated notes on the
open market with excess cash flow that is generated. In
addition, we are forecasting to use approximately $31.0 to
$33.0 million of cash to pay U.S. and foreign income
taxes and approximately $0.5 million of cash to fund our
defined benefit pension plans under ERISA funding requirements.
Contractual
Obligations
Our known contractual obligations as of December 31, 2007
and cash requirements resulting from those obligations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
Thereafter
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Long-term debt
|
|
$
|
250,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80,000
|
|
|
$
|
170,000
|
|
|
Interest on long-term debt(1)
|
|
|
152,051
|
|
|
|
21,342
|
|
|
|
42,684
|
|
|
|
41,487
|
|
|
|
46,538
|
|
|
Operating leases
|
|
|
18,541
|
|
|
|
3,520
|
|
|
|
6,837
|
|
|
|
4,682
|
|
|
|
3,502
|
|
|
Pension obligations
|
|
|
686
|
|
|
|
526
|
|
|
|
160
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
421,278
|
|
|
$
|
25,388
|
|
|
$
|
49,681
|
|
|
$
|
126,169
|
|
|
$
|
220,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The interest payments in the above table were estimated based
upon our existing debt structure at December 31, 2007,
which included the senior secured credit facility and senior
subordinated notes, less scheduled debt payments each year, and
the interest rates in effect at December 31, 2007. The
planned funding of the pension obligations was based upon
actuarial and management estimates taking into consideration the
current status of the plans.
|
Not included in the above table are unrecognized tax benefits of
$4,347 at December 31, 2007.
Our commercial commitments as of December 31, 2007, which
include standby letters of credit and bank guarantees, represent
potential cash requirements resulting from contingent events
that require performance by us or our subsidiaries pursuant to
funding commitments, and are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-2010
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Standby letters of credit
|
|
$
|
18,971
|
|
|
$
|
16,047
|
|
|
$
|
2,924
|
|
|
Bank guarantees
|
|
|
17,594
|
|
|
|
12,060
|
|
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
36,565
|
|
|
$
|
28,107
|
|
|
$
|
8,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in
the Securities Act.
39
Contingencies
We are involved with environmental compliance, investigation,
monitoring and remediation activities at certain of our
operating facilities, and accrue for these activities when
commitments or remediation plans have been developed and when
costs are probable and can be reasonably estimated. Historical
annual cash expenditures for these activities have been charged
against the related environmental reserves. Future expenditures
relating to these environmental remediation efforts are expected
to be made over the next 8 to 14 years as ongoing costs of
remediation programs. Management believes that any additional
liability in excess of amounts accrued, which may result from
the resolution of such matters should not have a material
adverse effect on our financial position, liquidity, cash flows
or results of operations.
In March 2003, CHEL filed for a voluntary administration under
the U.K. Insolvency Act of 1986. It is uncertain whether we will
be subject to any significant liability resulting from
CHEL’s insolvency administration.
We are occasionally subject to various other legal claims
related to performance under contracts, product liability, taxes
and other matters, several of which claims assert substantial
damages, in the ordinary course of our business. Based on our
historical experience in litigating these claims, as well as our
current assessment of the underlying merits of the claims and
applicable insurance, if any, we believe the resolution of these
other legal claims will not have a material adverse effect on
our financial position, liquidity, cash flows or results of
operations. Future developments may, however, result in
resolution of these legal claims in a way that could have a
material adverse effect. See Item 1A, “Risk
Factors.”
Foreign
Operations
During 2007, we had operations in Australia, China, the Czech
Republic, Germany and the United Kingdom, which accounted for
approximately 27.0% of consolidated sales and 24.0% of total
assets at December 31, 2007. Functional currencies used by
these operations include the Australian Dollar, the Chinese
Renminbi Yuan, the Czech Koruna, the Euro and the British Pound.
We are exposed to foreign currency exchange risk as a result of
transactions by these subsidiaries in currencies other than
their functional currencies, and from transactions by our
domestic operations in currencies other than the
U.S. Dollar. The majority of these functional currencies
and the other currencies in which we record transactions are
fairly stable. The use of these currencies, combined with the
use of foreign currency forward purchase and sale contracts, has
enabled us to be sheltered from significant gains or losses
resulting from foreign currency transactions. This situation
could change if these currencies experience significant
fluctuations in their value as compared to the U.S. Dollar.
Application
of Critical Accounting Policies
Our consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting
principles and are based on the selection and application of
significant accounting policies, which require management to
make estimates and assumptions. Management believes the
following are some of the more critical judgmental areas in the
application of its accounting policies that affect its financial
position and results of operations.
Allowance for Doubtful Accounts.
We evaluate
the collectibility of accounts receivable based on a combination
of factors. In circumstances where we are aware of a specific
customer’s inability to meet its financial obligations
(e.g., bankruptcy filings, substantial downgrading of credit
scores), a specific reserve is recorded to reduce the receivable
to the amount we believe will be collected. We also record
allowances for doubtful accounts based on the length of time the
receivables are past due and historical experience. If
circumstances change (e.g., higher-than-expected defaults or an
unexpected material adverse change in a customer’s ability
to meet its financial obligations), our estimates of the
collectibility of amounts due could be changed by a material
amount.
Inventory Valuation Reserves.
We determine
inventory valuation reserves based on a combination of factors.
In circumstances where we are aware of a specific problem in the
valuation of a certain item, a specific reserve is recorded to
reduce the item to its net realizable value. We also recognize
reserves based on the actual usage in recent history and
projected usage in the near-term. If circumstances change (e.g.,
lower-than-expected or higher-than-expected usage), estimates of
the net realizable value could be changed by a material amount.
40
Long-Lived Assets.
We monitor our long-lived
assets for impairment indicators on an ongoing basis in
accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” If impairment
indicators exist, we perform the required analysis and record
impairment charges in accordance with SFAS No. 144. In
conducting our analysis, we compare the undiscounted cash flows
expected to be generated from the long-lived assets to the
related net book values. If the undiscounted cash flows exceed
the net book value, the long-lived assets are considered not to
be impaired. If the net book value exceeds the undiscounted cash
flows, an impairment loss is measured and recognized. An
impairment loss is measured as the difference between the net
book value and the fair value of the long-lived assets. Fair
value is estimated based upon either discounted cash flow
analyses or estimated salvage values. Cash flows are estimated
using internal forecasts as well as assumptions related to
discount rates. Changes in economic or operating conditions
impacting these estimates and assumptions could result in the
impairment of long-lived assets.
Goodwill and Other Indefinite-Lived Intangible
Assets.
Under SFAS No. 142,
“Goodwill and Other Intangible Assets”, we evaluate
goodwill and indefinite-lived intangible assets for impairment
on an annual basis. To test for impairment, we are required to
estimate the fair market value of each of our reporting units.
We developed a model to estimate the fair market value of our
reporting units. This fair market value model incorporates our
estimates of future cash flows, estimates of allocations of
certain assets and cash flows among reporting units, estimates
of future growth rates and management’s judgment regarding
the applicable discount rates to use to discount those estimated
cash flows. Changes to these judgments and estimates could
result in a significantly different estimate of the fair market
value of the reporting units, which could result in a different
assessment of the recoverability of goodwill and other
indefinite-lived intangible assets.
Pensions.
We account for our defined benefit
pension plans in accordance with SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pensions
and Other Postretirement Benefit Plans — an amendment
of FASB Statements No. 87, 88, 106 and 132(R),” which
requires that the Company recognize the funded status of its
benefit plans in the balance sheet. The funded status is
measured as the difference between the fair value of the plan
assets and the projected benefit obligation. The Company
recognizes the change in the funded status of the plan in the
year in which the change occurs through accumulated other
comprehensive income. Our funding policy is to contribute at
least the minimum funding amounts required by law.
SFAS No. 158 and the policies used by us, notably the
use of a calculated value of plan assets (which is further
described below), generally reduce the volatility of pension
(income) expense from changes in pension liability discount
rates and the performance of the pension plans’ assets.
A significant element in determining our pension expense in
accordance with SFAS No. 158 is the expected return on
plan assets. We have assumed that the expected long-term rate of
return on plan assets as of December 31, 2007 will be
8.25%. These expected return assumptions were developed using a
simple averaging formula based upon the plans’ investment
guidelines and the historical returns of equities and bonds.
While over the long term, the investment strategy employed with
our pension plan assets has earned in excess of such rates, we
believe our assumptions for expected future returns are
reasonable. However, we cannot guarantee that we will achieve
these returns in the future. The assumed long-term rate of
return on assets is applied to the market value of plan assets.
This produces the expected return on plan assets that reduces
pension expense. The difference between this expected return and
the actual return on plan assets is deferred. The net deferral
of past asset gains or losses affects the calculated value of
plan assets and, ultimately, future pension income or expense.
At the end of each year, we determine the rate to be used to
discount plan liabilities. The discount rate reflects the
current rate at which the pension liabilities could be
effectively settled at the end of the year. In estimating this
rate, we look to rates of return on high quality, fixed-income
investments that receive one of the two highest ratings given by
a recognized rating agency and the expected timing of benefit
payments under the plan. At December 31, 2007, we
determined this rate to be 6.00%. Changes in discount rates over
the past three years have not materially affected pension
(income) expense, and the net effect of changes in the discount
rate, as well as the net effect of other changes in actuarial
assumptions and experience, has been deferred as allowed by
SFAS No. 158.
At December 31, 2007, our consolidated net pension
liability recognized was $4.2 million, an increase of
$0.9 million from December 31, 2006. This increase in
liability was due to an actuarial change in mortality tables and
benefit payments of $1.2 million partially offset by the
increase in the fair value of plan assets during 2007 and
employer contributions to the plans of $0.7 million. For
the year ended December 31, 2007, the year ended
41
December 31, 2006, the period October 17, 2005 to
December 31, 2005 and the period January 1, 2005 to
October 16, 2005, we recognized approximately
$0.7 million, $0.4 million, $0.01 million and
$0.2 million, respectively, of pension income. The pension
income has increased in 2007 compared to 2006 primarily due to a
higher return on assets and the elimination of service costs in
2006 as the last one of our four plans was frozen in February
2006.
Environmental Remediation Obligations.
Our
obligation for known environmental problems at our current and
former manufacturing facilities have been recognized on an
undiscounted basis based on estimates of the cost of
investigation and remediation at each site. Management reviews
our environmental remediation sites quarterly to determine if
additional cost adjustments or disclosures are required. The
characteristics of environmental remediation obligations, where
information concerning the nature and extent of
clean-up
activities is not immediately available and changes in
regulatory requirements frequently occur, result in a
significant risk of increase to the obligations as they mature.
Expected future expenditures are not discounted to present value
and potential insurance recoveries are not recognized until
realized.
Product Warranty Costs.
We estimate product
warranty costs and accrue for these costs as products are sold.
The warranty reserve includes both a general reserve component,
calculated based upon historical experience over the warranty
period for each product and a specific reserve component for any
specifically identified warranty issues. Due to the uncertainty
and potential volatility of these warranty estimates, changes in
assumptions could materially affect net income.
Revenue Recognition — Long-Term
Contracts.
We recognize revenue and gross profit
as work on long-term contracts progresses using the percentage
of completion method of accounting, which relies on estimates of
total expected contract revenues and costs. We follow this
method since reasonably dependable estimates of the revenue and
costs applicable to various stages of a contract can be made.
Since the financial reporting of these contracts depends on
estimates, which are assessed continually during the term of the
contract, recognized revenues and profit are subject to
revisions as the contract progresses toward completion.
Revisions in profit estimates are reflected in the period in
which the facts that give rise to the revision become known.
Accordingly, favorable changes in estimates result in additional
profit recognition, and unfavorable changes will result in the
reversal of previously recognized revenue and profits. When
estimates indicate a loss is expected to be incurred under a
contract, cost of sales is charged with a provision for such
loss. As work progresses under a loss contract, revenue and cost
of sales continue to be recognized in equal amounts, and the
excess of costs over revenues is charged to the contract loss
reserve. Change orders resulting in additional revenue and
profit are recognized upon approval by the customer based on the
percentage that incurred costs to date bear to total estimated
costs at completion. We use the percentage of completion method
of accounting primarily in the E&C segment.
Stock-based Employee Compensation.
Stock
compensation expense is calculated in accordance with
SFAS No. 123 (R) “Share-Based Payment”.
SFAS No. 123(R) requires that the fair value of
options and performance condition stock awards be calculated
using an option-pricing model such as the Black-Scholes model.
The grant date fair value calculation requires the use of
variables such as exercise term of the option, future
volatility, dividend yield and risk-free interest rate. The fair
value of stock awards which vest based on a market condition is
calculated using a pricing model such as the Monte Carlo
Simulation model. Compensation expense is recognized over the
vesting period of the option or term of the stock award after
consideration of the estimated forfeiture rates.
Recently
Adopted Accounting Standards
In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48. “Accounting for
Uncertainty in Income Taxes — an interpretation of
FASB Statement No. 109” (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes by
prescribing thresholds and attributes for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The interpretation also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, and disclosure. The
Company adopted FIN 48 on January 1, 2007 with no
material impact on its financial position, results of
operations, liquidity or cash flows. See Note F to the
Company’s consolidated financial statements included in
Item 8 of this Annual Report on
Form 10-K.
42
Recently
Issued Accounting Standards
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, “Fair Value
Measurements” (SFAS No. 157) which is
effective for fiscal years beginning after November 15,
2007. SFAS No. 157 defines fair value to be applied to
U.S. GAAP guidance requiring use of fair value, establishes
a framework for measuring fair value and expands the disclosure
requirements for fair value measurements. The Company does not
expect the adoption of SFAS No. 157 to have a material
effect on its financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — including an amendment of FASB Statement
No. 115”. SFAS No. 159 provides entities
with an option to report selected financial assets and
liabilities at fair value. SFAS No. 159 is effective
for the Company’s fiscal year beginning 2008. The Company
does not expect the adoption of SFAS No. 159 to have a
material effect on its financial position or results of
operations.
In December 2007, SFAS No. 141 (R),
“Business Combinations” was issued.
SFAS No. 141 (R) requires the acquiring entity in
a business combination to recognize the full fair value of the
assets acquired and liabilities assumed in the transaction at
the acquisition date, the immediate recognition of
acquisition-related transaction costs and the recognition of
contingent consideration arrangements at their acquisition date
fair value. SFAS No. 141 (R) is effective for
acquisitions that occur on or after the beginning of the fiscal
year beginning on or after December 15, 2008.
SFAS No. 141 (R) will impact the Company’s
financial position and results of operations for any business
combinations entered into after the date of adoption.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51”.
SFAS No. 160 requires entities to report
noncontrolling (formerly known as minority) interests as a
component of shareholders’ equity on the balance sheet.
SFAS No. 160 will be effective for fiscal years
beginning on or after December 15, 2008. The Company is
currently evaluating the impact of adoption on its financial
position and results of operations.
Forward-Looking
Statements
This Annual Report on
Form 10-K
includes “forward-looking statements.” These
forward-looking statements include statements relating to our
business. In some cases, forward-looking statements may be
identified by terminology such as “may,”
“should,” “expects,”
“anticipates,” “believes,”
“projects,” “forecasts,”
“continue” or the negative of such terms or comparable
terminology. Forward-looking statements contained herein
(including future cash contractual obligations) or in other
statements made by us are made based on management’s
expectations and beliefs concerning future events impacting us
and are subject to uncertainties and factors relating to our
operations and business environment, all of which are difficult
to predict and many of which are beyond our control, that could
cause our actual results to differ materially from those matters
expressed or implied by forward-looking statements. We believe
that the following factors, among others (including those
described in “Item 1A. Risk Factors”), could
affect our future performance and the liquidity and value of our
securities and cause our actual results to differ materially
from those expressed or implied by forward-looking statements
made by us or on our behalf:
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•
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the cyclicality of the markets which we serve;
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•
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the loss of, or a significant reduction or delay in purchases
by, our largest customers;
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•
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competition in our markets;
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•
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general economic, political, business and market risks
associated with our
non-U.S. operations;
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•
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our ability to successfully manage our growth;
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•
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the loss of key employees;
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•
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the pricing and availability of raw materials and our ability to
manage our fixed-price contract exposure, including exposure to
fixed pricing on long-term customer contracts;
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43
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•
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our ability to successfully acquire or integrate companies that
provide complementary products or technologies;
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•
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our ability to continue our technical innovation in our product
lines;
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•
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the impairment of our goodwill and other indefinite-lived
intangible assets;
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•
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the costs of compliance with environmental, health and safety
laws and responding to potential liabilities under these laws;
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•
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the insolvency of our formerly consolidated subsidiary, Chart
Heat Exchangers Limited, or CHEL, and CHEL’s administration
proceedings in the United Kingdom, including claims that may be
asserted against us with respect to CHEL’s obligations;
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•
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litigation and disputes involving us, including the extent of
product liability, warranty, pension and severance claims
asserted against us;
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labor costs and disputes and our relations with our employees;
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fluctuations in foreign currency exchange and interest rates;
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disruptions in our operations due to hurricanes or other severe
weather;
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our ability to protect our intellectual property and know-how;
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claims that our products or processes infringe intellectual
property rights of others;
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regulations governing the export of our products;
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•
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additional liabilities related to taxes;
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•
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risks associated with our substantial indebtedness, leverage,
debt service and liquidity; and
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other factors described in this Annual Report.
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There may be other factors that may cause our actual results to
differ materially from the forward-looking statements.
All forward-looking statements attributable to us or persons
acting on our behalf apply only as of the date of this Annual
Report and are expressly qualified in their entirety by the
cautionary statements included in this Annual Report. We
undertake no obligation to update or revise forward-looking
statements which may be made to reflect events or circumstances
that arise after the date made or to reflect the occurrence of
unanticipated events.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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In the normal course of business, our operations are exposed to
continuing fluctuations in foreign currency values and interest
rates that can affect the cost of operating and financing.
Accordingly, we address a portion of these risks through a
program of risk management.
Our primary interest rate risk exposure results from the current
senior secured credit facility’s various floating rate
pricing mechanisms. If interest rates were to increase
200 basis points (2%) from December 31, 2007 rates,
and assuming no changes in debt from the December 31, 2007
levels, our additional annual expense would be approximately
$1.6 million on a pre-tax basis.
The Company has assets, liabilities and cash flows in foreign
currencies creating exposure to foreign currency exchange
fluctuations in the normal course of business. Chart’s
primary exchange rate exposure is with the Euro, the British
pound, the Czech koruna and the Chinese yuan. Monthly
measurement, evaluation and forward exchange rate contracts are
employed as methods to reduce this risk. The Company enters into
foreign exchange forward contracts to hedge anticipated and
firmly committed foreign currency transactions. Chart does not
use derivative financial instruments for speculative or trading
purposes. The terms of the contracts are one year or less. The
Company held immaterial positions in foreign exchange forward
contracts at December 31, 2007.
44
Covenant
Compliance
We believe that our senior secured credit facility and the
indenture governing our outstanding senior subordinated notes
are material agreements, that the covenants are material terms
of these agreements and that information about the covenants is
material to an investor’s understanding of our financial
condition and liquidity. The breach of covenants in the senior
secured credit facility that are tied to ratios based on
Adjusted EBITDA, as defined below, could result in a default
under the senior secured credit facility and the lenders could
elect to declare all amounts borrowed due and payable. Any such
acceleration would also result in a default under our indenture.
Additionally, under the senior secured credit facilities and
indenture, our ability to engage in activities such as incurring
additional indebtedness, making investments and paying dividends
is also tied to ratios based on Adjusted EBITDA.
Covenant levels and pro forma ratios for the four quarters ended
December 31, 2007 are as follows:
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Four Quarters Ended
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December 31, 2007
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Covenant Level
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Ratio
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Senior Secured Credit Facility(1)
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Minimum Adjusted EBITDA to cash interest ratio
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2.00
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x
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5.15
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x
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Maximum funded indebtedness to Adjusted EBITDA ratio
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6.00
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x
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1.38
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x
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Indenture(2)
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Minimum pro forma Adjusted EBITDA to pro forma fixed charge
coverage ratio required to incur additional debt pursuant to
ratio provisions(3)
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2.0
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x
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5.2x
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(1)
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The senior secured credit facility requires us to maintain an
Adjusted EBITDA to cash interest ratio starting at a minimum of
1.75x and a funded indebtedness to Adjusted EBITDA ratio
starting at a maximum of 6.50x. Failure to satisfy these ratio
requirements would constitute a default under the senior secured
credit facility. If lenders under the senior secured credit
facility failed to waive any such default, repayment obligations
under the senior secured credit facility could be accelerated,
which would also constitute a default under the indenture.
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(2)
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Our ability to incur additional debt and make certain restricted
payments under our indenture, subject to specified exceptions,
is tied to an Adjusted EBITDA to fixed charge ratio of at least
2.0 to 1.0.
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(3)
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The ratio is calculated giving pro forma effect to the
Acquisition and the incurrence of debt under the indenture and
the senior secured credit facility.
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*Adjusted EBITDA as used herein is defined as net income before
interest expense, provision for income taxes, depreciation and
amortization and further adjusted to exclude non-recurring
items, non-cash items and other adjustments permitted in
calculating covenants contained in the related senior secured
credit facility and indenture governing the senior subordinated
notes.
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Item 8.
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Financial
Statements and Supplementary Data.
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Our Financial Statements and the accompanying Notes that are
filed as part of this Annual Report are listed under
“Part IV, Item 15, Exhibits and Financial
Statement Schedules” and are set forth beginning on
page F-1
immediately following the signature page of this
Form 10-K.
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Item 9.
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Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
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None.
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Item 9A.
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Controls
and Procedures.
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Evaluation
of Disclosure Controls and Procedures.
As of December 31, 2007, an evaluation was performed, under
the supervision and with the participation of the Company’s
management including the Company’s Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design
and operation of the Company’s disclosure controls and
procedures pursuant to
Rule 13a-15
under the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”). Based upon that
45
evaluation, such officers concluded that the Company’s
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act (1) is
recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange
Commission’s rules and forms and (2) is accumulated
and communicated to the Company’s management including the
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow for timely decisions regarding required
disclosure.
Management’s
Report on Internal Control Over Financial
Reporting.
Management’s Report on Internal Control Over Financial
Reporting and the attestation report of Ernst & Young
LLP, the Company’s independent registered public accounting
firm, are set forth on pages F-2 and F-4, respectively of this
Annual Report on
Form 10-K
and incorporated herein by reference.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2007 has been
audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in its attestation
report which is set forth in Item 8, “Financial
Statements and Supplementary Data,” under the caption
“Report of Independent Registered Public Accounting
Firm” and incorporated herein by reference.
Changes
in Internal Control over Financial Reporting
There were no changes in the Company’s internal control
over financial reporting that occurred during the Company’s
most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
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Item 9B.
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Other
Information.
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None.
PART III
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Item 10.
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Directors
and Executive Officers of the Registrant.
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Information required by this item as to the Directors of the
Company appearing under the caption “Election of
Directors” in the Company’s 2008 Proxy Statement is
incorporated herein by reference. Information required by this
item as to the Executive Officers of the Company is included as
Item 4A of Part I of this Annual Report on
Form 10-K
as permitted by Instruction 3 to Item 401(b) of
Regulation S-K.
Information required by Item 405 is set forth in the 2008
Proxy Statement under the heading “Section 16(a)
Beneficial Ownership Reporting Compliance” which
information is incorporated herein by reference. Information
required by Items 406 and 407(c)(3), (d)(4) and (d)(5) of
Regulation S-K
is set forth in the 2008 Proxy Statement under the heading
“Information Regarding Meetings and Committees of the Board
of Directors” which information is incorporated herein by
reference.
The Charters of the Audit Committee, Compensation Committee and
Nominations and Corporate Governance Committee and the Corporate
Governance Guidelines, Officer Code of Ethics and Code of
Ethical Business Conduct are available on the Company’s
website at www.chart-ind.com and in print to any stockholder who
requests a copy. Requests for copies should be directed to
General Counsel, Chart Industries, Inc., One Infinity Corporate
Centre Drive, Suite 300, Garfield Heights, Ohio 44125. The
Company intends to disclose any amendments to the Code of
Ethical Business Conduct or Officer Code of Ethics, and any
waiver of the Code of Ethical Business Conduct or Officer Code
of Ethics granted to any Director or Executive Officer of the
Company, on the Company’s website.
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Item 11.
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Executive
Compensation.
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The information required by Item 402 of
Regulation S-K
is set forth in the 2008 Proxy Statement under the heading
“Executive and Director Compensation,” which
information is incorporated herein by reference. The information
required by Items 407(e)(4) and 407(e)(5) of
Regulation S-K
is set forth in the 2008 Proxy Statement
46
under the headings “Compensation Committee Interlocks and
Insider Participation” and “Compensation Committee
Report,” respectively, which information is incorporated
herein by reference.
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
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The information required by this item is set forth in the 2008
Proxy Statement under the headings “Security Ownership of
Certain Beneficial Owners” and “Equity Compensation
Plan Information,” which information is incorporated herein
by reference.
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Item 13.
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Certain
Relationships and Related Transactions, and Director
Independence.
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The information required by this item is set forth in the 2008
Proxy Statement under the headings “Related Party
Transactions” and “Director Independence,” which
information is incorporated herein by reference.
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Item 14.
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Principal
Accountant Fees and Services.
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The information required by this item is set forth in the 2008
Proxy Statement under the heading “Principal Accountant
Fees and Services,” which information is incorporated
herein by reference.
PART IV
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Item 15.
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Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as part of this 2007
Annual Report on
Form 10-K:
1.
Financial Statements.
The
following consolidated financial statements of the Company and
its subsidiaries and the reports of the Company’s
independent registered public accounting firm are incorporated
by reference in Item 8:
Management’s Report on Internal Control over Financial
Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets (Company) at December 31, 2007
and 2006 (Company)
Consolidated Statements of Operations for the year ended
December 31, 2007 (Company), the year ended
December 31, 2006 (Company), the period from
October 17, 2005 to December 31, 2005 (Company) and
the period from January 1, 2005 through October 16,
2005 (Predecessor Company)
Consolidated Statements of Shareholders’ Equity for the
year ended December 31, 2007 (Company), the year ended
December 31, 2006 (Company), the period from
October 17, 2005 through December 31, 2005 (Company)
and the period from January 1, 2005 through
October 16, 2005 (Predecessor Company).
Consolidated Statements of Cash Flows for the year ended
December 31, 2007 (Company), the year ended
December 31, 2006 (Company), the period from
October 17, 2005 through December 31, 2005 (Company)
and the period from January 1, 2005 through
October 16, 2005 (Predecessor Company).
Notes to Consolidated Financial Statements
2.
Financial Statement
Schedules.
The financial statements are set
forth under Item 8 of this Annual Report on Form 10-K.
Financial statement schedules have been omitted since they are
either not required, not applicable, or the information is
otherwise included.
3.
Exhibits.
See the Index to Exhibits at
page E-1
of this Annual Report on
Form 10-K.
47
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.
Samuel F. Thomas
Chairman, Chief Executive Officer and President
Date: February 28, 2008
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
and Title
|
|
|
|
|
|
|
|
|
|
|
/s/ Samuel
F. Thomas
Samuel
F. Thomas
|
|
Chairman, Chief Executive Officer,
President and a Director
|
|
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
|
|
|
|
|
/s/ James
H. Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Chief Accounting Officer, Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
|
|
/s/ Richard
E. Goodrich
Richard
E. Goodrich
|
|
Director
|
|
|
|
|
|
/s/ Steven
W. Krablin
Steven
W. Krablin
|
|
Director
|
|
|
|
|
|
/s/ Michael
W. Press
Michael
W. Press
|
|
Director
|
|
|
|
|
|
/s/ James
M. Tidwell
James
M. Tidwell
|
|
Director
|
Date:
February 28, 2008
48
INDEX TO
FINANCIAL STATEMENTS
F-1
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of Chart Industries, Inc. and its subsidiaries (the
“Company”) are responsible for establishing and
maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting is
a process designed under the supervision of the Company’s
principal executive and financial officers to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of the Company’s financial statements for
external reporting purposes in accordance with
U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting
includes policies and procedures that:
|
|
|
|
|
|
•
|
Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and
dispositions of assets of the Company;
|
|
|
|
|
•
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and the directors of the Company; and
|
|
|
|
|
•
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the
Company’s financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies and procedures may deteriorate.
Management has assessed the effectiveness of its internal
control over financial reporting as of December 31, 2007
based on the framework established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management has determined that the
Company’s internal control over financial reporting is
effective as of December 31, 2007.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2007 has been
audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report
appearing below, which expresses unqualified opinions on
management’s assessment and on the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2007.
|
|
|
|
|
|
|
/s/
Michael
F. Biehl
|
|
|
|
|
Samuel F. Thomas
Chairman, Chief Executive Officer and President
|
|
Michael F. Biehl
Executive Vice President,
Chief Financial Officer and Treasurer
|
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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,
2007 and 2006, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each
of the two years in the period ended December 31, 2007, for
the period from October 17, 2005 through December 31,
2005, and the period from January 1, 2005 through
October 16, 2005. 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 the standards of the
Public Company Accounting Oversight Board (United States). 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, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the two years
in the period ended December 31, 2007, for the period from
October 17, 2005 through December 31, 2005, and the
period from January 1, 2005 through October 16, 2005,
in conformity with U.S. generally accepted accounting
principles.
As more fully described in Notes H and I to the
consolidated financial statements on December 31, 2006 and
October 17, 2005, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 158,
Employees Accounting for Defined Benefit Pension and Other
Post-Retirement Plans
, and changed its method of accounting
for stock based compensation by adopting the fair value
recognition provisions of Statement of Financial Accounting
Standards No. 123(R),
Share Based Payments
,
respectively.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Chart
Industries, Inc. and subsidiaries internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 26, 2008
expressed an unqualified opinion thereon.
/S/ ERNST & YOUNG LLP
Cleveland, Ohio
February 26, 2008
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Chart Industries, Inc.
We have audited Chart Industries, Inc. and subsidiaries internal
control over financial reporting as of December 31, 2007
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Chart Industries, Inc. and subsidiaries management is
responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Management’s Report of Internal Control over
Financial Reporting in Item 9A. Our responsibility is to
express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Chart Industries, Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Chart Industries, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the two
years in the period ended December 31, 2007, for the period
from October 17, 2005 through December 31, 2005 and
the period from January 1, 2005 through October 16,
2005, and our report dated February 26, 2008 expressed an
unqualified opinion thereon.
/S/ ERNST & YOUNG LLP
Cleveland, Ohio
February 26, 2008
F-4
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
ASSETS
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92,869
|
|
|
$
|
18,854
|
|
|
Accounts receivable, net
|
|
|
96,940
|
|
|
|
76,762
|
|
|
Inventories, net
|
|
|
87,073
|
|
|
|
72,857
|
|
|
Unbilled contract revenue
|
|
|
24,405
|
|
|
|
32,993
|
|
|
Prepaid expenses
|
|
|
4,299
|
|
|
|
5,558
|
|
|
Other current assets
|
|
|
22,476
|
|
|
|
20,527
|
|
|
Assets held for sale
|
|
|
985
|
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
329,047
|
|
|
|
230,635
|
|
|
Property, plant and equipment, net
|
|
|
99,579
|
|
|
|
85,723
|
|
|
Goodwill
|
|
|
248,453
|
|
|
|
247,144
|
|
|
Identifiable intangible assets, net.
|
|
|
135,699
|
|
|
|
146,623
|
|
|
Other assets, net
|
|
|
12,976
|
|
|
|
14,750
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
825,754
|
|
|
$
|
724,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
65,027
|
|
|
$
|
48,031
|
|
|
Customer advances and billings in excess of contract revenue
|
|
|
60,080
|
|
|
|
45,200
|
|
|
Accrued salaries, wages and benefits
|
|
|
26,210
|
|
|
|
24,734
|
|
|
Warranty reserve
|
|
|
5,731
|
|
|
|
4,765
|
|
|
Other current liabilities.
|
|
|
17,646
|
|
|
|
15,761
|
|
|
Short-term debt.
|
|
|
—
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
174,694
|
|
|
|
139,241
|
|
|
Long-term debt
|
|
|
250,000
|
|
|
|
290,000
|
|
|
Long-term deferred tax liability, net
|
|
|
53,103
|
|
|
|
55,466
|
|
|
Other long-term liabilities
|
|
|
19,966
|
|
|
|
20,434
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share —
150,000,000 shares authorized, as of December 31, 2007
and 2006, respectively, 28,212,426 and 25,588,043 shares
issued and outstanding at December 31, 2007 and 2006,
respectively
|
|
|
282
|
|
|
|
256
|
|
|
Additional paid-in capital
|
|
|
241,732
|
|
|
|
185,567
|
|
|
Retained earnings
|
|
|
70,545
|
|
|
|
26,389
|
|
|
Accumulated other comprehensive income
|
|
|
15,432
|
|
|
|
7,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,991
|
|
|
|
219,734
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
825,754
|
|
|
$
|
724,875
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
Year
|
|
|
Year
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
|
|
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
666,395
|
|
|
$
|
537,454
|
|
|
$
|
97,652
|
|
|
|
$
|
305,497
|
|
|
Cost of sales
|
|
|
476,854
|
|
|
|
382,535
|
|
|
|
75,733
|
|
|
|
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
189,541
|
|
|
|
154,919
|
|
|
|
21,919
|
|
|
|
|
88,213
|
|
|
Selling, general and administrative expenses
|
|
|
92,650
|
|
|
|
72,214
|
|
|
|
13,659
|
|
|
|
|
57,140
|
|
|
Amortization expense
|
|
|
10,951
|
|
|
|
15,438
|
|
|
|
2,973
|
|
|
|
|
2,686
|
|
|
Acquisition expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
6,602
|
|
|
Employee separation and plant closure costs
|
|
|
304
|
|
|
|
396
|
|
|
|
139
|
|
|
|
|
1,057
|
|
|
Loss (gain) on sale of assets.
|
|
|
455
|
|
|
|
—
|
|
|
|
78
|
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,360
|
|
|
|
88,048
|
|
|
|
16,849
|
|
|
|
|
67,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
85,181
|
|
|
|
66,871
|
|
|
|
5,070
|
|
|
|
|
20,859
|
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
22,174
|
|
|
|
25,461
|
|
|
|
5,565
|
|
|
|
|
4,192
|
|
|
Amortization of deferred financing costs
|
|
|
1,646
|
|
|
|
1,536
|
|
|
|
308
|
|
|
|
|
—
|
|
|
Derivative contracts valuation income
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
|
(28
|
)
|
|
Foreign currency loss (gain)
|
|
|
42
|
|
|
|
(533
|
)
|
|
|
101
|
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,862
|
)
|
|
|
(26,464
|
)
|
|
|
(5,965
|
)
|
|
|
|
(4,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest.
|
|
|
61,319
|
|
|
|
40,407
|
|
|
|
(895
|
)
|
|
|
|
16,036
|
|
|
Income tax expense (benefit) Current
|
|
|
24,349
|
|
|
|
19,376
|
|
|
|
1,902
|
|
|
|
|
9,420
|
|
|
Deferred
|
|
|
(7,030
|
)
|
|
|
(6,332
|
)
|
|
|
(2,343
|
)
|
|
|
|
(2,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,319
|
|
|
|
13,044
|
|
|
|
(441
|
)
|
|
|
|
7,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest
|
|
|
44,000
|
|
|
|
27,363
|
|
|
|
(454
|
)
|
|
|
|
8,877
|
|
|
Minority interest, net of taxes
|
|
|
(156
|
)
|
|
|
(468
|
)
|
|
|
(52
|
)
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
44,156
|
|
|
$
|
26,895
|
|
|
$
|
(506
|
)
|
|
|
$
|
8,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share — basic.
|
|
$
|
1.64
|
|
|
$
|
1.70
|
|
|
$
|
(0.06
|
)
|
|
|
$
|
1.65
|
|
|
Net income (loss) per common share — diluted
|
|
$
|
1.61
|
|
|
$
|
1.65
|
|
|
$
|
(0.06
|
)
|
|
|
$
|
1.57
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,872
|
|
|
|
15,835
|
|
|
|
7,952
|
|
|
|
|
5,366
|
|
|
Diluted
|
|
|
27,493
|
|
|
|
16,269
|
|
|
|
7,952
|
|
|
|
|
5,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
Shareholders’
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid-In
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
(Loss) Income
|
|
|
(Deficit)
|
|
|
|
|
(Dollars and shares in thousands)
|
|
|
|
|
Balance at December 31, 2004, Predecessor Company
|
|
|
5,358
|
|
|
$
|
54
|
|
|
$
|
90,652
|
|
|
$
|
22,631
|
|
|
$
|
2,303
|
|
|
$
|
115,640
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,858
|
|
|
|
—
|
|
|
|
8,858
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,240
|
)
|
|
|
(2,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,618
|
|
|
Stock option pay-out adjustment, net of tax of $1,621
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,628
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,628
|
)
|
|
Issuance of common shares
|
|
|
51
|
|
|
|
—
|
|
|
|
1,691
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 16, 2005, Predecessor Company
|
|
|
5,409
|
|
|
$
|
54
|
|
|
$
|
89,715
|
|
|
$
|
31,489
|
|
|
$
|
63
|
|
|
$
|
121,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid-in
|
|
|
(Loss)
|
|
|
Comprehensive
|
|
|
Shareholders’
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
|
|
(Dollars and shares in thousands)
|
|
|
|
|
Balance at October 17, 2005 (Date of Acquisition)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash investment
|
|
|
7,952
|
|
|
|
17
|
|
|
|
111,281
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111,298
|
|
|
Rollover of Predecessor Company vested stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
5,947
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,947
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(506
|
)
|
|
|
—
|
|
|
|
(506
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(286
|
)
|
|
|
(286
|
)
|
|
Minimum pension liability adjustment, net of taxes of $162
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(262
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,054
|
)
|
|
Compensation expense recognized for employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
139
|
|
|
|
—
|
|
|
|
—
|
|
|
|
139
|
|
|
Stock split (See Note A)
|
|
|
—
|
|
|
|
63
|
|
|
|
(63
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005, Company
|
|
|
7,952
|
|
|
$
|
80
|
|
|
$
|
117,304
|
|
|
$
|
(506
|
)
|
|
$
|
(548
|
)
|
|
$
|
116,330
|
|
|
Equity contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,895
|
|
|
|
—
|
|
|
|
26,895
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,638
|
|
|
|
6,638
|
|
|
Minimum pension liability adjustment, net of taxes of $885
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,432
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,070
|
|
|
Compensation expense recognized for employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
1,748
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,748
|
|
|
Initial public offering, net proceeds
|
|
|
12,500
|
|
|
|
125
|
|
|
|
172,367
|
|
|
|
—
|
|
|
|
—
|
|
|
|
172,492
|
|
|
Cash dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(150,313
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(150,313
|
)
|
|
Exercise of warrants
|
|
|
2,651
|
|
|
|
26
|
|
|
|
37,077
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,103
|
|
|
Exercise of options
|
|
|
610
|
|
|
|
6
|
|
|
|
2,128
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,134
|
|
|
Stock dividend
|
|
|
1,875
|
|
|
|
19
|
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Tax benefit on non-qualifying stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
5,275
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006, Company
|
|
|
25,588
|
|
|
$
|
256
|
|
|
$
|
185,567
|
|
|
$
|
26,389
|
|
|
$
|
7,522
|
|
|
$
|
219,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Shareholders’
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
(Deficit)
|
|
|
|
|
(Dollars and shares in thousands)
|
|
|
|
|
Balance at December 31, 2006, Company
|
|
|
25,588
|
|
|
$
|
256
|
|
|
$
|
185,567
|
|
|
$
|
26,389
|
|
|
$
|
7,522
|
|
|
$
|
219,734
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,156
|
|
|
|
—
|
|
|
|
44,156
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,294
|
|
|
|
9,294
|
|
|
Amortization of unrecognized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
Increase in actuarial losses, net of tax benefit of ($833)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,375
|
)
|
|
|
(1,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,066
|
|
|
Compensation expense recognized for employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
9,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,029
|
|
|
Underwriter’s over-allotment option exercise, net proceeds
|
|
|
1,892
|
|
|
|
19
|
|
|
|
38,023
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,042
|
|
|
Exercise of options
|
|
|
732
|
|
|
|
7
|
|
|
|
4,790
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,797
|
|
|
Tax benefit of non-qualifying stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
4,323
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007, Company
|
|
|
28,212
|
|
|
$
|
282
|
|
|
$
|
241,732
|
|
|
$
|
70,545
|
|
|
$
|
15,432
|
|
|
$
|
327,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
Year
|
|
|
Year
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
|
|
(Dollars in thousands)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$44,156
|
|
|
|
$26,895
|
|
|
|
$(506
|
)
|
|
|
|
$8,858
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory purchase accounting charge
|
|
|
—
|
|
|
|
—
|
|
|
|
8,903
|
|
|
|
|
—
|
|
|
Amortization of deferred financing costs
|
|
|
1,646
|
|
|
|
1,536
|
|
|
|
308
|
|
|
|
|
—
|
|
|
Employee stock and stock option related compensation expense
|
|
|
9,029
|
|
|
|
1,907
|
|
|
|
437
|
|
|
|
|
9,509
|
|
|
Loss (gain) on sale of assets
|
|
|
455
|
|
|
|
—
|
|
|
|
78
|
|
|
|
|
(131
|
)
|
|
Purchased in- process research and development charge.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,768
|
|
|
Depreciation and amortization
|
|
|
18,706
|
|
|
|
20,913
|
|
|
|
4,088
|
|
|
|
|
6,808
|
|
|
Foreign currency transaction loss (gain).
|
|
|
42
|
|
|
|
(533
|
)
|
|
|
101
|
|
|
|
|
659
|
|
|
Minority interest
|
|
|
(156
|
)
|
|
|
734
|
|
|
|
95
|
|
|
|
|
29
|
|
|
Deferred income tax benefit
|
|
|
(7,030
|
)
|
|
|
(6,332
|
)
|
|
|
(2,343
|
)
|
|
|
|
(2,261
|
)
|
|
Changes in assets and liabilities, net of effects from
Acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,022
|
)
|
|
|
(9,621
|
)
|
|
|
(8,267
|
)
|
|
|
|
(8,611
|
)
|
|
Inventory
|
|
|
(11,122
|
)
|
|
|
(15,366
|
)
|
|
|
2,812
|
|
|
|
|
(6,463
|
)
|
|
Unbilled contract revenues and other current assets
|
|
|
12,212
|
|
|
|
(19,974
|
)
|
|
|
2,687
|
|
|
|
|
(11,039
|
)
|
|
Accounts payable and other current liabilities
|
|
|
19,245
|
|
|
|
21,049
|
|
|
|
2,317
|
|
|
|
|
6,634
|
|
|
Deferred income taxes
|
|
|
473
|
|
|
|
(1,599
|
)
|
|
|
779
|
|
|
|
|
731
|
|
|
Customer advances and billings in excess of contract revenue
|
|
|
13,873
|
|
|
|
16,789
|
|
|
|
3,146
|
|
|
|
|
8,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating Activities
|
|
|
82,507
|
|
|
|
36,398
|
|
|
|
14,635
|
|
|
|
|
15,641
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(19,028
|
)
|
|
|
(22,253
|
)
|
|
|
(5,601
|
)
|
|
|
|
(11,038
|
)
|
|
Proceeds from sale of assets
|
|
|
2,099
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,220
|
|
|
Acquisition of business, net of cash acquired
|
|
|
—
|
|
|
|
(15,927
|
)
|
|
|
—
|
|
|
|
|
(12,147
|
)
|
|
Payments to Predecessor Company shareholders for Acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
(356,649
|
)
|
|
|
|
—
|
|
|
Other investing activities
|
|
|
(1,612
|
)
|
|
|
(484
|
)
|
|
|
—
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities
|
|
|
(18,541
|
)
|
|
|
(38,664
|
)
|
|
|
(362,250
|
)
|
|
|
|
(20,799
|
)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
—
|
|
|
|
—
|
|
|
|
350,000
|
|
|
|
|
—
|
|
|
Borrowings on revolving credit facilities
|
|
|
9,000
|
|
|
|
4,250
|
|
|
|
2,605
|
|
|
|
|
18,901
|
|
|
Payments on revolving credit facilities and short term debt
|
|
|
(9,750
|
)
|
|
|
(5,856
|
)
|
|
|
(4,790
|
)
|
|
|
|
(15,916
|
)
|
|
Principal payments on long-term debt
|
|
|
(40,000
|
)
|
|
|
(55,000
|
)
|
|
|
(81,457
|
)
|
|
|
|
(2,968
|
)
|
|
Proceeds from equity contribution
|
|
|
—
|
|
|
|
—
|
|
|
|
111,298
|
|
|
|
|
—
|
|
|
Payment of financing costs
|
|
|
(296
|
)
|
|
|
(854
|
)
|
|
|
(11,558
|
)
|
|
|
|
—
|
|
|
Payment of exercised stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,756
|
)
|
|
|
|
—
|
|
|
Payment of Acquisition costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,853
|
)
|
|
|
|
—
|
|
|
Initial public offering proceeds, net
|
|
|
—
|
|
|
|
172,496
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Dividend payment
|
|
|
—
|
|
|
|
(150,313
|
)
|
|
|
—
|
|
|
|
|
—
|
|
|
Underwriters’ over-allotment proceeds, net
|
|
|
38,042
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Warrant and stock option exercise proceeds
|
|
|
4,797
|
|
|
|
39,237
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Proceeds from sale of stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,691
|
|
|
Tax benefit from exercise of stock options
|
|
|
4,323
|
|
|
|
5,275
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Other financing activities
|
|
|
1,328
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities
|
|
|
7,444
|
|
|
|
9,235
|
|
|
|
348,489
|
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents.
|
|
|
71,410
|
|
|
|
6,969
|
|
|
|
874
|
|
|
|
|
(3,450
|
)
|
|
Effect of exchange rate changes on cash.
|
|
|
2,605
|
|
|
|
559
|
|
|
|
(1,018
|
)
|
|
|
|
106
|
|
|
Cash and cash equivalents at beginning of period.
|
|
|
18,854
|
|
|
|
11,326
|
|
|
|
11,470
|
|
|
|
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
|
$92,869
|
|
|
|
$18,854
|
|
|
|
$11,326
|
|
|
|
|
$11,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars and shares in thousands, except per share
amounts)
NOTE A —
Nature of Operations and Summary of Significant Accounting
Policies
Nature of Operations:
Chart Industries, Inc.
(the “Company”), is a leading global supplier of
standard and custom-engineered products and systems serving a
wide variety of low-temperature and cryogenic applications. The
Company has developed an expertise in cryogenic systems and
equipment, which operate at low temperatures sometimes
approaching absolute zero. The majority of the Company’s
products, including vacuum insulated containment vessels, heat
exchangers, cold boxes and other cryogenic components, are used
throughout the liquid-gas supply chain for the purification,
liquefaction, distribution, storage and use of industrial gases
and hydrocarbons. The Company has domestic operations located in
eight states, including the principal executive offices located
in Garfield Heights, Ohio, and an international presence in
Australia, China, the Czech Republic, Germany and the United
Kingdom.
Principles of Consolidation:
The consolidated
financial statements include the accounts of the Company and its
subsidiaries. Intercompany accounts and transactions are
eliminated in consolidation. Investments in affiliates where the
Company’s ownership is between 20 percent and
50 percent, or where the Company does not have control but
has the ability to exercise significant influence over
operations or financial policy, are accounted for under the
equity method.
Basis of Presentation:
On June 12, 2007,
the Company completed a secondary offering of
12,613 shares. The secondary shares were sold by FR X Chart
Holdings LLC and certain members of the Company’s
management. The option of 1,892 shares to cover
over-allotments granted to the underwriters was exercised in
full. The net proceeds of $38,042 received by the Company from
the exercise of the over-allotment option were used to make a
voluntary principal payment under the term loan portion of the
senior secured credit facility.
On July 31, 2006, the Company completed its initial public
offering (“IPO”) of 12,500 shares of its common
stock for net proceeds of $175,313. As a result of the IPO, FR X
Chart Holdings LLC, an affiliate of First Reserve Fund X,
L.P (“First Reserve”), was no longer the majority
shareholder of the Company. On August 1, 2006, $25,000 of
the net proceeds was used to repay a portion of the term loan
portion of the senior secured credit facility. The remaining
$150,313 of net proceeds was used to pay a dividend to the
stockholders existing immediately prior to the completion of the
IPO, consisting of affiliates of First Reserve and certain
members of management. On August 25, 2006, a stock dividend
of 1,875 shares was issued to the stockholders existing
immediately prior to the completion of the IPO.
The consolidated financial statements have been adjusted as of
and for the year ended December 31, 2005 to give effect to
the 4.6263-for-one stock split of the Company’s common
stock that occurred on July 20, 2006, and related
adjustments to its capital structure and stock options that were
effected upon the completion of the Company’s IPO on
July 31, 2006.
On August 2, 2005, the Company, certain stockholders of the
Company (the “Principal Stockholders”), First Reserve
Fund X, L.P. (“First Reserve”) and CI
Acquisition, Inc., a wholly owned subsidiary of First Reserve
(“CI Acquisition”), entered into an agreement and
plan of merger (“Merger Agreement”). The Merger
Agreement provided for the sale of shares of common stock of the
Company owned by the Principal Stockholders (“Principal
Stockholders Shares”) to CI Acquisition, which is referred
to as the “Stock Purchase”, and the merger of
CI Acquisition with and into the Company, with the Company
surviving the merger as a wholly-owned indirect subsidiary of
First Reserve, which is referred to as the “Merger”.
The Stock Purchase and Merger are collectively referred to as
the “Acquisition”. Upon satisfaction of the conditions
to the Stock Purchase, CI Acquisition agreed to purchase the
Principal Stockholders Shares for a purchase price (the
“Per Share Purchase Price”) equal to $65.74 per
share in cash, minus the result of (i) the expenses of the
Company related to the Acquisition (as provided in the Merger
Agreement) divided by (ii) the number of fully-diluted
shares of Company common stock outstanding immediately before
the closing (assuming full exercise of all Company stock options
and warrants). The Merger Agreement provided for the occurrence
of the Merger after the closing of the Stock Purchase, and
provided that at
F-11
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
the effective time of the Merger each share of Company common
stock outstanding (other than treasury stock, shares held by
Buyer or CI Acquisition, and shares with respect to which
appraisal rights have been exercised under Delaware law) will be
converted into the right to receive the Per Share Purchase Price
(or the price paid in the Stock Purchase, if greater) in cash,
without interest (the “Merger Consideration”).
Furthermore, the Merger Agreement provided that the holders of
outstanding warrants and stock options to acquire shares of
common stock of the Company (other than any stock options
adjusted to represent options to acquire stock of the surviving
corporation in the Merger) will be entitled to receive an amount
in cash equal to the product of (i) the number of shares of
common stock of the Company issuable upon the exercise of the
surrendered warrant or option, as applicable, as of immediately
prior to the effective time of the Merger multiplied by
(ii) the excess of the Merger Consideration over the per
share exercise price of the warrant or option, subject to
applicable withholding taxes. The Merger Agreement further
provided that after the Merger, no holders of common stock,
warrants or options (other than any stock options adjusted to
represent options to acquire stock of the surviving corporation
in the Merger) outstanding before the Merger will have any
rights in respect of such common stock, warrants or options,
other than the right to receive the cash referred to above.
On October 17, 2005, the closing of the Acquisition (the
“Closing Date”) took place under the terms of the
Merger Agreement. The Stock Purchase was made by CI Acquisition
for a Per Share Purchase Price of $64.75 per share of common
stock ($65.74 per share, less the Company’s transaction
expenses of $0.99 per share) and immediately following the Stock
Purchase, the Merger occurred. At the effective time of the
Merger, each outstanding share of the Company’s common
stock (other than treasury stock, shares held by First Reserve
or CI Acquisition, and shares as to which appraisal rights
were exercised under Delaware law) was converted into the right
to receive $64.75 per share and CI Acquisition merged with and
into Chart Industries, Inc. (which is referred to after the
merger as the “Company”). In the Merger, outstanding
warrants and stock options to acquire common stock of the
Company (other than any stock options adjusted to represent
options to acquire the stock of the surviving corporation in the
Merger) were likewise cancelled and treated in accordance with
the terms of the Merger Agreement. Certain stock options
outstanding immediately before the Merger were not cancelled and
were adjusted under the terms of the Merger Agreement to
represent options to acquire the Company’s common stock
after the Merger. The purchase price related to the Acquisition
was $456,662 and included $356,649 of cash paid for common stock
and warrants outstanding, $15,756 of cash paid for stock options
of the Company and its subsidiaries prior to the Acquisition
(“Predecessor Company”), repayment of $76,458 of
existing pre-Acquisition credit facility and certain other debt,
$1,852 of First Reserve’s acquisition expenses and vested
Rollover Predecessor Company stock options (“Rollover
Options”) valued at $5,947 to acquire stock of the Company.
F-12
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The table below summarizes the fair value assigned to the
Company’s assets and liabilities within the balance sheet
as of October 17, 2005 as a result of the Acquisition, in
accordance with Statement of Financial Accounting Standard
(“SFAS”) No. 141, “Business
Combinations”:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,861
|
|
|
Accounts receivable, net
|
|
|
54,594
|
|
|
Inventories, net
|
|
|
65,005
|
|
|
Unbilled contract revenue
|
|
|
22,667
|
|
|
Prepaid expenses
|
|
|
3,544
|
|
|
Other current assets
|
|
|
5,396
|
|
|
Assets held for sale
|
|
|
3,084
|
|
|
Deferred income taxes, net
|
|
|
4,900
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
180,051
|
|
|
Property, plant and equipment.
|
|
|
61,189
|
|
|
Goodwill
|
|
|
236,823
|
|
|
Identifiable intangible assets
|
|
|
157,162
|
|
|
Other assets
|
|
|
13,357
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
648,582
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
31,469
|
|
|
Customer advances and billings in excess of contract revenue
|
|
|
23,546
|
|
|
Accrued salaries, wages and benefits
|
|
|
16,069
|
|
|
Warranty reserve
|
|
|
3,439
|
|
|
Other current liabilities
|
|
|
25,620
|
|
|
Short-term debt
|
|
|
4,486
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
104,629
|
|
|
Long-term debt
|
|
|
350,000
|
|
|
Long-term deferred tax liability, net
|
|
|
56,978
|
|
|
Other non-current liabilities
|
|
|
18,392
|
|
|
Minority interest
|
|
|
1,337
|
|
|
Shareholder equity
|
|
$
|
117,246
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholder Equity
|
|
$
|
648,582
|
|
|
|
|
|
|
|
The consolidated financial statements and accompanying notes as
of and for the years ended December 31, 2007 and 2006, and
the period October 17, 2005 to December 31, 2005 are
for the Company. The consolidated financial statements and the
accompanying notes for the period from January 1 to
October 16, 2005 are for the Predecessor Company.
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, 2007 and 2006 balances include money market
investments.
Concentrations of Credit Risks:
The Company
sells its products to gas producers, distributors and end-users
across the industrial gas, hydrocarbon and chemical processing
industries in countries all over the world. Approximately 58%,
52% and 51% of sales were to foreign countries in 2007, 2006 and
2005, respectively.
F-13
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
Sales to Air Liquide in 2007 represented 10% of consolidated
sales across all segments. No single customer exceeded ten
percent of consolidated sales in 2006 or 2005 and sales to the
Company’s top ten customers accounted for 45%, 42% and 39%
of consolidated sales in 2007, 2006 and 2005, respectively. The
Company’s sales to particular customers fluctuate from
period to period, but the large gas producer and distributor
customers of the Company tend to be a consistently large source
of revenue for the Company. To minimize credit risk from trade
receivables, the Company reviews the financial condition of
potential customers in relation to established credit
requirements before sales credit is extended and monitors the
financial condition of customers to help ensure timely
collections and to minimize losses. Additionally, for certain
domestic and foreign customers, particularly in the Energy and
Chemicals (“E&C”) segment, the Company requires
advance payments, letters of credit and other such guarantees of
payment. Certain customers also require the Company to issue
letters of credit or performance bonds, particularly in
instances where advance payments are involved, as a condition of
placing the order.
The Company is also subject to concentrations of credit risk
with respect to its cash and cash equivalents and forward
foreign currency exchange contracts. To minimize credit risk
from these financial instruments, the Company enters into these
arrangements with major banks and other high credit quality
financial institutions and invests only in high-quality
instruments. The Company does not expect any counterparties to
fail to meet their obligations in this area.
Allowance for Doubtful Accounts:
The Company
evaluates the collectibility of accounts receivable based on a
combination of factors. In circumstances where the Company is
aware of a specific customer’s inability to meet its
financial obligations (e.g., bankruptcy filings, or substantial
downgrading of credit scores), a specific reserve is recorded to
reduce the receivable to the amount the Company believes will be
collected. The Company also records allowances for doubtful
accounts based on the length of time the receivables are past
due and historical experience. The allowance for doubtful
accounts balance at December 31, 2007 and 2006 was $2,081
and $1,125, respectively.
Inventories:
Inventories are stated at the
lower of cost or market with cost being determined by the
first-in,
first-out (“FIFO”) method at December 31, 2007
and 2006. The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Raw materials and supplies
|
|
$
|
40,547
|
|
|
$
|
32,404
|
|
|
Work in process
|
|
|
21,725
|
|
|
|
20,974
|
|
|
Finished goods
|
|
|
24,801
|
|
|
|
19,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,073
|
|
|
$
|
72,857
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Valuation Reserves:
The Company
determines inventory valuation reserves based on a combination
of factors. In circumstances where the Company is aware of a
specific problem in the valuation of a certain item, a specific
reserve is recorded to reduce the item to its net realizable
value. The Company also recognizes reserves based on the actual
usage in recent history and projected usage in the near-term. If
circumstances change (e.g., lower-than-expected or
higher-than-expected usage), estimates of the net realizable
value could be changed by a material amount.
Property, Plant and Equipment:
At
October 17, 2005, property, plant and equipment was
recorded at fair value under SFAS 141 “Business
Combinations”. The depreciable lives were adjusted to
reflect the estimated remaining useful life of each asset and
all existing accumulated depreciation of the Predecessor Company
was eliminated. Subsequent to October 17, 2005, all capital
expenditures for 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
improvements 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.
Depreciation expense was $7,755 for the year ended
December 31, 2007, $5,475 for the
F-14
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
year ended December 31, 2006, $1,115 for the period from
October 17, 2005 to December 31, 2005 and $4,122 for
the period January 1, 2005 to October 16, 2005. The
following table summarizes the components of property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Classification
|
|
Estimated Useful Life
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Land and buildings
|
|
|
20-35 years (buildings)
|
|
|
$
|
52,007
|
|
|
$
|
43,379
|
|
|
Machinery and equipment
|
|
|
3-12 years
|
|
|
|
46,631
|
|
|
|
28,908
|
|
|
Computer equipment, furniture and fixtures
|
|
|
3-7 years
|
|
|
|
5,444
|
|
|
|
3,626
|
|
|
Construction in process
|
|
|
|
|
|
|
12,154
|
|
|
|
17,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,236
|
|
|
|
93,708
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(16,657
|
)
|
|
|
(7,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
|
|
|
$
|
99,579
|
|
|
$
|
85,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company monitors its property, plant and equipment, and
finite-lived intangible assets for impairment indicators on an
ongoing basis in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” If impairment indicators exist, the Company
performs the required analysis and records impairment charges in
accordance with SFAS No. 144. In conducting its
analysis, the Company compares the undiscounted cash flows
expected to be generated from the long-lived assets to the
related net book values. If the undiscounted cash flows exceed
the net book value, the long-lived assets are considered not to
be impaired. If the net book value exceeds the undiscounted cash
flows, an impairment loss is measured and recognized. An
impairment loss is measured as the difference between the net
book value and the fair value of the long-lived assets. Fair
value is estimated based upon either discounted cash flow
analyses or estimated salvage values. Cash flows are estimated
using internal forecasts as well as assumptions related to
discount rates. Changes in economic or operating conditions
impacting these estimates and assumptions could result in the
impairment of long-lived assets.
Goodwill and Other Intangible Assets:
In
accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets”, the Company does not amortize goodwill
or other indefinite-lived intangible assets, but reviews them at
least annually for impairment using a measurement date of
October 1st. The Company amortizes intangible assets that
have finite useful lives over their useful lives.
SFAS No. 142 requires that indefinite-lived intangible
assets be tested for impairment and that goodwill be tested for
impairment at the reporting unit level on an annual basis. Under
SFAS No. 142, a company determines the fair value of
any indefinite-lived intangible assets, compares the fair value
to its carrying value and records an impairment loss if the
carrying value exceeds its fair value. Goodwill is tested
utilizing a two-step approach. After recording any impairment
losses for indefinite-lived intangible assets, a company is
required to determine the fair value of each reporting unit and
compare the fair value to its carrying value, including
goodwill, of such reporting unit (step one). If the fair value
exceeds the carrying value, no impairment loss would be
recognized. If the carrying value of the reporting unit exceeds
its fair value, the goodwill of the reporting unit may be
impaired. The amount of the impairment, if any, would then be
measured in step two, which compares the implied fair value of
the reporting
F-15
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
unit’s goodwill with the carrying amount of that goodwill.
The following table displays the gross carrying amount and
accumulated amortization for finite-lived intangible assets and
indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
Useful Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
Finite-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpatented technology
|
|
|
9 years
|
|
|
$
|
9,400
|
|
|
$
|
(2,494
|
)
|
|
$
|
9,400
|
|
|
$
|
(1,364
|
)
|
|
Patents
|
|
|
10 years
|
|
|
|
8,138
|
|
|
|
(2,257
|
)
|
|
|
8,138
|
|
|
|
(1,287
|
)
|
|
Product names
|
|
|
14 years
|
|
|
|
2,580
|
|
|
|
(466
|
)
|
|
|
2,580
|
|
|
|
(255
|
)
|
|
Backlog
|
|
|
14 months
|
|
|
|
6,720
|
|
|
|
(6,720
|
)
|
|
|
6,720
|
|
|
|
(6,336
|
)
|
|
Non-compete agreements
|
|
|
3 years
|
|
|
|
3,474
|
|
|
|
(1,850
|
)
|
|
|
3,474
|
|
|
|
(977
|
)
|
|
Customer relations
|
|
|
13 years
|
|
|
|
101,066
|
|
|
|
(15,987
|
)
|
|
|
101,066
|
|
|
|
(8,647
|
)
|
|
Other
|
|
|
—
|
|
|
|
60
|
|
|
|
(25
|
)
|
|
|
60
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,438
|
|
|
$
|
(29,799
|
)
|
|
|
131,438
|
|
|
$
|
(18,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$
|
248,453
|
|
|
|
|
|
|
$
|
247,144
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
|
|
|
|
34,060
|
|
|
|
|
|
|
|
34,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
282,513
|
|
|
|
|
|
|
$
|
281,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets subject to
amortization was $10,951 for the year ended December 31,
2007, $15,438 for the year ended December 31, 2006, $2,973
for the period October 17, 2005 to December 31, 2005
and $2,686 for the period January 1, 2005 to
October 16, 2005, and is estimated to range from
approximately $10,900 to $9,400 annually for fiscal years 2008
through 2012, respectively.
Financial Instruments:
The fair values of cash
equivalents, accounts receivable and short-term bank debt
approximate their carrying amount because of the short maturity
of these instruments.
Derivative Instruments:
The Company utilizes
certain derivative financial instruments to enhance its ability
to manage risk, including interest rate risk and foreign
currency risk that exists as part of ongoing business
operations. Derivative instruments are entered into for periods
consistent with related underlying exposures and do not
constitute positions independent of those exposures. The Company
does not enter into contracts for speculative purposes, nor is
it a party to any leveraged derivative instrument.
The Company’s primary interest rate risk exposure results
from various floating rate pricing mechanisms in its senior
secured credit facility. This interest rate risk was partially
managed by the use of an interest rate derivative contract,
which expired in March 2006 relating to a portion of the term
debt. The interest rate derivative contract was described as a
collar and resulted in placing a cap on the base LIBOR interest
rate at approximately 7.0 percent and a floor at
approximately 5.0 percent on certain portions of the
Company’s floating rate term debt at the time. The
Predecessor Company entered into the interest rate collar in
March 1999 to manage interest rate risk exposure relative to its
term debt. The Company’s interest rate collar did not
qualify as a hedge under the provisions of
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, which required such a
collar to be recorded in the consolidated balance sheet at fair
value. Changes in their fair value must be recorded in the
consolidated statement of operations.
The change in fair value for the period October 17, 2005 to
December 31, 2005 and the period January 1, 2005 to
October 16, 2005 of $9 and $28, respectively, is recorded
in derivative contracts valuation income.
F-16
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The Company is exposed to foreign currency exchange risk as a
result of transactions in currencies other than the functional
currency of certain subsidiaries. The Company utilizes foreign
currency forward purchase and sale contracts to manage the
volatility associated with foreign currency purchases and
certain intercompany transactions in the normal course of
business. Contracts typically have maturities of less than one
year. Principal currencies include the Euro, British Pound
and Czech Koruna. The Company’s foreign currency
forward contracts do not qualify as hedges under the provisions
of SFAS No. 133.
The Company held foreign exchange forward sale contracts for
notional amounts as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Euros
|
|
|
4,500
|
|
|
|
7,200
|
|
Product Warranties:
The Company provides
product warranties with varying terms and durations for the
majority of its products. The Company records warranty expense
in cost of sales. The changes in the Company’s consolidated
warranty reserve are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
Balance at beginning of period
|
|
$
|
4,765
|
|
|
$
|
3,598
|
|
|
$
|
3,439
|
|
|
|
$
|
2,812
|
|
|
Warranty expense
|
|
|
4,189
|
|
|
|
4,210
|
|
|
|
515
|
|
|
|
|
2,206
|
|
|
Warranty usage.
|
|
|
(3,223
|
)
|
|
|
(3,043
|
)
|
|
|
(356
|
)
|
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
5,731
|
|
|
$
|
4,765
|
|
|
$
|
3,598
|
|
|
|
$
|
3,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
The Company reports
comprehensive income in its consolidated statement of
shareholders’ equity. The components of accumulated other
comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
15,647
|
|
|
$
|
6,352
|
|
|
Pension liability adjustments, net of taxes of ($833) and $885
at December 31, 2007 and 2006, respectively
|
|
|
(215
|
)
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,432
|
|
|
$
|
7,522
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition:
For the majority of the
Company’s products, revenue is recognized when products are
shipped, title has transferred and collection is reasonably
assured. For these products, there is also persuasive evidence
of an arrangement and the selling price to the buyer is fixed or
determinable. For brazed aluminum heat exchangers, cold boxes,
liquefied natural gas fueling stations and engineered tanks, the
Company uses the percentage of completion method of accounting.
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 at December 31, 2007, 2006 and 2005,
totaled $249,654, $216,971 and $126,122, respectively. Timing of
amounts billed on contracts varies from contract to contract and
could cause significant variation in working capital needs.
Amounts billed on percentage of completion contracts in process
at December 31, 2007, 2006 and 2005 totaled $274,848,
$224,366 and $125,971, respectively. The cumulative impact of
revisions in total cost estimates during the progress of work is
reflected in the proper period as 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
F-17
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
recoveries from claims and change orders, are charged to
operations as soon as such losses are known. Change orders
resulting in additional revenue and profit are recognized upon
approval by the customer based on the percentage that incurred
costs to date bear to total estimated costs at completion.
Certain contracts include incentive-fee arrangements. The
incentive fees in such contracts can be based on a variety of
factors but the most common are the achievement of target
completion dates, target costs, and/or other performance
criteria. Failure to meet these targets can result in unrealized
incentive fees. Incentive fee revenue is not recognized until it
is earned.
Distribution Costs:
The Company records
distribution costs, including warehousing and freight related to
product shipping, in cost of sales.
Advertising Costs:
The Company incurred
advertising costs of $2,322 for the year ended December 31,
2007, $2,684 for the year ended December 31, 2006, $556 for
the period October 17, 2005 to December 31, 2005, and
$2,151 for the period January 1, 2005 to October 16,
2005. Such costs are expensed as incurred.
Research and Development Costs:
The Company
incurred research and development costs of $5,730 for the year
ended December 31, 2007, $3,876 for the year ended
December 31, 2006, $805 for the period October 17,
2005 to December 31, 2005, and $2,198 for the period
January 1, 2005 to October 16, 2005. Such costs are
expensed as incurred.
Foreign Currency Translation:
The functional
currency for the majority of the Company’s foreign
operations is the applicable local currency. The translation
from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using exchange rates in
effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the
period. The resulting translation adjustments are recorded as a
component of shareholders’ equity. Gains or losses
resulting from foreign currency transactions are charged to
operations as incurred.
Income Taxes:
The Company and its
U.S. 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. A valuation
allowance is provided against net deferred tax assets when
conditions indicate that it is more likely than not that the
benefit related to such assets will not be realized.
Uncertain tax positions are accounted for under FASB
Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement
No. 109” (“FIN 48”). FIN 48
requires that a position taken or expected to be taken in a tax
return be recognized in the financial statements when it is more
likely than not (a likelihood of more than fifty percent) that
the position would be sustained upon examination by tax
authorities that have full knowledge of all relevant
information. A recognized tax position is then measured at the
largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement.
Interest and penalties related to income taxes are accounted for
as income tax expense.
Stock-Based Compensation:
On October 17,
2005, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based
Payment,” (“SFAS 123 (R)”) using the
modified prospective method. SFAS 123(R) requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors based
on estimated fair values.
SFAS 123(R) requires companies to estimate the fair value
of stock option awards on the date of grant using an
option-pricing model. Compensation for share-based awards is
recognized on an accrual basis over the vesting period. The
total cost of a share-based payment ward is reduced by estimated
forfeitures expected to occur over the vesting period of the
award. See Note I for further discussions regarding stock
options and other share-based awards.
F-18
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
Earnings per share:
The following table
presents calculations of income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
Net income (loss)
|
|
$
|
44,156
|
|
|
$
|
26,895
|
|
|
$
|
(506
|
)
|
|
|
$
|
8,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share — basic
|
|
$
|
1.64
|
|
|
$
|
1.70
|
|
|
$
|
(0.06
|
)
|
|
|
$
|
1.65
|
|
|
Net income (loss) per common share — diluted
|
|
$
|
1.61
|
|
|
$
|
1.65
|
|
|
$
|
(0.06
|
)
|
|
|
$
|
1.57
|
|
|
Weighted average number of common shares outstanding —
basic
|
|
|
26,872
|
|
|
|
15,835
|
|
|
|
7,952
|
|
|
|
|
5,366
|
|
|
Incremental shares issuable upon assumed exercise of stock
warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
61
|
|
|
Incremental shares issuable upon assumed conversion and exercise
of stock options
|
|
|
621
|
|
|
|
434
|
|
|
|
—
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares — diluted
|
|
|
27,493
|
|
|
|
16,269
|
|
|
|
7,952
|
|
|
|
|
5,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the purposes of computing diluted earnings per share,
weighted average common share equivalents do not include
1,041 stock options and 1,360 warrants for the period
from October 17, 2005 to December 31, 2005 as the
effect would be
anti-dilutive.
Use of Estimates:
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States 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.
Recently Adopted Accounting Standards:
In June
2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48. “Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement
No. 109” (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing
thresholds and attributes for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. The interpretation also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, and disclosure. The
Company adopted FIN 48 on January 1, 2007 with no
material impact on its financial position, results of
operations, liquidity or cash flows. See Note F for further
discussion.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment.”
SFAS No. 123(R) is a revision of
SFAS No. 123, “Accounting for Stock-Based
Compensation” and supersedes Accounting Principles Board
(“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and amends
SFAS No. 95, “Statement of Cash Flows.”
SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on their fair values and
eliminates the pro forma disclosure option allowed under
SFAS 123. We adopted SFAS 123(R) on October 17,
2005 in conjunction with the Acquisition.
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Pension Benefit
Plans and Other Postretirement Plans”. This statement
requires recognition on the balance sheet of the under funded or
over funded status of pension and postretirement benefit plans.
SFAS No. 158 also requires the recognition of changes
in the funded status through other comprehensive income in the
year that the changes occur. In addition, SFAS No. 158
requires additional disclosures about the future effects on net
periodic benefit cost that arise from the delayed recognition of
gains or losses. SFAS No. 158 also requires that
defined benefit plan assets and obligations be measured as of
the date of the employer’s fiscal year end balance sheet.
The recognition and disclosure provisions of
SFAS No. 158 are effective for fiscal years ending
after December 15, 2006. The requirement to
F-19
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
measure plan assets and benefit obligations as of the date of
the employer’s fiscal year end balance sheet is effective
for fiscal years ending after December 15, 2008. The
Company adopted SFAS No. 158 as of December 31,
2006. See Note H for further discussion. The adoption of
this statement had no effect on our financial position, results
of operations, liquidity or cash flows.
Recently Issued Accounting Pronouncements.
In
September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, “Fair Value
Measurements” (SFAS No. 157) which is
effective for fiscal years beginning after November 15,
2007. SFAS No. 157 defines fair value to be applied to
U.S. GAAP guidance requiring use of fair value, establishes
a framework for measuring fair value and expands the disclosure
requirements for fair value measurements. The Company does not
expect the adoption of SFAS No. 157 to have a material
effect on its financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — including an amendment of FASB Statement
No. 115”. SFAS No. 159 provides entities
with an option to report selected financial assets and
liabilities at fair value. SFAS No. 159 is effective
for the Company’s fiscal year beginning 2008. The Company
does not expect the adoption of SFAS No. 159 to have a
material effect on its financial position or results of
operations.
In December 2007, SFAS No. 141(R), “Business
Combinations” was issued. SFAS No. 141 (R)
requires the acquiring entity in a business combination to
recognize the full fair value of the assets acquired and
liabilities assumed in the transaction at the acquisition date,
the immediate recognition of acquisition-related transaction
costs and the recognition of contingent consideration
arrangements at their acquisition date fair value.
SFAS No. 141 (R) is effective for acquisitions
that occur on or after the beginning of the fiscal year
beginning on or after December 15, 2008.
SFAS No. 141(R) will impact the Company’s
financial position and results of operations for any business
combinations entered into after the date of adoption.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51”.
SFAS No. 160 requires entities to report
noncontrolling (formerly known as minority) interests as a
component of shareholders’ equity on the balance sheet.
SFAS No. 160 will be effective for fiscal years
beginning on or after December 15, 2008. The Company is
currently evaluating the impact of adoption on its financial
position and results of operations.
F-20
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
NOTE B —
Balance Sheet Components
The following table summarizes the components of other current
assets, other assets, net, other current liabilities and other
long-term liabilities on the Company’s consolidated balance
sheet as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
437
|
|
|
$
|
2,003
|
|
|
Deferred income taxes
|
|
|
10,897
|
|
|
|
7,417
|
|
|
Other receivables
|
|
|
11,142
|
|
|
|
11,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,476
|
|
|
$
|
20,527
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net:
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
$
|
9,718
|
|
|
$
|
11,068
|
|
|
Cash value life insurance
|
|
|
1,662
|
|
|
|
1,640
|
|
|
Other
|
|
|
1,596
|
|
|
|
2,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,976
|
|
|
$
|
14,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
$
|
4,347
|
|
|
$
|
5,144
|
|
|
Accrued other taxes
|
|
|
956
|
|
|
|
678
|
|
|
Accrued income taxes
|
|
|
983
|
|
|
|
—
|
|
|
Accrued rebates
|
|
|
5,481
|
|
|
|
4,013
|
|
|
Accrued employee separation and plant closure costs
|
|
|
1,727
|
|
|
|
1,868
|
|
|
Accrued other
|
|
|
4,152
|
|
|
|
4,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,646
|
|
|
$
|
15,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued environmental
|
|
$
|
6,466
|
|
|
$
|
6,658
|
|
|
Accrued pension cost
|
|
|
4,165
|
|
|
|
3,355
|
|
|
Minority interest
|
|
|
1,214
|
|
|
|
2,111
|
|
|
Accrued contingencies and other.
|
|
|
8,121
|
|
|
|
8,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,966
|
|
|
$
|
20,434
|
|
|
|
|
|
|
|
|
|
|
|
F-21
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
NOTE C —
Debt and Credit Arrangements
The following table shows the components of the Company’s
borrowings at December 31, 2007 and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Senior term loan, due October 2012, average interest rate of
7.58% and 6.93% at December 31, 2007 and 2006, respectively
|
|
$
|
80,000
|
|
|
$
|
120,000
|
|
|
Subordinated notes, due 2015, interest accrued at 9.125%
|
|
|
170,000
|
|
|
|
170,000
|
|
|
Revolving foreign credit facility and other short-term debt
|
|
|
—
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
250,000
|
|
|
|
290,750
|
|
|
Less: current maturities
|
|
|
—
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt.
|
|
$
|
250,000
|
|
|
$
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the Acquisition, the Company entered into a
senior secured credit facility (the “Senior Credit
Facility”) and completed a $170,000 offering of
9
1
/
8
% senior
subordinated notes (the “Subordinated Notes”). The
Company repaid the then existing credit facility of the
Predecessor Company, as described further below, and certain
other debt on or before October 17, 2005, the Closing Date
of the Acquisition. The Senior Credit Facility consists of a
$180,000 term loan facility (the “Term Loan”) and a
$115,000 revolving credit facility (the “Revolver”),
of which $55,000 may be used for letters of credit extending
beyond one year from their date of issuance. The Term Loan and
Subordinated Notes were fully funded on the Closing Date. The
Term Loan matures on October 17, 2012 and the Revolver
matures on October 17, 2010. As a result of five voluntary
principal prepayments in 2005, and 2006 and June 2007, the Term
Loan does not require any scheduled principal payments prior to
the maturity date. The interest rate under the Senior Credit
Facility is, at the Company’s option, the Alternative Base
Rate (“ABR”) plus 1.0% or LIBOR plus 2.0% on the Term
Loan and ABR plus 1.5% or LIBOR plus 2.5% on the Revolver. The
applicable interest margin on the Revolver could decrease based
upon the leverage ratio calculated at each fiscal quarter end.
In addition, the Company is required to pay an annual
administrative fee of $100, a commitment fee of 0.5% on the
unused Revolver balance, a letter of credit participation fee of
2.5% per annum on the letter of credit exposure and a letter of
credit issuance fee of 0.25%. The obligations under the Secured
Credit Facility are secured by substantially all of the assets
of the Company’s U.S. Subsidiaries and 65% of the
capital stock of the Company’s
non-U.S. Subsidiaries.
The Subordinated Notes are due in 2015 with interest payable
semi-annually on April 15th and October 15th. A
registration rights agreement required the Company to file an
Exchange Offer Registration Statement and complete the exchange
offer for the Subordinated Notes by August 14, 2006. Since
the exchange offer was not completed when required, additional
interest at a rate of 0.25% was incurred for the
90-day
period commencing August 14, 2006, additional interest at a
rate of 0.50% was incurred for the
90-day
period commencing November 12, 2006, and additional
interest at a rate of 0.75% was incurred for the
90-day
period commencing February 10, 2007. The exchange offer was
completed on April 6, 2007 and this additional interest
ceased accruing as of that date.
Any of the Subordinated Notes may be redeemed solely at the
Company’s option beginning on October 15, 2010. The
initial redemption price is 104.563 percent of the
principal amount, plus accrued interest. Also, any of the notes
may be redeemed solely at the Company’s option at any time
prior to October 15, 2010, plus accrued interest and a
“make-whole” premium. In addition, before
October 15, 2008, up to 35 percent of the Subordinated
Notes may be redeemed solely at the Company’s option at a
price of 109.125 percent of the principal amount, plus
accrued interest, using the proceeds from sales of certain kinds
of capital stock. The Subordinated Notes are general unsecured
obligations of the Company and are subordinated in right of
payment to all existing and future senior debt
F-22
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
of the Company, including the Senior Credit Facility, pari passu
in right of payment with all future senior subordinated
indebtedness of the Company, senior in right of payment with any
future indebtedness of the Company that expressly provided for
its subordination to the Subordinated Notes, and unconditionally
guaranteed jointly and severally by substantially all of the
Company’s U.S. Subsidiaries.
The Senior Credit Facility agreement and provisions of the
indenture governing the Subordinated Notes contain a number of
customary covenants, including, but not limited to, restrictions
on the Company’s ability to incur additional indebtedness,
create liens or other encumbrances, sell assets, enter into sale
and lease-back transactions, make certain payments, investments,
loans, advances or guarantees, make acquisitions and engage in
mergers or consolidations, pay dividends and distributions, and
make capital expenditures. The Senior Credit Facility also
includes covenants relating to leverage and interest coverage.
At December 31, 2007, there was $80,000 and $170,000
outstanding under the Term Loan and Subordinated Notes,
respectively, and letters of credit and bank guarantees totaling
$36,007 supported by the Revolver.
Chart Ferox, a.s. (“Ferox”), a wholly-owned subsidiary
of the Company, maintains secured revolving credit facilities
with borrowing capacity, including overdraft protection, of up
to $9,600, of which $4,400 is available only for letters of
credit and bank guarantees. Under the revolving credit
facilities, Ferox may make borrowings in Czech Koruna, Euros and
U.S. dollars. Borrowings in Koruna are at PRIBOR,
borrowings in Euros are at EURIBOR and borrowings in
U.S. dollars are at LIBOR, each with a fixed margin of
0.6 percent. Ferox is not required to pay a commitment fee
to the lenders under the revolving credit facilities in respect
to the unutilized commitments thereunder. Ferox must pay letter
of credit and guarantee fees equal to 0.75 percent on the
face amount of each guarantee. Ferox’s land and buildings,
and accounts receivable secure $4,600 and $2,500, respectively,
of the revolving credit facilities. At December 31, 2007,
there were no borrowings outstanding under, and $558 of bank
guarantees supported by the Ferox revolving credit facilities.
The scheduled annual maturities of long-term debt at
December 31, 2007, are as follows:
|
|
|
|
|
|
|
Year
|
|
Amount
|
|
|
|
|
2008
|
|
$
|
—
|
|
|
2009
|
|
|
—
|
|
|
2010
|
|
|
—
|
|
|
2011
|
|
|
—
|
|
|
2012 and thereafter
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
The Company paid interest of $24,039 for the year ended
December 31, 2007, $25,570 for the year ended
December 31, 2006, $1,085 for the period October 17,
2005 to December 31, 2005, and $4,397 for the period
January 1, 2005 to October 16, 2005.
The Company believes that the fair value of its Subordinated
Notes at December 31, 2007 based on actual market trading
approximates carrying value at December 31, 2007. The fair
value of the term loan portion of its Senior Credit Facility is
estimated based on the present value of the underlying cash
flows discounted at the Company’s estimated borrowing rate.
Under such method the fair value of the Company’s Term Loan
approximated its carrying value at December 31, 2007 and
2006.
NOTE D —
Employee Separation and Plant Closure Costs
In 2005, the Company completed its manufacturing facility
reduction plan, which commenced in 2002. These actions resulted
in the announcements of the closure of the Company’s
Distribution and Storage segment manufacturing facility in
Plaistow, New Hampshire and the BioMedical segment manufacturing
and office facility
F-23
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
in Burnsville, Minnesota, respectively. The shutdown of the
Burnsville, Minnesota manufacturing facility was completed in
the first quarter of 2005. In each of these facility closures,
the Company did not exit the product lines manufactured at those
sites, but moved the manufacturing to other facilities with
available capacity, most notably New Prague, Minnesota for
engineered tank production and Canton, Georgia for medical
respiratory production. During 2007, 2006 and 2005, the Company
recorded employee separation and plant closure costs related to
these facility reduction plans and also recorded non-cash
inventory valuation charges included in cost of sales at certain
of these sites in 2005.
The following tables summarize the Company’s employee
separation and plant closure costs activity for 2007, 2006 and
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 — Company
|
|
|
|
|
|
|
|
Distribution
|
|
|
Energy &
|
|
|
|
|
|
|
|
|
|
|
BioMedical
|
|
|
& Storage
|
|
|
Chemical
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
One-time employee termination costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other associated costs
|
|
|
—
|
|
|
|
304
|
|
|
|
—
|
|
|
|
—
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
|
|
|
|
304
|
|
|
|
—
|
|
|
|
—
|
|
|
|
304
|
|
|
Reserve usage
|
|
|
(97
|
)
|
|
|
(324
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve.
|
|
|
(97
|
)
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(117
|
)
|
|
Reserves as of January 1, 2007
|
|
|
121
|
|
|
|
190
|
|
|
|
1,557
|
|
|
|
—
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2007
|
|
$
|
24
|
|
|
$
|
170
|
|
|
$
|
1,557
|
|
|
|
—
|
|
|
$
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 — Company
|
|
|
|
|
|
|
|
Distribution
|
|
|
Energy &
|
|
|
|
|
|
|
|
|
|
|
BioMedical
|
|
|
& Storage
|
|
|
Chemicals
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
One-time employee termination costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other associated costs
|
|
|
—
|
|
|
|
396
|
|
|
|
—
|
|
|
|
—
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
—
|
|
|
|
396
|
|
|
|
—
|
|
|
|
—
|
|
|
|
396
|
|
|
Reserve usage
|
|
|
(118
|
)
|
|
|
(396
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
(118
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(118
|
)
|
|
Reserves as of January 1, 2006
|
|
|
239
|
|
|
|
190
|
|
|
|
1,557
|
|
|
|
—
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2006
|
|
$
|
121
|
|
|
$
|
190
|
|
|
$
|
1,557
|
|
|
|
—
|
|
|
$
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 17, 2005 to December 31, 2005 —
Company
|
|
|
|
|
|
|
|
Distribution
|
|
|
Energy &
|
|
|
|
|
|
|
|
|
|
|
BioMedical
|
|
|
& Storage
|
|
|
Chemicals
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
One-time employee termination costs
|
|
$
|
17
|
|
|
$
|
(120
|
)
|
|
$
|
78
|
|
|
$
|
86
|
|
|
$
|
61
|
|
|
Other associated costs
|
|
|
2
|
|
|
|
102
|
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
19
|
|
|
|
(18
|
)
|
|
|
52
|
|
|
|
86
|
|
|
|
139
|
|
|
Inventory valuation in cost of sales
|
|
|
149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
(18
|
)
|
|
|
52
|
|
|
|
52
|
|
|
|
254
|
|
|
Reserve usage
|
|
|
(33
|
)
|
|
|
(97
|
)
|
|
|
(48
|
)
|
|
|
(57
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
135
|
|
|
|
(115
|
)
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
19
|
|
|
Reserves as of October 17, 2005
|
|
|
104
|
|
|
|
305
|
|
|
|
1,553
|
|
|
|
5
|
|
|
|
1,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2005
|
|
$
|
239
|
|
|
$
|
190
|
|
|
$
|
1,557
|
|
|
$
|
—
|
|
|
$
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2005 to October 16, 2005 —
Predecessor Company
|
|
|
|
|
|
|
|
Distribution
|
|
|
Energy &
|
|
|
|
|
|
|
|
|
|
|
BioMedical
|
|
|
& Storage
|
|
|
Chemicals
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
One-time employee termination costs
|
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
(159
|
)
|
|
$
|
(118
|
)
|
|
Other associated costs
|
|
|
540
|
|
|
|
465
|
|
|
|
129
|
|
|
|
41
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
540
|
|
|
|
506
|
|
|
|
129
|
|
|
|
(118
|
)
|
|
|
1,057
|
|
|
Inventory valuation in cost of sales
|
|
|
643
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
506
|
|
|
|
129
|
|
|
|
(118
|
)
|
|
|
1,700
|
|
|
Reserve usage
|
|
|
(1,451
|
)
|
|
|
(542
|
)
|
|
|
(133
|
)
|
|
|
(370
|
)
|
|
|
(2,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
(268
|
)
|
|
|
(36
|
)
|
|
|
(4
|
)
|
|
|
(488
|
)
|
|
|
(796
|
)
|
|
Reserves as of January 1, 2005
|
|
|
372
|
|
|
|
341
|
|
|
|
1,557
|
|
|
|
493
|
|
|
|
2,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of October 16, 2005
|
|
$
|
104
|
|
|
$
|
305
|
|
|
$
|
1,553
|
|
|
$
|
5
|
|
|
$
|
1,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E —
Acquisitions
On May 26, 2006, the Company acquired the common stock of
Cooler Service Company, Inc. (“CSC”) based in Tulsa,
Oklahoma. The consideration paid was $15,927, net of cash
acquired, including transaction costs. The acquisition was
funded with cash on hand. The fair value of the net assets
acquired and goodwill at the date of acquisition was $8,050 and
$8,654, respectively. CSC designs and manufactures air cooled
heat exchangers for multiple markets, including hydrocarbon,
petrochemical and industrial gas processing, and power
generation. CSC is included in the Company’s E&C
segment.
On May 16, 2005, the Company acquired 100 percent of
the equity interest in Changzhou CEM Cryo Equipment Co., Ltd.
(“CEM”), a foreign owned enterprise established under
the laws of the People’s Republic of China. The purchase
price was $13,664, consisting of cash of $12,147 and the
issuance of a promissory note of $1,466 payable to the seller.
The fair value of the net assets acquired and goodwill at the
date of acquisition was $8,894 and $4,770, respectively. For the
period January 1, 2005 to October 17, 2005, the
Company recorded a charge of $2,768 for the write-off of
purchased in-process research and development that was included
in the fair value of net assets acquired. CEM is included in the
Company’s Distribution and Storage (“D&S”)
operating segment.
F-25
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
NOTE F —
Income Taxes
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Accruals and reserves
|
|
$
|
9,928
|
|
|
$
|
8,871
|
|
|
Pensions
|
|
|
1,570
|
|
|
|
1,197
|
|
|
Inventory
|
|
|
1,435
|
|
|
|
1,283
|
|
|
Foreign tax credit carryforward
|
|
|
566
|
|
|
|
390
|
|
|
Foreign net operating loss
|
|
|
267
|
|
|
|
313
|
|
|
Stock options
|
|
|
2,930
|
|
|
|
664
|
|
|
Other — net
|
|
|
1,680
|
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets before valuation allowance
|
|
$
|
18,376
|
|
|
$
|
14,806
|
|
|
Valuation allowance
|
|
|
(267
|
)
|
|
|
(313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
$
|
18,109
|
|
|
$
|
14,493
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
9,129
|
|
|
$
|
6,546
|
|
|
Intangibles
|
|
|
51,186
|
|
|
|
55,996
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
60,315
|
|
|
$
|
62,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(42,206
|
)
|
|
$
|
(48,049
|
)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company has foreign tax credit
carryforwards of $566 which will begin to expire in 2014 through
2016. In addition, the Company has foreign net operating losses
of $941 of which $301 expire if unused in 2013, and the
remaining $640 can be carried forward indefinitely. During the
year, the Company recorded a tax benefit of $120 as a reduction
of goodwill for the realization of foreign net operating losses.
At December 31, 2007, the Company has established a
valuation allowance of $267 related to the foreign net operating
losses.
The Company has not provided for income taxes on approximately
$48,463 of foreign subsidiaries’ undistributed earnings as
of December 31, 2007, since the earnings retained have been
reinvested indefinitely by the subsidiaries. It is not
practicable to estimate the additional income taxes and
applicable foreign withholding taxes that would be payable on
the remittance of such undistributed earnings.
Congress passed the American Jobs Creation Act in October 2004.
The Act provided for a special one-time tax deduction of
85 percent of certain foreign earnings that are repatriated
(as defined in the Act) in 2005. During the period
January 1, 2005 to October 17, 2005, the Company
recorded income tax expense of $156 for the repatriation of
$2,970 of foreign earnings under the Act.
F-26
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
Income (loss) before income taxes and minority interest consists
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
United States
|
|
$
|
38,508
|
|
|
$
|
22,673
|
|
|
$
|
(1,425
|
)
|
|
|
$
|
10,718
|
|
|
Foreign
|
|
|
22,811
|
|
|
|
17,734
|
|
|
|
530
|
|
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,319
|
|
|
$
|
40,407
|
|
|
$
|
(895
|
)
|
|
|
$
|
16,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the provision for income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
19,764
|
|
|
$
|
13,995
|
|
|
$
|
1,476
|
|
|
|
$
|
6,601
|
|
|
State
|
|
|
1,623
|
|
|
|
1,722
|
|
|
|
199
|
|
|
|
|
1,013
|
|
|
Foreign
|
|
|
2,962
|
|
|
|
3,659
|
|
|
|
227
|
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,349
|
|
|
|
19,376
|
|
|
|
1,902
|
|
|
|
|
9,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal.
|
|
|
(5,795
|
)
|
|
|
(5,838
|
)
|
|
|
(2,055
|
)
|
|
|
|
(1,793
|
)
|
|
State
|
|
|
(1,584
|
)
|
|
|
(544
|
)
|
|
|
(185
|
)
|
|
|
|
(161
|
)
|
|
Foreign
|
|
|
349
|
|
|
|
50
|
|
|
|
(103
|
)
|
|
|
|
(307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,030
|
)
|
|
|
(6,332
|
)
|
|
|
(2,343
|
)
|
|
|
|
(2,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,319
|
|
|
$
|
13,044
|
|
|
$
|
(441
|
)
|
|
|
$
|
7,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The reconciliation of income taxes computed at the
U.S. federal statutory tax rates to income tax expense is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
Income tax expense (benefit) at U.S. statutory rates
|
|
$
|
21,462
|
|
|
$
|
14,142
|
|
|
$
|
(313
|
)
|
|
|
$
|
5,691
|
|
|
State income taxes, net of federal tax benefit
|
|
|
36
|
|
|
|
766
|
|
|
|
9
|
|
|
|
|
554
|
|
|
Credit on foreign taxes paid
|
|
|
(926
|
)
|
|
|
(309
|
)
|
|
|
(127
|
)
|
|
|
|
(408
|
)
|
|
Effective tax rate differential of earnings outside of U.S.
|
|
|
(2,893
|
)
|
|
|
(1,440
|
)
|
|
|
(71
|
)
|
|
|
|
(463
|
)
|
|
Foreign investment tax credit
|
|
|
(1,780
|
)
|
|
|
(527
|
)
|
|
|
—
|
|
|
|
|
—
|
|
|
Federal tax benefit of foreign sales
|
|
|
—
|
|
|
|
(676
|
)
|
|
|
(130
|
)
|
|
|
|
(648
|
)
|
|
Non-deductible (taxable) items
|
|
|
1,088
|
|
|
|
(60
|
)
|
|
|
191
|
|
|
|
|
1,308
|
|
|
In-process research and development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
969
|
|
|
Repatriation of foreign earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
156
|
|
|
Provision (income) for tax contingencies
|
|
|
332
|
|
|
|
1,148
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,319
|
|
|
$
|
13,044
|
|
|
$
|
(441
|
)
|
|
|
$
|
7,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period January 1, 2005 to October 16, 2005,
the Company received a tax benefit of $5,818 from the exercise
of stock options as a result of the Acquisition. The Company had
net income tax payments of $17,893 in 2007, $10,543 in 2006,
$3,113 for the period October 17, 2005 to December 31,
2005 and $11,160 for the period January 1, 2005 to
October 16, 2005.
The Company adopted the provisions of FASB Interpretation
No. 48,
Accounting for Uncertainty in Income Taxes
(“FIN 48”) on January 1, 2007.
Previously, the Company had accounted for tax contingencies in
accordance with SFAS No. 5,
Accounting for
Contingencies.
As required by FIN 48, which clarifies
SFAS No. 109,
Accounting for Income Taxes,
the
Company recognizes the financial statement benefit of a tax
position only after determining that the relevant tax authority
would more likely than not sustain the position following an
audit. For tax positions meeting the more likely than not
threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant tax authority. At the adoption date, the Company
applied FIN 48 to all tax positions for which the statute
of limitations remained open. As a result of the implementation
of FIN 48, the Company did not recognize material
adjustments in the liability for unrecognized tax benefits.
F-28
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The reconciliation of beginning to ending unrecognized tax
benefits is as follows:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
|
|
Unrecognized tax benefits at January 1, 2007
|
|
$
|
3,900
|
|
|
Additions based on tax positions related to the current year
|
|
|
36
|
|
|
Additions for tax positions of prior years
|
|
|
836
|
|
|
Reductions for tax positions of prior years
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31, 2007
|
|
$
|
4,347
|
|
|
|
|
|
|
|
The amount of unrecognized tax benefits as of December 31,
2007 was $4,347. This amount includes $2,058 of unrecognized tax
benefits which, if ultimately recognized before
December 31, 2008, will reduce the Company’s annual
effective tax rate.
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense. The Company had
accrued approximately $618 for the payment of interest and
penalties at December 31, 2007 which is included in the
unrecognized tax benefits above. During 2007, the Company
accrued approximately $315 in additional interest associated
with uncertain tax positions.
The Company is subject to income taxes in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. Tax
regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and
require significant judgment to apply. With few exceptions, the
Company is no longer subject to U.S. federal, state and
local or
non-U.S. income
tax examinations by tax authorities for years prior to 2003.
The Internal Revenue Service (“IRS”) commenced an
examination of the Company’s U.S. income tax returns
for 2004 and 2005 during 2007. The Company expects the
examination to be concluded and settled during 2008. The Company
is also currently under examination by a number of state tax
authorities. A state in which the Company operates has asserted
that the Company may be liable for substantial state income
taxes, penalties and interest related to the state from 1993 to
2000. As of December 31, 2007, the Company has not accrued
a liability for this potential contingency. Due to the potential
resolution of federal, state and foreign examinations, and the
expiration of various statutes of limitation, it is reasonably
possible the Company’s unrecognized tax benefits at
December 31, 2007 may decrease within the next twelve
months by a range of zero to $1,200.
NOTE G —
Assets Held for Sale
In June 2004, the Company decided to sell a building, parcel of
land and manufacturing equipment at its Plaistow, NH
Distribution and Storage manufacturing and office facility. The
manufacturing equipment was sold in August 2004 for $1,082
resulting in a gain on sale of assets of $549. In September
2004, the Company entered into an agreement, which expired in
July 2005, to sell the idle Plaistow land and building for
$3,567, net of selling costs. It was determined the net sales
price per the agreement was lower than the carrying value and
the Company recorded a fair value impairment loss of $386 in
2004. During the January 1, 2005 to October 16, 2005
period, an additional $483 fair value impairment loss was
recognized by the Predecessor Company as the Company entered
into another agreement to sell the land and building that
expired in the first quarter of 2006. In March 2007, the Company
entered into an agreement to sell a portion of the land and all
of the buildings. The sale of the buildings and a portion of the
land was completed in November 2007 for a net purchase price of
$2,099. At December 31, 2007, the value of the remaining
land equaled $985. The Plaistow land is classified as assets
held for sale on the consolidated balance sheets as of
December 31, 2007 and 2006.
F-29
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
NOTE H —
Employee Benefit Plans
The Company has four defined benefit pension plans covering
certain U.S hourly and salary employees. Effective
February 28, 2006, all of the Plans were frozen. The Plans
have been amended as of December 31, 2007 to merge all four
plans into one plan.
The following table sets forth the components of net periodic
pension benefit for the year ended December 31, 2007, the
year ended December 31, 2006, the period October 17,
2005 to December 31, 2005 and the period January 1,
2005 to October 16, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53
|
|
|
|
$
|
205
|
|
|
Interest cost
|
|
|
2,121
|
|
|
|
2,042
|
|
|
|
410
|
|
|
|
|
1,559
|
|
|
Expected return on plan assets
|
|
|
(2,779
|
)
|
|
|
(2,475
|
)
|
|
|
(474
|
)
|
|
|
|
(1,807
|
)
|
|
Amortization of net (gain)
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(6
|
)
|
|
Amortization of prior service cost.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension benefit
|
|
$
|
(667
|
)
|
|
$
|
(433
|
)
|
|
$
|
(11
|
)
|
|
|
$
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth changes in the projected benefit
obligation and plan assets, the funded status of the plans and
the amounts recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
January 1 projected benefit obligation
|
|
$
|
37,400
|
|
|
$
|
37,404
|
|
|
Service cost
|
|
|
—
|
|
|
|
—
|
|
|
Interest cost
|
|
|
2,122
|
|
|
|
2,042
|
|
|
Benefits paid
|
|
|
(1,188
|
)
|
|
|
(1,112
|
)
|
|
Actuarial losses (gains) and plan changes
|
|
|
1,408
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
December 31 projected benefit obligation
|
|
$
|
39,742
|
|
|
$
|
37,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value at January 1
|
|
$
|
34,112
|
|
|
$
|
30,104
|
|
|
Actual return
|
|
|
1,979
|
|
|
|
3,857
|
|
|
Employer contributions
|
|
|
674
|
|
|
|
1,263
|
|
|
Benefits paid
|
|
|
(1,188
|
)
|
|
|
(1,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31
|
|
$
|
35,577
|
|
|
$
|
34,112
|
|
|
|
|
|
|
|
|
|
|
|
|
The funded status of the pension plans was as follows:
|
|
|
|
|
|
|
|
|
|
Funded status (plan assets less than projected benefit
obligations)
|
|
$
|
(4,165
|
)
|
|
$
|
(3,288
|
)
|
|
Unrecognized actuarial loss (gain)
|
|
|
316
|
|
|
|
(1,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(3,849
|
)
|
|
|
(5,180
|
)
|
|
|
|
|
|
|
|
|
|
|
F-30
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
At December 31, 2007 and 2006, the Company recorded an
unrecognized actuarial loss (gain) of $2,208 and $(1,892) in
accumulated other comprehensive income, respectively.
The actuarial assumptions used in determining the funded status
information and subsequent net periodic pension cost are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
United States Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
|
|
|
5.75
|
%
|
|
Weighted average rate of increase in
compensation
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
3.00
|
%
|
|
Expected long-term weighted average rate of return on plan assets
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
|
8.25
|
%
|
|
|
|
|
|
*
|
|
No longer applicable as Plans were frozen and participants are
no longer accruing benefits.
|
The expected long-term weighted average rate of return on plan
assets was established using the Company’s target asset
allocation for equity and debt securities and the historical
average rates of return for equity and debt securities. The
Company employs a total return investment approach whereby a mix
of equities and fixed income investments are used to maximize
the long-term return of plan assets for a prudent level of risk.
Risk tolerance is established through careful consideration of
short and long-term plan liabilities, plan funded status and
corporate financial condition. The investment portfolio contains
a diversified blend of equity and fixed-income investments.
Furthermore, equity investments are diversified across
U.S. and
non-U.S. stocks,
as well as growth, value, and small and large capitalizations.
Investment risk is measured and monitored on an ongoing basis
through quarterly investment portfolio reviews, annual liability
measurements and periodic asset/liability studies. The
Company’s pension plan weighted-average actual (which is
periodically rebalanced) and target asset allocations by asset
category at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
Target
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Stocks
|
|
|
49
|
%
|
|
|
49
|
%
|
|
|
65
|
%
|
|
Fixed income funds
|
|
|
49
|
%
|
|
|
49
|
%
|
|
|
33
|
%
|
|
Cash and cash equivalents
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The Company’s funding policy is to contribute at least the
minimum funding amounts required by law. Based upon current
actuarial estimates, the Company expects to contribute $526 to
its defined benefit pension plans in 2007 and expects the
following benefit payments to be paid by the plans:
|
|
|
|
|
|
|
2008
|
|
$
|
1,464
|
|
|
2009
|
|
|
1,568
|
|
|
2010
|
|
|
1,653
|
|
|
2011
|
|
|
1,800
|
|
|
2012
|
|
|
1,953
|
|
|
In aggregate during five years thereafter
|
|
|
12,069
|
|
|
|
|
|
|
|
|
|
|
$
|
20,507
|
|
|
|
|
|
|
|
The Company presently makes contributions to one bargaining unit
supported multi-employer pension plan resulting in expense of
$476 for the year ended December 31, 2007, $440 for the
year ended December 31, 2006, $78 for the period
October 17, 2005 to December 31, 2005 and $282 for the
period January 1, 2005 to October 16, 2005. As part of
the closure of Plaistow, NH facility in 2004, the Company
withdrew from the multi-employer plan upon final termination of
all employees at such facility. The Company has recorded a
related estimated withdrawal liability of $170 at
December 31, 2007, and 2006. Any additional liability over
this accrued amount is not expected to have a material adverse
impact on the Company’s financial position, liquidity, cash
flows or results of operations.
The Company has a defined contribution savings plan that covers
most of its U.S. employees. Company contributions to the
plan are based on employee contributions, and a Company match
and discretionary contributions. Expenses under the plan totaled
$4,399 for the year ended December 31, 2007, $3,685 for the
year ended December 31, 2006, $517 for the period
October 17, 2005 to December 31, 2005, and $2,188 for
the period January 1, 2005 to October 16, 2005.
NOTE I —
Stock Option Plans
Under the Amended and Restated 2005 Stock Incentive Plan
(“Stock Incentive Plan”) which became effective in
October 2005, the Company may grant stock options, stock
appreciation rights (“SARs”), restricted stock units
(“RSUs”), stock awards and performance based stock
awards to employees and directors. A maximum of
3,421 shares of the Company’s common stock may be
issued for grants under the Stock Incentive Plan. As of
December 31, 2007, the Company had 1,107 shares of
common stock available for future grant under the Stock
Incentive Plan.
The Company recognized stock-based compensation of $9,029 as
well as a related tax benefit of $4,323 for the year ended
December 31, 2007, $1,907 and a related tax benefit of
$5,275 for the year ended December 31, 2006, $437 for the
period October 17, 2005 to December 31, 2005 and
$9,509 for the period January 1, 2005 to October 16,
2005. On June 12, 2007, the Company completed its secondary
stock offering in which First Reserve Fund X, L.P. achieved
a return on its investment that caused 82% of the
performance-based options that were granted in 2005 and 2006 to
vest as specified in the Stock Incentive Plan. As a result of
the vesting, the Company recorded $6,211 in stock-based
compensation expense in the second quarter of 2007. As of
December 31, 2007, the total share-based compensation
expected to be recognized over the remaining weighted average
period of approximately 3 years is $4,430.
Stock
Options
Under the terms of the Stock Incentive Plan, stock options
generally have either a 4 or 5 year graded vesting period,
an exercise price equal to the fair market value of a share of
common stock on the date of grant, and a contractual term of
10 years.
F-32
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The following table summarizes the Company’s stock option
activity for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Number
|
|
|
Exercise
|
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Value
|
|
|
of Shares
|
|
|
Price
|
|
|
|
|
Outstanding at beginning of period
|
|
|
2,442
|
|
|
$
|
7.12
|
|
|
|
|
|
|
|
2,785
|
|
|
$
|
5.84
|
|
|
Granted
|
|
|
129
|
|
|
|
25.27
|
|
|
|
|
|
|
|
267
|
|
|
|
12.16
|
|
|
Exercised
|
|
|
(725
|
)
|
|
|
6.62
|
|
|
|
|
|
|
|
(610
|
)
|
|
|
3.50
|
|
|
Expired or forfeited
|
|
|
(348
|
)
|
|
|
7.07
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
1,498
|
|
|
$
|
8.93
|
|
|
$
|
32,674
|
|
|
|
2,442
|
|
|
$
|
7.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year*
|
|
|
843
|
|
|
$
|
7.46
|
|
|
$
|
18,073
|
|
|
|
135
|
|
|
$
|
6.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participants at end of year
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future grant at end of year
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Remaining contractual term of 8 years
The total fair value of options vested was $7,027 for the year
ended December 31, 2007 and $571 for the year ended December 31,
2006. The total intrinsic value of options exercised during the
year ended December 31, 2007 was $15,281. No options were
exercised during the year ended December 31, 2006 under the
Stock Incentive Plan.
The Company uses a Black-Scholes option pricing model to
estimate the fair value of stock options. The expected
volatility and expected term of the options are based on
historical information. The risk free rate is based on the U.S.
Treasury yield in effect at the time of the grant.
Weighted average grant date fair values of stock options and the
assumptions used in estimating the fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Weighted average grant date fair value
|
|
$
|
14.60
|
|
|
$
|
14.05
|
|
|
$
|
3.72
|
|
|
Expected term (years)
|
|
|
7.19
|
|
|
|
7.50
|
|
|
|
7.50
|
|
|
Risk-free interest rate
|
|
|
4.99
|
%
|
|
|
5.17
|
%
|
|
|
4.80
|
%
|
|
Expected volatility
|
|
|
49.00
|
%
|
|
|
46.94
|
%
|
|
|
46.94
|
%
|
Performance
Stock Awards
Performance share units granted under the Stock Incentive Plan
in 2007 are earned over a 2.5 year period beginning on
July 1, 2007. Total units earned may vary between 0% and
150% of the units based on the attainment of pre-determined
performance and market condition targets as determined by the
Board of Directors. The Company values performance stock awards
using a Monte Carlo simulation model that is performed by an
outside valuation firm. In August 2007, the Company granted 72
performance share units with no exercise price at a weighted
average grant date fair value of $25.50.
Other
In 2007, the Company granted restricted stock units covering
10 shares of common stock to non-employee directors. Each
of the six grants had a fair market value of $40 on the date of
grant. In 2006, the Company granted restricted stock units
covering 16 shares of common stock to non-employee
directors. Each of the six grants of
F-33
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
restricted stock units had a fair market value of $40 on the
date of grant. Restricted stock units for
4 and 3 shares were forfeited during 2007 upon
the resignation of three directors. The remaining restricted
stock units are expected to fully vest on the first anniversary
of the date of grant or earlier in the event of a “change
in control” as such term is defined in the Stock Incentive
Plan. The Company recorded $234 and $100 of compensation expense
for the years ended December 31, 2007 and 2006,
respectively.
NOTE J —
Lease Commitments
The Company incurred $6,477, $4,373, $717, and $2,665 of rental
expense under operating leases for the year ended
December 31, 2007, the year ended December 31, 2006,
the period October 17, 2005 to December 31, 2005 and
the period January 1, 2005 to October 16, 2005.
Certain leases contain rent escalation clauses and lease
concessions that require additional rental payments in the later
years of the term. Rent expense for these types of leases are
recognized on a straight-line basis over the minimum lease term.
In addition, the Company has the right, but no obligation, to
renew certain leases for various renewal terms. At
December 31, 2007, future minimum lease payments for
non-cancelable operating leases for the next five years total
$15,038 and are payable as follows: 2008 — $3,520;
2009 — $3,720; 2010 — $3,117;
2011 — $2,462; and 2012 — $2,219.
NOTE K —
Contingencies
Environmental
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. The Company is
involved with environmental compliance, investigation,
monitoring and remediation activities at certain of its owned
manufacturing facilities and at one owned facility that is
leased to a third party, and, except for these continuing
remediation efforts, believes it is currently in substantial
compliance with all known environmental regulations. At
December 31, 2007 and 2006, the Company had undiscounted
accrued environmental reserves of $6,466 and $6,658,
respectively, recorded in other long-term liabilities. The
Company accrues for certain environmental remediation-related
activities for which commitments or remediation plans have been
developed and for which costs can be reasonably estimated. These
estimates are determined based upon currently available facts
and circumstances regarding each facility. Actual costs incurred
may vary from these estimates due to the inherent uncertainties
involved. Future expenditures relating to these environmental
remediation efforts are expected to be made over the next 8 to
14 years as ongoing costs of remediation programs.
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
remediation than those the Company believes are adequate or
required by existing law. The Company believes that any
additional liability in excess of amounts accrued which may
result from the resolution of such matters will not have a
material adverse effect on the Company’s financial
position, liquidity, cash flows or results of operations.
CHEL
In March 2003, the Company completed the closure of its
Wolverhampton, United Kingdom manufacturing facility, operated
by the Company’s Chart Heat Exchanger Limited
(“CHEL”) subsidiary. In March 2003, CHEL filed
for a voluntary administration under the United Kingdom
(“U.K.”) Insolvency Act of 1986. CHEL’s
application for voluntary administration was approved on
April 1, 2003 and an administrator was appointed.
Additionally, the Company received information that indicated
that CHEL’s net pension plan obligations had increased
significantly primarily due to a decline in plan asset values
and interest rates as well as increased plan liabilities,
resulting in a significant plan deficit as of March 2003. Based
on the Company’s financial condition in March 2003, it
determined not to advance funds to CHEL to fund CHEL’s
obligations. Since CHEL was unable to
F-34
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
fund its net pension deficit, the trustees of the CHEL pension
plan requested a decision to
wind-up
the
plan from a U.K. pension regulatory board. That board approved
the
wind-up
as of March 28, 2003.
No claims presently are pending against the Company related to
the CHEL insolvency. Nevertheless, claims may be asserted
against the Company that the Company is responsible for these
matters. To the extent the Company has a significant liability
related to CHEL’s insolvency, satisfaction of that
liability could have a material adverse impact on the
Company’s liquidity, results of operations and financial
position.
Performance
Under Contracts
The Company is occasionally subject to various other legal
proceedings or claims related to performance under contracts,
and other matters, several of which claim substantial damages,
in the ordinary course of its business. Based on the
Company’s historical experience in litigating these claims,
as well as the Company’s current assessment of the
underlying merits of the actions and applicable insurance, the
Company believes the resolution of these other legal claims will
not have a material adverse effect on the Company’s
financial position, liquidity, cash flows or results of
operations. Future developments may, however, result in
resolution of these legal claims in a way that could have a
material adverse effect.
Legal
Proceedings
The Company is a party to product liability and other legal
proceedings incidental to the normal course of its business.
Based on the Company’s historical experience in litigating
these actions, as well as the Company’s current assessment
of the underlying merits of the actions and applicable
insurance, management believes that the final resolution of
these matters will not have a material adverse affect on the
Company’s financial position, liquidity, cash flows or
results of operations. Future developments may, however, result
in resolution of these legal claims in a way that could have a
material adverse effect.
NOTE L —
Reporting Segments
The Company’s structure of its internal organization is
divided into the following three reportable segments: Energy and
Chemicals, Distribution and Storage, and BioMedical. 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 and sales and
marketing approaches. The Energy and Chemicals segment sells
heat exchangers, cold boxes and liquefied natural gas vacuum
insulated pipe to natural gas, petrochemical processing and
industrial gas companies who use them for the liquefaction and
separation of natural and industrial gases. The Distribution and
Storage segment sells cryogenic bulk storage systems, cryogenic
packaged gas systems, cryogenic systems and components, beverage
liquid
CO
2
systems and cryogenic services to various companies for the
storage and transportation of both industrial and natural gases.
The BioMedical segment sells medical respiratory products,
biological storage systems and magnetic resonance imaging
cryostat components. Due to the nature of the products that each
operating segment sells, there are no inter-segment sales.
Corporate headquarters includes operating expenses for executive
management, accounting, tax, treasury, human resources,
information technology, legal, internal audit, risk management
and stock-based compensation expense that are not allocated to
the reportable segments.
The Company evaluates performance and allocates resources based
on operating income or loss from continuing operations before
net interest expense, financing costs amortization expense,
derivative contracts valuation expense, foreign currency loss,
income taxes, minority interest and cumulative effect of change
in accounting principle. The accounting policies of the
reportable segments are the same as those described in the
summary of significant accounting policies.
F-35
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
Information for the Company’s three reportable segments and
its corporate headquarters, and product revenue and geographic
information for the Company, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
Reportable Segments
|
|
|
|
|
Energy and
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
and Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Sales from external customers
|
|
$
|
253,672
|
|
|
$
|
322,565
|
|
|
$
|
90,158
|
|
|
$
|
—
|
|
|
$
|
666,395
|
|
|
Employee separation and plant closure costs
|
|
|
—
|
|
|
|
304
|
|
|
|
—
|
|
|
|
—
|
|
|
|
304
|
|
|
Depreciation and amortization expense
|
|
|
6,710
|
|
|
|
9,170
|
|
|
|
2,590
|
|
|
|
236
|
|
|
|
18,706
|
|
|
Operating income (loss)
|
|
|
33,821
|
|
|
|
66,167
|
|
|
|
17,788
|
|
|
|
(32,595
|
)
|
|
|
85,181
|
|
|
Total assets(A)(B)
|
|
|
236,991
|
|
|
|
423,247
|
|
|
|
104,623
|
|
|
|
60,893
|
|
|
|
825,754
|
|
|
Capital expenditures
|
|
|
6,955
|
|
|
|
9,714
|
|
|
|
1,932
|
|
|
|
427
|
|
|
|
19,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
Reportable Segments
|
|
|
|
|
Energy and
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
and Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Sales from external customers
|
|
$
|
190,673
|
|
|
$
|
268,303
|
|
|
$
|
78,478
|
|
|
$
|
—
|
|
|
$
|
537,454
|
|
|
Employee separation and plant closure costs
|
|
|
—
|
|
|
|
396
|
|
|
|
—
|
|
|
|
—
|
|
|
|
396
|
|
|
Depreciation and amortization expense
|
|
|
8,135
|
|
|
|
10,168
|
|
|
|
2,380
|
|
|
|
230
|
|
|
|
20,913
|
|
|
Operating income (loss)
|
|
|
18,957
|
|
|
|
54,545
|
|
|
|
15,969
|
|
|
|
(22,600
|
)
|
|
|
66,871
|
|
|
Total assets(A)(C)
|
|
|
224,277
|
|
|
|
376,168
|
|
|
|
101,785
|
|
|
|
23,645
|
|
|
|
725,875
|
|
|
Capital expenditures
|
|
|
13,365
|
|
|
|
7,934
|
|
|
|
864
|
|
|
|
90
|
|
|
|
22,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
October 17, 2005 to December 31, 2005
|
|
|
|
|
Reportable Segments
|
|
|
|
|
Energy and
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
and Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Sales from external customers
|
|
$
|
34,135
|
|
|
$
|
47,832
|
|
|
$
|
15,685
|
|
|
$
|
—
|
|
|
$
|
97,652
|
|
|
Employee separation and plant closure costs (benefit)
|
|
|
52
|
|
|
|
(18
|
)
|
|
|
19
|
|
|
|
86
|
|
|
|
139
|
|
|
Depreciation and amortization expense
|
|
|
1,424
|
|
|
|
2,152
|
|
|
|
458
|
|
|
|
54
|
|
|
|
4,088
|
|
|
Operating income (loss)
|
|
|
5,092
|
|
|
|
3,947
|
|
|
|
714
|
|
|
|
(4,683
|
)
|
|
|
5,070
|
|
|
Total assets(A)(D)
|
|
|
177,915
|
|
|
|
339,586
|
|
|
|
93,929
|
|
|
|
24,211
|
|
|
|
635,641
|
|
|
Capital expenditures
|
|
|
877
|
|
|
|
3,338
|
|
|
|
1,255
|
|
|
|
131
|
|
|
|
5,601
|
|
F-36
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
January 1, 2005 to October 16, 2005
|
|
|
|
|
Reportable Segments
|
|
|
|
|
Energy and
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
and Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
Sales from external customers
|
|
$
|
86,920
|
|
|
$
|
161,329
|
|
|
$
|
57,248
|
|
|
$
|
—
|
|
|
$
|
305,497
|
|
|
Employee separation and plant closure costs (benefit)
|
|
|
129
|
|
|
|
506
|
|
|
|
540
|
|
|
|
(118
|
)
|
|
|
1,057
|
|
|
Depreciation and amortization expense
|
|
|
931
|
|
|
|
3,694
|
|
|
|
1,901
|
|
|
|
282
|
|
|
|
6,808
|
|
|
Operating income (loss)
|
|
|
13,717
|
|
|
|
27,005
|
|
|
|
8,343
|
|
|
|
(28,206
|
)
|
|
|
20,859
|
|
|
Total assets(A)(E)
|
|
|
85,203
|
|
|
|
151,404
|
|
|
|
99,001
|
|
|
|
7,499
|
|
|
|
343,107
|
|
|
Capital expenditures
|
|
|
2,817
|
|
|
|
5,878
|
|
|
|
1,490
|
|
|
|
853
|
|
|
|
11,038
|
|
|
|
|
|
|
(A)
|
|
Corporate assets at December 31, 2007, December 31,
2006, December 31, 2005 and October 16, 2005 consist
primarily of cash and cash equivalents and deferred income taxes.
|
|
|
|
(B)
|
|
Total assets at December 31, 2007 include goodwill of
$82,116, $130,801 and $35,536 for the Energy and Chemicals,
Distribution and Storage and BioMedical segments, respectively.
|
|
|
|
(C)
|
|
Total assets at December 31, 2006 include goodwill of
$81,941, $129,751 and $35,452 for the Energy and chemicals,
Distribution and Storage and BioMedical segments, respectively.
|
|
|
|
(D)
|
|
Total assets at December 31, 2005 include goodwill of
$72,833, $128,653 and $35,256 for the Energy and Chemicals,
Distribution and Storage, and BioMedical segments, respectively.
|
|
|
|
(E)
|
|
Total assets at October 16, 2005 include goodwill of
$31,648, $2,787 and $40,675 for the Energy and Chemicals,
Distribution and Storage, and BioMedical segments, respectively.
|
A reconciliation of the total of the reportable segments’
operating income (loss) to consolidated (loss) income before
income taxes and minority interest is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
Company
|
|
|
|
October 17,
|
|
|
January 1,
|
|
|
|
|
Year Ended
|
|
|
|
2005 to
|
|
|
2005 to
|
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
2005
|
|
|
2005
|
|
|
Operating income
|
|
$
|
85,181
|
|
|
$
|
66,871
|
|
|
|
$
|
5,070
|
|
|
$
|
20,859
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
22,174
|
|
|
|
25,461
|
|
|
|
|
5,565
|
|
|
|
4,192
|
|
|
Amortization of deferred financing costs
|
|
|
1,646
|
|
|
|
1,536
|
|
|
|
|
308
|
|
|
|
—
|
|
|
Derivative contracts valuation (income)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(9
|
)
|
|
|
(28
|
)
|
|
Foreign currency (gain) loss
|
|
|
42
|
|
|
|
(533
|
)
|
|
|
|
101
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
$
|
61,319
|
|
|
$
|
40,407
|
|
|
|
$
|
(895
|
)
|
|
$
|
16,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
2005
|
|
|
Product Sales Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and Chemicals Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heat exchangers
|
|
$
|
155,822
|
|
|
$
|
117,677
|
|
|
$
|
22,218
|
|
|
|
$
|
52,702
|
|
|
Cold boxes and LNG VIP
|
|
|
97,850
|
|
|
|
72,996
|
|
|
|
11,917
|
|
|
|
|
34,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,672
|
|
|
|
190,673
|
|
|
|
34,135
|
|
|
|
|
86,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and Storage Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cryogenic bulk storage systems
|
|
$
|
166,702
|
|
|
$
|
141,119
|
|
|
$
|
22,626
|
|
|
|
$
|
70,180
|
|
|
Cryogenic packaged gas systems and beverage liquid
CO
2
systems
|
|
|
118,216
|
|
|
|
93,690
|
|
|
|
18,150
|
|
|
|
|
65,713
|
|
|
Cryogenic systems and components
|
|
|
12,654
|
|
|
|
12,249
|
|
|
|
2,862
|
|
|
|
|
11,571
|
|
|
Cryogenic services
|
|
|
24,993
|
|
|
|
21,245
|
|
|
|
4,194
|
|
|
|
|
13,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
322,565
|
|
|
$
|
268,303
|
|
|
$
|
47,832
|
|
|
|
$
|
161,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioMedical Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical products and biological storage systems
|
|
|
77,866
|
|
|
|
67,236
|
|
|
|
13,355
|
|
|
|
|
48,488
|
|
|
MRI components and other
|
|
|
12,292
|
|
|
|
11,242
|
|
|
|
2,330
|
|
|
|
|
8,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,158
|
|
|
|
78,478
|
|
|
|
15,685
|
|
|
|
|
57,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
666,395
|
|
|
$
|
537,454
|
|
|
$
|
97,652
|
|
|
|
$
|
305,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
2005
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
To
|
|
|
|
to
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
December 31,
|
|
|
|
October 16,
|
|
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
Long-Lived
|
|
|
2005
|
|
|
|
2005
|
|
|
Geographic Information:
|
|
Sales
|
|
|
Assets
|
|
|
Sales
|
|
|
Assets
|
|
|
Sales
|
|
|
|
Sales
|
|
|
United States
|
|
$
|
484,427
|
|
|
$
|
368,300
|
|
|
$
|
403,523
|
|
|
$
|
393,535
|
|
|
$
|
75,692
|
|
|
|
$
|
233,669
|
|
|
Czech Republic
|
|
|
96,925
|
|
|
|
70,020
|
|
|
|
73,611
|
|
|
|
45,530
|
|
|
|
12,829
|
|
|
|
|
42,645
|
|
|
Other
Non-U.S.
Countries.
|
|
|
85,043
|
|
|
|
57,957
|
|
|
|
60,320
|
|
|
|
55,175
|
|
|
|
9,131
|
|
|
|
|
29,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total.
|
|
$
|
666,395
|
|
|
$
|
496,277
|
|
|
$
|
537,454
|
|
|
$
|
494,240
|
|
|
$
|
97,652
|
|
|
|
$
|
305,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
Note M —
Quarterly Data (Unaudited)
Selected quarterly data for the years ended December 31,
2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
Company
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
|
Sales
|
|
$
|
152,463
|
|
|
$
|
167,587
|
|
|
$
|
163,670
|
|
|
$
|
182,675
|
|
|
$
|
666,395
|
|
|
Gross profit
|
|
|
39,859
|
|
|
|
51,258
|
|
|
|
45,390
|
|
|
|
53,034
|
|
|
|
189,541
|
|
|
Operating income
|
|
|
17,287
|
|
|
|
19,749
|
|
|
|
21,414
|
|
|
|
26,731
|
|
|
|
85,181
|
|
|
Net income
|
|
|
7,178
|
|
|
|
8,448
|
|
|
|
12,112
|
|
|
|
16,366
|
|
|
|
44,156
|
|
|
Net income per share - diluted
|
|
$
|
0.28
|
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
Company
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
|
Sales
|
|
$
|
120,840
|
|
|
$
|
129,367
|
|
|
$
|
142,825
|
|
|
$
|
144,422
|
|
|
$
|
537,454
|
|
|
Gross profit
|
|
|
36,987
|
|
|
|
36,113
|
|
|
|
39,440
|
|
|
|
42,379
|
|
|
|
154,919
|
|
|
Operating income
|
|
|
15,787
|
|
|
|
14,823
|
|
|
|
16,869
|
|
|
|
19,392
|
|
|
|
66,871
|
|
|
Net income
|
|
|
6,046
|
|
|
|
5,308
|
|
|
|
6,932
|
|
|
|
8,609
|
|
|
|
26,895
|
|
|
Net income per share - diluted
|
|
$
|
0.73
|
|
|
$
|
0.50
|
|
|
$
|
0.34
|
|
|
$
|
0.33
|
|
|
|
|
|
NOTE N —
Supplemental Guarantor Financial Information
In connection with the Acquisition, the Company issued $170,000
of senior subordinated notes. The following subsidiaries, all of
which are wholly owned, guaranteed the notes on a full,
unconditional and joint and several basis: Chart, Inc., Caire
Inc., Chart Energy and Chemicals, Inc., Chart Cooler Service
Company, Inc., Chart International Holdings, Inc., Chart Asia,
Inc. and Chart International, Inc. The following subsidiaries
are not guarantors of the notes:
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Jurisdiction
|
|
|
|
Changzhou CEM Cryo Equipment Co., Ltd.
|
|
China
|
|
Chart Asia Investment Company Ltd.
|
|
Hong Kong
|
|
Chart Australia Pty. Ltd.
|
|
Australia
|
|
Chart Biomedical Limited
|
|
United Kingdom
|
|
Chart Cryogenic Distribution Equipment (Changzhou) Co., Ltd.
(50% owned)
|
|
China
|
|
Chart Cryogenic Engineering Systems (Changzhou) Co., Ltd.
|
|
China
|
|
Chart Cryogenic Equipment (Changzhou) Co., Ltd.
|
|
China
|
|
Chart Ferox a.s.
|
|
Czech Republic
|
|
Chart Ferox GmbH
|
|
Germany
|
|
GTC of Clarksville, LLC
|
|
Delaware
|
|
Lox Taiwan (16% owned)
|
|
Taiwan
|
|
Zhangjigang Chart Hailu Cryogenic Equipment Co., Ltd. (dissolved
during 2007)
|
|
China
|
F-39
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
The following supplemental condensed consolidating and combining
financial information of the Issuer, Subsidiary Guarantors and
Subsidiary Non-Guarantors presents statements of operations for
the year ended December 31, 2007, the year ended
December 31, 2006, the period from October 17, 2005 to
December 31, 2005 and the period from January 1, 2005
to October 16, 2005, balance sheets as of December 31,
2007 and December 31, 2006, and statements of cash flows
for the year ended December 31, 2007, the year ended
December 31, 2006, the period from October 17, 2005 to
December 31, 2005 and the period from January 1, 2005
to October 16, 2005.
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
ASSETS
|
|
Cash and cash equivalents
|
|
$
|
49,184
|
|
|
$
|
4,595
|
|
|
$
|
39,090
|
|
|
$
|
—
|
|
|
$
|
92,869
|
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
75,354
|
|
|
|
21,586
|
|
|
|
—
|
|
|
|
96,940
|
|
|
Inventory, net
|
|
|
—
|
|
|
|
49,164
|
|
|
|
38,491
|
|
|
|
(582
|
)
|
|
|
87,073
|
|
|
Other current assets
|
|
|
11,328
|
|
|
|
27,997
|
|
|
|
12,840
|
|
|
|
—
|
|
|
|
52,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
60,512
|
|
|
|
157,110
|
|
|
|
112,007
|
|
|
|
(582
|
)
|
|
|
329,047
|
|
|
Property, plant and equipment, net
|
|
|
—
|
|
|
|
62,917
|
|
|
|
36,662
|
|
|
|
—
|
|
|
|
99,579
|
|
|
Goodwill
|
|
|
—
|
|
|
|
190,657
|
|
|
|
57,796
|
|
|
|
—
|
|
|
|
248,453
|
|
|
Intangible assets, net
|
|
|
—
|
|
|
|
133,839
|
|
|
|
1,860
|
|
|
|
—
|
|
|
|
135,699
|
|
|
Investments in affiliates
|
|
|
165,128
|
|
|
|
61,973
|
|
|
|
—
|
|
|
|
(227,101
|
)
|
|
|
—
|
|
|
Intercompany receivables
|
|
|
381,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(381,525
|
)
|
|
|
—
|
|
|
Other assets
|
|
|
9,811
|
|
|
|
1,546
|
|
|
|
1,619
|
|
|
|
—
|
|
|
|
12,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
616,976
|
|
|
$
|
608,042
|
|
|
$
|
209,944
|
|
|
$
|
(609,208
|
)
|
|
$
|
825,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
Accounts payable and accruals
|
|
$
|
(16,175
|
)
|
|
$
|
159,966
|
|
|
$
|
30,763
|
|
|
$
|
140
|
|
|
$
|
174,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(16,175
|
)
|
|
|
159,966
|
|
|
|
30,763
|
|
|
|
140
|
|
|
|
174,694
|
|
|
Long-term debt
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
Intercompany payables
|
|
|
—
|
|
|
|
272,325
|
|
|
|
109,922
|
|
|
|
(382,247
|
)
|
|
|
—
|
|
|
Other long-term liabilities
|
|
|
55,160
|
|
|
|
10,623
|
|
|
|
7,286
|
|
|
|
—
|
|
|
|
73,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
288,985
|
|
|
|
442,914
|
|
|
|
147,971
|
|
|
|
(381,107
|
)
|
|
|
497,763
|
|
|
Common stock
|
|
|
282
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
282
|
|
|
Other stockholders’ equity
|
|
|
327,709
|
|
|
|
165,128
|
|
|
|
61,973
|
|
|
|
(227,101
|
)
|
|
|
327,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
327,991
|
|
|
|
165,128
|
|
|
|
61,973
|
|
|
|
(227,101
|
)
|
|
|
327,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
616,976
|
|
|
$
|
608,042
|
|
|
$
|
209,944
|
|
|
$
|
(609,208
|
)
|
|
$
|
825,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
493,878
|
|
|
|
176,311
|
|
|
$
|
(3,794
|
)
|
|
$
|
666,395
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
344,552
|
|
|
|
135,724
|
|
|
|
(3,422
|
)
|
|
|
476,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
149,326
|
|
|
|
40,587
|
|
|
|
(372
|
)
|
|
|
189,541
|
|
|
Selling, general and administrative expenses
|
|
|
1,359
|
|
|
|
90,039
|
|
|
|
12,962
|
|
|
|
—
|
|
|
|
104,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,359
|
)
|
|
|
59,287
|
|
|
|
27,625
|
|
|
|
(372
|
)
|
|
|
85,181
|
|
|
Interest expense, net
|
|
|
22,583
|
|
|
|
(23
|
)
|
|
|
(386
|
)
|
|
|
—
|
|
|
|
22,174
|
|
|
Other expense (income), net
|
|
|
1,646
|
|
|
|
135
|
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
1,688
|
|
|
Minority interest, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
(156
|
)
|
|
|
—
|
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net (income)
loss of subsidiaries
|
|
|
(25,588
|
)
|
|
|
59,175
|
|
|
|
28,260
|
|
|
|
(372
|
)
|
|
|
61,475
|
|
|
Income tax (benefit) provision
|
|
|
(7,411
|
)
|
|
|
21,805
|
|
|
|
2,925
|
|
|
|
—
|
|
|
|
17,319
|
|
|
Equity in net (income) loss of subsidiaries
|
|
|
(62,333
|
)
|
|
|
(24,963
|
)
|
|
|
—
|
|
|
|
87,296
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
44,156
|
|
|
$
|
62,333
|
|
|
$
|
25,335
|
|
|
$
|
(87,668
|
)
|
|
$
|
44,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(22,041
|
)
|
|
$
|
83,210
|
|
|
$
|
15,894
|
|
|
$
|
5,444
|
|
|
$
|
82,507
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
—
|
|
|
|
(10,876
|
)
|
|
|
(8,152
|
)
|
|
|
—
|
|
|
|
(19,028
|
)
|
|
Other investing activities
|
|
|
|
|
|
|
2,099
|
|
|
|
(1,612
|
)
|
|
|
—
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(8,777
|
)
|
|
|
(9,764
|
)
|
|
|
—
|
|
|
|
(18,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(40,000
|
)
|
|
|
(750
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(40,750
|
)
|
|
Underwriters’ over-allotment proceeds, net
|
|
|
38,042
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,042
|
|
|
Stock option exercise proceeds
|
|
|
4,797
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,797
|
|
|
Tax benefit from exercise of stock options
|
|
|
4,323
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,323
|
|
|
Other financing activities
|
|
|
(296
|
)
|
|
|
—
|
|
|
|
1,328
|
|
|
|
—
|
|
|
|
1,032
|
|
|
Intercompany account changes
|
|
|
58,275
|
|
|
|
(69,202
|
)
|
|
|
16,371
|
|
|
|
(5,444
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
65,141
|
|
|
|
(69,952
|
)
|
|
|
17,699
|
|
|
|
(5,444
|
)
|
|
|
7,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
43,100
|
|
|
|
4,481
|
|
|
|
23,829
|
|
|
|
—
|
|
|
|
71,410
|
|
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
2,605
|
|
|
Cash and cash equivalents, beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
of period
|
|
|
6,084
|
|
|
|
114
|
|
|
|
12,656
|
|
|
|
—
|
|
|
|
18,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
49,184
|
|
|
$
|
4,595
|
|
|
$
|
39,090
|
|
|
$
|
—
|
|
|
$
|
92,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
ASSETS
|
|
Cash and cash equivalents
|
|
$
|
6,084
|
|
|
$
|
114
|
|
|
$
|
12,656
|
|
|
$
|
—
|
|
|
$
|
18,854
|
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
58,320
|
|
|
|
18,442
|
|
|
|
—
|
|
|
|
76,762
|
|
|
Inventory, net
|
|
|
—
|
|
|
|
43,559
|
|
|
|
29,508
|
|
|
|
(210
|
)
|
|
|
72,857
|
|
|
Other current assets
|
|
|
8,319
|
|
|
|
39,955
|
|
|
|
13,888
|
|
|
|
—
|
|
|
|
62,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
14,403
|
|
|
|
141,948
|
|
|
|
74,494
|
|
|
|
(210
|
)
|
|
|
230,635
|
|
|
Property, plant and equipment, net
|
|
|
—
|
|
|
|
57,469
|
|
|
|
28,254
|
|
|
|
—
|
|
|
|
85,723
|
|
|
Goodwill
|
|
|
—
|
|
|
|
189,671
|
|
|
|
57,473
|
|
|
|
—
|
|
|
|
247,144
|
|
|
Intangible assets, net
|
|
|
—
|
|
|
|
143,998
|
|
|
|
2,625
|
|
|
|
—
|
|
|
|
146,623
|
|
|
Investments in affiliates
|
|
|
104,109
|
|
|
|
38,326
|
|
|
|
—
|
|
|
|
(142,435
|
)
|
|
|
—
|
|
|
Intercompany receivables
|
|
|
421,549
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(421,549
|
)
|
|
|
—
|
|
|
Other assets
|
|
|
11,126
|
|
|
|
1,580
|
|
|
|
2,044
|
|
|
|
—
|
|
|
|
14,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
551,187
|
|
|
$
|
572,992
|
|
|
$
|
164,890
|
|
|
$
|
(564,194
|
)
|
|
$
|
724,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
Accounts payable and accruals
|
|
$
|
(11,935
|
)
|
|
$
|
122,734
|
|
|
$
|
28,908
|
|
|
$
|
(466
|
)
|
|
$
|
139,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(11,935
|
)
|
|
|
122,734
|
|
|
|
28,908
|
|
|
|
(466
|
)
|
|
|
139,241
|
|
|
Long-term debt
|
|
|
290,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
290,000
|
|
|
Intercompany payables
|
|
|
—
|
|
|
|
332,535
|
|
|
|
88,758
|
|
|
|
(421,293
|
)
|
|
|
—
|
|
|
Other long-term liabilities
|
|
|
53,388
|
|
|
|
13,614
|
|
|
|
8,898
|
|
|
|
—
|
|
|
|
75,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
331,453
|
|
|
|
468,883
|
|
|
|
126,564
|
|
|
|
(421,759
|
)
|
|
|
505,141
|
|
|
Common stock
|
|
|
256
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
256
|
|
|
Other stockholders’ equity
|
|
|
219,478
|
|
|
|
104,109
|
|
|
|
38,326
|
|
|
|
(142,435
|
)
|
|
|
219,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
219,734
|
|
|
|
104,109
|
|
|
|
38,326
|
|
|
|
(142,435
|
)
|
|
|
219,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
551,187
|
|
|
$
|
572,992
|
|
|
$
|
164,890
|
|
|
$
|
(564,194
|
)
|
|
$
|
724,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
412,282
|
|
|
|
128,980
|
|
|
$
|
(3,808
|
)
|
|
$
|
537,454
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
294,657
|
|
|
|
91,661
|
|
|
|
(3,783
|
)
|
|
|
382,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
117,625
|
|
|
|
37,319
|
|
|
|
(25
|
)
|
|
|
154,919
|
|
|
Selling, general and administrative expenses
|
|
|
1,370
|
|
|
|
75,574
|
|
|
|
11,095
|
|
|
|
9
|
|
|
|
88,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,370
|
)
|
|
|
42,051
|
|
|
|
26,224
|
|
|
|
(34
|
)
|
|
|
66,871
|
|
|
Interest expense, net
|
|
|
25,682
|
|
|
|
(103
|
)
|
|
|
(118
|
)
|
|
|
—
|
|
|
|
25,461
|
|
|
Other expense (income), net
|
|
|
1,536
|
|
|
|
70
|
|
|
|
(603
|
)
|
|
|
—
|
|
|
|
1,003
|
|
|
Minority interest, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
468
|
|
|
|
—
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net (income)
loss of subsidiaries
|
|
|
(28,588
|
)
|
|
|
42,084
|
|
|
|
26,477
|
|
|
|
(34
|
)
|
|
|
39,939
|
|
|
Income tax (benefit) provision
|
|
|
(9,242
|
)
|
|
|
18,814
|
|
|
|
3,472
|
|
|
|
—
|
|
|
|
13,044
|
|
|
Equity in net (income) loss of subsidiaries
|
|
|
(46,241
|
)
|
|
|
(22,971
|
)
|
|
|
—
|
|
|
|
69,212
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
26,895
|
|
|
$
|
46,241
|
|
|
$
|
23,005
|
|
|
$
|
(69,246
|
)
|
|
$
|
26,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(33,347
|
)
|
|
$
|
51,510
|
|
|
$
|
18,080
|
|
|
$
|
155
|
|
|
$
|
36,398
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
—
|
|
|
|
(17,570
|
)
|
|
|
(4,683
|
)
|
|
|
—
|
|
|
|
(22,253
|
)
|
|
Acquisition of business, net of cash acquired
|
|
|
—
|
|
|
|
(15,927
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,927
|
)
|
|
Other investing activities
|
|
|
(59
|
)
|
|
|
(425
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(59
|
)
|
|
|
(33,922
|
)
|
|
|
(4,683
|
)
|
|
|
—
|
|
|
|
(38,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(55,000
|
)
|
|
|
750
|
|
|
|
(2,356
|
)
|
|
|
—
|
|
|
|
(56,606
|
)
|
|
Initial public offering proceeds, net
|
|
|
172,496
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
172,496
|
|
|
Dividend payment
|
|
|
(150,313
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(150,313
|
)
|
|
Warrant and option exercise proceeds
|
|
|
39,237
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,237
|
|
|
Payment of financing costs
|
|
|
(854
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(854
|
)
|
|
Tax benefit from exercise of stock options
|
|
|
5,275
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,275
|
|
|
Intercompany account changes
|
|
|
21,458
|
|
|
|
(18,515
|
)
|
|
|
(2,788
|
)
|
|
|
(155
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
32,299
|
|
|
|
(17,765
|
)
|
|
|
(5,144
|
)
|
|
|
(155
|
)
|
|
|
9,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,107
|
)
|
|
|
(177
|
)
|
|
|
8,253
|
|
|
|
—
|
|
|
|
6,969
|
|
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
19
|
|
|
|
540
|
|
|
|
—
|
|
|
|
559
|
|
|
Cash and cash equivalents, beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
of period
|
|
|
7,191
|
|
|
|
272
|
|
|
|
3,863
|
|
|
|
—
|
|
|
|
11,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
6,084
|
|
|
$
|
114
|
|
|
$
|
12,656
|
|
|
$
|
—
|
|
|
$
|
18,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Period from October 17, 2005 to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
77,591
|
|
|
$
|
20,655
|
|
|
$
|
(594
|
)
|
|
$
|
97,652
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
56,495
|
|
|
|
19,883
|
|
|
|
(645
|
)
|
|
|
75,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
21,096
|
|
|
|
772
|
|
|
|
51
|
|
|
|
21,919
|
|
|
Selling, general and administrative expenses
|
|
|
423
|
|
|
|
14,300
|
|
|
|
2,126
|
|
|
|
—
|
|
|
|
16,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(423
|
)
|
|
|
6,796
|
|
|
|
(1,354
|
)
|
|
|
51
|
|
|
|
5,070
|
|
|
Interest expense, net
|
|
|
4,473
|
|
|
|
1,084
|
|
|
|
8
|
|
|
|
—
|
|
|
|
5,565
|
|
|
Other expense, net
|
|
|
300
|
|
|
|
21
|
|
|
|
79
|
|
|
|
—
|
|
|
|
400
|
|
|
Minority interest, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
52
|
|
|
|
—
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net (income)
loss of subsidiaries
|
|
|
3,750
|
|
|
|
5,691
|
|
|
|
(1,493
|
)
|
|
|
51
|
|
|
|
(947
|
)
|
|
Income tax (benefit) provision
|
|
|
(2,573
|
)
|
|
|
1,975
|
|
|
|
157
|
|
|
|
—
|
|
|
|
(441
|
)
|
|
Equity in net (income) loss of subsidiaries
|
|
|
(2,117
|
)
|
|
|
1,599
|
|
|
|
—
|
|
|
|
518
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,440
|
|
|
$
|
2,117
|
|
|
$
|
(1,650
|
)
|
|
$
|
(467
|
)
|
|
$
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period from October 17, 2005 to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
5,811
|
|
|
$
|
(11,947
|
)
|
|
$
|
1,534
|
|
|
$
|
19,237
|
|
|
$
|
14,635
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
—
|
|
|
|
(2,569
|
)
|
|
|
(3,032
|
)
|
|
|
—
|
|
|
|
(5,601
|
)
|
|
Payments to Reorganized Company shareholders for transaction
|
|
|
(356,649
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(356,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(356,649
|
)
|
|
|
(2,569
|
)
|
|
|
(3,032
|
)
|
|
|
—
|
|
|
|
(362,250
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
268,542
|
|
|
|
—
|
|
|
|
(2,185
|
)
|
|
|
—
|
|
|
|
266,357
|
|
|
Intercompany account changes
|
|
|
1,421
|
|
|
|
15,758
|
|
|
|
2,058
|
|
|
|
(19,237
|
)
|
|
|
—
|
|
|
Proceeds from equity contribution
|
|
|
111,299
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111,299
|
|
|
Payment of financing costs
|
|
|
(11,558
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,558
|
)
|
|
Payment of exercised stock options
|
|
|
(15,756
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,756
|
)
|
|
Payment of Acquisition costs
|
|
|
(1,853
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
352,095
|
|
|
|
15,758
|
|
|
|
(127
|
)
|
|
|
(19,237
|
)
|
|
|
348,489
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,257
|
|
|
|
1,242
|
|
|
|
(1,625
|
)
|
|
|
—
|
|
|
|
874
|
|
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
(1,120
|
)
|
|
|
102
|
|
|
|
—
|
|
|
|
(1,018
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,934
|
|
|
|
150
|
|
|
|
5,386
|
|
|
|
—
|
|
|
|
11,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
7,191
|
|
|
$
|
272
|
|
|
$
|
3,863
|
|
|
$
|
—
|
|
|
$
|
11,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Period From January 1, 2005 to October 16,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
238,459
|
|
|
$
|
68,933
|
|
|
$
|
(1,895
|
)
|
|
$
|
305,497
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
167,517
|
|
|
|
51,699
|
|
|
|
(1,932
|
)
|
|
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
70,942
|
|
|
|
17,234
|
|
|
|
37
|
|
|
|
88,213
|
|
|
Selling, general and administrative expenses
|
|
|
7,372
|
|
|
|
53,485
|
|
|
|
6,497
|
|
|
|
|
|
|
|
67,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7,372
|
)
|
|
|
17,457
|
|
|
|
10,737
|
|
|
|
37
|
|
|
|
20,859
|
|
|
Interest expense
|
|
|
4,524
|
|
|
|
(197
|
)
|
|
|
(135
|
)
|
|
|
—
|
|
|
|
4,192
|
|
|
Other expense (income), net
|
|
|
(28
|
)
|
|
|
123
|
|
|
|
536
|
|
|
|
—
|
|
|
|
631
|
|
|
Minority interest, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net (income)
loss of subsidiaries
|
|
|
(11,868
|
)
|
|
|
17,531
|
|
|
|
10,317
|
|
|
|
37
|
|
|
|
16,017
|
|
|
Income tax (benefit) provision
|
|
|
(4,528
|
)
|
|
|
10,603
|
|
|
|
1,084
|
|
|
|
—
|
|
|
|
7,159
|
|
|
Equity in net (income) loss of subsidiaries
|
|
|
(16,198
|
)
|
|
|
(9,270
|
)
|
|
|
—
|
|
|
|
25,468
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,858
|
|
|
$
|
16,198
|
|
|
$
|
9,233
|
|
|
$
|
(25,431
|
)
|
|
$
|
8,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars and shares in thousands, except per share
amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period from January 1, 2005 to October 16,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(4,781
|
)
|
|
$
|
24,524
|
|
|
$
|
5,820
|
|
|
$
|
(9,922
|
)
|
|
$
|
15,641
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
—
|
|
|
|
(6,681
|
)
|
|
|
(4,357
|
)
|
|
|
—
|
|
|
|
(11,038
|
)
|
|
Proceeds from sale of assets
|
|
|
—
|
|
|
|
520
|
|
|
|
1,700
|
|
|
|
—
|
|
|
|
2,220
|
|
|
Acquisitions, net of cash
|
|
|
—
|
|
|
|
(12,147
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,147
|
)
|
|
Other investing activities
|
|
|
—
|
|
|
|
(96
|
)
|
|
|
262
|
|
|
|
—
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
—
|
|
|
|
(18,404
|
)
|
|
|
(2,395
|
)
|
|
|
—
|
|
|
|
(20,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(1,952
|
)
|
|
|
(1,016
|
)
|
|
|
2,985
|
|
|
|
—
|
|
|
|
17
|
|
|
Proceeds from sale of stock
|
|
|
1,691
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,691
|
|
|
Intercompany account changes
|
|
|
657
|
|
|
|
(5,301
|
)
|
|
|
(5,278
|
)
|
|
|
9,922
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
396
|
|
|
|
(6,317
|
)
|
|
|
(2,293
|
)
|
|
|
9,922
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(4,385
|
)
|
|
|
(197
|
)
|
|
|
1,132
|
|
|
|
—
|
|
|
|
(3,450
|
)
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
8
|
|
|
|
98
|
|
|
|
—
|
|
|
|
106
|
|
|
Cash and cash equivalents, beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
of period
|
|
|
10,319
|
|
|
|
339
|
|
|
|
4,156
|
|
|
|
—
|
|
|
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
5,934
|
|
|
$
|
150
|
|
|
$
|
5,386
|
|
|
$
|
—
|
|
|
$
|
11,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of August 2, 2005 by
and among Chart Industries, Inc., certain of its stockholders,
First Reserve Fund X, L.P. and CI Acquisition, Inc.
(incorporated by reference to Exhibit 2.1 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to Amendment No. 5 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
3
|
.2
|
|
Amended and Restated By-Laws, as amended (incorporated by
reference to Exhibit 3.1 to the Registrant’s quarterly
report on
Form 10-Q
for the period ended June 30, 2007 (File
No. 001-11442)).
|
|
|
4
|
.1
|
|
Form of Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 4 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
4
|
.2
|
|
Indenture, dated as of October 17, 2005, between Chart
Industries, Inc. and The Bank of New York as trustee
(incorporated by reference to Exhibit 4.2 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
4
|
.3
|
|
Registration Rights Agreement, dated October 17, 2005 among
Chart Industries, Inc., the subsidiary guarantors party thereto
and Morgan Stanley & Co., as representative of the
initial purchasers (incorporated by reference to
Exhibit 4.3 to the Registrant’s Registration Statement
on
Form S-1
(File
No. 333-133254)).
|
|
|
10
|
.1
|
|
Underwriting Agreement, dated July 25, 2006, among Chart
Industries Inc. and the several underwriters named therein
(incorporated by reference to Exhibit 10.1 to
Registrant’s quarterly report on
Form 10-Q
for the period ended September 30, 2006 (File
No. 001-11442)).
|
|
|
10
|
.2
|
|
Form of Amended and Restated Management Stockholders Agreement
(incorporated by reference to Exhibit 10.10 to Amendment
No. 3 to the Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
10
|
.3
|
|
Stockholder Agreement, dated July 25, 2006, by and between
Chart Industries, Inc. and FR X Chart Holdings LLC (incorporated
by reference to Exhibit 10.3 to Registrant’s quarterly
report on
Form 10-Q
for the period ended September 30, 2006 (File
No. 001-11442)).
|
|
|
10
|
.4
|
|
Amended and Restated Chart Industries, Inc. 2005 Stock Incentive
Plan (incorporated by reference to Exhibit 10.16 to
Amendment No. 4 to the Registrant’s Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.4.1
|
|
Form of Nonqualified Stock Option Agreement under the Chart
Industries, Inc. 2005 Stock Incentive Plan (incorporated by
reference to Exhibit 10.17 to the Registrant’s
Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.4.2
|
|
Form of Restricted Stock Unit Agreement (for non-employee
directors) under the Amended and Restated Chart Industries, Inc.
2005 Stock Incentive Plan (incorporated by reference to
Exhibit 10.22 to Amendment No. 4 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.4.3
|
|
Form of 2007 Performance Unit Agreement under the Amended and
Restated Chart Industries, Inc. 2005 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the
Registrant’s current report on
Form 8-K,
filed with the SEC on August 7, 2007 (File
No. 001-11442)).*
|
|
|
10
|
.4.4
|
|
Form of 2008 Performance Unit Agreement under the Amended and
Restated Chart Industries, Inc. 2005 Stock Incentive
Plan.* (x)
|
|
|
10
|
.4.5
|
|
Form of Nonqualified Stock Option Agreement under the Amended
and Restated Chart Industries, Inc. 2005 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to the
Registrant’s current report on
Form 8-K,
filed with the SEC on August 7, 2007 (File
No. 001-11442)).*
|
|
|
10
|
.4.6
|
|
Forms of Stock Award Agreement and Deferral Election Form (for
Non-Employee Directors) under the Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan.* (x)
|
|
|
10
|
.5
|
|
Amended and Restated Chart Industries, Inc. Voluntary Deferred
Income Plan (incorporated by reference to Exhibit 10.9 to
Amendment No. 1 to the Registrant’s Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.6
|
|
2006 Chart Executive Incentive Compensation Plan (incorporated
by reference to Exhibit 10.19 to Amendment No. 1 to
the Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
E-1
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
10
|
.7
|
|
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.19 to Amendment No. 3 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.8
|
|
Credit Agreement, dated October 17, 2005, by and among FR X
Chart Holdings LLC, CI Acquisition, Inc. and the Lenders thereto
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
10
|
.8.1
|
|
Amendment No. 1 and Consent to the Credit Agreement and
Amendment No. 1 to the Guarantee and Collateral Agreement
dated July 31, 2006 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006).
|
|
|
10
|
.9
|
|
Guarantee and Collateral Agreement, dated as of October 17,
2005 among FR X Chart Holdings LLC, as guarantor and pledgor, CI
Acquisition, Inc., as borrower, each subsidiary loan party named
therein and Citicorp North America, Inc., as collateral agent
(incorporated by reference to Exhibit 10.2 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
10
|
.10
|
|
Employment Agreement, dated November 23, 2005, by and
between Registrant and Samuel F. Thomas (incorporated by
reference to Exhibit 10.3 to the Registrant’s
Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.11
|
|
Employment Agreement, dated December 1, 2005, by and
between Registrant and Michael F. Biehl (incorporated by
reference to Exhibit 10.4 to the Registrant’s
Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.12
|
|
Employment Agreement, dated March 29, 2006, by and between
Registrant and Matthew J. Klaben (incorporated by reference to
Exhibit 10.6 to the Registrant’s Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.13
|
|
Employment Agreement, dated May 5, 2006, by and between
Registrant and James H. Hoppel, Jr. (incorporated by
reference to Exhibit 10.7 to Amendment No. 1 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
|
10
|
.14
|
|
Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.20 to the Registrant’s Registration
Statement on
Form S-1
(File
No. 333-133254)).
|
|
|
10
|
.15
|
|
IAM Agreement
2007-2010,
effective February 4, 2007, by and between Chart
Energy & Chemicals, Inc. and Local Lodge 2191 of
District Lodge 66 of the International Association of Machinists
and Aerospace Workers, AFL-CIO (incorporated by reference to
Exhibit 10.16 to Amendment No. 1 to the
Registrant’s Registration Statement on
Form S-1
(File
No. 333-141730)).
|
|
|
10
|
.16
|
|
Underwriting Agreement, dated June 6, 2007, among Chart
Industries, Inc. and the several underwriters named therein
(incorporated by reference to Exhibit 1.1 to the
Registrant’s current report on
Form 8-K,
filed with the SEC on June 12, 2007 (File
No. 001-11442)).
|
|
|
21
|
.1
|
|
List of Subsidiaries. (x)
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting
Firm. (x)
|
|
|
31
|
.1
|
|
Rule 13a-14(a)
Certification of the Company’s Chief Financial
Officer. (x)
|
|
|
31
|
.2
|
|
Rule 13a-14(a)
Certification of the Company’s Chief Executive
Officer. (x)
|
|
|
32
|
.1
|
|
Section 1350 Certification of the Company’s Chief
Financial Officer. (xx)
|
|
|
32
|
.2
|
|
Section 1350 Certification of the Company’s Chief
Executive Officer. (xx)
|
|
|
|
|
|
(x)
|
|
Filed herewith.
|
|
|
|
(xx)
|
|
Furnished herewith.
|
|
|
|
*
|
|
Management contract or compensatory plan or arrangement.
|
E-2