AMENDMENT #3 TO FORM S-1
As filed with the Securities and Exchange Commission on
June 27, 2006
Registration
No. 333-133254
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 3
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHART INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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3443 |
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34-1712937 |
(State of Incorporation) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer Identification No.) |
One Infinity Corporate Centre Drive
Suite 300
Garfield Heights, Ohio 44125-5370
Tel.:
(440) 753-1490
Fax:
(440) 753-1491
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
Matthew J. Klaben, Esq.
Vice President, General Counsel and Secretary
One Infinity Corporate Centre Drive
Suite 300
Garfield Heights, Ohio 44125-5370
Tel.:
(440) 753-1490
Fax:
(440) 753-1491
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
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Edward P. Tolley III, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017-3954
Tel.: (212) 455-2000
Fax: (212) 455-2502 |
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James S. Scott Sr., Esq.
Michael Benjamin, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022-6069
Tel: (212) 848-4000
Fax: (212) 848-7179 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration
Statement is declared effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following
box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Number of Shares |
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Offering Price per |
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Aggregate Offering |
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Amount of |
Securities to be Registered |
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to be Registered(1) |
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Share(2) |
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Price(2) |
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Registration Fee(3) |
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Common stock, par value $0.01 per share
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14,375,000 |
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$21.00 |
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$301,875,000 |
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$32,300.63 |
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(1) |
Includes shares of common stock issuable upon exercise of the
underwriters option to purchase additional shares of
common stock. |
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(2) |
Estimated solely for the purpose of calculating the registration
fee under Rule 457(a) of the Securities Act of 1933, as
amended (the Securities Act). |
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(3) |
We previously paid $26,750 on April 13, 2006. |
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information
in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are
not soliciting offers to buy these securities in any state where
the offer or sale is not permitted.
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PROSPECTUS (Subject to
Completion)
Issued ,
2006
12,500,000 Shares
Chart Industries, Inc.
Common Stock
Chart Industries, Inc. is offering shares of its common stock.
All of the shares of common stock are being sold by us. We
intend to use approximately $25.0 million of the net
proceeds from the sale of the shares being sold in this offering
to repay certain of our indebtedness and approximately
$208.8 million of the net proceeds to pay a dividend to our
stockholders existing immediately prior to this offering,
consisting of affiliates of First Reserve and certain members of
our management.
This is our initial public offering and no public market
currently exists for our common stock. We anticipate that the
initial public offering price will be between $19.00 and
$21.00 per share. We intend to apply to have our common
stock approved for quotation on the Nasdaq National Market under
the symbol
.
The underwriters have the option to purchase up to an additional
1,875,000 shares of our common stock from us at the initial
public offering price, less the underwriting discount to cover
over-allotments. We intend to use the proceeds we receive from
any shares sold pursuant to the underwriters
over-allotment option to pay an additional dividend to our
existing stockholders.
Investing in the common stock involves risks. See Risk
Factors beginning on page 12.
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Initial Public | |
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Proceeds, before | |
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expenses, to us | |
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Per Share
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Total
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares to purchasers on
or
about ,
2006.
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Morgan Stanley |
Lehman Brothers |
UBS Investment Bank |
Natexis Bleichroeder Inc.
Simmons & Company
International
Howard Weil Incorporated
,
2006
Darwin LNG liquefaction facility in Northern Territory,
Australia,
including Chart vacuum-insulated pipe and
vacuum-insulated pipe riser modules for large storage
tanks
Chart brazed aluminum heat exchanger core
for use in an air separation cold box
Atlantic LNG Plant located in Trinidad, including Chart
liquefaction
cold boxes and vacuum-insulated pipe for jetty cool-down
lines
TABLE OF CONTENTS
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to sell shares of common stock and seeking offers
to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any
sale of the shares of common stock.
Through and
including ,
2006 (the
25th day
after the date of this prospectus), all dealers that buy, sell
or trade shares, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to
the dealers obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or
subscriptions.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus, but it may not contain all of the information
that is important to you. We urge you to read this entire
prospectus including the section entitled Risk
Factors and the financial statements and related notes,
before investing in our common stock.
Unless the context otherwise requires, as used in this
prospectus, (i) the terms we, our,
us, the Company, Chart
Industries and similar terms refer to Chart Industries,
Inc. and its consolidated subsidiaries and (ii) the term
issuer refers to Chart Industries, Inc. and not any
of its subsidiaries.
Chart Industries, Inc.
Our Company
We are 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 liquid gas supply chain globally.
The largest portion of end-use applications for our products is
energy-related, accounting for 51% of sales and 58% of orders in
2005, and 77% of backlog at December 31, 2005. We are a
leading manufacturer of standard and engineered equipment
primarily used for low-temperature and cryogenic, or very low
temperature, 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 use of
hydrocarbon and industrial gases.
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. We believe we are the number one or two
equipment supplier in all of our primary end-use markets. For
the three months ended March 31, 2006 and 2005, we
generated sales of $120.8 million and $85.2 million,
respectively. For the combined year ended December 31,
2005, we generated sales of $403.1 million compared to
sales of $305.6 million for the year ended
December 31, 2004.
We believe that we are well-positioned to benefit from a variety
of long-term trends driving demand in our industry, including:
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increasing demand for natural gas and the geographic dislocation
of supply and consumption, which is resulting in the need for a
global network for liquefied natural gas, or LNG; |
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increasing demand for natural gas processing, particularly in
the Middle East, as crude oil producers look to utilize the gas
portions of their reserves; and |
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increased demand for natural and industrial gases resulting from
rapid economic growth in developing areas, particularly Central
and Eastern Europe and China. |
We operate in three segments: (i) Energy and 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 in energy-related and
other applications, such as the separation, liquefaction,
distribution and storage of hydrocarbon and industrial gases.
Through our BioMedical segment, we supply cryogenic equipment
used in the storage and distribution of biological materials and
oxygen used primarily in the medical, biological research and
animal breeding industries.
1
Competitive Strengths
We believe that the following competitive strengths position us
to enhance our growth and profitability:
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Focus on Attractive Growing End Markets. We
anticipate growing demand in the end markets we serve, with
particularly strong growth in LNG, natural gas processing,
specific international markets across all segments, and
biomedical equipment. Rapid economic development in developing
areas, particularly Central and Eastern Europe and China, has
caused a significant increase in the demand for natural and
industrial gases. |
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Substantial Revenue Visibility. We have a large
and growing backlog, which provides us with a high degree of
visibility in our forecasted revenue. Our backlog as of
March 31, 2006 was $237.0 million, compared to
$233.6 million, $129.3 million and $49.6 million
as of December 31, 2005, 2004 and 2003, respectively.
Projects for energy-related applications totaled approximately
$180.0 million in backlog as of December 31, 2005. |
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Leading Market Positions. We believe we are
the #1 or #2 equipment supplier in each of our primary
end markets both domestically and internationally. We believe
that our strong industry positioning makes us typically one of
only two or three suppliers qualified to provide certain
products to key customers. |
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Diverse, Long-Standing Customer Base. We currently
serve over 2,000 customers worldwide. Our primary customers are
large, multinational producers and distributors of hydrocarbon
and industrial gases that provide us with revenue stability.
Customers and end-users also include high growth LNG processors,
petrochemical processors and biomedical companies. We have
developed strong, long-standing relationships with these
customers. |
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Highly Flexible and Low-Cost Manufacturing Base.
Given our long-term investment in global manufacturing
facilities and specialized equipment, we have developed a
substantial comparative scale and geographic advantage within
the markets for the cryogenic products that we manufacture with
more than 1.6 million square feet of manufacturing space
across 14 primary facilities and three continents. This
scale and the related substantial operational flexibility enable
us to be a low-cost producer for our products. |
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Product Expertise, Quality, Reliability and
Know-How. Within our end markets, we have established a
reputation for quality, reliability and technical innovation. We
believe that the main drivers of our target customers
purchasing decisions are a suppliers product expertise,
quality, reliability and know-how rather than pricing and terms,
giving us an advantage based on our reputation and consequent
brand recognition. We believe it would be difficult for a new
entrant to duplicate our capabilities. |
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Experienced Management Team. We have assembled a
strong senior management team with over 250 combined years
of related experience and complementary skills. This team is
responsible for our strong performance since 2003. |
Business Strategy
We believe that we are well-positioned to maintain our
leadership in providing highly engineered equipment for use in
low-temperature and cryogenic applications and meet the
worlds growing demand for hydrocarbon and industrial gases
with more economical, reliable and environmentally friendly
systems. The principal elements of our strategy are as follows:
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Continue to develop innovative, high-growth,
energy-specific products. We plan to continue to focus
on extending our cryogenic technological leadership, both to
capitalize on increasing demand for energy and to create new
applications. |
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Leverage our global platform to capitalize on growing
international demand. We expect growth in hydrocarbon
and industrial gas demand and investment over the next five
years in the Middle East, |
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Central and Eastern Europe, Russia and China. We believe that
our investment in manufacturing, sales and marketing
capabilities positions us to increase our market share in
growing international markets. |
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Capitalize on our position as a market leader. We
plan to continue to grow our long-standing relationships with
the leading users of cryogenic equipment and expand our customer
base. |
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Maintain our position as a low-cost producer while
continuing to improve operating performance. We believe
we are the lowest cost manufacturer for most of our products and
we intend to continue to leverage our scale, scope, technical
expertise and know-how to deliver to our customers higher
quality and more reliable products and services at lower cost.
Our disciplined approach to capital expenditures is intended to
enhance capacity where we expect to realize significant and
timely returns. |
Recent Developments
On May 26, 2006, we purchased the common stock of Cooler
Service Company, Inc., or Cooler Service, a Tulsa,
Oklahoma-based company that designs and manufactures custom air
cooled heat exchangers utilizing advanced technology in thermal
and mechanical design. Cooler Service provides air cooled heat
exchangers into multiple markets, including hydrocarbon,
petrochemical and industrial gas processing. The aggregate
purchase price for the acquisition was approximately
$16.5 million, which we paid in cash.
Risk Factors
Investing in our common stock involves substantial risk. You
should carefully consider all the information in this prospectus
prior to investing in our common stock. Our ability to execute
our strategy is subject to the risks that are generally
associated with the production, storage and end-use of
hydrocarbon and industrial gases. We are also subject to a
number of risks related to our competitive position and business
strategies. For example, our acquisitive business strategy
exposes us to the risks involved in consummating and integrating
acquisitions, including the risk that in a future acquisition we
could incur additional debt and contingent liabilities which
could adversely affect our operating results. For additional
risks relating to our business and the offering, see Risk
Factors beginning on page 12 of this prospectus.
The Acquisition
On August 2, 2005, Chart Industries entered into an
agreement and plan of merger with certain of its stockholders,
First Reserve Fund X, L.P., which we refer to as First
Reserve, a Delaware limited partnership, and CI Acquisition,
Inc., which we refer to as CI Acquisition, a Delaware
corporation and a wholly-owned subsidiary of First Reserve,
which provided for:
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the sale of shares of common stock of Chart Industries, Inc. by
certain of its stockholders to CI Acquisition; and |
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the merger of CI Acquisition with and into Chart Industries,
with Chart Industries surviving the merger as an indirect,
wholly-owned subsidiary of First Reserve. |
We refer to the stock purchase, the merger and the related
financing thereof collectively as the Acquisition.
The Acquisition closed on October 17, 2005. In connection
with the Acquisition, entities affiliated with First Reserve
contributed $111.3 million in cash to fund a portion of the
purchase price of the equity interests in Chart Industries, and
management contributed $6.4 million in the form of rollover
options. The remainder of the cash needed to finance the
Acquisition, including related fees and expenses, was provided
by funds raised by the offering of our $170.0 million
senior subordinated notes due 2015, which we refer to as our
notes, and borrowings under our $240.0 million senior
secured credit facility. The senior secured credit facility
originally consisted of a $180.0 million term loan facility
and a $60.0 million revolving credit facility and will be
amended effective upon the closing of this offering to increase
the size of the revolving credit facility to
$115.0 million. See The Transactions and
Description of Indebtedness.
3
Company Information
Chart Industries, Inc. is a Delaware corporation incorporated in
1992. Our principal executive offices are located at One
Infinity Corporate Centre Drive, Suite 300, Garfield
Heights, Ohio, 44125 and our telephone number is
(440) 753-1490. On
July 8, 2003, we and all of our then majority-owned U.S.
subsidiaries filed voluntary petitions for reorganization relief
under Chapter 11 of the U.S. Bankruptcy Code. On
September 15, 2003, we and those subsidiaries emerged from
Chapter 11 proceedings. Before the closing of our
Acquisition by First Reserve on October 17, 2005, we filed
periodic and other reports with the Securities and Exchange
Commission. We ceased filing those reports upon the closing of
the Acquisition when our pre-Acquisition securities were
cancelled and ceased to be outstanding. The financial statements
and other financial data presented in this prospectus are of
Chart Industries, Inc. and its direct and indirect subsidiaries.
4
The Offering
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Shares of common stock offered by Chart Industries, Inc. |
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12,500,000 shares. |
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Shares of common stock to be outstanding after this offering |
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25,588,049 shares (including 1,875,000 shares that
will be dividended to our stockholders existing immediately
prior to this offering, consisting of affiliates of First
Reserve and certain members of our management, assuming the
underwriters do not exercise their option to purchase additional
shares and giving effect to the
4.6263-for-one stock
split we expect to effect prior to the consummation of this
offering). |
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Over-allotment option |
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1,875,000 shares. |
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Use of proceeds |
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We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts, will be approximately
$233.8 million. We intend to use approximately
$25.0 million of the net proceeds to repay certain
indebtedness. We intend to use the remaining net proceeds of
approximately $208.8 million to pay a dividend to our
stockholders existing immediately prior to the offering,
consisting of affiliates of First Reserve and certain members of
our management. See Use of Proceeds. We also intend
to use the proceeds we receive from any shares sold pursuant to
the underwriters over-allotment option to pay an
additional dividend to our existing stockholders. |
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Proposed Nasdaq National Market symbol |
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Unless we specifically state otherwise, all information in this
prospectus:
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assumes no exercise by the underwriters of their option to
purchase additional shares; |
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gives effect to (i) the 4.6263-for-one stock split to be
effected prior to the consummation of the offering and
(ii) a 10.1088-for-one adjustment with respect to the
number of shares underlying options outstanding on the date of
this prospectus and a corresponding adjustment to the exercise
prices of such options (assuming the mid-point of the price
range set forth on the cover page hereof); |
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assumes that we issue an additional 1,875,000 shares of our
common stock to our existing stockholders pursuant to a stock
dividend that we will declare prior to the consummation of this
offering, the terms of which will require that shortly after the
expiration of the underwriters over-allotment option
(assuming the option is not exercised in full), we issue to our
existing stockholders the number of shares equal to (x) the
number of additional shares the underwriters have an option to
purchase minus (y) the actual number of shares the
underwriters purchase from us pursuant to that option. See
Dividend Policy for a description of the purpose of
the stock dividend; |
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gives effect to the issuance of 2,651,012 shares which have
been issued to FR X Chart Holdings LLC, an affiliate of First
Reserve, upon exercise of its warrant (see Certain Related
Party Transactions); |
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gives effect to the issuance of 609,856 shares which have
been issued to certain members of management upon exercise of
their rollover options (see ManagementManagement
Equity); and |
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excludes 2,478,235 shares of common stock reserved for
issuance under stock options that we expect to continue to be
outstanding under our plans after this offering, after adjusting
for the 4.6263-for-one stock split, the dividend of the
$208.8 million of the net proceeds (assuming the mid-point
of the range set forth on the cover page hereof) described
above, and the stock dividend assumed in the third bullet point
above, which shares would be exercisable at a weighted average
exercise price of $7.02. |
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The size of the 4.6263-for-one stock split referenced herein is
intended to achieve an estimated share price between $19.00 and
$21.00 per share and has been calculated based on the
mid-point of the estimated price range shown on the cover page
of this prospectus.
5
Summary Historical and Pro Forma Financial Information
The financial statements referred to as the 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 in September 2003
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 Reorganized 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 and related financing thereof. The financial
statements referred to as the Successor Company financial
statements include the consolidated audited financial statements
of Chart Industries, Inc. and its subsidiaries after the
Acquisition and the related financing thereof.
The following table sets forth our summary historical
consolidated financial and other data as of the dates and for
the periods indicated. The Predecessor Company summary
historical financial statements and other data for the nine
months ended September 30, 2003 are derived from our
audited financial statements for such period included elsewhere
in this prospectus, which have been audited by Ernst &
Young LLP, an independent registered public accounting firm. The
Reorganized Company summary historical financial statements and
other data for the three months ended December 31, 2003,
the year ended December 31, 2004 and the period from
January 1, 2005 to October 16, 2005, which we refer to
as the 2005 Reorganized Period, are derived from our audited
financial statements for such periods included elsewhere in this
prospectus, which have been audited by Ernst & Young
LLP. The Successor Company summary historical financial
statements and other data as of and for the period from
October 17, 2005 to December 31, 2005, which we refer
to as the 2005 Successor Period, are derived from our audited
financial statements for such periods included elsewhere in this
prospectus, which have been audited by Ernst & Young
LLP. The Reorganized Company and Successor Company unaudited
summary historical financial statements and other data for the
three months ended March 31, 2005 and as of and for the
three months ended March 31, 2006, respectively, have been
derived from the unaudited condensed financial statements and
related notes which are included elsewhere in this prospectus,
and reflect all adjustments, consisting of normal, recurring
adjustments which are, in the opinion of management, necessary
for a fair presentation of the Reorganized Company and Successor
Company financial position, results of operations and cash flows
for the three months ended March 31, 2005 and as of and for
the three months ended March 31, 2006 and are not
necessarily indicative of our results of operations for the full
year. The data should be read in conjunction with the
consolidated financial statements, related notes and other
financial information included herein.
The following summary unaudited pro forma balance sheet
information as of March 31, 2006 has been prepared to give
pro forma effect to this offering and the application of the
proceeds therefrom as if they had occurred on March 31,
2006. The following summary unaudited pro forma statements of
operations information for the year ended December 31, 2005
and the three months ended March 31, 2006 have been
prepared to give pro forma effect to this offering, the
application of the proceeds therefrom and the Acquisition as if
they had occurred on January 1, 2005. The pro forma
adjustments used in preparing the pro forma financial
information reflect estimates, which we believe are reasonable
but may change upon finalization of our analysis. The
assumptions used in the preparation of unaudited financial
information may not prove to be correct. The pro forma financial
information is for informational purposes only and should not be
considered indicative of actual results that would have been
achieved had the Acquisition and this offering actually been
consummated on the dates indicated and do not purport to
indicate balance sheet information or results of operations as
of any future date or any future period.
6
The historical consolidated financial data presented below is
not necessarily indicative of our future performance. This
information is only a summary and should be read in conjunction
with Selected Historical Consolidated Financial
Data, Unaudited Pro Forma Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
included elsewhere in this prospectus.
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Pro Forma | |
|
As Adjusted | |
|
|
| |
|
|
Three | |
|
|
|
Three | |
|
|
|
|
Three | |
|
As Adjusted | |
|
Three | |
|
|
Nine Months | |
|
|
Months | |
|
|
|
January 1, | |
|
Months | |
|
|
October 17, | |
|
Months | |
|
Year | |
|
Months | |
|
|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
|
Ended | |
|
|
2005 to | |
|
Ended | |
|
Ended | |
|
Ended | |
|
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
March 31, | |
|
|
December 31, | |
|
March 31, | |
|
December 31, | |
|
March 31, | |
|
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
2005 | |
|
2006 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
197,017 |
|
|
|
$ |
68,570 |
|
|
$ |
305,576 |
|
|
$ |
305,497 |
|
|
$ |
85,170 |
|
|
|
$ |
97,652 |
|
|
$ |
120,840 |
|
|
$ |
403,149 |
|
|
$ |
120,840 |
|
|
Cost of sales(1)
|
|
|
141,240 |
|
|
|
|
52,509 |
|
|
|
211,770 |
|
|
|
217,284 |
|
|
|
60,532 |
|
|
|
|
75,733 |
|
|
|
83,853 |
|
|
|
293,017 |
|
|
|
83,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
55,777 |
|
|
|
|
16,061 |
|
|
|
93,806 |
|
|
|
88,213 |
|
|
|
24,638 |
|
|
|
|
21,919 |
|
|
|
36,987 |
|
|
|
110,132 |
|
|
|
36,987 |
|
|
Selling, general and administrative expenses
|
|
|
44,211 |
|
|
|
|
14,147 |
|
|
|
53,374 |
|
|
|
59,826 |
|
|
|
14,401 |
|
|
|
|
16,632 |
|
|
|
21,039 |
|
|
|
84,764 |
|
|
|
21,039 |
|
|
Restructuring and other operating expenses, net(2)(3)(4)
|
|
|
13,503 |
|
|
|
|
994 |
|
|
|
3,353 |
|
|
|
7,528 |
|
|
|
604 |
|
|
|
|
217 |
|
|
|
162 |
|
|
|
7,745 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,714 |
|
|
|
|
15,141 |
|
|
|
56,727 |
|
|
|
67,354 |
|
|
|
15,005 |
|
|
|
|
16,849 |
|
|
|
21,201 |
|
|
|
92,509 |
|
|
|
21,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,937 |
) |
|
|
|
920 |
|
|
|
37,079 |
|
|
|
20,859 |
|
|
|
9,633 |
|
|
|
|
5,070 |
|
|
|
15,786 |
|
|
|
17,623 |
|
|
|
15,786 |
|
|
|
|
|
Interest expense, net(5)
|
|
|
10,300 |
|
|
|
|
1,344 |
|
|
|
4,712 |
|
|
|
4,164 |
|
|
|
985 |
|
|
|
|
5,556 |
|
|
|
6,545 |
|
|
|
24,088 |
|
|
|
5,717 |
|
|
Other expense (income)
|
|
|
(3,737 |
) |
|
|
|
(350 |
) |
|
|
(465 |
) |
|
|
659 |
|
|
|
21 |
|
|
|
|
409 |
|
|
|
222 |
|
|
|
2,239 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,563 |
|
|
|
|
994 |
|
|
|
4,247 |
|
|
|
4,823 |
|
|
|
1,006 |
|
|
|
|
5,965 |
|
|
|
6,767 |
|
|
|
26,327 |
|
|
|
5,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes and
minority interest
|
|
|
(8,500 |
) |
|
|
|
(74 |
) |
|
|
32,832 |
|
|
|
16,036 |
|
|
|
8,627 |
|
|
|
|
(895 |
) |
|
|
9,019 |
|
|
|
(8,704 |
) |
|
|
9,847 |
|
|
Income tax (benefit) expense
|
|
|
1,755 |
|
|
|
|
(125 |
) |
|
|
10,134 |
|
|
|
7,159 |
|
|
|
3,071 |
|
|
|
|
(441 |
) |
|
|
2,980 |
|
|
|
(2,343 |
) |
|
|
3,295 |
|
|
(Loss) income from continuing operations before minority interest
|
|
|
(10,255 |
) |
|
|
|
51 |
|
|
|
22,698 |
|
|
|
8,877 |
|
|
|
5,556 |
|
|
|
|
(454 |
) |
|
|
6,039 |
|
|
|
(6,361 |
) |
|
|
6,552 |
|
|
Minority interest, net of taxes and other
|
|
|
(63 |
) |
|
|
|
(20 |
) |
|
|
(98 |
) |
|
|
(19 |
) |
|
|
(21 |
) |
|
|
|
(52 |
) |
|
|
6 |
|
|
|
(71 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(10,318 |
) |
|
|
|
31 |
|
|
|
22,600 |
|
|
|
8,858 |
|
|
|
5,535 |
|
|
|
|
(506 |
) |
|
|
6,045 |
|
|
|
(6,432 |
) |
|
|
6,558 |
|
|
Income from discontinued operation, including gain on sale of
$3,692, net of tax of $1,292(6)
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(7,085 |
) |
|
|
$ |
31 |
|
|
$ |
22,600 |
|
|
$ |
8,858 |
|
|
$ |
5,535 |
|
|
|
$ |
(506 |
) |
|
$ |
6,045 |
|
|
$ |
(6,432 |
) |
|
$ |
6,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share data(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share:
|
|
$ |
(0.27 |
) |
|
|
$ |
0.01 |
|
|
$ |
4.22 |
|
|
$ |
1.65 |
|
|
$ |
1.03 |
|
|
|
$ |
(0.06 |
) |
|
$ |
0.76 |
|
|
$ |
(0.25 |
) |
|
$ |
0.26 |
|
Diluted (loss) earnings per share(8)
|
|
$ |
(0.27 |
) |
|
|
$ |
0.01 |
|
|
$ |
4.10 |
|
|
$ |
1.57 |
|
|
$ |
0.99 |
|
|
|
$ |
(0.06 |
) |
|
$ |
0.73 |
|
|
$ |
(0.25 |
) |
|
$ |
0.26 |
|
Weighted average shares basic
|
|
|
26,336 |
|
|
|
|
5,325 |
|
|
|
5,351 |
|
|
|
5,366 |
|
|
|
5,358 |
|
|
|
|
7,952 |
|
|
|
7,952 |
|
|
|
25,733 |
|
|
|
25,733 |
|
Weighted average shares diluted(8)
|
|
|
26,336 |
|
|
|
|
5,325 |
|
|
|
5,516 |
|
|
|
5,649 |
|
|
|
5,609 |
|
|
|
|
7,952 |
|
|
|
8,285 |
|
|
|
25,733 |
|
|
|
25,733 |
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
$ |
19,466 |
|
|
|
$ |
4,988 |
|
|
$ |
35,059 |
|
|
$ |
15,641 |
|
|
$ |
(4,063 |
) |
|
|
$ |
18,742 |
|
|
$ |
12,327 |
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
15,101 |
|
|
|
|
154 |
|
|
|
(3,317 |
) |
|
|
(20,799 |
) |
|
|
(1,629 |
) |
|
|
|
(362,250 |
) |
|
|
(2,566 |
) |
|
|
|
|
|
|
|
|
|
Cash (used in) provided by financing activities
|
|
|
(15,907 |
) |
|
|
|
(13,976 |
) |
|
|
(35,744 |
) |
|
|
1,708 |
|
|
|
(624 |
) |
|
|
|
348,489 |
|
|
|
(5,839 |
) |
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(9)
|
|
$ |
9,260 |
|
|
|
$ |
2,225 |
|
|
$ |
8,490 |
|
|
$ |
6,808 |
|
|
$ |
1,944 |
|
|
|
$ |
4,396 |
|
|
$ |
5,194 |
|
|
$ |
20,987 |
|
|
$ |
5,194 |
|
|
EBITDA(10)
|
|
|
15,522 |
|
|
|
|
3,475 |
|
|
|
45,936 |
|
|
|
26,989 |
|
|
|
11,535 |
|
|
|
|
9,005 |
|
|
|
20,764 |
|
|
|
36,300 |
|
|
|
20,764 |
|
|
Capital expenditures
|
|
|
1,907 |
|
|
|
|
518 |
|
|
|
9,379 |
|
|
|
11,038 |
|
|
|
1,734 |
|
|
|
|
5,601 |
|
|
|
2,566 |
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
51,781 |
|
|
|
|
49,635 |
|
|
|
129,278 |
|
|
|
206,215 |
|
|
|
160,113 |
|
|
|
|
233,639 |
|
|
|
237,033 |
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
|
| |
|
| |
|
|
(unaudited) | |
|
|
(In thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
19,462 |
|
|
$ |
31,341 |
(11) |
Working capital(12)
|
|
|
55,685 |
|
|
|
55,685 |
|
Total assets
|
|
|
656,483 |
(13) |
|
|
668,362 |
(13) |
Debt:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
1,513 |
|
|
|
1,513 |
|
|
Long-term debt
|
|
|
340,000 |
|
|
|
290,000 |
|
Total debt
|
|
|
341,513 |
|
|
|
291,513 |
|
Shareholders equity
|
|
$ |
124,146 |
|
|
$ |
186,025 |
|
|
|
|
|
(1) |
The three months ended December 31, 2003 and the 2005
Successor Period include non-cash inventory valuation charges of
$5.4 million and $8.9 million, respectively, related
to Fresh-Start and purchase accounting. |
|
|
(2) |
In March 2003, we completed the closure of our Wolverhampton,
United Kingdom manufacturing facility, operated by Chart Heat
Exchangers Limited, or CHEL. On March 28, 2003, CHEL filed
for voluntary administration under the U.K. Insolvency Act of
1986. CHELs 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. |
|
|
(3) |
In September 2003, in accordance with Fresh-Start accounting
related to our emergence from Chapter 11 bankruptcy, 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. Further
information about the adjustment is included in the notes to our
audited consolidated financial statements included elsewhere in
this prospectus. |
|
|
(4) |
Includes gain or loss on sale of assets. |
|
|
(5) |
Includes derivative contract valuation income or expense for
interest rate collars to manage interest exposure relative to
term debt. |
|
|
(6) |
This relates to the sale of our former Greenville Tube, LLC
business in July 2003. See Managements Discussion
and Analysis of Financial Condition and Results of
Operations for additional information. |
|
|
|
(7) |
Unaudited pro forma basic and diluted earnings (loss) per share
have been calculated in accordance with the Securities and
Exchange Commission, or SEC, rules for initial public offerings.
These rules require that the weighted average share calculation
give retroactive effect to any changes in our capital structure
as well as the number of shares whose sale proceeds would be
necessary to repay any debt or to pay any dividend as reflected
in the pro forma adjustments. Therefore, pro forma weighted
average shares for purposes of the unaudited pro forma basic and
diluted earnings per share calculation, has been adjusted to
reflect (i) the 4.6263-for-one stock split we expect to
effect immediately prior to consummation of this offering and
(ii) the stock dividend of 1,875,000 shares to our
existing stockholders that will be made shortly after the
expiration of the underwriters over-allotment option
assuming no exercise of that option and 12,500,000 shares
of our common stock being offered hereby. |
|
|
|
(8) |
The basic and diluted loss per share for the nine months ended
September 30, 2003 and the 2005 Successor Period are the
same because incremental shares issuable upon conversion are
anti-dilutive. |
|
|
(9) |
The nine months ended September 30, 2003, the 2005
Successor Period and the three months ended March 31, 2006
include financing costs amortization of $1.7 million,
$0.3 million and $0.4 million, respectively. |
8
|
|
|
|
(10) |
EBITDA is calculated as net income (loss) before
income tax expense and interest expense plus depreciation and
amortization. Adjusted EBITDA is defined as EBITDA adjusted as
indicated below. EBITDA and Adjusted EBITDA are not intended to
represent cash flow from operations as defined by GAAP and
should not be used as an alternative to net income as an
indicator of operating performance or to cash flow as a measure
of liquidity. EBITDA and Adjusted EBITDA are included in this
prospectus because they are a basis upon which our management
assesses financial performance. The senior secured credit
facility also includes the definition of pro forma EBITDA which
is used in the calculation of certain covenants. Pro forma
EBITDA is calculated based on EBITDA and is adjusted in a manner
similar to that described herein. While EBITDA and Adjusted
EBITDA are frequently used as a measure of operations and the
ability to meet debt service requirements, they are not
necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method
of calculation. The following table reconciles EBITDA to net
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
Predecessor | |
|
|
|
|
|
|
|
|
|
As | |
|
|
Company | |
|
|
Reorganized Company | |
|
|
Successor Company | |
|
Pro Forma | |
|
Adjusted | |
|
|
| |
|
|
| |
|
|
| |
|
Year As | |
|
Three | |
|
|
Nine Months | |
|
|
Three Months | |
|
|
|
January 1, | |
|
Three Months | |
|
|
October 17, | |
|
Three Months | |
|
Adjusted | |
|
Months | |
|
|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
|
Ended | |
|
|
2005 to | |
|
Ended | |
|
Ended | |
|
Ended | |
|
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
March 31, | |
|
|
December 31, | |
|
March 31, | |
|
December 31, | |
|
March 31, | |
|
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
2005 | |
|
2006 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
|
|
(Dollars in thousands) | |
Net income (loss)
|
|
$ |
(7,085 |
) |
|
|
$ |
31 |
|
|
$ |
22,600 |
|
|
$ |
8,858 |
|
|
$ |
5,535 |
|
|
|
$ |
(506 |
) |
|
$ |
6,045 |
|
|
$ |
(6,432 |
) |
|
$ |
6,558 |
|
Income tax expense (benefit)
|
|
|
3,047 |
|
|
|
|
(125 |
) |
|
|
10,134 |
|
|
|
7,159 |
|
|
|
3,071 |
|
|
|
|
(441 |
) |
|
|
2,980 |
|
|
|
(2,343 |
) |
|
|
3,295 |
|
Interest expense net(a)
|
|
|
10,300 |
|
|
|
|
1,344 |
|
|
|
4,712 |
|
|
|
4,164 |
|
|
|
985 |
|
|
|
|
5,556 |
|
|
|
6,545 |
|
|
|
24,088 |
|
|
|
5,717 |
|
Depreciation and amortization(b)
|
|
|
9,260 |
|
|
|
|
2,225 |
|
|
|
8,490 |
|
|
|
6,808 |
|
|
|
1,944 |
|
|
|
|
4,396 |
|
|
|
5,194 |
|
|
|
20,987 |
|
|
|
5,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
15,522 |
|
|
|
$ |
3,475 |
|
|
$ |
45,936 |
|
|
$ |
26,989 |
|
|
$ |
11,535 |
|
|
|
$ |
9,005 |
|
|
$ |
20,764 |
|
|
$ |
36,300 |
|
|
$ |
20,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Includes derivative contract valuation income or expense for
interest rate collars to manage interest exposure relative to
term debt. |
(b) |
The nine months ended September 30, 2003, the 2005
Successor Period and the three months ended March 31, 2006
include financing costs amortization of $1.7 million,
$0.3 million and $0.4 million, respectively. |
9
|
|
|
The following table reconciles EBITDA to Adjusted EBITDA as such
terms are defined in our senior secured credit facility and the
indenture governing the notes. Certain covenants under the
senior secured credit facility are also tied to ratios based on
Adjusted EBITDA and our ability to engage in activities such as
incurring additional debt, making investments and paying
dividends under both our indenture and senior secured credit
facility is also tied to ratios based on Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company | |
|
|
|
|
|
|
|
|
|
|
|
Predecessor | |
|
|
| |
|
|
|
|
|
|
Pro Forma | |
|
|
Company | |
|
|
|
|
|
Successor Company | |
|
|
|
As Adjusted | |
|
|
| |
|
|
|
|
Three | |
|
|
| |
|
Pro Forma | |
|
Three | |
|
|
Nine Months | |
|
|
Three Months | |
|
|
|
January 1, | |
|
Months | |
|
|
October 17, | |
|
Three Months | |
|
As Adjusted | |
|
Months | |
|
|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
|
Ended | |
|
|
2005 to | |
|
Ended | |
|
Year Ended | |
|
Ended | |
|
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
March 31, | |
|
|
December 31, | |
|
March 31, | |
|
December 31, | |
|
March 31, | |
|
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
2005 | |
|
2006 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
|
|
(Dollars in thousands) | |
|
|
EBITDA
|
|
$ |
15,522 |
|
|
|
$ |
3,475 |
|
|
$ |
45,936 |
|
|
$ |
26,989 |
|
|
$ |
11,535 |
|
|
|
$ |
9,005 |
|
|
$ |
20,764 |
|
|
$ |
36,300 |
|
|
$ |
20,764 |
|
Stock-based compensation expense(a)
|
|
|
|
|
|
|
|
|
|
|
|
2,433 |
|
|
|
9,508 |
|
|
|
592 |
|
|
|
|
437 |
|
|
|
321 |
|
|
|
9,945 |
|
|
|
321 |
|
Inventory valuation charge(b)
|
|
|
|
|
|
|
|
5,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,903 |
|
|
|
|
|
|
|
8,903 |
|
|
|
|
|
Acquisition
expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602 |
|
|
|
|
|
In-process research and development charge(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768 |
|
|
|
|
|
Hurricane losses(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057 |
|
|
|
|
|
|
|
|
406 |
|
|
|
182 |
|
|
|
1,463 |
|
|
|
182 |
|
Employee separation and plant closure costs(f)
|
|
|
1,338 |
|
|
|
|
1,010 |
|
|
|
3,346 |
|
|
|
1,700 |
|
|
|
703 |
|
|
|
|
255 |
|
|
|
162 |
|
|
|
1,955 |
|
|
|
162 |
|
Reorganization expenses(g)
|
|
|
369 |
|
|
|
|
357 |
|
|
|
706 |
|
|
|
1,470 |
|
|
|
73 |
|
|
|
|
88 |
|
|
|
45 |
|
|
|
1,558 |
|
|
|
45 |
|
Appraisal rights settlement(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
|
|
|
|
Management fees(i)
|
|
|
|
|
|
|
|
|
|
|
|
380 |
|
|
|
306 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets(j)
|
|
|
8,929 |
|
|
|
|
(57 |
) |
|
|
133 |
|
|
|
(131 |
) |
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
(53 |
) |
|
|
|
|
Income from discontinued operations(k)
|
|
|
(833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$ |
25,325 |
|
|
|
$ |
10,153 |
|
|
$ |
52,934 |
|
|
$ |
50,269 |
|
|
$ |
12,998 |
|
|
|
$ |
19,672 |
|
|
$ |
21,474 |
|
|
$ |
69,941 |
|
|
$ |
21,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Represents stock-based compensation charges for stock and stock
options issued to key employees and directors, and an additional
charge for the cash-out of stock options in the 2005 Reorganized
Period as a result of the Acquisition. Although it may be of
limited relevance to holders of our debt instruments, it may be
of more relevance to our equity holders, since such equity
holders ultimately bear such expenses. |
|
|
(b) |
Represents a non-cash inventory valuation charge recorded in
cost of sales for the adjustment of inventory to fair value as a
result of Fresh-Start accounting as of September 30, 2003
and purchase accounting as of October 17, 2005, the closing
date of the Acquisition. Under Fresh-Start and purchase
accounting, inventory was adjusted to the fair value as of the
dates indicated above, and a corresponding charge was taken in
the subsequent three months ended December 31, 2003 and the
2005 Successor Period cost of sales as the inventory was sold. |
|
|
(c) |
Represents acquisition expenses, primarily professional fees,
incurred by us as a result of the Acquisition. |
|
|
|
(d) |
Represents a non-cash charge for purchased in-process research
and development in conjunction with the acquisition of Changzhou
CEM Cryo Equipment Co., Ltd., or CEM, in 2005. |
|
10
|
|
|
|
(e) |
Represents losses and costs incurred related to the damaged
caused by Hurricane Rita at our New Iberia, Louisiana facilities. |
|
|
(f) |
Includes inventory valuation charges recorded in cost of sales,
and severance expenses, facility exit costs and non-operating
expenses related to the execution of our operational
restructuring plan, which primarily included moving the
Burnsville, Minnesota manufacturing operations to Canton,
Georgia, closing the Plaistow, New Hampshire and Wolverhampton,
United Kingdom manufacturing facilities and closing the
Westborough, Massachusetts engineering office. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional
information. |
|
|
(g) |
Includes pre-bankruptcy debt restructuring-related fees,
Fresh-Start accounting adjustments and expenses, and a claim
settlement related to our 2003 bankruptcy reorganization. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional
information. |
|
|
(h) |
Represents a charge for the settlement of former Reorganized
Company shareholders appraisal rights claims as a result
of the Acquisition. |
|
|
(i) |
Represents non-recurring management fees charged by our
Reorganized Company majority shareholders, which are not charged
by First Reserve. |
|
|
(j) |
Includes non-recurring gains and losses and charges on the sale,
disposal or impairment of assets. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations for additional information. |
|
|
(k) |
Represents income from our former Greenville Tube, LLC stainless
steel tubing business, which was sold in July 2003. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional
information. |
|
|
|
(11) |
The as adjusted cash and cash equivalents excludes the cash
payment of the purchase price in the amount of
$16.5 million for Cooler Service paid on May 26, 2006.
See Capitalization for our cash and cash equivalents
giving effect to that payment. |
|
|
|
(12) |
Working capital is defined as current assets excluding cash
minus current liabilities excluding short-term debt. |
|
|
|
(13) |
Includes $236.8 million of goodwill and $150.5 million
of finite-lived and indefinite-lived intangible assets as of
March 31, 2006. |
|
11
RISK FACTORS
Investing in our common stock involves substantial risk. You
should carefully consider the risks described below, together
with the other information in this prospectus, prior to
investing in our common stock.
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 demand growth 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. In addition,
changing world economic and political conditions may reduce the
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.
|
|
|
The loss of, or significant reduction in, purchases by our
largest customers could reduce our revenues and
profitability. |
Although no single customer accounted for more than 9% of our
total sales for the year ended December 31, 2005, a small
number of customers has accounted for a substantial portion of
our historical net sales, and we expect that a limited number of
customers will continue to represent a substantial portion of
our sales for the foreseeable future. Approximately 33%, 39%,
36% and 26% of our sales for the years ended December 31,
2005, 2004, 2003 and 2002, respectively, were made to Praxair,
Air Liquide, Air Products, Bechtel, Airgas, BOC, JGC and Linde,
which management believes are the largest producers and
distributors of hydrocarbon and industrial gases, and their
suppliers. The loss of any of our major customers or a decrease
in orders or anticipated spending by such customers could
materially reduce our revenues and profitability. Our largest
customers, such as Linde and BOC, could also engage in business
combinations which could increase their size and increase or
decrease the portion of our total sales concentration to any
single customer. 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
$7.5 million in sales for the year ended December 31,
2005. The loss of, or significant reduction in, purchases of our
MRI components by GE could reduce revenues and profitability in
our BioMedical business.
|
|
|
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 that operate in our industry are Air
Products, Kobe, Linde, Nordon, Puritan-Bennett, a division of
Tyco International, Ltd., Sumitomo and Taylor-Wharton, a Harsco
Company. 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
12
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.
|
|
|
We will soon be required to evaluate our internal controls
under Section 404 of the Sarbanes-Oxley Act of 2002 and any
adverse results from such evaluation could result in a loss of
investor confidence in our financial reports and have an adverse
effect on our stock price. |
As a result of this offering, we become subject to reporting and
other obligations under the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Beginning with the
year ending December 31, 2007, pursuant to Section 404
of the Sarbanes-Oxley Act of 2002, we will be required to
furnish a report by our management on our internal control over
financial reporting, and our auditors will be required to
deliver an attestation report on managements assessment of
and operating effectiveness of internal controls. The report by
our management must contain, among other matters, an assessment
of the effectiveness of our internal control over financial
reporting and audited consolidated financial statements as of
the end of our fiscal year. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by management.
Unlike many companies whose shares are publicly traded, we are
not presently in compliance with Section 404s
internal control requirements. We have substantial effort ahead
of us to complete documentation of our internal control system
and financial processes, information systems, assessment of
their design, remediation of control deficiencies identified in
these efforts and management testing of the designs and
operation of internal controls. We may not be able to complete
the required management assessment by our reporting deadline or
may not meet applicable standards in following years. An
inability to complete and document this assessment or to comply
in following years could result in our receiving less than an
unqualified report from our auditors with respect to our
internal controls. This could cause investors to lose confidence
in the accuracy and completeness of our financial reports, which
could decrease the price of our stock.
|
|
|
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 2005, 51% of our sales were made in
international markets. Our future results could be harmed by a
variety of factors, including:
|
|
|
|
|
changes in foreign currency exchange rates; |
|
|
|
exchange controls and currency restrictions; |
|
|
|
changes in a specific countrys or regions political,
social or economic conditions, particularly in emerging markets; |
|
|
|
civil unrest, turmoil or outbreak of disease in any of the
countries in which we operate; |
|
|
|
tariffs, other trade protection measures and import or export
licensing requirements; |
|
|
|
potentially negative consequences from changes in U.S. and
international tax laws; |
|
|
|
difficulty in staffing and managing geographically widespread
operations; |
|
|
|
differing labor regulations; |
|
|
|
requirements relating to withholding taxes on remittances and
other payments by subsidiaries; |
|
|
|
different regulatory regimes controlling the protection of our
intellectual property; |
|
|
|
restrictions on our ability to own or operate subsidiaries, make
investments or acquire new businesses in these jurisdictions; |
13
|
|
|
|
|
restrictions on our ability to repatriate dividends from our
foreign subsidiaries; |
|
|
|
difficulty in collecting international accounts receivable; |
|
|
|
difficulty in enforcement of contractual obligations under
non-U.S. law; |
|
|
|
transportation delays or interruptions; |
|
|
|
changes in regulatory requirements; and |
|
|
|
the burden of complying with multiple and potentially
conflicting laws. |
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, 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. |
We expect to continue to expand our operations in the United
States and abroad, particularly in China and the Czech Republic.
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 plan to invest over $20 million in new
capital expenditures in the United States in 2006 and 2007
related to the expected growth of our Energy &
Chemicals business. If we fail to implement this capital project
in a timely and effective manner, we may lose the opportunity to
obtain some customer orders. Even if we effectively implement
this project, the orders needed to support the capital
expenditure may not be obtained or may be less than expected,
which may result in sales or profitability at lower levels than
anticipated. In addition, potential cost overruns, delays or
unanticipated problems in any capital expansion could make the
expansion more costly than originally predicted.
In addition, we are in the process of establishing our internal
audit function, and adverse developments in the implementation
of this function may impair our ability to manage our growth.
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If we lose our senior management or other key employees,
our business may be adversely affected. |
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
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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. The loss of the services
of these senior managers or other key employees or the failure
to attract or retain other qualified personnel could reduce the
competitiveness of our business or otherwise impair our business
prospects.
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Fluctuations in the prices and availability of raw
materials and our exposure to fixed-price 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, approximately 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 2004 and 2005, 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 revenues is derived
from fixed-price contracts for large system projects. To the
extent that original cost estimates 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, which, in turn, could decrease our revenues and
overall profitability.
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We may fail to successfully acquire or integrate companies
that provide complementary products or technologies. |
A component of our growth strategy is the acquisition of
businesses that complement our existing products and services.
Our acquisition 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. If a large acquisition opportunity
arises and we proceed, a substantial portion of our surplus
borrowing capacity could be used for the acquisition or we may
seek material debt or equity financing.
We are not presently engaged in any negotiations concerning any
acquisition which may be material in size and scope to our
business. We anticipate, however, that one or more potential
acquisition opportunities could become available in the future.
If and when appropriate acquisition opportunities become
available, we may pursue them actively. 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 managements 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. |
The industries we serve, including 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.
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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, 2005, we had goodwill and
indefinite-lived intangible assets of approximately
$272 million, which represented 42% of our total assets.
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, we
developed a model to estimate the fair market value of our
reporting segments. 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 an
impairment is determined to exist, we are required to record a
charge to earnings in our financial statements, which may be
significant, as in 2002 when we recorded a non-cash impairment
charge of $92.4 million to write off non-deductible
goodwill of the D&S segment. 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.
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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, and the investigation and
remediation of soil and groundwater affected by hazardous
substances. 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. 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. 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.
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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.
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The insolvency of our formerly consolidated subsidiary,
Chart Heat Exchangers Limited, could have a material adverse
impact on our liquidity and financial position. |
On March 28, 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. CHELs application for voluntary
administration was approved on April 1, 2003 and an
administrator was appointed. Additionally, we received
information that indicated that CHELs 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 of approximately $12 million as of March 2003.
Based on our financial condition in March 2003, we determined
not to advance funds to CHEL in amounts necessary to fund
CHELs obligations. Since CHEL was unable to 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. While no claims related to the CHEL
insolvency presently are pending against us, persons impacted by
the insolvency or others could bring pension and/or benefit
related claims against us. Claims may be asserted against us for
pension or other obligations of CHEL related to these matters.
To the extent we are found to have significant liability with
respect to CHELs obligations, such liability could have a
material adverse impact on our liquidity, profitability and
financial condition as a result of CHELs 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
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 and/or property damage. We believe that
we meet or exceed existing professional specification standards
recognized or required in the industries in which we operate. We
have been subject to claims in the past, none of which 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
unobtainable in the future on terms acceptable to us. 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
could materially decrease our liquidity and impair our financial
condition.
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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 May 31,
2006, we had 2,556 employees, including 823 salaried,
305 union hourly and
1,428 non-union
hourly employees. Employees represented by a union presently are
subject to one collective bargaining agreement in the United
States that expires in February 2007. If we are unable to enter
into new, satisfactory labor agreements with our unionized
employees upon expiration of their collective bargaining
agreement or other labor
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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.
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We may have to make significant cash payments to our
defined benefit pension plans, reducing the cash available for
our business. |
We have four defined benefit pension plans covering certain
U.S. hourly and salaried employees. All of these plans have
been frozen. Our current funding policy is to contribute at
least the minimum funding amounts required by law. Based on
current actuarial estimates, we expect to contribute
approximately $1.3 million to our U.S. defined benefit
pension plans during 2006. If the performance of our assets in
our pension plans does not meet our expectations or if other
actuarial assumptions are modified, our contributions for these
years could be higher than we expect, thus reducing the
available cash for our business.
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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, 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. We also
expect to make significant capital expenditures in
hurricane-susceptible locations in the near future. 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
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.
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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 2006 and 2023.
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.
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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 that our processes and products
infringe their intellectual property rights. For example, 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 managements 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.
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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
Departments Office of Foreign Assets Controls
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.
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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.
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We are controlled by First Reserve, whose interests may
not be aligned with yours or ours. |
Upon completion of this offering, First Reserve will continue to
control a significant portion of our capital stock. As a result,
First Reserve may have the ability to control our policies and
operations, including the election of directors, the appointment
of management, the entering into of mergers, sales of
substantially all of our assets and other extraordinary
transactions, future issuances of our common stock or other
securities, the implementation of stock repurchase programs, the
payments of dividends, if any, on our common stock, the
incurrence of debt by us and amendments to our certificate of
incorporation and bylaws. In addition, First Reserve has the
right to designate members of our board of directors as
described below under the caption Certain Related Party
Transactions Stockholders Agreement.
Additionally, First Reserve is in the business of making
investments in companies and may from time to time acquire and
hold interests in businesses that compete directly or indirectly
with us. First Reserve may also pursue acquisition opportunities
that may be complementary to our business, and, as a result,
those acquisition opportunities may not be available to us. So
long as First Reserve continues to own a significant amount of
our equity, even if such amount is less than 50%, it will
continue to be able to strongly influence or effectively control
our decisions.
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As a controlled company within the meaning of
the Nasdaq Marketplace rules, we may qualify for, and would rely
on, exemptions from certain corporate governance
requirements. |
Under the terms of this offering, we will not be a
controlled company under the Nasdaq Marketplace
rules. However, if the size of this offering is reduced, we may
qualify as a controlled company. If after completion
of this offering, First Reserve continues to control a majority
of our outstanding common stock, we would be a controlled
company within the meaning of the Nasdaq Marketplace
corporate governance standards. Under the Nasdaq Marketplace
rules, a company of which more than 50% of the voting power is
held by another company is a controlled company and
may elect not to comply with certain Nasdaq corporate governance
requirements, including (1) the requirement that a majority
of the board of directors consist of independent directors,
(2) the requirement that either (i) we have a
nominations committee that is composed entirely of independent
directors with a written charter addressing the committees
purpose and responsibilities or (ii) director nominees are
selected or recommended by a majority of the independent
directors and (3) the requirement that either (i) we
have a compensation committee that is composed entirely of
independent directors with a written charter addressing the
committees purpose and responsibilities or
(ii) executive compensation is approved or recommended by a
majority of the independent directors. If available, we intend
to utilize these exemptions. As a result, we would not have a
majority of independent directors and we may not have a
compensation committee or a nominations committee. Accordingly,
you would not have the same protections afforded to stockholders
of companies that are subject to all of the Nasdaq corporate
governance requirements.
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Risks Related To Our Leverage
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Because most of the proceeds from this offering will be
used to pay a dividend to our current stockholders, only a
portion of the proceeds will be used to repay our existing debt
and none of such proceeds will be used to further invest in our
business. |
We estimate that the net proceeds from the sale by us of the
shares of common stock being offered hereby (assuming the
mid-point of the estimated price range set forth on the cover
page of this prospectus), after deducting underwriting
discounts, will be approximately $233.8 million. We intend
to use approximately $25.0 million of the net proceeds to
repay certain indebtedness. We intend to use the remaining net
proceeds of approximately $208.8 million to pay a dividend
to our stockholders existing immediately prior to this offering.
This leaves no proceeds to further invest in and grow our
business. See Use of Proceeds.
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Our substantial leverage and significant debt service
obligations could limit our ability to raise additional capital
to fund our operations, limit our ability to react to changes in
the economy or our industry, 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 highly leveraged and have significant debt service
obligations. Our financial performance could be affected by our
substantial leverage. As of March 31, 2006, our total
indebtedness was $341.5 million. In addition, at that date,
we had $24.9 million of letters of credit and bank
guarantees outstanding and borrowing capacity of approximately
$35.1 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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we may have difficulty generating sufficient cash flows to pay
interest and satisfy our debt obligations; |
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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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we 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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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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our debt level increases our vulnerability to general economic
downturns and adverse industry conditions; |
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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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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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our customers may react adversely to our significant debt level
and seek or develop alternative suppliers; and |
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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. |
Our net cash flow generated from operating activities was
$12.3 million, $34.4 million (on a combined basis),
$35.1 million and $24.5 million (on a combined basis)
for the three months ended March 31, 2006 and the years
2005, 2004 and 2003, respectively. Our high level of
indebtedness requires that we use a substantial portion of our
cash flow from operations to pay principal of, and interest on,
our indebtedness, which will
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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 substantial 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. Although our senior secured
credit facility requires us to employ hedging strategies such
that not less than 50% of our total debt carries a fixed rate of
interest for a period of three years following consummation of
the Acquisition, any hedging arrangement put in place may not
offer complete protection from this risk. Additionally, the
remaining portion of the senior secured credit facility may not
be hedged and, accordingly, the portion that is not hedged will
be subject to changes in interest rates.
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 the notes, on commercially reasonable
terms. See Managements 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 credit facility and the
indenture under which the 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.
See Description of Indebtedness.
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Despite our current leverage, 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
$60.0 million, approximately $35.1 million of which
would have been available for future borrowings (after giving
effect to letters of credit and bank guarantees outstanding) as
of March 31, 2006 on a pro forma basis after giving effect
to this offering and the application of the proceeds therefrom.
Effective upon closing of this offering, our revolving credit
facility will be amended to increase total commitments by
$55.0 million to $115.0 million. If new debt is added
to our current debt levels, the related risks that we now face
could intensify.
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The senior secured credit facility and the indenture
governing the notes contain a number of restrictive covenants
which limit our ability to finance future operations or capital
needs and engage in other business activities that may be in our
interest. |
The senior secured credit facility and the indenture governing
the 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 restricted subsidiaries to:
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incur additional indebtedness; |
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create liens; |
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pay dividends and make other distributions in respect of our
capital stock; |
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redeem our capital stock; |
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make certain investments or certain other restricted payments; |
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sell certain kinds of assets; |
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enter into certain types of transactions with
affiliates; and |
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effect mergers or consolidations. |
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 our senior secured credit facility
and the indenture governing the notes could:
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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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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. |
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 the notes. If an event of default occurs under our
senior secured credit facility, which includes an event of
default under the indenture governing the notes, the lenders
could elect to:
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declare all borrowings outstanding, together with accrued and
unpaid interest, to be immediately due and payable; |
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require us to apply all of our available cash to repay the
borrowings; or |
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prevent us from making debt service payments on the notes; |
any of which would result in an event of default under the
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 our senior secured credit facility, which constitutes
substantially all of our and our domestic wholly-owned
subsidiaries assets.
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We are a holding company and we depend upon cash from our
subsidiaries. If we do not receive cash distributions, dividends
or other payments 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 are dependent upon the
earnings and cash flows of, and cash distributions, dividends
and other payments from, our subsidiaries to provide the funds
necessary to meet our obligations. If we do not receive such
cash distributions, dividends or other payments from our
subsidiaries, we may be unable to meet our obligations,
including the payment of 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 this Offering
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There is no existing market for our common stock, and we
do not know if one will develop to provide you with adequate
liquidity. |
Prior to this offering, there has not been a public market for
our common stock. We intend to apply to have our common stock
approved for quotation on the Nasdaq National Market. However,
we cannot
23
predict the extent to which investor interest in our company
will lead to the development of a trading market on the Nasdaq
National Market or otherwise or how liquid that market might
become. If an active trading market does not develop, you may
have difficulty selling any of our common stock that you buy.
The initial public offering price for the shares was determined
by negotiations between us and the representatives of the
underwriters based on numerous factors that we discuss in the
Underwriting section of this prospectus and may not
be indicative of prices that will prevail in the open market
following this offering.
Consequently, you may not be able to sell our common stock at
prices equal to or greater than the price you paid in this
offering.
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Future sales of our shares could depress the market price
of our common stock. |
The market price of our common stock could decline as a result
of sales of a large number of shares of common stock in the
market after the offering or the perception that such sales
could occur. These sales, or the possibility that these sales
may occur, also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we
deem appropriate.
We, our executive officers and directors and affiliates of First
Reserve have agreed with the underwriters not to sell, dispose
of or hedge any shares of our common stock or securities
convertible into or exchangeable for shares of our common stock,
subject to specified exceptions, during the period from the date
of this prospectus continuing through the date that is
180 days after the date of this prospectus, except with the
prior written consent of Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc. and UBS Securities LLC on
behalf of the underwriters. See Underwriting.
After this offering, we will have 25,588,049 shares of
common stock outstanding. Of those shares, the
12,500,000 shares we are offering will be freely tradable.
The 11,213,049 shares that were outstanding immediately
prior to this offering, plus up to an additional
1,875,000 shares that will be dividended to our existing
stockholders in the event the over-allotment option is not
exercised in full, will be eligible for resale from time to time
after the expiration of the
180-day lock-up,
subject to contractual and Securities Act restrictions,
including those relating to volume, manner of sale and other
conditions of Rule 144. None of those shares may currently
be resold under Rule 144(k) without regard to volume
limitations and no shares may currently be sold subject to
volume, manner of sale and other conditions of Rule 144.
After the expiration of the
180-day
lock-up period, First
Reserve and its affiliates, which collectively beneficially own
approximately 10,603,192 million shares (approximately
12,376,192 million shares in the event the over-allotment
option is not exercised), will have the ability to cause us to
register the resale of their shares and certain other holders of
our unregistered common stock will be able to participate in
such registration.
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The market price of our common stock may be volatile,
which could cause the value of your investment to
decline. |
The initial public offering price for the common stock sold in
this offering has been determined by negotiation between the
representatives of the underwriters and us. This price may not
reflect the market price of our common stock following this
offering and the market price may not equal or exceed the
initial public offering price of your shares. The trading price
of our common stock may be subject to wide fluctuations. Factors
affecting the trading price of our common stock may include:
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actual or anticipated variations in our operating results; |
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changes in financial estimates by research analysts, or any
failure by us to meet or exceed any such estimates, or changes
in the recommendations of any research analysts that elect to
follow our common stock or the common stock of our competitors; |
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actual or anticipated changes in economic, political or market
conditions, such as recessions or international currency
fluctuations; |
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actual or anticipated changes in the regulatory environment
affecting our industry; |
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changes in the market valuations of our industry peers; and |
24
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures or other strategic initiatives. |
The trading price of our common stock might also decline in
reaction to events that affect other companies in our industry
even if these events do not directly affect us. You may be
unable to resell your shares of our common stock at or above the
initial public offering price.
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The tangible book value of shares of common stock
purchased in the offering will be immediately diluted and may be
subject to additional dilution in the future. |
The initial public offering price per share of our common stock
is substantially higher than our pro forma net tangible book
value per common share immediately after the offering. As a
result, you may pay a price per share that substantially exceeds
the tangible book value of our assets after subtracting our
liabilities. Investors who purchase common stock in the offering
will be diluted by $27.87 per share after giving effect to
the sale of shares of common stock in this offering at an
assumed initial public offering price of $20.00 per share,
the mid-point of the estimated price range on the cover of this
prospectus, assuming the dividend of 1,875,000 shares to
the existing stockholders in the event the over-allotment option
is not exercised. If we grant options in the future to our
employees, and those options are exercised or other issuances of
common stock are made, there will be further dilution.
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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. See Description of Capital
Stock.
25
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus 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 managements
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 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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the cyclicality of the markets which we serve; |
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the loss of, or a significant reduction in purchases by, our
largest customers; |
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competition in our markets; |
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our compliance obligations with the Sarbanes-Oxley Act of 2002; |
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general economic, political, business and market risks
associated with our
non-U.S. operations; |
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our ability to successfully manage our growth; |
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the loss of key employees; |
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the pricing and availability of raw materials and our ability to
manage our fixed-price contract exposure; |
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our ability to successfully acquire or integrate companies that
provide complementary products or technologies; |
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our ability to continue our technical innovation in our product
lines; |
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the impairment of our goodwill and other indefinite-lived
intangible assets; |
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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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the insolvency of our formerly consolidated subsidiary, Chart
Heat Exchangers Limited, or CHEL, and CHELs administration
proceedings in the United Kingdom, including claims that may be
asserted against us with respect to CHELs obligations; |
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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; |
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our relations with our employees; |
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our funding requirements in connection with our defined benefit
pension plans; |
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fluctuations in foreign currency exchange and interest rates; |
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disruptions in our operations due to hurricanes; |
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our ability to protect our intellectual property and know-how; |
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regulations governing the export of our products; |
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the possibility that our existing stockholders interests
will conflict with ours or yours; |
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our status as a controlled company under Nasdaq
corporate governance requirements; |
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risks associated with our substantial indebtedness, leverage,
debt service and liquidity; |
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risks related to this offering; and |
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other factors described in this prospectus. |
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
prospectus and are expressly qualified in their entirety by the
cautionary statements included in this prospectus. 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.
27
MARKET AND INDUSTRY DATA
This prospectus includes industry data and forecasts that we
have prepared based, in part, upon industry data and forecasts
obtained from industry publications and surveys. These sources
include publications by Energy Ventures Analysis, the Energy
Information Administration, the International Energy Agency and
Spiritus Consulting. Third-party industry publications, surveys
and forecasts generally state that the information contained
therein has been obtained from sources believed to be reliable,
but there can be no assurance as to the accuracy or completeness
of included information. We have not independently verified any
of the data from third-party sources nor have we ascertained the
underlying economic assumptions relied upon therein. Forecasts
are particularly likely to be inaccurate, especially over long
periods of time. As an example of the unpredictable nature of
these forecasts, in 1983, the U.S. Department of Energy
forecast that oil would cost $74 per barrel in 1995;
however, the price of oil was actually $17 per barrel. In
addition, we do not know what assumptions regarding general
economic growth were used in preparing the forecasts we cite.
Statements made herein as to our leading positions in our
industry and segments are based on our sales volumes measured
against managements estimates of our competitors
sales volumes, coupled with managements knowledge and
experience in the markets that we serve.
28
THE TRANSACTIONS
The following contains summaries of the terms of the material
agreements that were entered into in connection with the
Acquisition. Such agreements have been filed as exhibits to the
registration statement of which this prospectus forms a part.
The Acquisition
On August 2, 2005, Chart Industries entered into an
agreement and plan of merger, which we refer to as the merger
agreement, with certain of its then-existing stockholders, which
we refer to as the Principal Stockholders, First Reserve and
CI Acquisition, Inc., a Delaware corporation, which we
refer to as CI Acquisition, and a wholly-owned subsidiary
of First Reserve. The merger agreement provided for:
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the sale of shares of common stock of Chart Industries, par
value $0.01 per share, owned by the Principal Stockholders,
which we refer to as the Principal Stockholder Shares, to
CI Acquisition, which we refer to as the stock
purchase; and |
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the merger of CI Acquisition with and into Chart
Industries, with Chart Industries surviving the merger as an
indirect, wholly-owned subsidiary of First Reserve, which we
refer to as the merger. |
We refer to the stock purchase and the merger, collectively as
the Acquisition. The purpose of the Acquisition was
to sell Chart Industries to First Reserve. In December 2004,
Chart Industries engaged UBS Securities LLC to explore
various strategic alternatives. Chart Industries board of
directors conducted a confidential, controlled auction and
ultimately chose First Reserves bid. Chart Industries and
First Reserve agreed to the terms of the Acquisition in August
2005. The Acquisition closed on October 17, 2005.
Upon satisfaction of the conditions to the stock purchase,
CI Acquisition purchased the Principal Stockholder Shares
from the Principal Stockholders for a purchase price, or the Per
Share Purchase Price, equal to $64.75 per share in cash.
Chart Industries, First Reserve and CI Acquisition caused
the merger to occur immediately after the closing of the stock
purchase. At the effective time of the merger, each share of
common stock of Chart Industries outstanding (other than
treasury stock, shares held by First Reserve or
CI Acquisition, and shares with respect to which appraisal
rights were exercised under Delaware law) were converted into
the right to receive the Per Share Purchase Price in cash,
without interest, which we refer to as the merger consideration.
At the effective time of the merger, all those shares of common
stock of Chart Industries were cancelled and ceased to be
outstanding and each holder of a certificate representing that
common stock ceased to have any rights with respect to the
common stock of Chart Industries, except the right to receive
the merger consideration.
In addition, in general the holders of outstanding Chart
Industries warrants and stock options received, without the need
to exercise those warrants and stock options, the same per share
cash purchase price less the exercise price of the Chart
Industries warrants and stock options. Notwithstanding this
general treatment, the compensation committee of Chart
Industries board of directors, in accordance with the
terms of the merger agreement and Chart Industries stock
option plans, adjusted some Chart Industries stock options (or
portions of Chart Industries stock options) held by certain
employees, to represent options to acquire shares of common
stock of Chart Industries after the merger, which we refer to as
rollover options.
After the merger, FR X Chart Holdings LLC became the
direct owner of all of the outstanding capital stock of Chart
Industries.
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Agreement and Plan of Merger |
The merger agreement contains customary representations and
warranties of the Principal Stockholders, Chart Industries,
First Reserve and CI Acquisition and customary covenants
and other agreements among the parties. None of the
representations and warranties in the merger agreement survived
the completion of the merger and the merger agreement did not
provide for any post-closing indemnification obligations. The
29
representations and warranties of each party set forth in the
merger agreement were made solely for the benefit of specified
parties to the merger agreement (on the terms set forth in the
merger agreement) and such representations and warranties may
not be relied on by any other person.
The Financing
In connection with the Acquisition, First Reserve contributed
$111.3 million to FR X Chart Holdings LLC, the
direct parent of CI Acquisition in exchange for all of
FR X Chart Holdings LLCs equity.
FR X Chart Holdings LLC then contributed
$111.3 million to CI Acquisition in exchange for all
of CI Acquisitions capital stock. After the merger,
FR X Chart Holdings LLC became the direct owner of all
of the outstanding capital stock of Chart Industries. The
remainder of the cash needed to finance the acquisition,
including related fees and expenses, was provided by the
offering of the notes and the borrowings under the senior
secured credit facility provided by affiliates of the
underwriters, as joint bookrunners, lead arrangers or lenders,
and a syndicate of banks and other financial institutions.
The following table illustrates the approximate sources and uses
for the Acquisition.
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Sources |
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Uses |
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(In millions) | |
Senior secured credit facility:
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Revolving credit facility(1)
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$ |
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Purchase of equity(2) |
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$ |
378.8 |
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Term loan B facility
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180.0 |
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Repayment of then-existing debt(3) |
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66.8 |
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Senior subordinated notes
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170.0 |
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Funded cash(2) |
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3.4 |
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Equity contribution(4)
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117.7 |
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Fees and expenses |
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18.7 |
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Total Sources of Funds
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$ |
467.7 |
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Total Uses of Funds |
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$ |
467.7 |
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(1) |
As of October 17, 2005, we had approximately
$40.9 million available for borrowing under the revolving
credit portion of the senior secured credit facility, subject to
certain conditions, after giving effect to approximately
$19.1 million outstanding letters of credit and bank
guarantees. |
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(2) |
Represents a purchase price of $378.8 million in respect of
the equity, resulting in a gross cash purchase price of
$449.0 million for the Acquisition. We had approximately
$3.4 million of cash on hand upon consummation of the
Acquisition, resulting in the net purchase price reflected above. |
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(3) |
We used an estimated $14.3 million of cash on our balance
sheet to repay existing debt immediately prior to the closing of
the Acquisition. |
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(4) |
Prior to the consummation of the Acquisition, management held
options valued at $6.4 million, together with other options
that were cashed out in the Acquisition. In connection with the
Acquisition, our compensation committee elected to adjust these
options to represent options to acquire shares of our common
stock after consummation of the Acquisition. This amount
includes $6.4 million representing the value of these
options. |
Equity Sponsor
First Reserve Corporation is the leading private equity firm
specializing in the energy industry with $4.7 billion under
management in four active funds. Founded in 1980, First Reserve
Corporation was the first private equity firm to actively pursue
building a broadly diversified investment portfolio within the
energy and energy-related sectors. Since raising its initial
pure buyout fund in 1992 First Reserve Corporation has made 50
principal transactions investing over $3.0 billion in
equity. In addition, First Reserve Corporation portfolio
companies have completed more than 200 add-on transactions. Past
and present public First Reserve Corporation portfolio companies
include Alpha Natural Resources, Inc., Cal Dive
International, Inc., Chicago Bridge and Iron N.V., Dresser Inc.,
Dresser-Rand Group Inc., Foundation Coal Corporation, Maverick
Tube Corporation, National Oilwell, Inc., Natural Resource
Partners, Pride International, Inc., Superior Energy Services
Inc. and Weatherford International Ltd.
30
USE OF PROCEEDS
We estimate that the net proceeds from the sale by us of the
shares of common stock being offered hereby (assuming the
mid-point of the estimated price range set forth on the cover
page of this prospectus), after deducting underwriting discounts
and other fees and expenses payable by us, will be approximately
$233.8 million. We intend to use approximately
$25.0 million of the net proceeds to repay a portion of the
term loan under our senior secured credit facility. We intend to
use the remaining approximately $208.8 million of the net
proceeds to pay a dividend to our stockholders existing
immediately prior to the offering, consisting of affiliates of
First Reserve and certain members of our management. Of such
amount, approximately $197.4 million will be received by FR
X Chart Holdings LLC, an affiliate of First Reserve. In
addition, approximately $11.4 million in the aggregate will
be received by certain of our executive officers, consisting of
Mr. Thomas ($8,147,529) and Mr. Biehl ($456,215), and
approximately $2,749,777 will be received by seven other
employees in the aggregate. We will pay the estimated offering
expenses of $2.4 million out of cash on hand.
The term loan currently accrues interest at a floating rate
equal to LIBOR plus 2.0% per annum and is due to mature on
October 17, 2012.
We also intend to use the net proceeds we receive from any
shares sold pursuant to the underwriters over-allotment
option, after deducting underwriting discounts, to pay an
additional dividend to our existing stockholders. In the event
the underwriters fully exercise their over-allotment option, the
amount of this dividend will be approximately
$35.1 million. Of such amount, approximately
$33.2 million will be received by FR X Chart Holdings LLC,
an affiliate of First Reserve. In addition, approximately
$1.9 million in the aggregate will be received by certain
of our executive officers, consisting of Mr. Thomas
($1,368,492) and Mr. Biehl ($76,628), and approximately
$461,864 will be received by seven other employees in the
aggregate.
Any increase or decrease in the amount of net proceeds raised in
this offering from the amount stated above will increase or
decrease the cash dividend to be paid to our existing
stockholders, respectively, but will not materially affect the
amount of debt we intend to repay as described above. An
increase of 1,000,000 shares from the expected number of
shares to be sold in this offering, assuming no change in the
assumed initial public offering price per share, would increase
our net proceeds from this offering by $18.7 million and
the amount of the dividend by $18.7 million. A $0.25
increase (decrease) in the assumed public offering price per
share of the common stock (the mid-point of the range on the
cover page of this prospectus) would increase (decrease) the net
proceeds that we receive in this offering (and, accordingly,
that we dividend to our stockholders) by approximately
$2.9 million, after deducting underwriting discounts and
other fees and expenses payable by us, assuming the number of
shares being offered, as set forth on the cover page of this
prospectus does not change.
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DIVIDEND POLICY
Immediately prior to the consummation of this offering, we
intend to declare three dividends, which will be payable to our
stockholders existing prior to the offering.
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The first dividend will be a cash dividend of
$208.8 million, assuming an initial public offering price
per share of $20.00, which we will pay to our existing
stockholders out of a portion of the net proceeds from this
offering. |
|
|
|
|
|
The second dividend will be a cash dividend of up to
$35.1 million, assuming an initial public offering price
per share of $20.00, which we will pay to our existing
stockholders with all of the proceeds we receive from the shares
sold pursuant to the underwriters over-allotment option,
if exercised. |
|
|
|
|
|
The third dividend will be a stock dividend of up to
1,875,000 shares of our common stock, which we will pay to
our existing stockholders, the terms of which will require that
shortly after the expiration of the underwriters
over-allotment option (assuming the option is not exercised in
full), we issue to our existing stockholders the number of
shares equal to (x) the number of additional shares the
underwriters have an option to purchase minus (y) the
actual number of shares the underwriters purchase from us
pursuant to that option. |
|
The purpose of the cash dividend described in the first bullet
above is to distribute a portion of the proceeds from this
offering to our existing stockholders. As the intended use of
proceeds from the exercise of the over-allotment option by the
underwriters is a dividend to our existing stockholders, we have
assumed that investors will factor into their analysis the
dilutive effect of those shares being issued and the proceeds
being dividended out of our company by reducing their valuation
of our company. Accordingly, in the event the option is not
exercised, we have contemplated that the shares subject to the
option will be dividended to our existing stockholders as
described in the third bullet above. Such stock dividend would
have the same dilutive effect as selling those shares upon the
exercise of the over-allotment option and dividending the
proceeds to our existing owners.
An increase of 1,000,000 shares from the expected number of
shares to be sold in this offering, assuming no change in the
assumed initial public offering price per share, would increase
our net proceeds from this offering by $18.7 million and
the amount of the dividend by $18.7 million. A $0.25
increase (decrease) in the assumed public offering price per
share of the common stock (the mid-point of the range on the
cover page of this prospectus) would increase (decrease) the net
proceeds that we receive in this offering (and, accordingly,
that we dividend to our stockholders) by approximately
$2.9 million, after deducting underwriting discounts and
other fees and expenses payable by us, assuming the number of
shares being offered, as set forth on the cover page of this
prospectus does not change.
Other than the dividends described above, 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
and debt reduction. The amounts available to us to pay cash
dividends will be restricted by our senior secured credit
facility. The indenture governing the notes also limits our
ability to pay dividends. In connection with this offering, we
amended our senior secured credit facility to remove certain
restrictions on our ability to consummate the offering and use
the proceeds as described in Use of Proceeds. 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.
32
CAPITALIZATION
The following table sets forth our cash, cash equivalents and
capitalization as of March 31, 2006 (1) on an actual
basis and (2) on an as adjusted basis to reflect:
|
|
|
|
|
|
the sale by us of approximately 12,500,000 shares of our
common stock in this offering, after deducting underwriting
discounts and estimated offering expenses; |
|
|
|
|
the application of the estimated net proceeds as described in
Use of Proceeds as well as the $25.0 million
voluntary principal prepayment under the term loan portion of
our senior secured credit facility in the second quarter of 2006
and the payment of $16.5 million of cash to acquire Cooler
Service; |
|
|
|
|
the 4.6263-for-one stock split we expect to effect immediately
prior to the consummation of this offering; |
|
|
|
|
|
the issuance of 2,651,012 shares which have been issued to
FR X Chart Holdings LLC upon its exercise of its warrant
for $37.1 million in cash (see Certain Related Party
Transactions); |
|
|
|
|
|
the issuance of 609,856 shares which have been issued to
certain members of management upon their exercise of their
rollover options for $2.1 million in cash (see
Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital
ResourcesCash Requirements); and |
|
|
|
|
|
the stock dividend of 1,875,000 shares to our existing
stockholders shortly after the expiration of the
underwriters over-allotment option, assuming no exercise
of that option. |
|
The information in this table should be read in conjunction with
The Transactions, Use of Proceeds,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
March 31, 2006 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
|
| |
|
| |
|
|
(Unaudited, in millions, | |
|
|
except share and per | |
|
|
share data) | |
Cash and cash equivalents
|
|
$ |
19.5 |
|
|
$ |
14.8 |
|
Debt:
|
|
|
|
|
|
|
|
|
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility(1)
|
|
|
|
|
|
|
|
|
|
|
|
Term loan facility
|
|
|
170.0 |
|
|
|
120.0 |
|
|
91/8
% senior subordinated notes due 2015
|
|
|
170.0 |
|
|
|
170.0 |
|
|
Other debt(2)
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
Total debt
|
|
$ |
341.5 |
|
|
$ |
291.5 |
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share,
9,500,000 shares authorized, actual, 150,000,000 shares
authorized, as adjusted, 7,952,180 shares issued and
outstanding, actual and 25,588,049 shares issued and
outstanding, as adjusted(3)(4)
|
|
|
|
|
|
|
0.3 |
|
|
|
Additional paid-in capital
|
|
|
117.7 |
|
|
|
179.3 |
|
|
|
Retained earnings
|
|
|
5.5 |
|
|
|
5.5 |
|
|
|
Accumulated other comprehensive income
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$ |
124.1 |
|
|
$ |
186.0 |
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
465.6 |
|
|
$ |
477.5 |
|
|
|
|
|
|
|
|
|
|
(1) |
As of March 31, 2006, we had approximately
$35.1 million available for borrowing under the revolving
portion of the senior secured credit facility, subject to
certain conditions, after giving effect to approximately
$24.9 million of letters of credit and bank guarantees
outstanding thereunder. The credit |
33
|
|
|
facility has since been amended to increase the availability
thereunder. See The Transactions and
Description of Indebtedness. |
|
(2) |
This relates to the indebtedness of CEM, our subsidiary located
in China. |
|
|
(3) |
11,213,049 shares issued and outstanding as of May 22,
2006. |
|
|
|
(4) |
To the extent we change the number of shares of common stock we
sell in this offering from the 12,500,000 shares we expect
to sell or we change the initial public offering price from the
$20.00 per share assumed initial offering price, or any
combination of these events occurs, our net proceeds from this
offering and as adjusted additional paid-in capital may increase
of decrease. A $0.25 increase (decrease) in the assumed initial
public offering price per share of the common stock, assuming no
change in the number of shares of common stock to be sold, would
increase (decrease) the net proceeds that we receive in this
offering (and accordingly that we dividend to our stockholders)
and our as adjusted additional paid-in capital by
$2.9 million and an increase (decrease) of
1,000,000 shares from the expected number of shares to be
sold in the offering, assuming no change in the assumed initial
public offering price per share, would increase (decrease) our
net proceeds from this offering and our as adjusted additional
paid-in capital by approximately $18.7 million. |
|
34
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the initial public
offering price per share and the net tangible book value per
share after this offering. The net tangible book value per share
presented below is equal to the amount of our total tangible
assets (total assets less intangible assets) less total
liabilities as of March 31, 2006, divided by the number of
shares of our common stock that would have been held by our
existing stockholders had the stock dividend of
1,875,000 additional shares to our existing stockholders
shortly after the expiration of the underwriters
over-allotment option, assuming no exercise of that option, been
made as of March 31, 2006. As of March 31, 2006, prior
to giving effect to the offering, we had a net tangible book
deficit of $(263.2) million, or $(23.47) per share. On
a pro forma basis, after giving effect to:
|
|
|
|
|
|
the sale of shares of common stock in this offering at an
assumed initial public offering price of $20.00 per share,
the mid-point of the price range on the cover of this prospectus; |
|
|
|
|
|
the payment of the $208.8 million dividend that we intend
to declare prior to the consummation of the offering to the
existing stockholders; |
|
|
|
|
|
the application of the estimated net proceeds as described under
Use of Proceeds as well as the $25.0 million
voluntary principal prepayment under the term loan portion of
our senior secured credit facility in the second quarter of 2006
and the payment of $16.5 million of cash to acquire Cooler
Service; |
|
|
|
|
|
the 4.6263-for-one
stock split we expect to effect immediately prior to the
consummation of this offering; |
|
|
|
|
|
the issuance of 2,651,012 shares which have been issued to
FR X Chart Holdings LLC upon its exercise of its
warrant for $37.1 million in cash; |
|
|
|
|
|
the issuance of 609,856 shares which have been issued to
certain members of management upon their exercise of their
rollover options for $2.1 million in cash; and |
|
|
|
|
the effect of any other pro forma adjustments |
our pro forma net tangible book deficit as of March 31,
2006 would have been $(201.3) million, or $(7.87) per
share of common stock. This represents an immediate increase in
net tangible book value (or a decrease in net tangible book
deficit) of $15.60 per share to existing stockholders and
an immediate dilution in net tangible book value of
$27.87 per share to new investors.
The following table illustrates this dilution on a per share
basis:
|
|
|
|
|
|
|
|
|
|
Initial public offering price per share
|
|
|
|
|
|
$ |
20.00 |
|
|
Net tangible book deficit per share at March 31, 2006
|
|
$ |
(23.47 |
) |
|
|
|
|
|
Increase in net tangible book value per share attributable to
new investors
|
|
$ |
15.60 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book deficit per share after the offering
|
|
|
|
|
|
$ |
(7.87 |
) |
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$ |
27.87 |
|
|
|
|
|
|
|
|
A $0.25 increase (decrease) in the initial public offering price
from the assumed initial public offering price of $20.00 per
share would decrease (increase) our net tangible book deficit
after giving effect to this offering by approximately
$2.9 million, our pro forma net tangible book deficit per
share after giving effect to the offering by $0.11 per share and
the dilution in net tangible book deficit per share to new
investors in this offering by $0.14 per share, after deducting
the estimated underwriting discounts and commissions and
estimated aggregate offering expenses payable by us and assuming
no other change to the number of shares offered by us as set
forth on the cover page of this prospectus. We will reduce the
number of shares that we will issue to our existing stockholders
in the stock dividend described in the first paragraph above by
the number of shares sold to the underwriters pursuant to their
over-allotment option. We will also pay to our existing
stockholders a cash dividend equal to all proceeds we receive
from any such sale to the underwriters.
35
As a result, our pro forma net tangible book value will not be
affected by the underwriters exercise of their
over-allotment option.
The following table summarizes, on the same pro forma basis as
of March 31, 2006, the total number of shares of common
stock purchased from us, the total consideration paid to us and
the average price per share paid by the existing stockholders
and by new investors purchasing shares in this offering:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased | |
|
Total Consideration | |
|
|
|
|
| |
|
| |
|
Average Price | |
|
|
Number | |
|
Percent | |
|
Amount | |
|
Percent | |
|
Per Share | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Existing stockholders
|
|
|
13,088,049 |
|
|
|
51.1% |
|
|
$ |
(20.7 |
) |
|
|
(9.0 |
)% |
|
$ |
(1.58 |
) |
New investors
|
|
|
12,500,000 |
|
|
|
48.9% |
|
|
|
250.0 |
|
|
|
109.0 |
|
|
|
20.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,588,049 |
|
|
|
100.0% |
|
|
$ |
229.3 |
|
|
|
100.0 |
% |
|
$ |
8.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration and average price per share paid by the
existing stockholders in the table above give effect to the
$208.8 million dividend and the stock dividend of
1,875,000 shares we intend to pay to the existing
stockholders in connection with this offering. As the table
indicates, the total consideration for the existing
stockholders shares is $(20.7) million, with an
average share price of $(1.58), which means that the existing
stockholders in the aggregate will have received
$20.7 million more than they originally invested.
The number of shares held by existing stockholders will be
reduced to the extent the underwriters exercise their
over-allotment option. If the underwriters fully exercise their
option, the existing stockholders will own a total of
11,213,049 shares or approximately 43.8% of our total
outstanding shares which will decrease the average price paid by
the existing stockholders per share to $(1.85).
To the extent that we grant options to our employees in the
future, and those options are exercised or other issuances of
common stock are made, there will be further dilution to new
investors.
36
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information has been
derived by the application of pro forma adjustments to the
historical combined financial statements for the period from
January 1, 2005 to October 16, 2005 and for the period
from October 17, 2005 to December 31, 2005, and our
consolidated financial statements for the three months ended
March 31, 2006. The unaudited pro forma statements of
operations for the year ended December 31, 2005 and the
three months ended March 31, 2006 give effect to
(i) the Acquisition, (ii) the notes offering of
October 17, 2005 and the borrowings under our senior
secured credit facility and (iii) this offering of common
stock and the estimated use of proceeds from this offering, as
if they had been consummated on January 1, 2005. The
unaudited as adjusted balance sheet as of March 31, 2006
gives effect to this offering and the estimated use of proceeds
from this offering, as if they had occurred on March 31,
2006. The adjustments necessary to fairly present this pro forma
financial information have been made based on available
information and in the opinion of management are reasonable and
are described in the accompanying notes. The unaudited pro forma
financial information should not be considered indicative of
actual results that would have been achieved had these
transactions been consummated on the respective dates indicated
and do not purport to indicate results of operations as of any
future date or for any future period. The assumptions used in
the preparation of the unaudited pro forma financial information
may not prove to be correct. You should read the unaudited pro
forma financial information together with Risk
Factors, Use of Proceeds,
Capitalization and Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our historical consolidated financial
statements and the notes thereto included elsewhere in this
prospectus.
37
CHART INDUSTRIES, INC.
UNAUDITED AS ADJUSTED BALANCE SHEET
As of March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As | |
|
|
Historical | |
|
Offering Adjustments | |
|
Adjusted | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except share data) | |
Assets |
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
19,462 |
|
|
$ |
11,879 |
(a)(c)(d) |
|
$ |
31,341 |
(b) |
|
Accounts receivable, net
|
|
|
64,237 |
|
|
|
|
|
|
|
64,237 |
|
|
Inventories, net
|
|
|
53,596 |
|
|
|
|
|
|
|
53,596 |
|
|
Unbilled contract revenue
|
|
|
32,440 |
|
|
|
|
|
|
|
32,440 |
|
|
Prepaid expenses
|
|
|
3,096 |
|
|
|
|
|
|
|
3,096 |
|
|
Other current assets
|
|
|
14,176 |
|
|
|
|
|
|
|
14,176 |
|
|
Assets held for sale
|
|
|
3,084 |
|
|
|
|
|
|
|
3,084 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
190,091 |
|
|
|
11,879 |
|
|
|
201,970 |
|
Property, plant and equipment, net
|
|
|
66,205 |
|
|
|
|
|
|
|
66,205 |
|
Goodwill
|
|
|
236,810 |
|
|
|
|
|
|
|
236,810 |
|
Identifiable intangible assets, net
|
|
|
150,495 |
|
|
|
|
|
|
|
150,495 |
|
Other assets, net
|
|
|
12,882 |
|
|
|
|
|
|
|
12,882 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
656,483 |
|
|
$ |
11,879 |
|
|
$ |
668,362 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
38,130 |
|
|
|
|
|
|
$ |
38,130 |
|
|
Customer advances and billings in excess of contract revenue
|
|
|
40,166 |
|
|
|
|
|
|
|
40,166 |
|
|
Accrued salaries, wages and benefits
|
|
|
14,503 |
|
|
|
|
|
|
|
14,503 |
|
|
Warranty reserve
|
|
|
3,760 |
|
|
|
|
|
|
|
3,760 |
|
|
Other current liabilities
|
|
|
18,385 |
|
|
|
|
|
|
|
18,385 |
|
|
Short-term debt
|
|
|
1,513 |
|
|
|
|
|
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,457 |
|
|
|
|
|
|
|
116,457 |
|
Long-term debt
|
|
|
340,000 |
|
|
|
(50,000 |
)(c) |
|
|
290,000 |
|
Long-term deferred tax liabilities
|
|
|
56,038 |
|
|
|
|
|
|
|
56,038 |
|
Other long-term liabilities
|
|
|
19,842 |
|
|
|
|
|
|
|
19,842 |
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share,
9,500,000 shares authorized, actual, 150,000,000 shares
authorized, as adjusted, 7,952,180 shares issued and
outstanding, actual and 25,588,049 shares issued and
outstanding, as adjusted
|
|
|
80 |
|
|
|
157 |
|
|
|
237 |
|
|
Additional paid in capital
|
|
|
117,625 |
|
|
|
61,722 |
|
|
|
179,347 |
|
|
Retained earnings
|
|
|
5,539 |
|
|
|
|
|
|
|
5,539 |
|
|
Accumulated other comprehensive income
|
|
|
902 |
|
|
|
|
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
124,146 |
|
|
|
61,879 |
(a)(c)(d) |
|
|
186,025 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
656,483 |
|
|
$ |
11,879 |
|
|
$ |
668,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Reflects payment, using cash on-hand, of $2,358 of expenses in
connection with this offering, $39,237 of cash received upon the
exercise by FR X Chart Holdings LLC of its warrant and the
exercise by certain |
38
|
|
|
|
members of management of their rollover options. |
|
|
|
(b) |
The as adjusted cash and cash equivalents excludes the cash
payment of the purchase price in the amount of $16,500 for
Cooler Service paid on May 26, 2006. See
Capitalization for our cash and cash equivalents
giving effect to that payment. |
|
|
|
(c) |
Reflects the use of a portion of the proceeds from the offering,
net of fees and expenses, and cash received upon the exercise by
FR X Chart Holdings LLC of its warrant and the
exercise by certain members of management of their rollover
options, and cash on hand to repay $50,000 of term loans under
our senior secured credit facility. |
|
|
|
(d) |
Reflects the assumed gross proceeds of $250,000 from the
offering, net of underwriting discounts of $16,250. On a pro
forma basis as of March 31, 2006, $208,750 of the net
proceeds from the offering is assumed to be used to pay a
dividend to our existing stockholders. See Use of
Proceeds. Of such amount, $197,396 will be received by
FR X Chart Holdings LLC, $8,148 will be received by
Mr. Thomas, $456 will be received by Mr. Biehl and
approximately $2,750 will be received by seven other employees. |
|
39
CHART INDUSTRIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized | |
|
|
Successor | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
|
|
|
|
|
|
Pro Forma | |
|
|
January 1, | |
|
|
October 17, | |
|
|
|
Pro Forma | |
|
|
|
As Adjusted | |
|
|
2005 to | |
|
|
2005 to | |
|
|
|
Year Ended | |
|
|
|
Year Ended | |
|
|
October 16, | |
|
|
December 31, | |
|
Pro Forma | |
|
December 31, | |
|
Offering | |
|
December 31, | |
|
|
2005(1) | |
|
|
2005(2) | |
|
Adjustments(3) | |
|
2005 | |
|
Adjustments(4) | |
|
2005 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
|
|
Sales
|
|
$ |
305,497 |
|
|
|
$ |
97,652 |
|
|
$ |
|
|
|
$ |
403,149 |
|
|
$ |
|
|
|
$ |
403,149 |
|
Cost of sales
|
|
|
217,284 |
|
|
|
|
75,733 |
|
|
|
|
|
|
|
293,017 |
|
|
|
|
|
|
|
293,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
88,213 |
|
|
|
|
21,919 |
|
|
|
|
|
|
|
110,132 |
|
|
|
|
|
|
|
110,132 |
|
Selling, general and administrative expenses
|
|
|
59,826 |
|
|
|
|
16,632 |
|
|
|
8,306 |
(a)(b) |
|
|
84,764 |
|
|
|
|
|
|
|
84,764 |
|
Acquisition expenses
|
|
|
6,602 |
|
|
|
|
|
|
|
|
|
|
|
|
6,602 |
|
|
|
|
|
|
|
6,602 |
|
Employee separation and plant closure costs
|
|
|
1,057 |
|
|
|
|
139 |
|
|
|
|
|
|
|
1,196 |
|
|
|
|
|
|
|
1,196 |
|
(Gain) Loss on sale of assets
|
|
|
(131 |
) |
|
|
|
78 |
|
|
|
|
|
|
|
(53 |
) |
|
|
|
|
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,354 |
|
|
|
|
16,849 |
|
|
|
8,306 |
|
|
|
92,509 |
|
|
|
|
|
|
|
92,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
20,859 |
|
|
|
|
5,070 |
|
|
|
(8,306 |
) |
|
|
17,623 |
|
|
|
|
|
|
|
17,623 |
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
4,192 |
|
|
|
|
5,565 |
|
|
|
17,681 |
(c) |
|
|
27,438 |
|
|
|
(3,313 |
) |
|
|
24,125 |
|
|
Financing costs amortization
|
|
|
|
|
|
|
|
308 |
|
|
|
1,171 |
(d) |
|
|
1,479 |
|
|
|
|
|
|
|
1,479 |
|
|
Derivative contracts valuation expense (income)
|
|
|
(28 |
) |
|
|
|
(9 |
) |
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
(37 |
) |
|
Foreign currency loss (gain)
|
|
|
659 |
|
|
|
|
101 |
|
|
|
|
|
|
|
760 |
|
|
|
|
|
|
|
760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,823 |
|
|
|
|
5,965 |
|
|
|
18,852 |
|
|
|
29,640 |
|
|
|
(3,313 |
) |
|
|
26,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes and minority
interest
|
|
|
16,036 |
|
|
|
|
(895 |
) |
|
|
(27,158 |
) |
|
|
(12,017 |
) |
|
|
3,313 |
|
|
|
(8,704 |
) |
Income tax (benefit) expense
|
|
|
7,159 |
|
|
|
|
(441 |
) |
|
|
(10,320 |
)(e) |
|
|
(3,602 |
) |
|
|
1,259 |
|
|
|
(2,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before minority interest
|
|
|
8,877 |
|
|
|
|
(454 |
) |
|
|
(16,838 |
) |
|
|
(8,415 |
) |
|
|
2,054 |
|
|
|
(6,361 |
) |
Minority interest, net of taxes
|
|
|
(19 |
) |
|
|
|
(52 |
) |
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
8,858 |
|
|
|
$ |
(506 |
) |
|
$ |
(16,838 |
) |
|
$ |
(8,486 |
) |
|
$ |
2,054 |
|
|
$ |
(6,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings Per Share Data(5)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share(7)
|
|
$ |
1.65 |
|
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.25 |
) |
Diluted (loss) earnings per share(7)
|
|
$ |
1.57 |
|
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.25 |
) |
Weighted-average sharesbasic
|
|
|
5,366 |
|
|
|
|
7,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,733 |
|
Weighted-average sharesdiluted
|
|
|
5,649 |
|
|
|
|
7,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,733 |
|
40
CHART INDUSTRIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
|
|
Pro Forma | |
|
|
| |
|
|
|
Pro Forma | |
|
|
|
As Adjusted | |
|
|
Three Months | |
|
|
|
Three Months | |
|
|
|
Three Months | |
|
|
Ended | |
|
|
|
Ended | |
|
|
|
Ended | |
|
|
March 31, | |
|
Pro Forma | |
|
March 31, | |
|
Offering |
|
March 31, | |
|
|
2006 | |
|
Adjustments(3) | |
|
2006 | |
|
Adjustments(4) |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(In thousands, except per share data) | |
Sales
|
|
$ |
120,840 |
|
|
$ |
|
|
|
$ |
120,840 |
|
|
$ |
|
|
|
$ |
120,840 |
|
Cost of sales
|
|
|
83,853 |
|
|
|
|
|
|
|
83,853 |
|
|
|
|
|
|
|
83,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36,987 |
|
|
|
|
|
|
|
36,987 |
|
|
|
|
|
|
|
36,987 |
|
Selling, general and administrative expenses
|
|
|
21,039 |
|
|
|
|
|
|
|
21,039 |
|
|
|
|
|
|
|
21,039 |
|
Employee separation and plant closure costs
|
|
|
162 |
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,201 |
|
|
|
|
|
|
|
21,201 |
|
|
|
|
|
|
|
21,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
15,786 |
|
|
|
|
|
|
|
15,786 |
|
|
|
|
|
|
|
15,786 |
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
6,545 |
|
|
|
(828 |
) |
|
|
5,717 |
|
|
|
|
|
|
|
5,717 |
|
|
Financing costs amortization
|
|
|
370 |
|
|
|
|
|
|
|
370 |
|
|
|
|
|
|
|
370 |
|
|
Foreign currency loss (gain)
|
|
|
(148 |
) |
|
|
|
|
|
|
(148 |
) |
|
|
|
|
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,767 |
|
|
|
(828 |
) |
|
|
5,939 |
|
|
|
|
|
|
|
5,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes and minority interest
|
|
|
9,019 |
|
|
|
828 |
|
|
|
9,847 |
|
|
|
|
|
|
|
9,847 |
|
Income tax (benefit) expense
|
|
|
2,980 |
|
|
|
315 |
|
|
|
3,295 |
|
|
|
|
|
|
|
3,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before minority interest
|
|
|
6,039 |
|
|
|
513 |
|
|
|
6,552 |
|
|
|
|
|
|
|
6,552 |
|
Minority interest, net of taxes
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,045 |
|
|
$ |
513 |
|
|
$ |
6,558 |
|
|
$ |
|
|
|
$ |
6,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings Per Share Data(5)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share(7)
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.26 |
|
Diluted earnings per share(7)
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.26 |
|
Weighted-average shares basic
|
|
|
7,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,733 |
|
Weighted-average shares diluted
|
|
|
8,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,733 |
|
41
Our capital structure changed as a result of the Acquisition.
Due to required purchase accounting adjustments relating to such
transaction, the consolidated financial and other information
for the period subsequent to the Acquisition, which we refer to
as the 2005 Successor Period, is not comparable to such
information for the periods prior to the Acquisition, which we
refer to as the 2005 Reorganized Period. The pro forma
information, including the allocation of the purchase price, is
based on managements estimates and valuations of the
tangible and intangible assets that were acquired.
|
|
(1) |
The amounts in this column represent the reported results of
Chart Industries, Inc. prior to the Acquisition, from
January 1, 2005 through October 16, 2005. |
(2) |
The amounts in this column represent the reported results of
Chart Industries, Inc. subsequent to the Acquisition, for the
period from October 17, 2005 to December 31, 2005. |
(3) |
The amounts in this column represent the adjustments to reflect
the pro forma impact of the Acquisition as follows: |
|
|
|
|
(a) |
Reflects the adjustment to historical expense for management
fees of $306 charged by our Reorganized Company majority
shareholders, which are not charged by First Reserve. |
|
|
(b) |
Reflects the adjustment to historical expense for the change in
amortization expense due to the revaluation of our identifiable
finite-lived intangible assets in purchase accounting. Annual
amortization expense under the new basis of accounting is
estimated to be $14,271, of which $2,973 was recognized during
the 2005 Successor Period, and $2,686 of amortization expense
relating to finite-lived intangible assets was recorded during
the 2005 Reorganized Period, resulting in a pro forma adjustment
of $8,612. |
|
|
(c) |
Reflects the adjustment to historical interest expense for
interest on the senior secured credit facility entered into in
conjunction with the Acquisition of $11,925 assuming an
outstanding balance of $180,000 and an interest rate of 6.625%
per annum. This interest rate is variable and was calculated as
LIBOR plus 2.00%, which is equal to the
180-day LIBOR interest
rate contract that we entered into on November 21, 2005
under the credit facility. A 0.125% change in the variable
interest rate would affect pro forma income before taxes by
$225. Also, reflects the adjustment to historical interest
expense for interest on the notes issued in conjunction with the
Acquisition of $15,513, assuming an outstanding balance of
$170,000 and a fixed interest rate of 9.125% per annum. During
the 2005 Successor Period, $5,565 of interest expense was
recorded for the senior secured credit facility and the notes
and $4,192 of interest expense was recorded in the 2005
Reorganized Period for our then existing senior credit facility.
This results in a pro forma adjustment of $17,681. |
|
(d) |
Reflects the adjustment to historical expense for the change in
amortization expense for deferred financing costs that were paid
in conjunction with the Acquisition. The annual amortization
expense is estimated to be $1,479, of which $308 was recorded in
the 2005 Successor Period, and no amortization expense was
recorded in the 2005 Reorganized Period, resulting in a pro
forma adjustment of $1,171. |
|
(e) |
Reflects the income tax of our pro forma adjustments to the
income statement at an estimated statutory tax rate of 38%. |
|
|
(4) |
The amounts in this column represent the adjustments to reflect
the pro forma impact of this offering and the estimated use of
proceeds therefrom. |
|
(5) |
Unaudited pro forma basic and diluted earnings per share have
been calculated in accordance with the SEC rules for initial
public offerings. These rules require that the weighted average
share calculation give retroactive effect to any changes in our
capital structure as well as the number of shares whose sale
proceeds would be necessary to repay any debt or to pay any
dividend as reflected in the pro forma adjustments. Therefore,
pro forma weighted average shares for purposes of the unaudited
pro forma basic and diluted earnings per share calculation, has
been adjusted to reflect (i) the
4.6263-for-one stock
split we expect to effect immediately prior to the consummation
of this offering and (ii) the stock dividend of
1,875,000 shares to our existing stockholders that will be
made shortly after the expiration of the underwriters
over-allotment option assuming no exercise of that option, and
includes 12,500,000 shares of our common stock being
offered hereby. |
|
|
(6) |
The basic and diluted loss per share for the 2005 Successor
Period are the same because incremental shares issuable upon
conversion are anti-dilutive. For the three months ended
March 31, 2006, the incremental shares issuable upon
conversion of stock options and exercise of stock warrants are
307,418 and 25,546, respectively. For the purposes of computing
diluted earnings per share, weighted average |
|
42
|
|
|
|
common share equivalents do not include 1,107,008 and 1,657,843
warrants and stock options for the 2005 Successor Period and
77,211 stock options for the three months ended March 31,
2006 as the effect would be anti-dilutive. |
|
(7) |
Pro forma basic earnings (loss) per common share is computed by
dividing earnings (loss) available to common stockholders by the
weighted average number of common shares outstanding during the
period. Pro forma diluted earnings per common share is computed
by dividing earnings (loss) available to common stockholders by
the sum of weighted average common shares outstanding plus
dilutive incremental common shares for the period. Pro forma
basic and diluted common shares also include the number of
shares from this offering whose proceeds were used for the
repayment of debt. |
The following table sets forth the computation of pro forma
basic and diluted net income (loss) per share (in millions,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
Pro Forma | |
|
As Adjusted | |
|
|
As Adjusted | |
|
Three Months | |
|
|
Year Ended | |
|
Ended | |
|
|
December 31, | |
|
March 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Basic and diluted pro forma net income per common share:
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
(6.4 |
) |
|
$ |
6.6 |
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
13.1 |
|
|
|
13.1 |
|
|
|
Less: Weighted-average unvested common shares subject to
repurchase or cancellation
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
Shares from this offering whose proceeds would be used for the
repayment of debt(l)
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
|
Shares from this offering whose proceeds would be used for the
payment of a dividend(2)
|
|
|
11.3 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic calculation
|
|
|
25.8 |
|
|
|
25.8 |
|
|
|
Effect for dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Add: Weighted-average stock options and unvested common shares
subject to repurchase or cancellation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted calculation
|
|
|
25.8 |
|
|
|
25.8 |
|
|
|
|
|
|
|
|
Pro forma net income per common sharebasic
|
|
$ |
(0.25 |
) |
|
$ |
0.26 |
|
|
|
|
|
|
|
|
Pro forma net income per common sharediluted
|
|
$ |
(0.25 |
) |
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Calculated as $25.3 million of proceeds to be used in the
repayment of debt, including accrued interest thereon through
the anticipated date of repayment, divided by the offering
proceeds of $18.51 per share, net of issuance costs and
expenses. |
|
|
|
(2) |
Calculated as $208.8 million of proceeds to be used in the
payment of a dividend, divided by the offering proceeds of
$18.51 per share, net of issuance costs and expenses. |
|
43
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The financial statements referred to as the 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 Reorganized 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 and related financing thereof. The financial
statements referred to as the Successor Company financial
statements include the consolidated audited financial statements
of Chart Industries, Inc. and its subsidiaries after the
Acquisition and the related financing thereof.
The following table sets forth the selected historical
consolidated financial information as of the dates and for each
of the periods indicated. The Predecessor Company selected
historical consolidated financial data as of and for the years
ended December 31, 2001 and 2002 is derived from our
audited financial statements for such periods which have been
audited by Ernst & Young LLP, an independent registered
public accounting firm, and which are not included in this
prospectus. The Predecessor Company selected historical
consolidated financial data for the nine months ended
September 30, 2003 is derived from our audited financial
statements for such period included elsewhere in this
prospectus, which have been audited by Ernst & Young
LLP. The Predecessor Company selected historical consolidated
financial data as of September 30, 2003 and the Reorganized
Company selected historical consolidated financial data as of
December 31, 2003 and October 16, 2005 are derived
from our audited financial statements for such periods which
have been audited by Ernst & Young LLP, and which are
not included in this prospectus. The Reorganized Company
selected historical consolidated financial data for the three
months ended December 31, 2003, as of and for the year
ended December 31, 2004 and for the period from
January 1, 2005 to October 16, 2005 is derived from
our audited financial statements for such periods included
elsewhere in this prospectus, which have been audited by
Ernst & Young LLP. The Successor Company selected
historical consolidated financial statements and other data as
of December 31, 2005 and for the period from
October 17, 2005 to December 31, 2005 is derived from
our audited financial statements for such period included
elsewhere in this prospectus, which have been audited by
Ernst & Young LLP. The selected historical consolidated
financial information for the Reorganized Company for the three
months ended March 31, 2005 has been derived from the
unaudited condensed consolidated financial statements included
elsewhere in this prospectus, which have been prepared on a
basis consistent with the audited financial statements included
elsewhere in this prospectus. The selected historical
consolidated financial information for the Successor Company as
of and for the three months ended March 31, 2006 has been
derived from the unaudited condensed consolidated financial
statements included elsewhere in this prospectus, which have
been prepared on a basis consistent with the audited financial
statements included elsewhere in this prospectus. In the opinion
of management, such unaudited financial information reflects all
adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of the results
for those periods.
You should read the following table together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes, included elsewhere in
this prospectus.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company | |
|
|
Reorganized Company | |
|
|
Successor Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
|
|
|
Three | |
|
|
|
Three | |
|
|
|
|
Three | |
|
|
Years Ended | |
|
Nine Months | |
|
|
Months | |
|
|
|
January 1, | |
|
Months | |
|
|
October 17, | |
|
Months | |
|
|
December 31, | |
|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
|
Ended | |
|
|
2005 to | |
|
Ended | |
|
|
| |
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
March 31, | |
|
|
December 31, | |
|
March 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
305,288 |
|
|
$ |
276,353 |
|
|
$ |
197,017 |
|
|
|
$ |
68,570 |
|
|
$ |
305,576 |
|
|
$ |
305,497 |
|
|
$ |
85,170 |
|
|
|
$ |
97,652 |
|
|
$ |
120,840 |
|
|
Cost of sales(1)
|
|
|
226,266 |
|
|
|
205,595 |
|
|
|
141,240 |
|
|
|
|
52,509 |
|
|
|
211,770 |
|
|
|
217,284 |
|
|
|
60,532 |
|
|
|
|
75,733 |
|
|
|
83,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
79,022 |
|
|
|
70,758 |
|
|
|
55,777 |
|
|
|
|
16,061 |
|
|
|
93,806 |
|
|
|
88,213 |
|
|
|
24,638 |
|
|
|
|
21,919 |
|
|
|
36,987 |
|
|
Selling, general and administrative expenses
|
|
|
55,128 |
|
|
|
65,679 |
|
|
|
44,211 |
|
|
|
|
14,147 |
|
|
|
53,374 |
|
|
|
59,826 |
|
|
|
14,401 |
|
|
|
|
16,632 |
|
|
|
21,039 |
|
|
Restructuring and other operating expenses, net(2)(3)
|
|
|
6,329 |
|
|
|
104,477 |
|
|
|
13,503 |
|
|
|
|
994 |
|
|
|
3,353 |
|
|
|
7,528 |
|
|
|
604 |
|
|
|
|
217 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,457 |
|
|
|
170,156 |
|
|
|
57,714 |
|
|
|
|
15,141 |
|
|
|
56,727 |
|
|
|
67,354 |
|
|
|
15,005 |
|
|
|
|
16,849 |
|
|
|
21,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
17,565 |
|
|
|
(99,398 |
) |
|
|
(1,937 |
) |
|
|
|
920 |
|
|
|
37,079 |
|
|
|
20,859 |
|
|
|
9,633 |
|
|
|
|
5,070 |
|
|
|
15,786 |
|
|
Interest expense, net(4)
|
|
|
24,465 |
|
|
|
19,176 |
|
|
|
10,300 |
|
|
|
|
1,344 |
|
|
|
4,712 |
|
|
|
4,164 |
|
|
|
985 |
|
|
|
|
5,556 |
|
|
|
6,545 |
|
|
Other expense (income)
|
|
|
1,567 |
|
|
|
4,240 |
|
|
|
(3,737 |
) |
|
|
|
(350 |
) |
|
|
(465 |
) |
|
|
659 |
|
|
|
21 |
|
|
|
|
409 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,032 |
|
|
|
23,416 |
|
|
|
6,563 |
|
|
|
|
994 |
|
|
|
4,247 |
|
|
|
4,823 |
|
|
|
1,006 |
|
|
|
|
5,965 |
|
|
|
6,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes and
minority interest
|
|
|
(8,467 |
) |
|
|
(122,814 |
) |
|
|
(8,500 |
) |
|
|
|
(74 |
) |
|
|
32,832 |
|
|
|
16,036 |
|
|
|
8,627 |
|
|
|
|
(895 |
) |
|
|
9,019 |
|
|
Income tax (benefit) expense
|
|
|
398 |
|
|
|
11,136 |
|
|
|
1,755 |
|
|
|
|
(125 |
) |
|
|
10,134 |
|
|
|
7,159 |
|
|
|
3,071 |
|
|
|
|
(441 |
) |
|
|
2,980 |
|
|
(Loss) income from continuing operations before minority interest
|
|
|
(8,865 |
) |
|
|
(133,950 |
) |
|
|
(10,255 |
) |
|
|
|
51 |
|
|
|
22,698 |
|
|
|
8,877 |
|
|
|
5,556 |
|
|
|
|
(454 |
) |
|
|
6,039 |
|
|
Minority interest, net of taxes and other
|
|
|
(199 |
) |
|
|
(52 |
) |
|
|
(63 |
) |
|
|
|
(20 |
) |
|
|
(98 |
) |
|
|
(19 |
) |
|
|
(21 |
) |
|
|
|
(52 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(9,064 |
) |
|
|
(134,002 |
) |
|
|
(10,318 |
) |
|
|
|
31 |
|
|
|
22,600 |
|
|
|
8,858 |
|
|
|
5,535 |
|
|
|
|
(506 |
) |
|
|
6,045 |
|
|
Income from discontinued operation, including gain on sale, net
of tax(5)
|
|
|
3,906 |
|
|
|
3,217 |
|
|
|
3,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(5,158 |
) |
|
$ |
(130,785 |
) |
|
$ |
(7,085 |
) |
|
|
$ |
31 |
|
|
$ |
22,600 |
|
|
$ |
8,858 |
|
|
$ |
5,535 |
|
|
|
$ |
(506 |
) |
|
$ |
6,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per share data(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(5.22 |
) |
|
$ |
(0.27 |
) |
|
|
$ |
0.01 |
|
|
$ |
4.22 |
|
|
$ |
1.65 |
|
|
$ |
1.03 |
|
|
|
$ |
(0.06 |
) |
|
$ |
0.76 |
|
Diluted (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(5.22 |
) |
|
$ |
(0.27 |
) |
|
|
$ |
0.01 |
|
|
$ |
4.10 |
|
|
$ |
1.57 |
|
|
$ |
0.99 |
|
|
|
$ |
(0.06 |
) |
|
$ |
0.73 |
|
Weighted average shares basic
|
|
|
24,573 |
|
|
|
25,073 |
|
|
|
26,336 |
|
|
|
|
5,325 |
|
|
|
5,351 |
|
|
|
5,366 |
|
|
|
5,358 |
|
|
|
|
7,952 |
|
|
|
7,952 |
|
Weighted average shares diluted
|
|
|
24,573 |
|
|
|
25,073 |
|
|
|
26,336 |
|
|
|
|
5,325 |
|
|
|
5,516 |
|
|
|
5,649 |
|
|
|
5,609 |
|
|
|
|
7,952 |
|
|
|
8,285 |
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
$ |
7,458 |
|
|
$ |
5,249 |
|
|
$ |
19,466 |
|
|
|
$ |
4,988 |
|
|
$ |
35,059 |
|
|
$ |
15,641 |
|
|
$ |
(4,063 |
) |
|
|
$ |
18,742 |
|
|
$ |
12,327 |
|
|
Cash (used in) provided by investing activities
|
|
|
(6,261 |
) |
|
|
1,288 |
|
|
|
15,101 |
|
|
|
|
154 |
|
|
|
(3,317 |
) |
|
|
(20,799 |
) |
|
|
(1,629 |
) |
|
|
|
(362,250 |
) |
|
|
(2,566 |
) |
|
Cash (used in) provided by financing activities
|
|
|
504 |
|
|
|
(17,614 |
) |
|
|
(15,907 |
) |
|
|
|
(13,976 |
) |
|
|
(35,744 |
) |
|
|
1,708 |
|
|
|
(624 |
) |
|
|
|
348,489 |
|
|
|
(5,839 |
) |
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(7)
|
|
$ |
17,783 |
|
|
$ |
14,531 |
|
|
$ |
9,260 |
|
|
|
$ |
2,225 |
|
|
$ |
8,490 |
|
|
$ |
6,808 |
|
|
$ |
1,944 |
|
|
|
$ |
4,396 |
|
|
$ |
5,194 |
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company | |
|
|
Reorganized Company | |
|
|
Successor Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
As of | |
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
As of | |
|
|
As of | |
|
As of | |
|
As of | |
|
|
As of | |
|
As of | |
|
|
| |
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
|
December 31, | |
|
March 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
|
(In thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
11,801 |
|
|
$ |
7,225 |
|
|
$ |
27,815 |
|
|
|
$ |
18,600 |
|
|
$ |
14,814 |
|
|
$ |
11,470 |
|
|
|
$ |
15,433 |
|
|
$ |
19,462 |
|
|
Working capital(8)
|
|
|
57,438 |
|
|
|
48,563 |
|
|
|
35,826 |
|
|
|
|
47,161 |
|
|
|
51,292 |
|
|
|
43,486 |
|
|
|
|
55,454 |
|
|
|
55,685 |
|
|
Total assets
|
|
|
408,980 |
|
|
|
279,294 |
|
|
|
299,745 |
|
|
|
|
299,637 |
|
|
|
307,080 |
|
|
|
343,107 |
|
|
|
|
641,806 |
(10) |
|
|
656,483 |
(10) |
|
Long-term debt(9)
|
|
|
259,120 |
|
|
|
1,161 |
|
|
|
122,537 |
|
|
|
|
109,081 |
|
|
|
76,406 |
|
|
|
74,480 |
|
|
|
|
345,000 |
|
|
|
340,000 |
|
|
Total debt(9)
|
|
|
272,083 |
|
|
|
263,900 |
|
|
|
126,012 |
|
|
|
|
112,561 |
|
|
|
79,411 |
|
|
|
80,943 |
|
|
|
|
347,304 |
|
|
|
341,513 |
|
|
Shareholders equity (deficit)
|
|
|
49,340 |
|
|
|
(81,617 |
) |
|
|
89,865 |
|
|
|
|
90,807 |
|
|
|
115,640 |
|
|
|
121,321 |
|
|
|
|
116,330 |
|
|
|
124,146 |
|
|
|
|
|
(1) |
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. CHELs 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. |
|
|
(2) |
In 2002, we recorded a non-cash impairment charge of
$92.4 million to write off non-deductible goodwill of the
D&S segment. Further information about this charge is found
in Note A to our audited consolidated financial statements
included elsewhere in this prospectus. |
|
|
(3) |
In September 2003, in accordance with Fresh-Start accounting,
all assets and liabilities were adjusted to their fair values.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations for further
discussion. The adjustment to record the assets and liabilities
at fair value resulted in net other income of $5.7 million.
Further information about the adjustment is located in
Note A to our audited consolidated financial statements
included elsewhere in this prospectus. |
|
|
(4) |
Includes derivative contracts valuation income or expense for
interest rate collars to manage interest exposure relative to
term debt. |
|
|
(5) |
This relates to the sale of our former Greenville Tube, LLC
business in July 2003. See Managements Discussion
and Analysis of Financial Condition and Results of
Operations for additional information. |
|
|
(6) |
The basic and diluted loss per share for the years ended
December 31, 2001 and 2002, the nine months ended
September 30, 2003 and the 2005 Successor Period are the
same because incremental shares issuable upon conversion are
anti-dilutive. |
|
|
(7) |
Includes financing costs amortization for the years ended
December 31, 2001 and 2002, the nine months ended
September 30, 2003 and the 2005 Successor Period of
$1.5 million, $3.2 million, $1.7 million and
$0.3 million, respectively. |
|
|
(8) |
Working capital is defined as current assets excluding cash
minus current liabilities excluding short-term debt. |
|
|
(9) |
As of December 31, 2002, we were in default on our senior
debt due to violation of financial covenants. In April 2003, the
lenders under our then-existing credit facility waived all
defaults existing at December 31, 2002 and through
April 30, 2003. Since the waiver of defaults did not extend
until January 1, 2004, this debt was classified as a
current liability on our consolidated balance sheet as of
December 31, 2002. |
|
|
(10) |
Includes $236.7 million of goodwill and $154.1 million
of finite-lived and indefinite-lived intangible assets as of
December 31, 2005. Includes $236.8 million of goodwill
and $150.5 million of finite-lived and indefinite- lived
intangible assets as of March 31, 2006. |
46
MANAGEMENTS 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
historical periods does not reflect fully the significant impact
that the Acquisition will 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
Historical Consolidated Financial Data and Unaudited
Pro Forma Financial Information sections and our
consolidated financial statements and related notes appearing
elsewhere in this prospectus. Actual results may differ
materially from those discussed below. This discussion contains
forward-looking statements. See Special Note Regarding
Forward-Looking Statements and 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. We supply engineered
equipment used throughout the liquid gas supply chain globally.
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 use of
hydrocarbon and industrial gases.
For the three months ended March 31, 2006, we experienced a
significant increase in our operating results compared to the
three months ended March 31, 2005, primarily due to growth
in the global hydrocarbon processing and industrial gas markets
served by our E&C and D&S segments and growth and
penetration of the international medical respiratory therapy
market served by our BioMedical segment. Sales for the three
months ended March 31, 2006 were $120.8 million
compared to sales of $85.2 million for the three months
ended March 31, 2005, reflecting an increase of
$35.6 million, or 41.8%. Our gross profit for the first
three months of 2006 was $37.0 million, or 30.6% of sales,
as compared to $24.6 million, or 28.9% of sales, for the
same period in 2005. Increased sales volume in all three of our
operating segments, product price increases in the D&S
segment, favorable product sales mix in our E&C segment and
the improved manufacturing productivity in our medical
respiratory product line, as a result of completing the
transition of production from Burnsville, Minnesota to Canton,
Georgia in late 2005, were contributing factors to the growth in
our gross profit and related margin in 2006.
In 2005, we experienced increased orders, backlog, sales and
gross profit compared to 2004, which was primarily driven by
continued growth in the global industrial and hydrocarbon
processing markets served by our D&S and E&C segments.
Combined orders for 2005 were $511.2 million, which
represented an increase of $118.4 million, or 30.1%,
compared to 2004 orders of $392.8 million, while backlog
was $233.6 million at December 31, 2005 compared to
$129.3 million at December 31, 2004, which represented
growth of 80.7%. In 2005, combined sales were
$403.1 million compared to sales in 2004 of
$305.6 million, reflecting an increase of
$97.5 million, or 31.9%. Our combined gross profit in 2005
was $110.1 million, or 27.3% of sales, and gross profit in
2004 was $93.8 million, or 30.7% of sales. While we
benefited from higher volumes in 2005, our combined gross profit
was negatively impacted by an $8.9 million, or 2.2% of
sales, non-cash charge for adjusting inventory to fair value as
a result of the Acquisition and higher manufacturing costs due
to the move of our medical respiratory product line production
from Burnsville, Minnesota to Canton, Georgia.
As a result of the continued growth in many of the markets we
serve, our present and anticipated customer order trends, our
backlog level of $237.0 million as of March 31, 2006,
and our focus on energy-related industries, we presently expect
to experience continued sales and earnings growth for the
remaining nine months of 2006. We also believe that our cash
flow from operations, available cash and available
47
borrowings under the senior secured credit facility should be
adequate to meet our working capital, capital expenditure, debt
service and other funding requirements for the remaining nine
months of 2006.
On August 2, 2005, Chart Industries, Inc. entered into an
agreement and plan of merger with certain of its then-existing
stockholders, or the Principal Stockholders, First Reserve and
CI Acquisition to purchase shares of common stock owned by the
Principal Stockholders. The Acquisition closed on
October 17, 2005. First Reserve contributed
$111.3 million, which was used to fund a portion of the
Acquisition. The remainder of the cash needed to finance the
Acquisition, including related fees and expenses, was provided
by proceeds of $170.0 million from the issuance of senior
subordinated notes due 2015 and borrowings under the senior
secured credit facility. See The Transactions. We
refer to our company after the Acquisition as the
Successor Company.
On May 26, 2006, we acquired Cooler Service, which will become a
part of our E&C segment. Our results of operations for the
last seven months of 2006 will include the results from the
Cooler Service business. See Prospectus
Summary Recent Developments.
Chapter 11 Filing and Emergence
On July 8, 2003, we and all of our then majority-owned
U.S. subsidiaries, which we refer to as the Predecessor
Company, filed voluntary petitions for reorganization relief
under Chapter 11 of the U.S. Bankruptcy Code to
implement an agreed upon senior debt restructuring plan through
a pre-packaged plan of reorganization. On September 15,
2003, we, as reorganized, the Reorganized Company, and all of
our then majority-owned U.S. subsidiaries emerged from
Chapter 11 proceedings pursuant to the Amended Joint
Prepackaged Reorganization Plan of Chart Industries, Inc. and
Certain Subsidiaries, dated September 3, 2003.
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, or AICPA, Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, or
SOP 90-7, or
Fresh-Start accounting. We used September 30, 2003 as the
date for adopting Fresh-Start accounting in order to coincide
with our normal financial closing for the month of September
2003. Upon adoption of Fresh-Start accounting, a new reporting
entity was deemed to be created and the recorded amounts of
assets and liabilities were adjusted to reflect their estimated
fair values. Accordingly, the reported historical financial
statements of the Predecessor Company prior to the adoption of
Fresh-Start accounting for periods ended prior to
September 30, 2003 are not necessarily comparable to those
of the Reorganized Company. In this prospectus, references to
our nine-month period ended September 30, 2003 and all
periods ended prior to September 30, 2003 refer to the
Predecessor Company.
SOP 90-7 requires
that financial statements for the period following the
Chapter 11 filing through the bankruptcy confirmation date
distinguish transactions and events that are directly associated
with the reorganization from the ongoing operations of the
business. Accordingly, revenues, expenses, realized gains and
losses and provisions for losses directly associated with the
reorganization and restructuring of the business, including
adjustments to fair value assets and liabilities and the gain on
the discharge of
pre-petition debt, were
reported separately as reorganization items, net, in the other
income (expense) section of the Predecessor Companys
consolidated statement of operations for the nine months ended
September 30, 2003. In accordance with Fresh-Start
accounting, all assets and liabilities were recorded at their
respective fair values as of September 30, 2003. Such fair
values represented our best estimates based on independent
appraisals and valuations. In applying Fresh-Start accounting,
adjustments to reflect the fair value of assets and liabilities,
on a net basis, and the restructuring of our capital structure
and resulting discharge of the senior lenders pre-petition
debt, resulted in net other income of $5.7 million in the
nine months ended September 30, 2003. The reorganization
value exceeded the fair value of the Reorganized Companys
assets and liabilities, and this excess is reported as
reorganization value in excess of amounts allocable to
identifiable assets in the Reorganized Companys
consolidated balance sheet.
48
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 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, which we refer to as the 2005
Reorganized Period, the three months ended March 31, 2005,
the period from October 17, 2005 to December 31, 2005,
which we refer to as the 2005 Successor Period, and the three
months ended March 31, 2006. The Predecessor, Reorganized
and Successor Company are further described in our audited
financial statements and related notes thereto included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor | |
|
|
|
|
|
|
|
|
Company | |
|
|
Reorganized Company | |
|
|
Successor Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
Nine Months | |
|
|
Three Months | |
|
|
|
January 1, | |
|
Three Months | |
|
|
October 17, | |
|
Three Months | |
|
|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
|
Ended | |
|
|
2005 to | |
|
Ended | |
|
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
March 31, | |
|
|
December 31, | |
|
March 31, | |
|
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
Sales
|
|
|
100.0 |
% |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100 |
% |
|
|
100.0 |
% |
|
|
|
100.0 |
% |
|
|
100 |
% |
Cost of sales(1)
|
|
|
71.7 |
|
|
|
|
76.6 |
|
|
|
69.3 |
|
|
|
71.1 |
|
|
|
71.1 |
|
|
|
|
77.6 |
|
|
|
69.4 |
|
Gross profit
|
|
|
28.3 |
|
|
|
|
23.4 |
|
|
|
30.7 |
|
|
|
28.9 |
|
|
|
28.9 |
|
|
|
|
22.4 |
|
|
|
30.6 |
|
Selling, general and administrative expenses(2)(3)(4)(5)(6)
|
|
|
22.5 |
|
|
|
|
20.6 |
|
|
|
17.5 |
|
|
|
19.6 |
|
|
|
16.9 |
|
|
|
|
17.0 |
|
|
|
17.4 |
|
Acquisition expense(7)
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
2.2 |
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
Employee separation and plant closure costs
|
|
|
0.4 |
|
|
|
|
1.5 |
|
|
|
1.0 |
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
|
0.1 |
|
|
|
0.1 |
|
(Loss) gain on sale of assets
|
|
|
0.5 |
|
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
(0.1 |
) |
|
|
0.0 |
|
Loss on insolvent subsidiary
|
|
|
6.9 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
Equity expense in joint venture
|
|
|
0.0 |
|
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
Operating income (loss)
|
|
|
(1.0 |
) |
|
|
|
1.3 |
|
|
|
12.2 |
|
|
|
6.8 |
|
|
|
11.3 |
|
|
|
|
5.2 |
|
|
|
13.1 |
|
Interest expense, net
|
|
|
(5.0 |
) |
|
|
|
(2.1 |
) |
|
|
(1.6 |
) |
|
|
(1.4 |
) |
|
|
(1.2 |
) |
|
|
|
(5.7 |
) |
|
|
(5.4 |
) |
Financing costs amortization
|
|
|
(0.9 |
) |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
Derivative contracts valuation income (expense)
|
|
|
(0.2 |
) |
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
Foreign currency income (loss)
|
|
|
(0.1 |
) |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
0.0 |
|
|
|
|
(0.1 |
) |
|
|
0.1 |
|
Reorganization items, net
|
|
|
2.8 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
Income tax (benefit) expense
|
|
|
0.8 |
|
|
|
|
(0.2 |
) |
|
|
3.3 |
|
|
|
2.3 |
|
|
|
3.6 |
|
|
|
|
(0.5 |
) |
|
|
2.5 |
|
(Loss) income from continuing operations
|
|
|
(5.2 |
) |
|
|
|
0.0 |
|
|
|
7.4 |
|
|
|
2.9 |
|
|
|
6.5 |
|
|
|
|
(0.4 |
) |
|
|
5.0 |
|
Income from discontinued operation, including gain on sale, net
of tax
|
|
|
1.6 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
0.0 |
|
|
|
0.0 |
|
Net (loss) income
|
|
|
(3.6 |
) |
|
|
|
0.0 |
|
|
|
7.4 |
|
|
|
2.9 |
|
|
|
6.5 |
|
|
|
|
(0.4 |
) |
|
|
5.0 |
|
|
|
|
(1) |
Includes non-cash inventory valuation charges of
$9.0 million, $0.6 million, $0.2 million,
$5.4 million, and $0.5 million, representing 9.2%,
0.2%, 0.1%, 7.9%, and 0.2% of sales, for the 2005 Successor
Period, the 2005 Reorganized Period, the year ended
December 31, 2004, the three months ended December 31,
2003, and the nine months ended September 30, 2003,
respectively. |
|
|
(2) |
Includes $1.5 million, $0.7 million, and
$6.4 million, representing 0.5%, 0.2%, and 3.2% of sales,
for claim settlements, professional fees incurred by us related
to our debt restructuring and bankruptcy reorganization
activities for the 2005 Reorganized Period, the year ended
December 31, 2004, and the nine months ended
September 30, 2003, respectively. |
|
|
(3) |
Includes stock-based compensation expense of $0.3 million,
$0.4 million, $0.6 million, $9.5 million, and
$2.4 million, representing 0.3%, 0.4%, 0.7% 3.1%, and 0.8%
of sales, for the three months ended |
|
49
|
|
|
March 31, 2006, the 2005 Successor Period, the three months
ended March 31, 2005, the 2005 Reorganized Period, and the
year ended December 31, 2004, respectively. |
|
|
(4) |
Includes charges and losses related to damages caused by
Hurricane Rita of $0.2 million, $0.4 million and
$1.1 million, representing 0.2%, 0.4% and 0.3% of sales,
for the three months ended March 31, 2006, the 2005
Successor Period and the 2005 Reorganized Period, respectively. |
|
|
(5) |
Includes a charge for the settlement of former
shareholders appraisal rights claims related to the
Acquisition of $0.5 million, or 0.5% of sales, and a charge
for the write-off of purchased in-process research and
development of $2.8 million, or 0.1% of sales, for the 2005
Successor Period and the 2005 Reorganized Period, respectively. |
|
|
(6) |
Includes amortization expense for intangible assets of
$3.6 million, $3.0 million, $0.7 million,
$2.7 million, $2.8 million, $0.7 million, and
$1.2 million, representing 3.0%, 3.0%, 0.8%, 0.9%, 0.9%,
1.0%, and 0.6% of sales, for the three months ended
March 31, 2006, the 2005 Successor Period, the three months
ended March 31, 2005, the 2005 Reorganized Period, the year
ended December 31, 2004, the three months ended
December 31, 2003, and the nine months ended
September 30, 2003, respectively. |
|
|
(7) |
Represents expenses 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 | |
|
|
Reorganized Company | |
|
|
Successor Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
Nine Months | |
|
|
Three Months | |
|
|
|
January 1, | |
|
Three Months | |
|
|
October 17, | |
|
Three Months | |
|
|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
|
Ended | |
|
|
2005 to | |
|
Ended | |
|
|
September 30, | |
|
|
December 31, | |
|
December 31, | |
|
October 16, | |
|
March 31, | |
|
|
December 31, | |
|
March 31, | |
|
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
|
|
|
|
(Dollars in thousands) | |
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$ |
42,910 |
|
|
|
$ |
15,699 |
|
|
$ |
69,609 |
|
|
$ |
86,920 |
|
|
$ |
23,663 |
|
|
|
$ |
34,135 |
|
|
$ |
41,174 |
|
|
Distribution and Storage
|
|
|
102,469 |
|
|
|
|
37,863 |
|
|
|
162,508 |
|
|
|
161,329 |
|
|
|
44,665 |
|
|
|
|
47,832 |
|
|
|
60,318 |
|
|
BioMedical
|
|
|
51,638 |
|
|
|
|
15,008 |
|
|
|
73,459 |
|
|
|
57,248 |
|
|
|
16,842 |
|
|
|
|
15,685 |
|
|
|
19,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
197,017 |
|
|
|
$ |
68,570 |
|
|
$ |
305,576 |
|
|
$ |
305,497 |
|
|
$ |
85,170 |
|
|
|
$ |
97,652 |
|
|
$ |
120,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$ |
12,683 |
|
|
|
$ |
5,405 |
|
|
$ |
21,475 |
|
|
$ |
23,391 |
|
|
$ |
5,996 |
|
|
|
$ |
10,494 |
|
|
$ |
11,648 |
|
|
Distribution and Storage
|
|
|
25,515 |
|
|
|
|
8,682 |
|
|
|
46,588 |
|
|
|
47,120 |
|
|
|
13,571 |
|
|
|
|
8,861 |
|
|
|
18,822 |
|
|
BioMedical
|
|
|
17,579 |
|
|
|
|
1,974 |
|
|
|
25,743 |
|
|
|
17,702 |
|
|
|
5,071 |
|
|
|
|
2,564 |
|
|
|
6,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
55,777 |
|
|
|
$ |
16,061 |
|
|
$ |
93,806 |
|
|
$ |
88,213 |
|
|
$ |
24,638 |
|
|
|
$ |
21,919 |
|
|
$ |
36,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
|
29.6 |
% |
|
|
|
34.4 |
% |
|
|
30.9 |
% |
|
|
26.9 |
% |
|
|
25.3 |
% |
|
|
|
30.7 |
% |
|
|
28.3 |
% |
|
Distribution and Storage
|
|
|
24.9 |
% |
|
|
|
22.9 |
% |
|
|
28.7 |
% |
|
|
29.2 |
% |
|
|
30.4 |
% |
|
|
|
18.5 |
% |
|
|
31.2 |
% |
|
BioMedical
|
|
|
34.0 |
% |
|
|
|
13.2 |
% |
|
|
35.0 |
% |
|
|
30.9 |
% |
|
|
30.1 |
% |
|
|
|
16.4 |
% |
|
|
33.7 |
% |
Total
|
|
|
28.3 |
% |
|
|
|
23.4 |
% |
|
|
30.7 |
% |
|
|
28.9 |
% |
|
|
28.9 |
% |
|
|
|
22.4 |
% |
|
|
30.6 |
% |
Operating (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$ |
(8,694 |
) |
|
|
$ |
3,298 |
|
|
$ |
11,545 |
|
|
$ |
13,717 |
|
|
$ |
3,576 |
|
|
|
$ |
5,092 |
|
|
$ |
5,933 |
|
|
Distribution & Storage
|
|
|
9,112 |
|
|
|
|
1,613 |
|
|
|
27,951 |
|
|
|
27,005 |
|
|
|
8,364 |
|
|
|
|
3,947 |
|
|
|
11,053 |
|
|
BioMedical
|
|
|
12,381 |
|
|
|
|
(479 |
) |
|
|
14,208 |
|
|
|
8,343 |
|
|
|
2,115 |
|
|
|
|
714 |
|
|
|
3,714 |
|
|
Corporate
|
|
|
(14,736 |
) |
|
|
|
(3,512 |
) |
|
|
(16,625 |
) |
|
|
(28,206 |
) |
|
|
(4,422 |
) |
|
|
|
(4,683 |
) |
|
|
(4,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(1,937 |
) |
|
|
$ |
920 |
|
|
$ |
37,079 |
|
|
$ |
20,859 |
|
|
$ |
9,633 |
|
|
|
$ |
5,070 |
|
|
$ |
15,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
We moved the management and reporting of the LNG alternative
fuel systems product line from the E&C segment to the
D&S segment effective December 31, 2004. All segment
information for all previous periods has been restated to
conform to this presentation.
Results of Operations for the Three Months Ended
March 31, 2006 and 2005
Sales for the three months ended March 31, 2006 were
$120.8 million compared to $85.2 million for the three
months ended March 31, 2005, reflecting an increase of
$35.6 million, or 41.8%. E&C segment sales were
$41.2 million for the three months ended March 31,
2006 compared to sales of $23.6 million for three months
ended March 31, 2005, which reflected an increase of
$17.6 million or 74.6%. This increase in sales resulted
primarily from higher volumes in both heat exchangers, and cold
boxes and LNG vacuum-insulated pipe, which we collectively refer
to as process systems, which were driven by continued growth in
the LNG and natural gas segments of the of the hydrocarbon
processing market. D&S segment sales increased
$15.6 million, or 35.0%, to $60.3 million for the
three months ended March 31, 2006 compared to sales of
$44.7 million for the three months ended March 31,
2005. Sales of bulk storage systems and packaged gas systems
increased $12.9 million and $2.7 million,
respectively, for the three months ended March 31, 2006
compared to the same period in 2005, primarily due to higher
volume as a result of continued growth in the global industrial
gas market, and to a lesser extent as a result of price
increases. BioMedical segment sales for the three months ended
March 31, 2006 were $19.3 million compared to
$16.8 million for the three months ended March 31,
2005, which reflected an increase of $2.5 million or 14.9%.
Medical respiratory product sales increased $1.9 million,
primarily due to higher international volume resulting from
growth in, and our continued penetration of the European and
Asian markets. Medical respiratory product sales in the
U.S. declined in the 2006 period compared to the 2005
period, principally due to U.S. government reimbursement
reductions for liquid oxygen therapy systems announced in late
2005. MRI and other product sales increased $0.5 million on
higher volume. Biological storage systems sales increased
$0.1 million, primarily due to higher volume in the
U.S. market.
Gross profit for the three months ended March 31, 2006 was
$37.0 million, or 30.6% of sales, versus
$24.6 million, or 28.9% of sales, for the three months
ended March 31, 2005 and reflected an increase of
$12.4 million, or 1.7 percentage points. E&C
segment gross profit increased $5.7 million in the three
months ended March 31, 2006 compared to the three months
ended March 31, 2005, primarily due to increased sales
volume in both heat exchangers and process systems. The E&C
segment gross profit margin increased 3.0 percentage
points, primarily due to favorable project mix and higher
production throughput. Gross profit for the D&S segment
increased $5.3 million, or 0.8 percentage points, in
the three months ended March 31, 2006 compared to the three
months ended March 31, 2005, primarily due to higher sales
volume and product price increases in both bulk storage and
packaged gas systems. BioMedical gross profit increased
$1.4 million, or 3.6 percentage points, in the three
months ended March 31, 2006 compared to the three months
ended March 31, 2005, primarily due to higher sales volume.
In addition, the increase in the gross profit margin for the
three months ended March 31, 2006 was primarily
attributable to improved manufacturing productivity for the
medical respiratory product line. In the three months ended
March 31, 2005, we incurred higher manufacturing costs as
result of transitioning this product lines manufacturing
from Burnsville, Minnesota to Canton, Georgia.
|
|
|
Selling, General and Administrative Expenses, or
SG&A |
SG&A expenses for the three months ended March 31, 2006
were $21.0 million, or 17.4% of sales, compared to
$14.4 million, or 16.9% of sales for the three months ended
March 31, 2005. This increase in SG&A expenses included
$2.9 million, or 2.4% of sales, of higher amortization
expense associated with definite-lived intangible assets that
were recorded at fair value under purchase accounting at
October 17, 2005 as a result of the Acquisition, which is
further discussed by operating segment below. SG&A expenses
for the E&C segment were $5.7 million for the three
months ended March 31, 2006 compared to $2.4 million
for the
51
three months ended March 31, 2005, an increase of
$3.3 million. This increase for the E&C segment was
primarily the result of higher employee-related expenses to
support business growth, higher amortization expense of
$1.3 million and $0.2 million of expenses incurred
related to the damage caused by Hurricane Rita at our New
Iberia, Louisiana facilities. D&S segment SG&A expenses
for the three months ended March 31, 2006 were
$7.7 million compared to $4.9 million for the three
months ended March 31, 2005; an increase of
$2.8 million. This increase was primarily attributable to
higher amortization expense of $1.5 million and higher
employee-related expenses to support business growth. SG&A
expenses for the BioMedical segment were $2.8 million for
the three months ended March 31, 2006 and increased
$0.1 million compared to the three months ended
March 31, 2005. Corporate SG&A expenses for the three
months ended March 31, 2006 were $4.8 million compared
to $4.4 million for the three months ended March 31,
2005. This increase of $0.4 million is primarily
attributable to higher employee-related expenses to support the
business growth.
|
|
|
Employee Separation and Plant Closure Costs |
For the three months ended March 31, 2006 and 2005,
employee separation and plant closure costs were
$0.2 million and $0.6 million, respectively. The costs
for the 2006 period were related to the closure of the
D&S segment Plaistow, New Hampshire facility, while the
costs for the 2005 period were for both the closure of the
BioMedical segment Burnsville, Minnesota and
D&S segment Plaistow, New Hampshire facilities. The
closure of the Burnsville, Minnesota facility was completed in
2005.
As a result of the foregoing, operating income for the first
three months of 2006 was $15.8 million, or 13.1% of sales,
an increase of $6.2 million compared to operating income of
$9.6 million, or 11.3% of sales, for the same period of
2005.
Net interest expense for the three months ended March 31,
2006 and 2005 was $6.5 million and $1.0 million,
respectively. This increase in interest expense of
$5.5 million for the three months ended March 31, 2006
compared to the same period in 2005 was primarily attributable
to increased long-term debt outstanding as a result of our
entering into the new senior secured credit facility and issuing
the notes on October 17, 2005 in conjunction with the
Acquisition.
For the three months ended March 31, 2006, financing costs
amortization expense was $0.4 million, an increase of
$0.4 million compared to the same period in 2005. This
increase in amortization expense was attributable to deferred
loan costs incurred for obligations under the senior secured
credit facility and the notes entered into on October 17,
2005 as a result of the Acquisition.
For the three months ended March 31, 2006 and 2005,
derivative contracts valuation income was $0.0 million and
$0.04 million, respectively, for the change in fair value
of our interest rate collar contract. We entered into an
interest derivative contact in the form of a collar in March
1999 to manage the interest rate risk exposure relative to our
long-term debt. The collar had a notional value of
$17.7 million at March 31, 2005. This interest rate
collar contract expired in March 2006.
We recorded a foreign currency gain for the three months ended
March 31, 2006 of $0.1 million and a foreign currency
loss for the three months ended March 31, 2005 of
$0.02 million. These foreign currency gains and losses
resulted from some of our subsidiaries entering into
transactions in currencies other than their functional
currencies.
52
Income tax expense of $3.0 million and $3.1 million
for the three months ended March 31, 2006 and 2005,
respectively, represents taxes on both domestic and foreign
earnings at an estimated annual effective income tax rate of
33.0% and 35.6%, respectively. The decrease in the effective tax
rate for the 2006 period as compared to the same period in 2005
was primarily attributable to lower statutory tax rates in
certain foreign countries and a higher than expected mix of
foreign earnings.
As a result of the foregoing, we reported net income for the
three months ended March 31, 2006 and 2005 of
$6.0 million and $5.5 million, respectively.
2005 Successor Period
Sales for the 2005 Successor Period 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
2005 Successor Period 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
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.
For the 2005 Successor Period, 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 2005 Reorganized Period
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 a $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 expenses for the 2005 Successor Period were
$16.6 million, or 17.0% of sales. Overall, SG&A
expenses included $3.0 million, or 3.1%, of amortization
expense associated with finite-lived intangible assets that were
recorded at fair value under purchase accounting as a result of
the Acquisition, which is further
53
discussed by operating segment below. SG&A expenses for the
E&C segment were $5.3 million and was affected by
higher marketing and employee-related costs to support the
business growth, and included $1.0 million of amortization
expense for finite-lived intangible assets 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 2005 Successor Period were
$4.9 million and was affected by higher marketing and
employee-related costs to support business growth, and included
$1.7 million of amortization expense related to
finite-lived intangible assets. SG&A expenses for the
BioMedical segment were $1.8 million for the 2005 Successor
Period, and included $0.3 million of amortization expense
for finite-lived intangible assets. Corporate SG&A expenses
for the 2005 Successor Period 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.
|
|
|
Employee Separation and Plant Closure Costs |
For the 2005 Successor Period, 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 2005
Successor Period was $5.1 million, or 5.2% of sales.
|
|
|
Other Expenses and Income |
Net interest expense and financing costs amortization for the
2005 Successor Period, was $5.6 million and
$0.3 million, respectively, and related to the senior
secured credit facility that was entered into, and the senior
subordinated notes that were issued, on October 17, 2005 in
connection with the Acquisition.
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 benefit of $0.4 million for the 2005 Successor
Period 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.
As a result of the foregoing, we reported a net loss for the
2005 Successor Period of $0.5 million.
2005 Reorganized Period
Sales for the 2005 Reorganized Period 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
seven 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
54
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 2005 Successor PeriodSales above
for information regarding the BioMedical segment volume trends.
For the 2005 Reorganized Period 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 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 expenses for the 2005 Reorganized Period were
$59.8 million, or 19.6% of sales, and included
$2.7 million of amortization expense related to
finite-lived intangible assets that were recorded in September
2003 under Fresh-Start accounting and related to the CEM
acquisition, which is further discussed by operating segment.
E&C segment SG&A expenses were $9.5 million 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 and amortization expense of
$0.1 million. SG&A expenses for the D&S segment
were $19.5 million 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 CEM and $1.5 million of amortization expense. SG&A
expenses for the BioMedical segment were $8.1 million for
the 2005 Successor Period and included $1.1 million of
amortization expense. 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.
During the 2005 Reorganized Period, we incurred
$6.6 million of investment banking, legal and other
professional fees related to the Acquisition.
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Employee Separation and Plant Closure Costs |
For the 2005 Reorganized Period, 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, $0.5 million and
($0.1 million), respectively.
55
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 2005
Reorganized Period was $20.9 million, or 6.8% of sales.
Net interest expense for the 2005 Reorganized Period 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.
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 of $7.2 million for the 2005 Reorganized
Period 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.
As a result of the foregoing, we reported net income of
$8.9 million for the 2005 Reorganized Period.
Year Ended December 31, 2004
Sales for 2004 of $305.6 million were positively affected
by volume and price increases, a recovery of the global
industrial gas market and favorable foreign currency translation
as a result of the weakening of the U.S dollar compared to
the Euro and Czech Koruna. Sales in the E&C segment for 2004
were $69.6 million and both the heat exchanger and LNG
system product lines benefited from higher volume primarily in
the Asian, African and Middle Eastern markets. D&S segment
sales were $162.5 million in 2004 and benefited favorably
from volume increases in cryogenic bulk storage systems,
cryogenic packaged gas systems and beverage liquid
CO2
systems driven primarily by a recovery in the global industrial
gas market. Price increases and surcharges driven by higher raw
material costs and favorable foreign currency translation as a
result of the weakening of the U.S. Dollar compared to the
Euro and Czech Koruna also had a positive impact on D&S
segment sales. Sales in the BioMedical segment were
$73.4 million. Sales of our biological storage systems and
medical products experienced volume increases in both the U.S.
and European markets. Sales of MRI and other products
deteriorated in 2004 as this product lines primary
customer continued to transfer volume to lower cost
manufacturing regions.
56
Gross profit for 2004 was $93.8 million or 30.7% of sales.
The gross profit was positively affected by volume increases
across all operating segments, and product price increases and
favorable foreign currency translation in the D&S segment.
The E&C segment gross profit and related margin were
$21.5 million and 30.9% of sales, respectively, in 2004.
The E&C segment benefited from higher volumes and the
delivery of a premium-priced, expedited order that was needed to
put a natural gas producers ethane recovery plant back in
service. A shift to lower margin industrial heat exchangers and
LNG vacuum-insulated pipe, or LNG VIP, had an unfavorable impact
on the E&C segment gross profit margin. D&S segment
gross profit and related margin were $46.6 million and
28.7% of sales, respectively. The D&S segment gross profit
margin was positively affected by product price increases and
surcharges to offset higher raw material costs that had been
incurred, higher sales volume and the realization of savings
from our restructuring efforts. The D&S segment gross profit
margin was unfavorably affected by a shift to lower margin bulk
products. Gross profit and related margin for the BioMedical
segment were $25.7 million and 35.0% of sales,
respectively. Gross profit margins for medical and biological
storage systems products were positively impacted by higher
volume and cost reductions, and MRI and other product margins
were unfavorably affected by higher material costs and
unabsorbed overhead costs due to lower sales volume.
SG&A expenses for 2004 were $53.4 million, or 17.5% of
sales, and benefited from cost savings realized as a result of
our continued restructuring efforts. In addition, we incurred
employee incentive compensation expense of $7.4 million for
achieving our operating targets, which was significant compared
to the incentive compensation that had been earned in recent
years and $2.8 million of amortization expense related to
finite-lived intangible assets that were recorded in September
2003 under Fresh-Start accounting, which is discussed further
below by operating segment. E&C segment SG&A expenses
were $9.2 million and included $1.8 million of
employee incentive compensation expense, $0.4 million of
selling expense related to the settlement of a specific customer
product claim outside the normal warranty period and
$0.3 million of amortization expense. SG&A expenses for
the D&S segment were $17.7 million and included
$3.3 million of employee incentive compensation expense,
$1.1 million of amortization expense and $0.4 million
of selling expense related to the settlement of a specific
customer product claim outside the normal warranty period.
SG&A expenses for the BioMedical segment were $10.5 for 2004
and included $1.4 million of amortization expense and
$0.6 million of employee incentive compensation expense.
Corporate SG&A expenses were $15.9 million and included
$1.7 million of employee incentive compensation expense,
$2.4 million of stock-based compensation expense resulting
from the sale of 28,797 shares of common stock to our chief
executive officer at a price below the closing market price at
the date of sale and the issuance of stock options to certain
key employees. In addition, Corporate recorded $0.9 million
of income from life insurance proceeds related to our voluntary
deferred compensation plan.
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Employee Separation and Plant Closure Costs |
In 2004, we continued our manufacturing facility restructuring
plan, which commenced with the 2003 closure of our E&C
segment sales and engineering office in Westborough,
Massachusetts. We announced in December 2003 and January 2004
the closure of our D&S segment manufacturing facility in
Plaistow, New Hampshire and the BioMedical segment manufacturing
and office facility in Burnsville, Minnesota, respectively. In
each of these facility closures, we did not exit the product
lines manufactured at those sites, but moved manufacturing to
other facilities with available capacity, most notably New
Prague, Minnesota for engineered tank production and Canton,
Georgia for medical respiratory product manufacturing. The
Plaistow facility closure was completed in the third quarter of
2004. We incurred capital expenditures in 2004 of
$2.5 million for improvements and additions to the Canton,
Georgia facility, and completed the closure of the Burnsville,
Minnesota facility in the first quarter of 2005.
During 2004, we recorded employee separation and plant closure
costs of $3.2 million related to the manufacturing facility
reduction efforts and overall headcount reduction programs
described above. The costs recorded by the E&C, D&S and
BioMedical segments and by Corporate were $0.7 million,
$1.3 million,
57
$0.8 million and $0.4 million, respectively. The total
charges for 2004 included $0.4 million of expense for
contract termination costs, $1.3 million severance and
other benefits related to terminating certain employees at these
and other sites, and $1.5 million for other associated
costs. In addition, we recorded a non-cash inventory valuation
charge of $0.2 million, included in cost of sales, for the
write-off of inventory at these sites. At December 31,
2004, we had a reserve of $2.8 million remaining for the
closure of these facilities, primarily for lease termination and
severance costs.
In 2004, we recorded a net loss on the sale of assets of
$0.1 million. In conjunction with the closure of the
BioMedical segment Burnsville, Minnesota facility, we sold this
facility in October 2004 for gross proceeds of $4.5 million
and recorded a loss on the sale of $0.4 million. The
proceeds of this sale were used to pay down $0.9 million of
debt outstanding under an industrial revenue bond and the
balance was used for working capital purposes. In April 2004, we
sold for $0.6 million of cash proceeds a vacant building
and a parcel of land at our D&S segment New Prague,
Minnesota facility that was classified as an asset held for sale
in our consolidated balance sheet as of December 31, 2003.
In August 2004, we sold for $1.1 million in cash proceeds,
equipment at our D&S segment Plaistow, New Hampshire
facility, resulting in a $0.6 million gain on the sale of
assets. In addition, we recorded a $0.4 million loss
related to adjusting the Plaistow land and building to fair
value less selling costs based upon an agreement executed in
September 2004. The land and building related to the Plaistow
facility were included as assets held for sale on
our consolidated balance sheet as of December 31, 2004.
As a result of the foregoing, operating income for the year
ended December 31, 2004 was $37.1 million, or 12.1% of
sales.
We recorded $0.1 million of equity loss related to our
Coastal Fabrication joint venture in 2004. In February 2004, our
Coastal Fabrication joint venture executed an agreement to
redeem the joint venture partners 50% equity interest. As
a result of the elimination of the joint venture partner and the
assumption of 100% of control by us, the assets, liabilities and
operating results of Coastal Fabrication are included in the
consolidated financial statements subsequent to February 2004.
Net interest expense for 2004 was $4.8 million. This lower
expense is attributable primarily to our debt restructuring in
September 2003 in conjunction with the Reorganization Plan and
the reduction in the debt balance as a result of
$40.0 million of aggregate voluntary prepayments on our
then existing term loan at the end of 2003 and during 2004.
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Derivative Contracts Valuation Income and Expense |
We entered into an interest rate derivative contract in the form
of a collar in March 1999 to manage interest rate risk exposure
relative to our debt. This collar had a notional value of
$19.1 million at December 31, 2004 and expired in
March 2006. The fair value of the contract related to the collar
outstanding at December 31, 2004 is a liability of
$0.3 million and is recorded in accrued interest. The
change in fair value of the contracts related to the collars
during 2004 of $0.1 million is recorded in derivative
contracts valuation income.
We recorded a $0.5 million of foreign currency
remeasurement gain in 2004 as result of certain of our
subsidiaries entering into transactions in currencies other than
their functional currency.
58
In 2004, we recorded income tax expense of $10.1 million,
which primarily reflects the income tax expense associated with
U.S. and foreign earnings and a reduction in tax accruals for
prior tax periods at an annual effective tax rate of 30.9%.
As a result of the foregoing, we recorded net income of
$22.6 million in 2004.
Three Months Ended December 31, 2003
Sales for the three months ended December 31, 2003 were
$68.6 million and continued to be negatively impacted by
our prolonged debt restructuring initiatives and the resultant
reorganization under Chapter 11 of the U.S. Bankruptcy
Code, but not as significantly as during the first nine months
of 2003. Sales in the E&C segment were $15.7 million.
Heat exchanger and process system sales were favorably impacted
by volume and price increases in the hydrocarbon processing
market and began to recover from the prolonged impact of the
debt restructuring and bankruptcy reorganization. D&S
segment sales were $37.9 million during this period as
continued weakness in the global industrial gas market had an
unfavorable impact on bulk storage systems sales. In addition,
LNG fueling systems were affected by lower volume primarily as a
result of a decline in the economies of the West Coast and South
Central states of the United States and our financial
difficulties. However, packaged gas and beverage liquid
CO2
systems benefited from higher sales volumes. Sales in the
BioMedical segment for the three months ended December 31,
2003 were $15.0 million. Sales of biological storage
systems and medical products benefited from higher volume, while
the MRI components sales declined due to lower volume as this
product lines primary customer transferred volume to lower
cost manufacturing regions.
For the three months ended December 31, 2003, gross profit
was $16.1 million or 23.4% of sales. During this three
month period, we included as a component of cost of sales a
charge for the fair value
write-up in inventory
value as required under Fresh-Start accounting at
September 30, 2003. The charge was included as a component
of cost of sales as the inventory was sold during the three
months ended December 31, 2003. The dollar value of this
adjustment and its percentage reduction on gross profit margin
by operating segment for the three months ended
December 31, 2003 was as follows: $2.2 million and
5.8% of sales for the D&S segment, and $3.2 million and
21.3% of sales for the BioMedical segment. A similar valuation
adjustment for inventory in the E&C segment was not required
due to our use of the percentage of completion method for
revenue recognition in this segment.
In addition, the gross profit margin in the E&C segment
benefited from improved pricing in the hydrocarbon processing
market, cost savings recognized due to the closures of our
Wolverhampton, U.K. heat exchanger manufacturing facility and
Westborough, Massachusetts engineering facility. The D&S
segment gross profit margin was positively impacted by the
overhead cost savings from the closure of our Costa Mesa,
California and Columbus, Ohio manufacturing facilities. Gross
profit margin in the BioMedical segment was negatively impacted
further by lower margins for MRI cryostat components due to
lower pricing and unabsorbed overhead costs due to reduced
volume.
SG&A expenses for the three months ended December 31,
2003 were $14.1 million, or 20.6% of sales, and during this
period we benefited from cost savings as a result of the
elimination of a significant number of salaried employees from
our operating restructuring efforts. In addition, SG&A
expenses included $0.7 million of amortization expense or
1.0% of sales, associated with finite-lived intangible assets
that were recorded at fair value in September 2003 under
Fresh-Start accounting, which is discussed further below by
operating
59
segment. SG&A expenses for the E&C segment were
$2.0 million. D&S segment SG&A expenses were
$4.3 million and included $0.3 million of amortization
expense related to finite-lived intangible assets. SG&A
expenses for the BioMedical segment were $2.4 million and
included $0.4 million of amortization expense for
finite-lived intangible assets. Corporate SG&A expenses were
$3.9 million and included $0.4 million of fees and
expenses associated with our bankruptcy reorganization.
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Employee Separation and Plant Closure Costs |
During the three months ended December 31, 2003, we
recorded employee separation and plant closure costs of
$1.0 million related to the manufacturing facility
reduction efforts and overall employee reduction programs,
including the E&C segment sales and engineering office in
Westborough, Massachusetts, the D&S segment Plaistow, New
Hampshire manufacturing facility and the BioMedical segment
manufacturing and office facility in Burnsville, Minnesota. The
charges for the E&C, D&S and BioMedical segments and
Corporate were $0.1 million, $0.6 million,
$0.2 million and $0.1 million, respectively. In
addition, charges included $0.8 million for severance and
other benefits related to terminating certain employees and
$0.2 million of plant closure costs. At December 31,
2003, we had a reserve of $3.4 million remaining for the
closure of these facilities, primarily for lease termination and
severance costs.
As a result of the foregoing, operating income for the three
months ended December 31, 2003 was $0.1 million, or
1.3% of sales.
We recorded $0.04 million of equity loss from our Coastal
Fabrication joint venture for the three months ended
December 31, 2003.
Net interest expense for the three months ended
December 31, 2003 was $1.4 million and reflects
interest expense recorded under the credit facility entered into
on September 15, 2003 under the Reorganization Plan.
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Derivative Contracts Valuation Expense |
For the three months ended December 31, 2003, we recorded
$0.05 million of derivative contracts valuation income for
our interest rate collar that expired in March 2006 and had a
notional value of $25.5 million at September 30, 2003.
We recorded $0.4 million foreign currency remeasurement
gain for the three months ended December 31, 2003 as result
of certain of our subsidiaries entering into transactions in
currencies other than their functional currency.
We recorded an income tax benefit of $0.1 million for the
three months ended December 31, 2003 for losses incurred
primarily as a result of the inventory valuation adjustment
under Fresh-Start accounting explained above and a reduction in
tax accruals for prior tax periods.
As a result of the foregoing, we had net income of
$0.03 million for the three months ended December 31,
2003.
60
Nine Months Ended September 30, 2003
Sales for the nine months ended September 30, 2003 were
negatively impacted by our prolonged debt restructuring
initiatives and the resultant reorganization under
Chapter 11 of the U.S. Bankruptcy Code, as certain
customers reduced order quantities, delayed signing significant
new orders, did not automatically renew supply contracts that
expired in 2003, and contracted with other competitors, due to
the uncertainty created by our leverage situation and bankruptcy
filing. We believe our E&C segment experienced the most
significant negative impact of the Chapter 11 filing, since
products in this segment frequently have extended production
times and significant dollar values.
For the nine months ended September 30, 2003, sales were
$197.0 million. E&C segment sales were
$42.9 million in the first nine months of 2003. The E&C
segment was unfavorably impacted by lower sales volume in the
process system market, and benefited from higher sales volume
for heat exchangers in the hydrocarbon processing market.
D&S segment sales were $102.5 million for the first
nine months of 2003 and were negatively affected by the
continued weak global market for industrial bulk storage
systems. BioMedical segment sales were $51.6 million in the
first nine months of 2003. Medical products and biological
storage systems sales were positively affected by increased
international volume, while MRI product sales were unfavorably
impacted by lower volume.
Gross profit and the related margin for the first nine months of
2003 were $55.8 million and 28.3% of sales. The gross
profit and related margin were favorably affected in the E&C
and D&S segments primarily by the realization of operational
cost savings from our manufacturing facility rationalization
plan that commenced in early 2002. Gross profit margin in the
BioMedical segment was negatively impacted by a temporary
shut-down of our Denver, Colorado manufacturing plant in the
last half of March 2003 due to an unanticipated deferral until
the second quarter of 2003 of MRI product orders at the request
of the product lines only customer, and by a temporary
shut-down of this same facility in June 2003 due to a
weather-related extended power outage.
SG&A expenses for the nine months ended September 30,
2003 were $44.2 million, or 22.4% of sales, and during this
period we benefited from cost savings as a result of the
elimination of a significant number of salaried employees from
our operating restructuring efforts. E&C, D&S and
BioMedical segment SG&A expenses were $6.3 million,
$17.7 million and $6.4 million, respectively.
Corporate SG&A expenses were $14.5 million and included
$6.0 million of fees paid to professional advisors related
to our efforts to restructure our senior debt.
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Employee Separation and Plant Closure Costs |
We recorded $0.9 million of employee separation and plant
closure costs in the first nine months of 2003. This expense
related substantially to the closure of the E&C
segments Wolverhampton, U.K. manufacturing facility and
the engineering office in Westborough, Massachusetts and the
closure of the D&S segments manufacturing facilities
in Denver, Colorado, Costa Mesa, California and Columbus, Ohio
and consisted primarily of lease termination costs and
severance, net of income related to the settlement of facility
leases as we entered into Chapter 11 bankruptcy
proceedings. The expense (benefit) for the E&C, D&S and
BioMedical segments and Corporate were $1.5 million,
($1.2 million), $0.1 million and $0.5 million,
respectively.
On July 3, 2003, we sold certain assets and liabilities of
our former Greenville Tube, LLC stainless steel tubing business,
which we previously reported as a component of our E&C
segment. We received gross
61
proceeds of $15.5 million, consisting of $13.5 million
in cash and $2.0 million in a long-term subordinated note,
and recorded a gain of $2.4 million, net of taxes of
$1.3 million in the third quarter of 2003. In addition, we
reported income from a discontinued operation, net of taxes of
$0.8 million in the first nine months of 2003. In
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we classified
the operating results and gain on sale of this business in the
discontinued operation line of our consolidated statement of
operations for the nine months ended September 30, 2003.
As part of closing our Columbus, Ohio manufacturing facility, we
sold our cryopump and valves product lines in the second quarter
of 2003 for net proceeds of $2.3 million and recorded a
$0.9 million gain in other income, and sold various fixed
assets of the Columbus, Ohio facility in the first quarter of
2003 for net proceeds of $0.2 million and recorded a
$0.2 million gain in other income.
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Loss on Insolvent Subsidiary |
In March 2003, we completed the closure of our Wolverhampton,
U.K. manufacturing facility, operated by CHEL. We have continued
to manufacture heat exchangers at our La Crosse, Wisconsin
facility. On March 28, 2003, CHEL filed for a voluntary
administration under the U.K. Insolvency Act of 1986.
CHELs application for voluntary administration was
approved on April 1, 2003 and an administrator was
appointed. In accordance with Statements of Financial Accounting
Standards, or 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.
As a result of the foregoing, the operating loss for the nine
months ended September 30, 2003 was $1.9 million, or
0.1% of sales.
Net interest expense was $9.9 million for the nine months
ended September 30, 2003. We recorded interest expense on
amounts outstanding under the term loan portion and revolving
credit loan portion of our credit facility negotiated by the
Predecessor Company in March 1999 and under the Series 1
Incremental Revolving Credit Facility and the Series 2
Incremental Revolving Credit Facility entered into by the
Predecessor Company in November 2000 and in April 2001,
respectively until July 8, 2003, the date we filed our
Chapter 11 bankruptcy petitions, but not thereafter. As a
result, interest expense for the nine month period ended
September 30, 2003 does not include approximately
$3.8 million that would have been payable under the terms
of these facilities had we not filed for Chapter 11
bankruptcy protection.
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Financing Costs Amortization |
Financing costs amortization expense was $1.7 million for
the nine months ended September 30, 2003. We recorded
financing costs amortization expense related to the credit
facility negotiated by the Predecessor Company in March 1999
until July 8, 2003, the date we filed our Chapter 11
bankruptcy petitions, but not thereafter. We did not record any
financing costs amortization expense subsequent to the third
quarter of 2003 related to our post-bankruptcy credit facilities.
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Derivative Contracts Valuation Expense |
We recorded $0.4 million of derivative contracts valuation
expense in the nine month period ended September 30, 2003
for our interest rate collar that expired in March 2006 and had
a notional value of $26.7 million at September 30,
2003.
62
We recorded a $0.3 million of foreign currency
remeasurement loss for the nine months ended September 30,
2003 as result of certain of our subsidiaries entering into
transactions in currencies other than their functional currency.
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Reorganization Items, Net |
The Predecessor Company recorded a net gain of $5.7 million
for the nine months ended September 30, 2003 as a result of
adopting Fresh-Start accounting. This net gain was comprised of
certain adjustments to the fair value of assets and liabilities
resulting in a net charge of $38.6 million, restructuring
of the Predecessor Companys capital structure, including a
discharge of the senior lenders pre-petition debt, resulting in
a net gain of $52.2 million, and charges of
$7.9 million for advisory fees and severance directly
related to the reorganization. In accordance with Fresh-Start
accounting, all assets and liabilities were recorded at their
estimated fair values as of September 30, 2003. Such fair
values represented our best estimates based on independent
appraisals and valuations.
Income tax expense of $3.0 million in the first nine months
of 2003 consisted of tax benefit from reversals of domestic
income tax reserves associated with resolved tax contingencies,
partially offset by taxes on earnings of foreign subsidiaries.
At September 30, 2003, we had a net deferred tax liability
of $6.7 million, which represented foreign deferred tax
liabilities. At September 30, 2003, we had a full valuation
allowance against our domestic net deferred tax assets in
accordance with SFAS No. 109, Accounting for
Income Taxes, based upon managements assessment that
it was more likely than not that the net deferred tax assets
would not be realized. Pursuant to Section 108 of the
Internal Revenue Code, we materially reduced certain tax
attributes on January 1, 2004 due to the recognition of
cancellation of indebtedness income in the three-month period
ended September 30, 2003.
As a result of the foregoing, we reported a net loss of
$7.1 million for the first nine months of 2003.
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. Our backlog as of
March 31, 2006 and as of December 31, 2005, 2004 and
2003 was $237.0 million, $233.6 million,
$129.3 million and $49.6 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. Substantially all of our
December 31, 2005 backlog is scheduled to be recognized as
sales during 2006.
63
The table below sets forth orders and backlog by segment for the
periods indicated:
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Predecessor | |
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Company | |
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|
Reorganized Company | |
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|
Successor Company | |
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| |
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| |
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| |
|
|
Nine Months | |
|
|
Three Months | |
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|
|
January 1, | |
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|
October 17, | |
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Three Months | |
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|
Ended | |
|
|
Ended | |
|
Year Ended | |
|
2005 to | |
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|
2005 to | |
|
Ended | |
|
|
September 30, | |
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December 31, | |
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December 31, | |
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October 16, | |
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|
December 31, | |
|
March 31, | |
|
|
2003 | |
|
|
2003 | |
|
2004 | |
|
2005 | |
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|
2005 | |
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2006 | |
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| |
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| |
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| |
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| |
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| |
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| |
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(Dollars in thousands) | |
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Orders
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Energy & Chemicals
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|
$ |
28,621 |
|
|
|
$ |
15,262 |
|
|
$ |
121,793 |
|
|
$ |
130,786 |
|
|
|
$ |
67,232 |
|
|
$ |
30,797 |
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|
Distribution & Storage
|
|
|
105,233 |
|
|
|
|
37,696 |
|
|
|
193,156 |
|
|
|
191,188 |
|
|
|
|
45,859 |
|
|
|
76,020 |
|
|
BioMedical
|
|
|
52,751 |
|
|
|
|
14,492 |
|
|
|
77,893 |
|
|
|
62,396 |
|
|
|
|
13,768 |
|
|
|
18,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
186,605 |
|
|
|
$ |
67,450 |
|
|
$ |
392,842 |
|
|
$ |
384,370 |
|
|
|
$ |
126,859 |
|
|
$ |
125,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$ |
20,673 |
|
|
|
$ |
19,834 |
|
|
$ |
70,766 |
|
|
$ |
114,633 |
|
|
|
$ |
147,732 |
|
|
$ |
137,346 |
|
|
Distribution & Storage
|
|
|
28,591 |
|
|
|
|
27,993 |
|
|
|
53,900 |
|
|
|
83,194 |
|
|
|
|
79,524 |
|
|
|
94,621 |
|
|
BioMedical
|
|
|
2,517 |
|
|
|
|
1,808 |
|
|
|
4,613 |
|
|
|
8,388 |
|
|
|
|
6,383 |
|
|
|
5,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
51,781 |
|
|
|
$ |
49,635 |
|
|
$ |
129,279 |
|
|
$ |
206,215 |
|
|
|
$ |
233,639 |
|
|
$ |
237,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders for the three months ended March 31, 2006 were
$125.0 million. E&C segment orders were
$30.8 million for three months ended March 31, 2006.
E&C orders for the first three months of 2006 were lower
than in recent previous quarters primarily due to the timing of
the receipt of large orders, particularly those received in the
later part of 2005, which is representative of the periodic
fluctuations in order amounts that occur in the E&C segment
due to the project nature of this business. D&S segment
orders for the three months ended March 31, 2006 were
$76.0 million. Bulk storage systems and packaged gas
systems orders were $31.0 million and $45.0 million,
respectively, for the three months ended March 31, 2006.
Orders in bulk storage systems and packaged gas systems were
primarily driven by continued growth in the global industrial
gas market. Among other things, for the three months ended
March 31, 2006, bulk storage systems included an engineered
tank order of approximately $7.0 million. BioMedical
segment orders for the three months ended March 31, 2006
were $18.2 million. Orders for medical respiratory products
have been positively impacted by growth in Europe and Asia and
our continued penetration of these markets. Biological storage
system orders were primarily driven by growth and further
penetration in both U.S. and international markets.
For the 2005 Successor Period, 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 during this period as orders in the European and Asian
market medical respiratory 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 2005 Reorganized Period 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 is driven by continued
demand in the global industrial gas markets served by us.
BioMedical segment orders were $62.4 million, as orders for
European and Asian 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.
64
For the year ended December 31, 2004, orders of
$392.9 million were positively affected by improvements in
the markets served by all three segments. During 2004, the
E&C segment showed a significant increase in orders to
$121.8 million, due to increased orders for both the heat
exchangers and LNG systems product lines, including orders of
$20.4 million and $19.3 million. The demand increase
was mainly due to the recovery of the global industrial gas
markets and the continuing development of a worldwide natural
gas market. The D&S segment orders significantly increased
in 2004 to $193.2 million as bulk storage and packaged gas
products experienced increased demand as a result of a recovery
in the global industrial gas market. During 2004, the BioMedical
segment continued its previous trend of increasing order
performance with orders of $77.9 million, driven by strong
demand for medical respiratory products and biological storage
systems both in the U.S. and international markets. Orders for
MRI components continued to decline during 2004 as the product
lines single customer continued to move business to lower
cost manufacturing countries.
For the three months ended December 31, 2003, orders were
$67.5 million and for the nine months ended
September 30, 2003 were $186.6 million. Although order
levels began to improve during the last three months of 2003,
orders during the first nine months of 2003 were negatively
affected by customer concerns of uncertainty relating to the
prolonged debt restructuring initiative and Chapter 11
bankruptcy reorganization, particularly within the E&C
segment. BioMedical segment orders during both periods of 2003
were fueled by strong demand for medical respiratory products,
but were unfavorably impacted by a reduction in orders for MRI
components from its sole customer as they continue to source the
product from suppliers in low cost manufacturing countries.
Liquidity and Capital Resources
|
|
|
Debt Instruments and Related Covenants |
As of March 31, 2006, we had $170.0 million
outstanding under the term loan portion of the senior secured
credit facility, $170.0 million outstanding under the
senior subordinated notes and $24.9 million of letters of
credit and bank guarantees supported by the revolving credit
portion of the senior secured credit facility. In connection
with the Acquisition, we entered into a $240.0 million
senior secured credit facility and completed the
$170.0 million offering of
91/8% senior
subordinated notes due 2015. We repaid the term loan portion of
our then existing credit facility (the term loan portion and
revolving credit portion of the facility are referred to
collectively as the 2003 Credit Facility) and certain other debt
on or before October 17, 2005, the closing date of the
Acquisition. The senior secured credit facility consists of a
$180.0 million term loan credit facility and, effective
upon the closing of this offering, a $115.0 million
revolving credit facility, of which the entire
$115.0 million may be used for the issuance of letters of
credit, $55.0 million of which may be letters of credit
extending more than one year from their date of issuance.
The term loan was fully funded on the closing date. The term
loan matures on October 17, 2012 and the revolving credit
portion of the senior secured credit facility matures on
October 17, 2010. As a result of an aggregate of
$35.0 million voluntary principal prepayments since October
2005, the term loan requires no principal payments until the
remaining balloon payment is due on the maturity date. The
interest rate under the senior secured credit facility is, at
our option, the Alternative Base Rate, or 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 revolving credit portion of the senior secured
credit facility. In addition, we are required to pay an annual
administrative fee of $0.1 million, a commitment fee of
0.5% on the unused revolving credit balance, a letter of credit
participation fee of 2.5% per annum on the letter of credit
exposure and letter of credit issuance fee of 0.25%. The
obligations under the senior secured credit facility are secured
by substantially all of the assets of our domestic subsidiaries
and 65% of the capital stock of our
non-U.S. subsidiaries.
See Description of IndebtednessSenior Secured Credit
Facility.
The notes are due in 2015 with interest payable semi-annually on
April 15th and October 15th. Any of the notes may be
redeemed beginning on October 15, 2010. The initial
redemption price is 104.563% of the principal amount, plus
accrued interest. Also, any of the notes may be redeemed solely
at our 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% of the notes
may be redeemed solely at our option at a price of 109.125% of
the principal amount, plus accrued interest, using the proceeds
from sales of certain kinds of capital stock. The notes are our
general unsecured obligations and are subordinated in right of
payment to all of our existing and
65
future senior debt, including the senior secured credit
facility, pari passu in right of payment with all of our
future senior subordinated indebtedness, senior in right of
payment with any of our future indebtedness that expressly
provides for its subordination to the notes, and unconditionally
guaranteed jointly and severally by substantially all of our
domestic subsidiaries.
The senior secured credit facility and provisions of the
indenture governing the notes contain a number of customary
covenants, including, but not limited to, restrictions on our
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 and guarantees, make acquisitions and engage in mergers
and consolidations, pay dividends and distributions, and make
capital expenditures. Our senior secured credit facility also
includes covenants relating to leverage and interest coverage
ratios. See Description of Indebtedness. At
December 31, 2005, we had $175.0 million outstanding
under the term loan and $170.0 million in aggregate
principal amount of notes outstanding, and letters of credit and
bank guarantees totaling $22.4 million supported by the
revolving credit portion of the senior secured credit facility.
Chart Ferox, a.s., or, Ferox, our majority-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. 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 EUROBOR and borrowings in
U.S. dollars are at LIBOR, each with a fixed margin of
0.6%. Ferox is not required to pay a commitment fee to the
lenders under the revolving credit facilities with respect to
the unutilized commitments thereunder. Ferox must pay letter of
credit and guarantee fees equal to 0.75% on the face amount of
each guarantee. Feroxs land and buildings, and accounts
receivable secure $4.6 million and $2.5 million,
respectively, of the revolving credit facilities. At
December 31, 2005, there was $0.8 million of
borrowings outstanding under, and $1.5 million of bank
guarantees supported by, the Ferox revolving credit facilities.
Our debt and related covenants are further described in the
notes to our consolidated financial statements.
|
|
|
Three Months Ended March 31, 2006 and 2005 |
Cash provided by operating activities for the three months ended
March 31, 2006 was $12.3 million compared with cash
used in operating activities of $4.1 million for the three
months ended March 31, 2005. The increase in cash provided
by operating activities in the three months ended March 31,
2006 compared to the three months ended March 31, 2005 was
primarily attributable to increased cash earnings and improved
working capital management. In the three months ended
March 31, 2005 our E&C segments working capital
was negatively impacted by the timing of billings and payment
terms under certain contracts entered into in 2004.
Cash used in investing activities for the three months ended
March 31, 2006 was $2.6 million compared with
$1.6 million for the three months ended March 31, 2005
and consisted primarily of capital expenditures to support our
business growth.
For the three months ended March 31, 2006 and 2005, cash
used in financing activities was $5.8 million and
$0.6 million, respectively. In the three months ended
March 31, 2006, we made a $5.0 million voluntary
principal prepayment under the term loan portion of our senior
secured credit facility and $0.8 million of net payments
under the Ferox revolving credit facilities. In the three months
ended March 31, 2005, we made $0.6 million of scheduled
principal payments under the term loan portion of the 2003
Credit Facility.
Cash provided by operating activities for the 2005 Successor
Period was $18.7 million, which included cash provided by
changes in working capital components of $7.6 million.
During the 2005 Successor Period, 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
66
$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 2005 Successor
Period, 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 the 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.
Cash provided by operating activities for the 2005 Reorganized
Period 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 2005 Reorganized Period, 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 Changzhou CEM Cryo Equipment Co., Ltd, or CEM. The
CEM acquisition is further described in the notes to our
consolidated financial statements included elsewhere in this
prospectus. 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 2005 Reorganized Period, $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 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.
|
|
|
Year Ended December 31, 2004 |
Cash provided by operating activities was $35.1 million for
the year ended December 31, 2004, which was primarily a
result of improved operating performance of all of our business
segments, including increased sales, realized savings due to
continued restructuring efforts and our successful
reorganization under the Bankruptcy Code enabling us to return
to normal payment terms with most of our vendors. This positive
cash flow was partially offset by increased inventory levels,
particularly at the BioMedical segment to ensure uninterrupted
service to customers during the transfer of manufacturing
operations from the Burnsville, Minnesota facility to the
Canton, Georgia facility.
In 2004, net cash used for investing activities was
$3.3 million. Capital expenditures were $9.4 million
and included the expansion of the Canton, Georgia facility to
accommodate the transfer of medical product line manufacturing
to that facility from the Burnsville, Minnesota facility, the
expansion of our operations in China and reinvestment into other
facilities. In addition, we received cash proceeds on the sale
of assets of $6.1 million in 2004, which included
$4.3 million from the sale of the Burnsville, Minnesota
facility, $0.6 million from the sale of a vacant building
and parcel of land at the New Prague, Minnesota facility, and
$1.1 million from the sale of equipment at the Plaistow,
New Hampshire facility.
We used $35.7 million of cash for financing activities in
2004. We paid $33.1 million to reduce our long-term debt.
This amount included voluntary prepayments made in April,
September and December 31, 2004,
67
of $10.0 million, $12.0 million and $8.0 million
respectively, on the term loan portion of our 2003 Credit
Facility. The prepayments were made due to the significant
amount of cash provided by the operating activities in 2004.
Each prepayment reduced all future scheduled quarterly
amortization payments on a pro-rata basis. Also, we used
$1.9 million of cash for our debt restructuring initiatives
including costs associated with the reorganization. We were
required to delay until January 2004, when our fee applications
were approved by the U.S. Bankruptcy Court, payments of
approximately $0.9 million in bankruptcy related fees to
various professional service providers.
|
|
|
Three Months Ended December 31, 2003 |
Our cash provided by operating activities was $5.0 million
for the three months ended December 31, 2003. This cash
flow was primarily generated from working capital improvements
as we continued to benefit from our successful Chapter 11
bankruptcy reorganization by improved timeliness of customer
cash collections on trade receivables, reduced inventory levels
and improved vendor payment terms.
Cash provided by investing activities was $0.2 million,
while cash used in financing activities was $14.0 million
for this three month period. We made term loan principal
payments of $10.9 million, including a voluntary
$10.0 million prepayment in December 2003 under the term
loan portion of our 2003 Credit Facility that reduced all future
scheduled quarterly principal payments on a pro-rata basis. In
addition, we had net payments under the revolving credit portion
of our 2003 Credit Facility and other revolving credit
facilities of $2.6 million.
|
|
|
Nine Months Ended September 30, 2003 |
Cash provided by operating activities for the nine months ended
September 30, 2003 was $19.5 million. The cash
provided from operations and working capital improvements was
$16.9 million and $2.6 million, respectively. The
working capital improvements were primarily attributable to the
successful Chapter 11 bankruptcy reorganization as we
strengthened our credit and collection policies and improved our
cash collections of trade receivables, reduced cash requirements
for inventory purchases due to the closure of several
manufacturing facilities and the return to normal payments terms
with a significant number of our vendors.
During this nine-month period, $15.1 million of cash was
provided by investing activities. $16.1 million was
provided by the proceeds from the sale of assets, including
$13.5 from the sale of certain assets and liabilities from our
Greenville Tube, LLC stainless steel tubing business, and
$2.5 million from the sale of certain fixed assets of the
cyropump and valves product line from our closed Columbus, Ohio
manufacturing facility. The proceeds from these sales were
primarily used to fund certain senior debt interest payments,
pay certain professional fees, and provide increased liquidity
for working capital and other corporate needs.
Our cash used in financing activities was $15.9 million. We
used $12.6 million to pay fees for our debt restructuring
initiatives, $1.3 million for net payments under our
then-existing credit facilities and $1.2 million for
long-term debt payments. The remaining cash of $0.8 million
was used for interest rate collar payments and purchases of
treasury stock.
We do not anticipate any unusual cash requirements for working
capital needs for the remaining nine months of 2006. We
anticipate that we will use more cash during 2006 for capital
expenditures than we have used in recent years, subject to
restrictions under our senior secured credit facility. A
significant portion of capital expenditures will be for facility
expansions and related equipment to increase capacity in the
E&C and D&S segments. Management believes that these
expansions are necessary to support our current backlog levels
and our expected growth in business due to increased demand in
the industrial gas and LNG and gas to liquid, or GTL, segments
of the hydrocarbon gas markets. In addition, we expect to pursue
strategic business acquisitions in the remaining nine months of
2006 to complement our existing product offerings.
For the remaining nine months of 2006, cash requirements for
debt service are forecasted to be approximately
$25.0 million for scheduled interest payments under our
senior secured credit facility and the
68
senior subordinated notes. We are not required to make any
scheduled principal payments during the remaining nine months of
2006 under the term loan portion of our senior secured credit
facility due to the voluntary principal prepayments that have
been made to date. For the remaining nine months of 2006, we
expect to use approximately $16.0 million of cash for both
U.S. and foreign income taxes and contribute approximately
$1.1 million of cash to our four defined benefit pension
plans to meet ERISA minimum funding requirements.
Since March 31, 2006, we have received $37.1 million
from the exercise of the existing warrant held by FR X Chart
Holdings LLC to purchase 2,651,012 shares of common stock.
We also received $2.1 million from the exercise of 609,856
rollover options for the issuance of an equivalent number of
shares of common stock. We used approximately $16.5 million
of these proceeds to complete our acquisition of Cooler Service
on May 26, 2006, as described under the caption
Prospectus Summary Recent Developments,
and used the remainder of these proceeds and other cash on hand
to make a voluntary principal prepayment of $25.0 million
under the term loan portion of our senior secured credit
facility in the second quarter of 2006.
Our known contractual obligations as of December 31, 2005
and cash requirements resulting from those obligations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
2011 and | |
|
|
Total | |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Long-term debt(1)
|
|
$ |
345,000 |
|
|
$ |
|
|
|
$ |
720 |
|
|
$ |
2,880 |
|
|
$ |
341,400 |
|
Interest on long-term debt(1)
|
|
|
236,531 |
|
|
|
27,729 |
|
|
|
54,957 |
|
|
|
54,689 |
|
|
|
99,156 |
|
Operating leases
|
|
|
9,255 |
|
|
|
2,040 |
|
|
|
3,568 |
|
|
|
2,939 |
|
|
|
708 |
|
Pension obligations
|
|
|
16,596 |
|
|
|
1,176 |
|
|
|
2,589 |
|
|
|
3,010 |
|
|
|
9,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
607,382 |
|
|
$ |
30,945 |
|
|
$ |
61,834 |
|
|
$ |
63,518 |
|
|
$ |
451,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
We repaid $5.0 million and $25.0 million of our term
indebtedness in the first and second quarters of 2006,
respectively, and intend to repay an additional
$25.0 million of term indebtedness using a portion of the
net proceeds from this offering. This will reduce our long-term
debt and interest obligations. See Use of Proceeds
and Unaudited Pro Forma Financial Information. |
The interest payments in the above table were estimated based
upon our existing debt structure at December 31, 2005,
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, 2005. The
planned funding of the pension and other post-employment
obligations were based upon actuarial and management estimates
taking into consideration the current status of the plans.
Our commercial commitments as of December 31, 2005, 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 | |
|
2006 | |
|
2007-2008 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Standby letters of credit
|
|
$ |
12,325 |
|
|
$ |
10,585 |
|
|
$ |
1,740 |
|
Bank guarantees
|
|
|
11,623 |
|
|
|
9,279 |
|
|
|
2,344 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$ |
23,948 |
|
|
$ |
19,864 |
|
|
$ |
4,084 |
|
|
|
|
|
|
|
|
|
|
|
As a result of the Acquisition, we had 7,952,180 shares of
common stock issued and outstanding at December 31, 2005.
Also, in connection with the Acquisition, a warrant to purchase
2,651,012 shares of our common stock was issued in November
2005 to FR X Chart Holdings LLC and 2,207,836 stock options,
which we refer to as the New Options, under the 2005 Stock
Incentive Plan were granted to management to
69
purchase shares of our common stock at an exercise price of
$6.41 per share. In addition, certain members of management
rolled over 609,856 stock options in the Acquisition from our
2004 Stock Option and Incentive Plan, the exercise price of
which was adjusted to $3.50 per share.
The warrant was exercisable anytime, including on a cashless
basis, and was to expire in March 2014. The New Options are
exercisable for a period of ten years and have two different
vesting schedules. Approximately 779,325 of the New Options are
time-based, or Time-based Options, and vest 20% per year
over a five-year period, and approximately 1,428,511 of the New
Options are performance-based, or Performance-based Options, and
vest based upon specified returns on First Reserves
investment in the company. In addition, 566,586 of the rollover
options were vested on the closing date of the Acquisition and
the remaining 43,270 rollover options vested in the first six
months of 2006. On October 17, 2005, we adopted
SFAS 123(R) Share-Based Payments to account for
our 2005 Stock Incentive Plan. See Recently Adopted
Accounting Standards below for further information
regarding the adoption of SFAS 123(R).
Since March 31, 2006, the warrant has been exercised and
2,651,012 shares were issued to FR X Chart Holdings
LLC and the 609,856 rollover options have been exercised for an
equivalent number of shares. Each of such exercises was done on
a cash basis.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in
the Securities Act.
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
CHELs insolvency administration. See
BusinessLegal Proceedings.
In 2004, as part of the Plaistow, New Hampshire manufacturing
facility closure, we withdrew from the multi-employer pension
plan related to the Plaistow employees. We continue to carry a
related estimated withdrawal liability of $0.2 million at
December 31, 2005. Any additional liability in excess of
the amount accrued is not expected to have a material adverse
impact on our financial position, liquidity, cash flow or
results of operations.
We are occasionally subject to various other legal actions
related to performance under contracts, product liability and
other matters, several of which actions claim substantial
damages, in the ordinary course of our business. Based on our
historical experience in litigating these actions, as well as
our current assessment of the underlying merits of the actions
and applicable insurance, we believe the resolution of these
other legal actions will not have a material adverse effect on
our financial position, liquidity, cash flows or results of
operations.
Foreign Operations
During 2005, we had operations in Australia, China, the Czech
Republic, Germany and the United Kingdom, which accounted for
23.3% of consolidated revenues and 13.5% of total assets at
December 31, 2005. 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
70
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. Although Fresh-Start accounting
required the selection of appropriate accounting policies for
the Reorganized Company, the significant accounting policies
previously used by the Predecessor Company have generally
continued to be used by the Reorganized Company and Successor
Company. 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
customers 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 customers 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.
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. In 2006, we expect to record approximately
$4.3 million of amortization expense related to backlog.
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 managements 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. 87,
Employers Accounting for Pensions, which
requires that amounts recognized in financial statements be
determined on an actuarial basis. Our funding policy is to
contribute at least the minimum funding amounts
71
required by law. SFAS No. 87 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 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. 87 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, 2005 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 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, 2005, we
determined this rate to be 5.50%. Changes in discount rates over
the past three years have not materially affected pension
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. 87.
At December 31, 2005, our consolidated net pension
liability recognized was $6.9 million, a decrease of
$2.3 million from December 31, 2004. The decrease is
primarily due to an increase in the fair value of plan assets
during 2005, and the recognition of the previously determined
net unamortized gain at the closing date of the Acquisition in
accordance with SFAS 141, Business
Combinations. For the 2005 Successor Period and the 2005
Reorganized Period, we recognized approximately
$0.01 million and $0.2 million, respectively, of
pension income. The consolidated pension expense for the year
ended December 31, 2004 was $0.8 million. The pension
expense has decreased in the 2005 periods primarily due to the
freezing of a third defined benefit pension plan at
December 31, 2004 and the elimination of amortization of
prior service costs at October 17, 2005 in accordance with
SFAS 141. We currently expect that the pension income in
2006 will be approximately $0.5 million, an improvement
from the 2005 and 2004 pension income and expense, respectively,
due to the freezing of all four defined benefit pension plans.
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. Estimates
are principally based upon historical product warranty claims
experience over the warranty period for each product line. 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,
72
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, with the balance
made up by the D&S segment.
Recently Adopted Accounting Standards
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. SFAS 123(R) is effective for nonpublic
entities for fiscal years beginning after December 15,
2005. We adopted SFAS 123(R) on October 17, 2005 in
conjunction with the Acquisition.
In December 2004, the FASB issued FASB Staff Position, or FSP,
FSP No. 109-1, Application for FASB Statement No 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004. FSP 109-1 is intended to clarify that the
domestic manufacturing deduction should be accounted for as a
special deduction (rather than a rate reduction) under
SFAS No. 109, Accounting for Income Taxes.
A special deduction is recognized under SFAS 109 as it is
earned. The adoption of this statement did not have a material
impact on our financial position or results of operations.
In December 2004, the FASB issued FSP No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004. FSP 109-2 provides guidance under
SFAS No. 109, Accounting for Income Taxes,
with respect to recording the potential impact of the
repatriation provisions of the American Jobs Creation Act of
2004, or the Jobs Act, on enterprises income tax expense
and deferred tax liability. The Jobs Act was enacted on
October 22, 2004. FSP 109-2 states that an enterprise
is allowed time beyond the financial reporting period of
enactment to evaluate the effect of the Jobs Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of
applying SFAS No. 109. We completed evaluating the
impact of the repatriation provisions, and the adjustment as
provided for in FSP 109-2, did not have a material impact
on our tax expense or deferred tax liability.
In March 2005, the FASB issued FASB Interpretation No. 47
Accounting for Conditional Asset Retirement
Obligations. This interpretation requires companies to
recognize a liability for the fair value of a legal obligation
to perform asset retirement activities that are conditional on a
future event if the amount can be reasonably estimated. This
statement is effective for the year ending December 31,
2005. The adoption of this statement did not have a material
effect on our financial position, results of operations,
liquidity or cash flows.
Recently Issued Accounting Standards
The Financial Accounting Standards Board, or FASB, has recently
issued the following Statements of Financial Accounting
Standards that we have not adopted as of December 31, 2005:
In December 2004, the FASB issued SFAS No. 151,
Inventory Costs. SFAS No. 151 requires
abnormal amounts of inventory costs related to idle facility,
freight handling and wasted material expenses to be recognized
as current period charges. Additionally, SFAS No. 151
requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the
production facilities.
73
The standard is effective for fiscal years beginning after
June 15, 2005. We are currently evaluating the effect the
adoption of SFAS No. 151 will have on our financial
position or results of operations.
In June 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
SFAS 154 replaces APB Opinion No. 20, Accounting
Changes and SFAS 3, Reporting Accounting
Changes in Interim Financial Statements. SFAS 154
requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial
statements presented on the new accounting principle.
SFAS 154 also requires that a change in method of
depreciating and amortizing a long-lived asset be accounted for
prospectively as a change in estimate, and the correction of
errors in previously issued financial statements should be
termed a restatement. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The implementation of
SFAS 154 does not have an impact on our present
consolidated financial statements and will only affect financial
statements to the extent there are future accounting changes or
errors.
Quantitative and Qualitative Disclosures About Market Risk
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 facilitys various floating rate
pricing mechanisms. We entered into an interest rate derivative
contract, or collar, in March 1999 to manage interest rate risk
exposure relative to our debt. This collar had a notional amount
of $4.4 million at December 31, 2005 and expired in
March 2006. The fair value of the contract related to the collar
outstanding December 31, 2005 is a liability of less than
$0.1 million and is recorded in accrued interest. If
interest rates were to increase 100 basis points (1%) from
December 31, 2005 rates, and assuming no changes in debt
from the December 31, 2005 levels, our additional annual
expense would be approximately $1.8 million on a pre-tax
basis.
We have trade receivables and payables and cash flows in foreign
currencies other than the functional currencies of our
subsidiaries creating foreign exchange risk, the primary foreign
currencies being the British Pound, the Czech Koruna and the
Euro. Monthly measurement, evaluation and forward exchange
contracts are employed as methods to reduce this risk. We enter
into foreign exchange forward contracts at Chart Ferox a.s., our
Czech Republic subsidiary, to hedge anticipated and firmly
committed foreign currency transactions. We do not hedge foreign
currency translation or foreign currency net assets or
liabilities. The terms of these forward contracts are one year
or less. Historically, changes in foreign currency exchange
rates have not had a significant impact on our operating results
or cash flows.
Covenant Compliance
We believe that our senior secured credit facility and the
indenture governing our outstanding notes are material
agreements, that the covenants are material terms of these
agreements and that information about the covenants is material
to an investors 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.
74
Covenant levels and pro forma ratios for the four quarters ended
March 31, 2006 are as follows:
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Four Quarters Ended | |
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March 31, 2006 | |
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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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1.75x |
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3.00x |
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Maximum total debt to Adjusted EBITDA ratio
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6.75x |
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4.15x |
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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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2.0x |
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3.00x |
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(1) |
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 total net debt to Adjusted EBITDA ratio starting at
a maximum of 6.75x. 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) |
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) |
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. |
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 notes, as shown in
the table below. We believe that the inclusion of supplementary
adjustments to EBITDA applied in presenting Adjusted EBITDA are
appropriate to provide additional information to investors to
demonstrate compliance with financing covenants and our ability
to pay dividends.
75
The presentation of Adjusted EBITDA, a non-GAAP financial
measure, and ratios based thereon, do not comply with accounting
principles generally accepted in the United States.
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Predecessor | |
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Company | |
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Reorganized Company | |
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Successor Company | |
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Nine Months | |
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Three Months | |
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January 1, | |
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Three Months | |
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October 17, | |
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Three Months | |
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Pro Forma | |
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Ended | |
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Ended | |
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Year Ended | |
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2005 to | |
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Ended | |
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2005 to | |
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Ended | |
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Year Ended | |
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September 30, | |
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December 31, | |
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December 31, | |
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October 16, | |
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March 31, | |
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December 31, | |
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March 31, | |
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December 31, | |
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2003 | |
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2003 | |
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2004 | |
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2005 | |
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2005 | |
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2005 | |
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2006 | |
|
2005 | |
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(Dollars in thousands) | |
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Net income (loss)
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$ |
(7,085 |
) |
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$ |
31 |
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$ |
22,600 |
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$ |
8,858 |
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5,535 |
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$ |
(506 |
) |
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6,045 |
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(8,486 |
) |
Income tax expense (benefit)
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3,047 |
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(125 |
) |
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|
10,134 |
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7,159 |
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3,071 |
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(441 |
) |
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2,980 |
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(3,602 |
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Interest expense net
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10,300 |
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1,344 |
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4,712 |
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4,164 |
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985 |
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5,556 |
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6,545 |
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27,401 |
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Depreciation and amortization(a)
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9,260 |
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2,225 |
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8,490 |
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|
6,808 |
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1,944 |
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|
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4,396 |
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5,194 |
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20,987 |
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EBITDA
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$ |
15,522 |
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$ |
3,475 |
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$ |
45,936 |
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$ |
26,989 |
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11,535 |
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$ |
9,005 |
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20,764 |
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36,300 |
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EBITDA
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$ |
15,522 |
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$ |
3,475 |
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$ |
45,936 |
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$ |
26,989 |
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|
$ |
11,535 |
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|
|
$ |
9,005 |
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$ |
20,764 |
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|
36,300 |
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Stock-based compensation expense(b)
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2,433 |
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9,508 |
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|
|
592 |
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|
437 |
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|
|
321 |
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9,945 |
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Inventory valuation charge(c)
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5,368 |
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8,903 |
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8,903 |
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Acquisition expenses(d)
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|
6,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602 |
|
In-process research and development charge(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768 |
|
Hurricane losses(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057 |
|
|
|
|
|
|
|
|
406 |
|
|
|
182 |
|
|
|
1,463 |
|
Employee separation and plant closure costs(g)
|
|
|
1,338 |
|
|
|
|
1,010 |
|
|
|
3,346 |
|
|
|
1,700 |
|
|
|
703 |
|
|
|
|
255 |
|
|
|
162 |
|
|
|
1,955 |
|
Reorganization expenses(h)
|
|
|
369 |
|
|
|
|
357 |
|
|
|
706 |
|
|
|
1,470 |
|
|
|
73 |
|
|
|
|
88 |
|
|
|
45 |
|
|
|
1,558 |
|
Appraisal rights settlement(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
Management fees(j)
|
|
|
|
|
|
|
|
|
|
|
|
380 |
|
|
|
306 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets(k)
|
|
|
8,929 |
|
|
|
|
(57 |
) |
|
|
133 |
|
|
|
(131 |
) |
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
(53 |
) |
Income from discontinued operations(l)
|
|
|
(833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$ |
25,325 |
|
|
|
$ |
10,153 |
|
|
$ |
52,934 |
|
|
$ |
50,269 |
|
|
$ |
12,998 |
|
|
|
$ |
19,672 |
|
|
$ |
21,474 |
|
|
|
69,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The nine months ended September 30, 2003, the 2005
Successor Period and the three months ended March 31, 2006
include financing costs amortization of $1.7 million,
$0.3 million and $0.4 million respectively. |
|
|
(b) |
Represents stock-based compensation charges for stock and stock
options issued to key employees and directors, and an additional
charge for the cash-out of stock options in the 2005 Reorganized
Period as a result of the Acquisition. Although it may be of
limited relevance to holders of our debt instruments, it may be
of more relevance to our equity holders, since such equity
holders ultimately bear such expenses. |
|
|
(c) |
Represents a non-cash inventory valuation charge recorded in
cost of sales for the adjustment of inventory to fair value as a
result of Fresh-Start accounting as of September 30, 2003
and purchase accounting as of October 17, 2005, the closing
date of the Acquisition. Under Fresh-Start and purchase
accounting, inventory was adjusted to the fair value as of the
dates indicated above, and a corresponding charge was taken in
the subsequent three months ended December 31, 2003 and the
2005 Successor Period cost of sales as the inventory was sold. |
|
|
(d) |
Represents acquisition expenses, primarily professional fees,
incurred by us as a result of the Acquisition. |
|
|
(e) |
Represents a non-cash charge for purchased in-process research
and development in conjunction with the acquisition of CEM in
2005. |
76
|
|
(f) |
Represents losses and costs incurred related to the damaged
caused by Hurricane Rita at our New Iberia, Louisiana facilities. |
|
|
(g) |
Includes inventory valuation charges recorded in cost of sales,
and severance expenses, facility exit costs and non-operating
expenses related to the execution of our operational
restructuring plan, which primarily included moving the
Burnsville, Minnesota manufacturing operations to Canton,
Georgia, closing the Plaistow, New Hampshire and Wolverhampton,
United Kingdom manufacturing facilities and closing the
Westborough, Massachusetts engineering office. |
|
(h) |
Includes pre-bankruptcy debt restructuring-related fees,
Fresh-Start accounting adjustments and expenses, and a claim
settlement related to our 2003 bankruptcy reorganization. |
|
(i) |
Represents a charge for the settlement of former Reorganized
Company shareholders appraisal rights claims as a result
of the Acquisition. |
|
(j) |
Represents non-recurring management fees charged by our
Reorganized Company majority shareholders, which are not charged
by First Reserve. |
|
(k) |
Includes non-recurring gains and losses and charges on the sale,
disposal or impairment of assets. |
|
(l) |
Represents income from our former Greenville Tube, LLC stainless
steel tubing business, which was sold in July 2003. |
77
INDUSTRY OVERVIEW
Our products and services are important components to the liquid
gas supply chain. They are employed in cryogenic liquid
production, purification, transportation, distribution, storage
and other processes in which cryogenic liquids are converted
into the desired gases. These processes are important to the use
of hydrocarbon and industrial gases. Important applications
include LNG liquefaction and regasification, gas to liquids,
natural gas and petrochemical processing, industrial gas
production, transportation and storage, home healthcare
applications and biomedical research. Accordingly, global demand
for natural gas and industrial gases are fundamental drivers of
our business.
Natural gas usage is increasing rapidly due to its advantageous
environmental characteristics, superior heat efficiency, and
growth in other applications such as petrochemical feedstock.
According to the International Energy Agency or IEA, the
consumption of natural gas will exceed that of coal by 2015. The
Energy Information Administration or EIA, projects that global
natural gas usage will grow 2.4% annually from 2002 to 2020
compared to 2.0% for oil and 2.3% for coal.
Growing Natural Gas Consumption
Source: LNG World Energy Outlook May 19-20, 2005
International Energy Agency presentation
Source: Industrial Energy Outlook 2005 July 2005
Energy Information Administration Publication
LNG is expected to be the fastest growing segment of the natural
gas value chain. New supplies of natural gas are largely found
in areas that are long distances from the consumers of natural
gas. In circumstances where pipeline transport is not feasible,
natural gas must be converted into a more compact, liquid form,
in order to effectively transport it to the required location.
Products that enable the liquefaction of natural gas and
re-gasification of LNG for transportation and storage are
critical to the LNG industry.
The LNG liquefaction process is currently the largest LNG market
for our products. Our heat exchangers, cold boxes,
vacuum-insulated pipe, or VIP, and other products are used by
customers in the LNG market to liquefy, transport, distribute
and store natural gas. According to the IEA, investments in
global LNG facilities are expected to total approximately $250
billion from 2001 to 2030.
78
Energy Ventures Analysis projects LNG liquefaction capacity to
increase 15.2% per annum from 2005 through 2011.
Source: Energy Ventures Analysis, 2005
Commensurate with the increased LNG liquefaction investment and
capacity, transportation of LNG is expected to outpace pipeline
transport of natural gas over the next couple decades. The IEA
expects the transportation of LNG in 2030 to be more than six
times the level in 2001. Once this LNG reaches its end market it
will either be re-gasified for pipeline distribution or
distributed or stored in LNG format using cryogenic tanks where
there is no pipeline infrastructure.
Source: LNG World Energy Outlook May 19-20,
2005 International Energy Agency presentation
Hydrocarbon processing is another substantial market for our
products. In natural gas processing, customers employ cryogenic
equipment to separate and purify natural gas and then to further
separate natural gas into its component elements such as ethane,
propane, butane, other natural gas to liquids and by-products
such as helium. In petrochemical processing, customers use
cryogenic separation and purification processes to convert
natural gas elements into ethylene (the basic building block of
plastics), propylene and numerous other industrial chemicals.
The hydrocarbon processing market uses many of the products from
our cryogenic categories in the gas separation and purification
processes and the subsequent storage and distribution of liquid
gases. Major customers for our products in the hydrocarbon
processing markets are large multinational firms in the oil and
gas industry, and large engineering and construction firms.
Industrial gas demand is another fundamental driver of our
business. Growth in the industrial gas market is driven by the
underlying demand for products that require oxygen, nitrogen,
argon and other air gases. Producers of industrial gases
separate atmospheric air into its component gases using
cryogenic processes. The resultant liquid gases are then stored
and transported for ultimate use by a wide variety of customers
in the petrochemical, electronics, glass, paper, metals, food,
fertilizer, welding, enhanced oil recovery and medical
industries. The industrial gas market uses our products
throughout this process, for the separation, purification,
storage and distribution of gases. Notably, the oil and
chemicals sector is a substantial user of industrial gases, for
stimulating well pressure, refining oil, producing
petrochemicals and other applications.
79
According to Spiritus Consulting, or Spiritus, revenue in the
industrial gas market grew at 6.6% per annum from 1999 to
2004. Spiritus projects the global industrial gas market to grow
at 7.0% per annum through 2009, fueled by growth of
9.0% per annum in Asia, the Middle East and Africa. The
following graph was prepared by us using data from the Spiritus
Consulting Report, 2004.
Industrial Gas Sales Growth by Region
Source: Spiritus Consulting Report, 2004
Our BioMedical segment is primarily driven by growth in home
healthcare and biomedical research. Growth in the home
healthcare market is being driven by the trend of decreased
hospital inpatient stays in favor of lower cost outpatient
treatments as well as by the aging U.S. population.
According to U.S. Census data, the U.S. population
aged 65 and over will grow from 35.0 million in 2000 to
46.8 million by 2015.
Growth in U.S. Elderly Population
Aged 65+
Source: U.S. Census Bureau, 2000
Growth in an aging population as well as increases in the number
of respiratory disease cases is expected to increase demand for
respiratory therapy and home-based oxygen devices. Respiratory
therapy, which includes liquid oxygen systems, oxygen
compression systems and oxygen concentrators, is a primary
product service of our BioMedical segment.
Similarly, the global expansion of bio-tech and stem cell
research, and cord blood storage is expected to increase demand
for our biological storage products for storing biological
material. Additionally, U.S. Homeland Security initiatives
in response to acts of bio-terrorism should drive greater demand
for our biological storage products. Global artificial
insemination is expected to grow as countries are moving toward
independence in their dairy and beef production.
We believe that equipment suppliers that are diversified in
terms of product offerings that span the entire supply chain for
users of hydrocarbon and industrial gases will continue to be
industry leaders.
80
BUSINESS
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, based on our sales and the
estimated sales of our competitors. We supply engineered
equipment used throughout the liquid gas supply chain globally.
The largest portion of end-use applications for our products is
energy-related, accounting for 51% of sales and 58% of orders in
2005, and 77% of backlog at December 31, 2005. 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 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, LNG, chemical and industrial gas
industries, including Air Products, Praxair, Airgas, Air
Liquide, JGC Corporation, or JGC, Bechtel Corporation, General
Electric, or GE, ExxonMobil, British Petroleum, or BP, and
ConocoPhillips, 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. We believe we are the number one or two
equipment supplier in all of our primary end-use markets. For
the three months ended March 31, 2006 and 2005, we
generated sales of $120.8 million and $85.2 million,
respectively. For the combined year ended December 31,
2005, we generated sales of $403.1 million compared to
sales of $305.6 for the year ended December 31, 2004.
We believe that we are well-positioned to benefit from a variety
of long-term trends driving demand in our industry, including:
|
|
|
|
|
increasing demand for natural gas and the geographic dislocation
of supply and consumption, which is resulting in the need for a
global network for LNG; |
|
|
|
increasing demand for natural gas processing, particularly in
the Middle East, as crude oil producers look to utilize the gas
portions of their reserves; and |
|
|
|
increased demand for natural and industrial gases resulting from
rapid economic growth in developing areas, particularly Central
and Eastern Europe and China. |
81
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 combined
year ended December 31, 2005.
Sales By Segment
Sales By End-User
Our Competitive Strengths
Although we are subject to a number of competitive factors that
we describe at the end of this competitive strengths section, we
believe that the following competitive strengths position us to
enhance our growth and profitability:
|
|
|
Focus on Attractive Growing End Markets. We
anticipate growing demand in the end markets we serve, with
particularly strong growth in LNG, natural gas processing,
specific international markets across all segments and
biomedical equipment. Energy Ventures Analysis projects global
LNG liquefaction capacity to increase 15.2% per annum from
2005 through 2011 and the International Energy Agency expects
the natural gas industry to invest approximately
$250 billion in LNG facilities from 2001 to 2030. In
addition, international demand for our products is being driven
by growing manufacturing capacity and industrial activity in
developing areas, particularly Central and Eastern Europe and
China. Rapid economic development in these areas has caused a
significant increase in the demand for natural and industrial
gases. According to Spiritus Consulting, the global market for
industrial gas is projected to grow 7.0% per annum from
2009. |
|
|
Substantial Revenue Visibility. We have a large
and growing backlog, which provides us with a high degree of
visibility in our forecasted revenue. Our backlog is comprised
of the portion of 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. Our backlog as of March 31, 2006
was $237.0 million, compared to $233.6 million,
$129.3 million and $49.6 million as of
December 31, 2005, 2004 and 2003, respectively. Projects
for energy-related applications totaled approximately
$180.0 million in backlog as of December 31, 2005.
Substantially all of our backlog as of December 31, 2005 is
scheduled to be recognized as sales during the next twelve
months. |
|
|
Leading Market Positions. We believe we are
the #1 or #2 equipment supplier in each of our primary
end markets both domestically and internationally. Based on our
relationships with key customers, we believe that our strong
industry positioning makes us typically one of only two or three
suppliers qualified to provide certain products to key
customers. As our customers continue to rationalize their
vendors, we expect to gain additional market share and that the
benefit of our leading position will become more pronounced. |
|
|
Diverse, Long-Standing Customer Base. We currently
serve over 2,000 customers worldwide. Our primary customers are
large, multinational producers and distributors of hydrocarbon
and industrial gases that provide us with revenue stability.
Customers and end-users also include high growth LNG processors,
petrochemical processors and biomedical companies. We have
developed strong, long-standing relationships with these
customers, many of whom have been purchasing products from us or |
82
|
|
|
one of our predecessors for over 20 years. Our primary
customers and end-users include Air Products, Praxair, Airgas,
Air Liquide, JGC, Bechtel Corporation, GE, ExxonMobil, BP and
ConocoPhillips. |
|
|
Highly Flexible and Low-Cost Manufacturing Base.
Given our long-term investment in global manufacturing
facilities and specialized equipment, we have developed a
substantial comparative scale and geographic advantage within
the markets for the cryogenic products that we manufacture. The
scale enables cost efficiencies and the geographic reach
provides access to customers that we believe would be difficult
for a potential competitor to replicate. With more than
1.6 million square feet of manufacturing space across 14
primary facilities and three continents, we have substantial
operational flexibility. We are a low-cost producer for our
products across all segments. In addition, the high cost of
capital and economies of scale required for this type of
manufacturing create significant barriers for new entrants. |
|
|
Product Expertise, Quality, Reliability and
Know-How. Within our end markets, we have established a
reputation for quality, reliability and technical innovation. We
believe that the main drivers of our target customers
purchasing decisions are a suppliers product expertise,
quality, reliability and know-how rather than pricing and terms,
giving us an advantage based on our reputation and consequent
brand recognition. The value of this brand recognition is
significantly enhanced by the extended life cycle of our
products and the high cost to our target customers of product
failure. As a focused provider of highly engineered cryogenic
equipment, we believe it would be difficult for a new entrant to
duplicate our capabilities. |
|
|
Experienced Management Team. We have assembled a
strong senior management team with over 250 combined years of
related experience. We have a balance of entrepreneurs,
internally developed leaders and experienced managers from
analogous industries. The team has grown into a cohesive unit
with complementary management and operational skills. The
current management team is directly responsible for the strong
sales growth and the significant margin improvements experienced
since 2003. |
We compete in a number of niche markets with a number of
competitors that are major corporations, some of which have
substantially greater technical, financial and marketing
resources than we do. Our ability to capitalize on our strengths
could be hampered by our competitors ability to use their
resources to adapt to changing market demands earlier than we
are able to do so. For an additional discussion regarding our
ability to compete in the highly competitive markets in which we
operate, see Risk Factors.
Business Strategy
We believe that we are well-positioned to maintain our
leadership in providing highly engineered equipment for use in
low-temperature and cryogenic applications and meet the
worlds growing demand for hydrocarbon and industrial gases
with more economical, reliable and environmentally friendly
systems. The principal elements of our strategy are as follows:
|
|
|
Continue to develop innovative, high-growth,
energy-specific products. We plan to continue to focus
on extending our cryogenic technological leadership, both to
capitalize on increasing demand for energy and to create new
applications. We believe that we are well positioned to benefit
from increased demand for LNG, natural gas processing and gas to
liquid, or GTL, solutions. Our engineering, technical and
marketing employees actively assist customers in specifying
their needs and in determining appropriate products to meet
those needs. Current product development includes subsea VIP,
synthetic gas, hydrogen recovery, small-scale bulk gas
distribution solutions and LNG/ GTL production systems. |
|
|
Leverage our global platform to capitalize on growing
international demand. We expect growth in hydrocarbon
and industrial gas demand and investment over the next five
years in the Middle East, Central and Eastern Europe, Russia and
China. We believe that our historic and planned investment in
our manufacturing facilities in the Czech Republic and China and
the investment in sales and marketing capabilities in these
markets, supplemented by our continuing investment in our
U.S. facilities, has positioned us to increase our market
share in growing international markets. We believe we are
well-positioned to make acquisitions of complementary businesses
to expand our global infrastructure. |
|
|
Capitalize on our position as a market leader. We
plan to continue to grow our long-standing relationships with
the leading users of cryogenic equipment. Our engineering and
development teams |
83
|
|
|
partner with our customers to better understand and meet their
cryogenic equipment needs, particularly in the growing LNG and
international markets. We intend to grow our customer base as
industrial gas producers increasingly outsource bulk tank
storage and other non-core parts of their business. |
|
|
Maintain our position as a low-cost producer while
continuing to improve operating performance. We believe
we are the lowest cost manufacturer for most of our products and
we intend to continue to leverage our scale, scope, technical
expertise and know-how to deliver to our customers higher
quality and more reliable products and services at lower cost.
Our largest manufacturing facility is in the Czech Republic,
which allows us to achieve considerable cost savings versus our
competitors. In addition, we believe China, where we are
experiencing significant growth, will be a sustainable low-cost
labor environment. We maintain a disciplined approach to capital
expenditures. We intend to make capacity investments in
energy-related markets where we expect to realize significant
and timely returns, and to also leverage our existing operating
capacity in other markets. |
Segments and Products
We operate in three segments: (i) E&C,
(ii) 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 in energy-related applications.
|
|
|
Energy and Chemicals Segment |
Our principal products within the E&C segment, which
accounted for 30% of sales for the year ended December 31,
2005, are focused on process equipment, primarily heat
exchangers and LNG systems, which include cold boxes and LNG
vacuum-insulated pipe, 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:
We are a leading designer and manufacturer of cryogenic and air
cooled heat exchangers. Using technology pioneered by us, heat
exchangers are incorporated into systems such as cold boxes to
facilitate the progressive cooling and liquefaction of air or
hydrocarbon mixtures for the subsequent recovery or purification
of component gases. In hydrocarbon processing industries, 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, heat exchangers
are used to obtain high purity atmospheric gases, such as
oxygen, nitrogen and argon, which have numerous diverse
industrial applications. Heat exchangers are customized to the
customers requirements and range in price from
approximately $10,000 for a relatively simple unit to as high as
$10 million for a major project.
The heat exchangers market has seen significant demand
improvement over the last two 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. 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, present a promising
source of demand for our heat exchangers and cold box systems.
Demand for heat exchangers in developed countries is expected to
continue as firms upgrade their facilities for greater
efficiency and regulatory compliance.
Our principal competitors for heat exchangers are Linde,
Sumitomo, Kobe and Nordon. Management believes that we are the
only producer of large brazed aluminum heat exchangers in the
United States and that we are the 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 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 and KBR.
84
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
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 the quick-freezing of
food, wastewater treatment and industrial welding. The
construction of a cold box generally consists of one or more
heat exchangers and other equipment packaged in a
box consisting of metal framing and a complex system
of piping and valves. Cold boxes, which are designed and
fabricated to order, sell in the price range of $500,000 to
$10 million, with the majority of cold boxes priced between
$1 million and $2 million.
We have a number of competitors for fabrication of cold boxes,
including Linde, Air Products 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, Stone and Webster, and KBR.
|
|
|
LNG Vacuum Insulated Pipe |
This product line consists of vacuum-insulated pipe used for LNG
transportation, or LNG VIP, within both export and import
terminals. This is a new and 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
contractors 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 52% of our
sales for the year ended December 31, 2005, 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
150,000 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 cryogenic bulk storage
systems range from $10,000 to $1 million. Global industrial
gas producers, including Praxair, Air Liquide, Air Products,
Linde, Messer and The BOC Group, are significant customers for
our cryogenic bulk storage systems. In addition, Airgas is a
significant customer in the North American industrial gas
market. On a worldwide basis, we compete primarily with
Taylor-Wharton, a Harsco Company in this product area. 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
85
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 as the North American
industrial gas distributors who purchase our cryogenic bulk
storage systems. We compete on a worldwide basis primarily with
Harsco 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.
This product line consists 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. Competition for LNG fueling and storage systems is based
primarily on product design, customer support and service,
dependability and price.
|
|
|
Beverage Liquid
CO2
Systems |
This product line consists primarily of vacuum-insulated, bulk
liquid
CO2
containers used for beverage carbonation in restaurants,
convenience stores and cinemas, in sizes ranging from 100 pounds
to 750 pounds of liquid
CO2
storage. We also manufacture and market non-insulated, bulk
fountain syrup containers for side-by-side installation with our
CO2
systems. Our beverage systems are sold to national restaurant
chains, soft drink companies and
CO2
distributors. Our primary competitors for our bulk liquid
CO2
beverage delivery systems are Taylor-Wharton and other producers
of high-pressure gaseous
CO2
cylinders.
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.
The BioMedical segment, which accounted for 18% of our sales for
the year ended December 31, 2005, 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:
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
86
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
Puritan-Bennett, a division 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 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-users applications and concerns
enables us to sell a total value package.
Alternatives to vacuum insulated containment vessels include
mechanical, electrically powered refrigeration.
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 GE, a leading worldwide manufacturer of MRI
equipment.
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.
87
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 March 31, 2006,
December 31, 2005 and December 31, 2004 was
$237.0 million, $233.6 million and
$129.3 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. It is expected that substantially all of
our March 31, 2006 backlog will be recognized as sales
during the next twelve months. 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, 2005 described above is not necessarily
indicative of future backlog levels or the rate at which backlog
will be recognized as sales. For further information about our
backlog, including backlog by segment, see
Managements 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. While
no single customer exceeded 10% of consolidated sales in 2005,
2004 or 2003, sales to our top ten customers accounted for 39%,
45% and 43% of consolidated sales in 2005, 2004 and 2003,
respectively. Our sales to particular customers fluctuate from
period to period, but the global gas producer and distributor
customers tend to be a consistently large source of revenue for
us. Our supply contracts are generally contracts for
requirements only. While our customers are obligated
to purchase a certain percentage of their supplies from us,
there are no minimum requirements. Also, many of our contracts
may be cancelled on as little as one months 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 generally have been good since
our reorganization under Chapter 11 of the
U.S. Bankruptcy Code in 2003.
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.
88
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 upward fluctuations in price. We have generally been
able to recover the costs of price increases through our
contracts with customers. We foresee no acute shortages of any
raw materials that would have a material adverse effect on our
operations.
Employees
As of May 31 2006, we had 2,556 employees, including
1,655 domestic employees and 901 international
employees. These employees consisted of 823 salaried,
305 bargaining unit hourly and 1,428 non-bargaining
unit hourly.
We are a party to one collective bargaining agreement through
one of our operating subsidiaries. The agreement with the
International Association of Machinists and Aerospace Workers
covering 305 employees at our La Crosse, Wisconsin
heat exchanger facility expires in February 2007. In 2005,
through another one of our operating subsidiaries, we were also
a party to the agreement with the United Steel Workers of
America, which covered 244 employees at our New Prague,
Minnesota facility. On November 16, 2005, pursuant to an
approved stipulation election agreement, the bargaining unit
employees voted to decertify the United Steel Workers of America
as its bargaining representative. The election results were
certified on November 23, 2005. Over the past several
years, we have not had any work stoppages or strikes and we
believe 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.
We are involved with environmental compliance, investigation,
monitoring and remediation activities at certain of our 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 8 to 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 concerning our on-going remedial efforts 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.
Properties
We occupy 26 principal facilities totaling approximately
2.0 million square feet, with the majority devoted to
manufacturing, assembly and storage. Of these manufacturing
facilities, approximately 1.6 million square
89
feet are owned and 0.4 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
10,300 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.
As a result of our operational restructuring activities, we
closed our D&S manufacturing facility in Plaistow, New
Hampshire in the third quarter of 2004 and we are currently
pursuing the sale of this property. The Plaistow, New Hampshire
facility is classified as an asset held for sale in
our audited consolidated balance sheet as of December 31,
2005 and 2004. In the first quarter of 2005, we completed the
move of the medical respiratory product line from the
Burnsville, Minnesota facility to the Canton, Georgia
manufacturing facility. The Burnsville, Minnesota facility was
sold in the fourth quarter of 2004 and leased until the move of
the medical respiratory product line was completed. Our
operational restructuring activities are further described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the related notes
thereto included elsewhere in this prospectus.
The following table sets forth certain information about
facilities occupied by us as of May 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Segment |
|
Square Feet | |
|
Ownership | |
|
Use |
|
|
|
|
| |
|
| |
|
|
LaCrosse, Wisconsin
|
|
Energy & Chemicals |
|
|
149,000 |
|
|
|
Owned |
|
|
Manufacturing/Office |
New Iberia, Louisiana
|
|
Energy & Chemicals |
|
|
62,400 |
|
|
|
Leased |
|
|
Manufacturing |
New Iberia, Louisiana
|
|
Energy & Chemicals |
|
|
35,000 |
|
|
|
Leased |
|
|
Manufacturing |
The Woodlands, Texas
|
|
Energy & Chemicals |
|
|
29,000 |
|
|
|
Leased |
|
|
Office |
Houston, Texas
|
|
Energy & Chemicals |
|
|
103,000 |
|
|
|
Leased |
|
|
Manufacturing |
Tulsa, Oklahoma
|
|
Energy & Chemicals |
|
|
58,500 |
|
|
|
Owned |
|
|
Manufacturing/Office/ |
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse |
Tulsa, Oklahoma
|
|
Energy & Chemicals |
|
|
31,500 |
|
|
|
Leased |
|
|
Manufacturing |
Wolverhampton, United Kingdom
|
|
Energy & Chemicals |
|
|
1,600 |
|
|
|
Leased |
|
|
Office |
Changzhou, China(1)
|
|
Distribution & Storage |
|
|
21,500 |
|
|
|
Leased |
|
|
Manufacturing/ Office |
Changzhou, China
|
|
Distribution & Storage |
|
|
130,000 |
|
|
|
Owned |
|
|
Manufacturing/ Office |
Changzhou, China
|
|
Distribution & Storage |
|
|
60,000 |
|
|
|
Leased |
|
|
Manufacturing/ Office |
Changzhou, China
|
|
Distribution & Storage |
|
|
40,000 |
|
|
|
Leased |
|
|
Manufacturing |
Decin, Czech Republic
|
|
Distribution & Storage |
|
|
564,000 |
|
|
|
Owned |
|
|
Manufacturing/ Office |
Houston, Texas
|
|
Distribution & Storage |
|
|
22,000 |
|
|
|
Owned |
|
|
Service |
Plaistow, New Hampshire(2)
|
|
Distribution & Storage |
|
|
164,400 |
|
|
|
Owned |
|
|
Manufacturing/ Office |
Solingen, Germany
|
|
Distribution & Storage |
|
|
3,000 |
|
|
|
Leased |
|
|
Office |
Zhangiajang, China
|
|
Distribution & Storage |
|
|
30,000 |
|
|
|
Leased |
|
|
Manufacturing/ Office |
Canton, Georgia
|
|
Distribution & Storage/ BioMedical |
|
|
154,000 |
|
|
|
Owned |
|
|
Manufacturing/ Office |
Jasper, Georgia
|
|
Distribution & Storage/ BioMedical |
|
|
32,500 |
|
|
|
Leased |
|
|
Warehouse/ Service |
New Prague, Minnesota
|
|
Distribution & Storage/ BioMedical |
|
|
254,000 |
|
|
|
Owned |
|
|
Manufacturing/Service/ Office |
Denver, Colorado
|
|
BioMedical |
|
|
109,000 |
|
|
|
Owned |
|
|
Manufacturing |
Marietta, Georgia
|
|
BioMedical |
|
|
11,100 |
|
|
|
Leased |
|
|
Office/Lab |
Bracknell, United Kingdom
|
|
BioMedical |
|
|
12,500 |
|
|
|
Leased |
|
|
Office/ Warehouse |
Lidcombe, Australia
|
|
BioMedical |
|
|
2,400 |
|
|
|
Leased |
|
|
Office/ Warehouse |
New Prague, Minnesota
|
|
BioMedical |
|
|
11,700 |
|
|
|
Leased |
|
|
Warehouse |
Burnsville, Minnesota(3)
|
|
Corporate |
|
|
7,000 |
|
|
|
Leased |
|
|
Office |
Garfield Heights, Ohio
|
|
Corporate |
|
|
10,300 |
|
|
|
Leased |
|
|
Office |
Clarksville, Arkansas(4)
|
|
Discontinued operation |
|
|
110,000 |
|
|
|
Owned |
|
|
Manufacturing/ Office |
90
|
|
(1) |
This facility has been vacated and we may sublease until the
lease expires. |
|
(2) |
This facility is being held for sale. |
|
(3) |
This facility will be vacated no later than when the lease
expires in January 2008. |
|
(4) |
This facility is leased from us, with a purchase option, by the
company that purchased certain assets of the former Greenville
Tube LLC stainless steel tubing business. |
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 2006 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.
Legal Proceedings
In March 2003, we completed the closure of our Wolverhampton,
United Kingdom manufacturing facility, operated by CHEL, and all
current heat exchanger manufacturing is being conducted at our
LaCrosse, Wisconsin facility. On March 28, 2003, CHEL filed
for a voluntary administration under the U.K. Insolvency Act of
1986. CHELs application for voluntary administration was
approved on April 1, 2003 and an administrator was
appointed. Additionally, we received information that indicated
that CHELs net pension plan obligations had increased
significantly primarily due to a decline in plan asset values
and interest rates as well as an increase in plan liabilities,
resulting in an estimated plan deficit of approximately
$12.0 million. Based on our financial condition, in March
2003 we determined not to advance funds to CHEL in amounts
necessary to fund CHELs obligations. Since CHEL was unable
to fund its net pension plan deficit, pay remaining severance
due to former employees or pay other creditors, 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.
We do not believe that we are legally obligated to fund the net
pension deficit of the CHEL pension plan because CHEL, which is
no longer one of our consolidated subsidiaries, was the sponsor
of the pension plan and the entity with primary responsibility
for the plan. In addition, we considered ourselves and our
consolidated subsidiaries legally released from being the
primary obligor of any CHEL liabilities. Further, at the time
the insolvency administrator assumed control of CHEL, we no
longer had control of the assets or liabilities of CHEL. As a
result, in March 2003, we wrote-off our net investment in CHEL.
In addition, any claims of CHEL against us were discharged in
bankruptcy as part of our Reorganization Plan.
While no claims presently are pending against us related to
CHELs insolvency, persons impacted by the insolvency or
others could bring a claim against us asserting that we are
directly responsible for pension and benefit related liabilities
of CHEL. Although we would contest any claim of this kind, we
can provide no assurance that claims will not be asserted
against us in the future. To the extent we have a significant
liability related to CHELs insolvency and pension wind-up,
satisfaction of that liability could have a material adverse
impact on our liquidity, results of operations and financial
position.
91
On July 8, 2003, we and all of our then majority-owned
U.S. subsidiaries filed voluntary petitions for
reorganization relief under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court
for the District of Delaware to implement an agreed upon senior
debt restructuring plan through a prepackaged plan of
reorganization. None of our
non-U.S. subsidiaries
were included in the filing in the Bankruptcy Court. On
September 15, 2003, we and all of our then majority-owned
U.S. subsidiaries emerged from Chapter 11 bankruptcy
proceedings pursuant to the Amended Joint Prepackaged
Reorganization Plan of Chart Industries, Inc. and Certain
Subsidiaries, dated September 3, 2003. We have resolved all
proofs of claim asserted in the bankruptcy proceedings,
including the settlement in July 2005 of a finders fee
claim in the amount of $1.1 million asserted by one of our
former shareholders, against which we had filed an objection in
the Bankruptcy Court. All bankruptcy proceedings were closed in
May 2006.
We are a party to other legal proceedings incidental to the
normal course of our business. Based on our historical
experience in litigating these actions, as well as our 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
effect on our financial position, liquidity, cash flows or
results of operations.
92
MANAGEMENT
The following table sets forth the name, age as of June 1,
2006 and position of each person that serves as an executive
officer or director of our company and certain other key members
of management. Our directors each serve for a term of one year
until the next annual meeting of shareholders and our executive
officers each serve for a term of one year at the discretion of
the board of directors.
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Samuel F. Thomas
|
|
|
54 |
|
|
Chief Executive Officer, President and Director |
Michael F. Biehl
|
|
|
50 |
|
|
Executive Vice President, Chief Financial Officer and Treasurer |
Matthew J. Klaben
|
|
|
37 |
|
|
Vice President, General Counsel and Secretary |
James H. Hoppel, Jr.
|
|
|
42 |
|
|
Chief Accounting Officer, Controller and Assistant Treasurer |
John T. Romain
|
|
|
42 |
|
|
PresidentEnergy & Chemicals Group |
Thomas M. Carey
|
|
|
48 |
|
|
PresidentDistribution & Storage Group |
Steven T. Shaw
|
|
|
45 |
|
|
PresidentBioMedical Group |
Ben A. Guill
|
|
|
55 |
|
|
Chairman of the Board of Directors |
Kenneth W. Moore
|
|
|
37 |
|
|
Director |
Timothy H. Day
|
|
|
35 |
|
|
Director |
Steven W. Krablin
|
|
|
56 |
|
|
Director* |
|
|
* |
Nominee for director. Mr. Krablin has consented to being named
herein as a nominee for director. |
Samuel F. Thomas is our Chief Executive Officer
and President and has served 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 N.
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 as
Controller since November 2004. Prior to joining us,
Mr. Hoppel served as Vice President, Finance for W.W.
Holdings, LLC, a manufacturer and distributor of doors and
hardware. Prior to joining W.W. Holdings in 2001,
Mr. Hoppel held various finance and accounting positions
with different organizations, including the Transaction Services
and Audit practices of PricewaterhouseCoopers LLP in Cleveland,
Ohio.
John T. Romain has been the President of our
Energy & Chemicals Group since October 2002.
Mr. Romain has been with our company for twelve years, and
prior to becoming the President of the Energy &
Chemicals Group served as our Controller and Chief Accounting
Officer. Prior to joining us, Mr. Romain
93
worked in the audit practice of Ernst & Young LLP from
1985 to 1993, where he gained extensive experience providing
services to oil and gas companies.
Thomas M. Carey has been the President of our
Distribution & Storage Group since September 2004.
Mr. Carey has been with us and our predecessors since 1987
and prior to becoming the President of the
Distribution & Storage Group, Mr. Carey worked in
various engineering and business management positions. Prior to
joining Chart, Mr. Carey was employed by Airco as a field
engineer in support of bulk industrial gas sales.
Steven T. Shaw has been the President of our
BioMedical Group since October 2002. Mr. Shaw has been
employed by us and our predecessors for eleven years in various
management positions. Before joining our company in 1993,
Mr. Shaw was employed for eleven years in the automotive
manufacturing and distribution business of TRW Inc. in
Cleveland, Ohio. Before that, he held positions in sales and
management with APS Incorporated in Houston, Texas.
Ben A. Guill has been the Chairman of our board of
directors since the Acquisition in October 2005. Mr. Guill
is the President and a Managing Director of First Reserve
Corporation, which he joined in September 1998. Prior to joining
First Reserve Corporation, Mr. Guill was the Managing
Director and Co-head of Investment Banking of Simmons &
Company International, an investment banking firm specializing
in the oil service industry. Mr. Guill also serves as a
director of Dresser, Inc., T-3 Energy Services, Inc. and
National Oilwell Varco, Inc.
Kenneth W. Moore has been a member of our board of
directors since the Acquisition in October 2005. Mr. Moore
is a Managing Director of First Reserve Corporation and joined
that firm in January 2004. Prior to joining First Reserve
Corporation, Mr. Moore was a Vice President at Morgan
Stanley, an investment bank, from 2000 until 2004. Prior to
joining Morgan Stanley, Mr. Moore was an Associate at Chase
Securities from 1998 until 2000. Mr. Moore also serves as a
director of Dresser-Rand Group, Inc.
Timothy H. Day has been a member of our board of
directors since the Acquisition in October 2005. Mr. Day is
a Director of First Reserve Corporation, which he joined in
November 2000. Before joining First Reserve Corporation,
Mr. Day was employed at WorldOil.com where he was a Vice
President in charge of Operations. Prior to that time,
Mr. Day spent three years with SCF Partners, a private
equity investment group and three years with CS First
Boston and Salomon Brothers. Mr. Day also serves as a
director of Pacific Energy Partners, L.P.
Steven W. Krablin is a nominee for our board of
directors and will become a director upon the effectiveness of
the registration statement of which this prospectus is a part.
From January 1996 until April 2005, Mr. Krablin served as
the Senior Vice President and Chief Financial Officer of
National Oilwell Varco Inc. or its predecessors, a major
manufacturer and distributor of oil and gas drilling equipment
and related services for land and offshore drilling rigs. Prior
to 1996, Mr. Krablin served as Senior Vice President and
Chief Financial Officer of Enterra Corporation until its merger
with Weatherford International. Since November 2004,
Mr. Krablin has served as a director of Penn Virginia
Corporation, an energy company engaged in the exploration,
acquisition, development and production of crude oil and natural
gas. Since August 2005, Mr. Krablin has also served as a
director of Hornbeck Offshore Services, Inc., a provider of
offshore vessels to the offshore oil and gas industry.
Composition of the Board of Directors after this Offering
Our board of directors currently consists of four directors. We
expect to add an independent director prior to the effectiveness
of the registration statement of which this prospectus is a
part, another independent director within three months after the
first date the registration statement is declared effective and
one additional independent director to our board within twelve
months after the registration statement is declared effective.
Depending on the size of this offering, we may be a
controlled company under the Nasdaq corporate
governance requirements if First Reserve and its affiliates
continue to own more than 50% of our common stock after the
completion of this offering. As a result, we would be eligible
for exemptions from provisions of
94
these rules requiring a majority of independent directors and
requiring the compensation of officers and director nominees to
be determined or recommended to the board of directors by a
majority of the independent directors or by a compensation or
nominations committee, respectively, each composed solely of
independent directors. If available, we intend to take advantage
of these exemptions. In the event that we are not, or cease to
be, a controlled company within the meaning of these rules, we
will be required to comply with these provisions within the
transition periods specified in the Nasdaq corporate governance
requirements.
Board Committees
Our board of directors currently has an audit committee and a
compensation committee. In connection with this offering, we
intend to establish a nominating and corporate governance
committee.
Audit Committee
Our audit committee consists of Ben A. Guill, Kenneth W. Moore
and Timothy H. Day, who is currently the chairman. We expect
that our current audit committee will be comprised of three
independent directors within the transition periods specified in
Rule 10A-3 under the Exchange Act. Following this offering,
the audit committee will be required to have at least one member
who qualifies as an audit committee financial expert
as such term is defined in Item 401(h) of
Regulation S-K.
The audit committee is governed by a written charter which will
be reviewed, and amended if necessary, on an annual basis. The
audit committees responsibilities include
(1) appointing, retaining, evaluating and terminating our
independent auditors and approving in advance any audit or
non-audit engagement or relationship between us and such
auditor, (2) approving the overall scope of the audit,
(3) assisting the board in monitoring the integrity of our
financial statements, the independent accountants
qualifications and independence, the performance of the
independent accountants and our internal audit function and our
compliance with legal and regulatory requirements,
(4) annually reviewing an independent auditors report
describing the auditing firms internal quality-control
procedures and any material issues raised by the most recent
internal quality-control review, or peer review, of the auditing
firm, (5) discussing the annual audited financial and
quarterly statements with management and the independent
auditors, (6) discussing earnings press releases, as well
as financial information and earnings guidance provided to
analysts and rating agencies, (7) discussing policies with
respect to risk assessment and risk management, (8) meeting
separately, periodically, with management, internal auditors and
the independent auditor, (9) reviewing with the independent
auditor any audit problems or difficulties and managements
response, (10) setting clear hiring policies for employees
or former employees of the independent auditors,
(11) annually reviewing the adequacy of the audit
committees written charter, (12) reviewing with
management any legal matters that may have a material impact on
us and our financial statements and (13) reporting
regularly to the full board of directors.
Prior to consummation of this offering, the audit committee will
approve and adopt a Code of Ethical Business Conduct for all
employees and an additional Officer Code of Ethics for all of
our executives and financial officers, copies of which will be
available at no cost upon written request by our stockholders.
Compensation Committee
Our current compensation committee consists of Ben A. Guill,
Kenneth W. Moore and Timothy H. Day. The compensation committee
is responsible for (1) reviewing key employee compensation
policies, plans and programs, (2) reviewing and approving
the compensation of our chief executive officer and other
executive officers, (3) developing and recommending to the
board of directors compensation for board members,
(4) reviewing and approving employment contracts and other
similar arrangements between us and our executive officers,
(5) reviewing and consulting with the chief executive
officer on the selection of officers and evaluation of executive
performance and other related matters, (6) administration
of stock plans and other incentive compensation plans,
(7) overseeing compliance with any applicable compensation
reporting requirements of the SEC, (8) approving the
appointment and removal of trustees and investment managers for
pension fund assets, (9) retaining consultants to advise
the committee on executive compensation practices and policies
and (10) handling such other matters that are specifically
delegated to the compensation committee by the board of
directors from time to time.
95
Director Compensation
None of our directors currently receives any additional
compensation for serving as a director or as a member or chair
of a committee of the board of directors. We expect to pay our
non-employee directors an annual retainer of $32,000, payable in
equal quarterly installments, and to annually grant each
non-employee director restricted stock units covering a number
of shares of common stock with a fair market value of $40,000 on
the date of grant. The 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 defined in the
Amended and Restated 2005 Stock Incentive Plan) or the director
ceasing to serve on the board due to death or Disability (as
defined in the Amended and Restated 2005 Stock Incentive Plan).
The restricted stock units are expected to be settled in shares
of our common stock, the receipt of which may be deferred by
each director for a period ranging from the first anniversary of
the restricted stock unit vesting date to the tenth anniversary
of the restricted stock unit vesting date, or, if elected,
earlier upon separation of service from the board or a change in
control, in both cases, to the extent permitted under
Section 409A of the Internal Revenue Code. We expect to pay
also to the chairperson of our audit committee an additional
$8,000 annual retainer and to the chairpersons of our other
board committees an additional $4,000 annual retainer, in each
case in equal quarterly installments. Additionally, we expect to
pay our non-employee directors a fee of $2,000 for board
meetings attended in person (up to six meetings and $1,000 per
meeting thereafter) and a fee of $1,000 for board meetings
attended telephonically. In connection with meetings of the
committees of our board of directors, we expect to pay our
non-employee directors who attend committee meetings in person a
fee of $1,000 per meeting and a fee of $500 per meeting for
committee meetings attended telephonically. In addition,
directors must accumulate investments of at least $100,000 in
our common stock during their first 24 months on our board.
Executive Compensation
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|
Summary Compensation Table |
The following summary compensation table sets forth information
concerning compensation earned during the last three fiscal
years by our chief executive officer and all other persons who
served as executive officers during the last fiscal year. As of
April 1, 2006, our executive officers included
Messrs. Thomas and Biehl, in addition to Matthew J. Klaben,
our Vice President, General Counsel and Secretary and James H.
Hoppel, our Chief Accounting Officer, Controller and Assistant
Treasurer, and Mr. Lovett was no longer an executive
officer.
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Long-Term | |
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Compensation | |
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Annual Compensation | |
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Awards | |
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Number of | |
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Other Annual | |
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Underlying | |
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All Other | |
Name and Principal Position |
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Year | |
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Salary | |
|
Bonus | |
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Compensation(1) | |
|
Options | |
|
Compensation | |
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| |
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| |
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| |
Samuel F. Thomas(2)
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2005 |
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$ |
400,000 |
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$ |
600,000 |
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|
$ |
5,766,483 |
(3) |
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|
682,819 |
(4) |
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$ |
18,726 |
(5) |
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Chief Executive Officer and |
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|
2004 |
|
|
$ |
400,000 |
|
|
$ |
600,000 |
|
|
$ |
435,123 |
(6) |
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|
203,701 |
(7) |
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$ |
19,595 |
(5) |
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President |
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2003 |
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$ |
92,307 |
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$ |
94,338 |
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Michael F. Biehl
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2005 |
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$ |
213,200 |
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|
$ |
319,800 |
|
|
$ |
1,166,830 |
(3) |
|
|
204,844 |
(4) |
|
$ |
18,726 |
(5) |
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Executive Vice President, |
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2004 |
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|
$ |
205,000 |
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|
$ |
374,167 |
(8) |
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28,000 |
(7) |
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$ |
14,536 |
(5) |
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Chief Financial Officer and |
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2003 |
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|
$ |
200,000 |
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(8) |
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$ |
14,077 |
(5) |
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Treasurer |
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Charles R. Lovett
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2005 |
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$ |
173,349 |
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$ |
260,024 |
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$ |
916,205 |
(3) |
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68,284 |
(4) |
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$ |
15,471 |
(5) |
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Vice President |
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2004 |
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|
$ |
168,300 |
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$ |
307,450 |
(8) |
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23,000 |
(7) |
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$ |
5,100 |
(5) |
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Manufacturing |
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2003 |
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$ |
165,000 |
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(8) |
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$ |
4,950 |
(5) |
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(1) |
No person listed in the table received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of his
aggregate salary and bonus. Messrs. Thomas and Biehl
received automobile allowances of $1,846 and $6,923 in 2005,
respectively, and Mr. Biehl received the use of a company
car in 2003, 2004 and part of 2005. |
96
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(2) |
Mr. Thomas became Chief Executive Officer on
October 6, 2003. |
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(3) |
These amounts reflect the payments made by us in connection with
the Acquisition related to the cancellation of stock options (or
portions of stock options) held by the named individuals before
the Acquisition. |
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(4) |
These options were granted on November 23, 2005 pursuant to
the terms of our 2005 Stock Incentive Plan. The following
portions of these options vest annually in equal installments
over five years based on continued service: Mr. Thomas
240,993; Mr. Biehl, 72,298; and Mr. Lovett, 24,099.
The following portions of these options vest based on
performance, measured by reference to First Reserves net
return on its investment in us: Mr. Thomas, 441,825;
Mr. Biehl, 132,546; and Mr. Lovett, 44,185. |
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(5) |
Represents amounts contributed by us to the listed persons
personal account under the Chart Industries, Inc. 401(k)
Investment and Savings Plan. |
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(6) |
On February 26, 2004, Mr. Thomas purchased from us
28,797 shares of common stock at a price of $13.89 per
share. Such number of shares and price have not been adjusted
for the 4.6263-for-one stock split. The amount listed as
Other Annual Compensation for Mr. Thomas for
2004 is equal to the product of the total number of shares
purchased and the difference between the price paid to us and
the closing price of $29.00 per share of Reorganized
Company common stock in the
over-the-counter-market
on February 26, 2004. |
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(7) |
These options were granted on March 19, 2004 pursuant to
the terms of our 2004 Stock Option and Incentive Plan and have
not been adjusted for the 4.6263-for-one stock split. A portion
of these options were cancelled in the Acquisition in exchange
for the payments describe in footnote (3) above. The
remainder of these options were converted into options to
acquire 437,646, 24,505 and 24,154 shares as adjusted for the
4.6263-for-one stock split for Messrs. Thomas, Biehl and
Lovett, respectively. |
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(8) |
Of the amounts listed for 2004, $307,500 and $252,450 represent
year-end cash bonuses paid to Mr. Biehl and
Mr. Lovett, respectively, for our 2004 fiscal year. The
balance of the amounts listed for 2004, $66,667 for
Mr. Biehl and $55,000 for Mr. Lovett, represent
retention incentives that were paid in March 2004 in lieu of any
other cash bonuses for 2003. These retention incentives were
paid under retention agreements entered into in 2003 with
Mr. Biehl and Mr. Lovett, which required these
officers to remain employed with the company through
February 29, 2004 as a condition to payment. |
The following table sets forth information concerning the grant
of stock options to our chief executive officer and all other
executive officers during the last fiscal year.
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Individual Grants | |
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Percent of | |
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Potential Realizable Value | |
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Number of | |
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Total | |
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at Assumed Annual Rates | |
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Securities | |
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Options | |
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of Stock Price | |
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Underlying | |
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Granted to | |
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Exercise | |
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Appreciation for Option | |
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Options | |
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Employees | |
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or Base | |
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Term | |
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Granted | |
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in Fiscal | |
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Price | |
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Expiration | |
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Name |
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(#) | |
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Year | |
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($/Sh) | |
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Date | |
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5% ($) | |
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10% ($) | |
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Samuel F. Thomas
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682,819 |
(1) |
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31.0 |
% |
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$ |
6.41 |
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11/23/15 |
(2) |
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$ |
2,752,590 |
(3) |
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$ |
6,975,603 |
(3) |
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Chief Executive Officer and President |
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Michael F. Biehl
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204,844 |
(1) |
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9.3 |
% |
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$ |
6.41 |
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11/23/15 |
(2) |
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$ |
825,177 |
(3) |
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$ |
2,092,663 |
(3) |
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Executive Vice President, Chief Financial Officer and Treasurer |
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Charles R. Lovett
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68,284 |
(1) |
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3.1 |
% |
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$ |
6.41 |
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11/23/15 |
(2) |
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$ |
275,267 |
(3) |
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$ |
697,582 |
(3) |
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Vice President Manufacturing |
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(1) |
These options were granted on November 23, 2005 at an
exercise price of $6.41 pursuant to the terms of our 2005 Stock
Incentive Plan. The following portions of these options vest
annually in equal installments over five years based on
continued service: Mr. Thomas, 240,993; Mr. Biehl,
72,298; and Mr. Lovett, 24,099. The following portions of
these options vest based on performance, measured by reference
to First |
97
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Reserves net return on its investment in us:
Mr. Thomas, 441,825; Mr. Biehl, 132,546; and
Mr. Lovett, 44,185. See Amended and Restated
2005 Stock Incentive Plan. |
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(2) |
The portion of these options that vests based on performance, as
described in footnote (1), may terminate earlier than this date
to the extent the performance measure is not satisfied at such
time that First Reserve may cease to have any ownership interest
in us. |
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(3) |
The potential realized values are net of exercise price but do
not take into account the payment of taxes associated with
exercise. The amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of
the option term based on assumed annual rates of compound share
price appreciation from the date of this prospectus of 5% and
10% based on $6.41 per share, the fair market value on the date
of grant. The 5% and 10% assumed annual rates of compounded
share price appreciation are mandated by rules of the SEC and do
not represent our estimate or projection of our future common
share prices. Actual gains, if any, on stock option exercises
are dependent on the future performance of our common shares and
overall stock market conditions and the option holders
continued service with us. |
|
Since December 31, 2005, we have granted
270,399 options under the 2005 Stock Option Plan to
26 employees at an exercise price of $11.98 per share.
The following table sets forth information concerning the
exercise of stock options during 2005 by each of our chief
executive officer and all other executive officers and the
2005 year-end value of unexercised options.
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Number of Securities | |
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Value of Unexercised | |
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Underlying Unexercised | |
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In-the-Money Options at | |
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Shares | |
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Options at | |
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Fiscal Year-End | |
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Acquired on | |
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Value | |
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Fiscal Year-End (#) | |
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($)(1)(2) | |
Name |
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Exercise (#) | |
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Realized($) | |
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Exercisable/Unexercisable(1) | |
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Exercisable/Unexercisable | |
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|
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Samuel F. Thomas
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437,646/682,819(3) |
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$7,221,159/$9,279,510 |
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Chief Executive Officer and President |
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Michael F. Biehl
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24,505/204,844(3) |
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$404,333/$2,783,830 |
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Executive Vice President, Chief Financial Officer and Treasurer |
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Charles R. Lovett
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20,124/72,313(3) |
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$332,046/$994,458(4) |
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Vice President Manufacturing |
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(1) |
Since December 31, 2005, Mr. Thomas, Mr. Biehl
and Mr. Lovett have exercised their respective options to
acquire 437,646, 24,505 and 24,153 shares, which have been
adjusted by the 4.6263-for-one stock split, respectively, of our
common stock for $3.50 per share. Messrs. Thomas,
Biehl and Lovett will receive the pro-rata dividends to which
they are entitled as stockholders of these shares, as described
under the caption Dividend Policy, and the value of
those dividends has not been included in the calculation of the
value of the related options that have been exercised. |
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(2) |
There was no public trading market for our common stock as of
December 31, 2005. The value of unexercised
in-the-money options is
based on the assumed initial public offering price of $20.00 per
share. |
|
|
|
(3) |
For Messrs. Thomas and Biehl, represents underlying shares
as adjusted by the 10.1088-for-one adjustment. For
Mr. Lovett, represents an option to purchase 871 shares
(which has been exercised before the date of this prospectus)
adjusted by the 4.6263-for-one stock split and an option to
purchase 6,755 shares adjusted by the 10.1088-for-one adjustment. |
|
|
|
(4) |
Represents the exercise of the option to purchase 4,029 shares
at an exercise price of $6.41 per share and the exercise of the
option to purchase 68,284 shares at an exercise price of $3.50
per share. |
|
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Pension Plan Information
The Chart Retirement Income Plan was frozen as of
December 31, 2004. Therefore, no future service or earnings
will be considered in the calculation of the normal
retirement benefit (as defined therein) payable from the
plan. Mr. Lovetts annual benefit payable at his
normal retirement date (as defined therein) is
$4,850.88. This amount was calculated using his final average
earnings and credited service at December 31, 2004.
Amended and Restated 2005 Stock Incentive Plan
The following is a description of the Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan, which we refer to as
the Plan. The Plan has been filed as an exhibit to the
registration statement of which this prospectus forms a part. We
initially adopted the Plan effective November 23, 2005 and
intend to adopt the amended and restated Plan prior to the
completion of this offering. We anticipate that the Plan will be
approved by our stockholders prior to the completion of this
offering.
The Plan provides for the grant of options that are not
incentive stock options, stock appreciation rights, which we
refer to as SARs, restricted stock, restricted stock units, and
other stock-based grants, including the shares of our common
stock sold to our non-employee directors, executive officers,
other key employees and consultants.
Prior to the completion of this offering there will be
3,421,030 shares of common stock reserved for issuance
under the Plan. Awards may, in the discretion of the committee,
be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by us or an affiliate or a
company acquired by us or with which we combine. The number of
shares underlying such substitute awards shall be counted
against the aggregate number of shares available for awards
under the Plan. The number or kind of shares issued or reserved
for issuance pursuant to the Plan or pursuant to outstanding
awards, the exercise price of any award or any other affected
term of an award shall be adjusted by our board of directors on
account of mergers, consolidations, reorganizations, stock
splits, extraordinary dividends or other dilutive changes in the
shares of common stock. Shares of common stock covered by awards
that terminate or lapse without the issuance of shares will
again be available for grant under the Plan.
The Plan is administered by our board of directors, which may
delegate its duties and powers in whole or in part to any
committee thereof. The board has the full power and authority to
establish the terms and conditions of any award consistent with
the provisions of the Plan and to waive any such terms and
conditions at any time. The board also has the authority to
grant awards under the Plan. The board is authorized to
interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan and to make any other
determinations that it deems necessary or desirable for the
administration of the Plan. The board is authorized to correct
any defect or supply any omission or reconcile any inconsistency
in the Plan in the manner and to the extent the board deems
necessary or desirable.
Except with respect to substitute awards, the exercise price per
share for options is equal to the fair market value on the
applicable date of grant. An option holder may exercise an
option by written notice and payment of the exercise price
(i) in cash, (ii) to the extent permitted by the
board, by the surrender of a number of shares of common stock
already owned by the option holder for at least six months (or
such other period as established from time to time by the board
to avoid adverse accounting treatment applying generally
accepted accounting principles), (iii) in a combination of
cash and shares of common stock (as qualified by
clause (ii)), (iv) through the delivery of irrevocable
instructions to a broker to sell share obtained upon the
exercise of the option and deliver to us an amount equal to the
exercise price for the shares of common stock being purchased or
(v) through such cashless exercise procedures as the board
may permit. Option holders who are subject to the withholding of
federal and state income tax as a result of exercising an option
may satisfy the income tax withholding obligation through the
withholding of a portion of the shares of common stock to be
received upon exercise of the option.
As of the date of this prospectus, we have granted under the
Plan certain options as non-qualified stock options, which have
been granted as follows: approximately 35% vest and become
exercisable over the passage
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of time, which we refer to as time options, assuming
the holder thereof continues to be employed by us, and the
remaining portion vests and becomes exercisable based upon the
achievement of certain performance targets, which we refer to as
performance options. Time options generally become
exercisable by the holder of the option in installments of 20%
on each of the first five anniversaries of the grant date.
Performance options generally become exercisable based upon the
Fund X Net Return, which is the amount received
by First Reserve in cash (and/or in-kind based upon the fair
market value of securities or other property received by First
Reserve) in respect of its investment in us divided by the
aggregate amount of the investment by First Reserve in us, which
we refer to as the Fund X Investment.
Immediately prior to a change in control of us (as defined in
the Plan), the exercisability of the time options will
automatically accelerate with respect to 100% of the shares of
our common stock subject to the time options. In addition,
subject to the holder of the options continued employment,
in the event First Reserve sells 100% of its interest in us to a
third party prior to October 17, 2008 and, as a result of
such sale, the Fund X Net Return is less than 2.50 times
the Fund X Investment, but an internal rate of return of
greater than 30% is realized, the performance option will
accelerate with respect to 45% of the shares of our common stock
subject to the performance option.
The board may grant SARs independent of or in connection with an
option. The exercise price per share of a SAR shall be an amount
determined by the board, but in no event shall such amount be
less than the greater of (i) the fair market value of a
share on the date the SAR is granted or, in the case of a SAR
granted in conjunction with an option, or a portion thereof, the
exercise price of the related option and (ii) the minimum
amount permitted by applicable laws, rules, by-laws or policies
of regulatory authorities or stock exchanges. Each SAR granted
independent of an option shall entitle a participant upon
exercise to an amount equal to (i) the excess of
(A) the fair market value on the exercise date of one share
over (B) the exercise price per share, times (ii) the
number of shares covered by the SAR. Each SAR granted in
conjunction with an option, or a portion thereof, shall entitle
a participant to surrender to us the unexercised option, or any
portion thereof, and to receive from us in exchange therefor an
amount equal to (i) the excess of (A) the fair market
value on the exercise date of one share over (B) the
exercise price per share, times (ii) the number of shares
covered by the option, or portion thereof, which is surrendered.
Payment shall be made in shares of common stock or in cash, or
partly in shares of common stock and partly in cash, all as
shall be determined by the board.
The board may grant awards of shares of common stock, restricted
stock, restricted stock units and other awards that are valued
in whole or in part by reference to, or are otherwise based on
the fair market value of, shares. Such awards will be subject to
the terms and conditions established by the board.
Unless otherwise determined by the board, awards granted under
the Plan are not transferable other than by will or by the laws
of descent and distribution.
No award may be granted under the Plan after the tenth
anniversary of the effective date of the Plan, but awards
granted prior to such date may extend beyond such tenth
anniversary. In addition, other than in connection with certain
permitted adjustments, neither the exercise price of an option
nor the exercise price of a SAR may be reduced after the date of
grant.
The board of directors may amend, alter or discontinue the Plan
in any respect at any time, but no amendment, alteration or
discontinuance may diminish any of the rights of a participant
under any awards previously granted, without his or her consent.
2004 Stock Option and Incentive Plan
The following is a description of the Chart Industries, Inc.
2004 Stock Option and Incentive Plan, which we refer to as the
2004 Plan. The 2004 Plan has been filed as an exhibit to the
registration statement of which this prospectus forms a part. We
adopted the 2004 Plan effective February 12, 2004. We
anticipate that the 2004 Plan will be approved by our
stockholders prior to the completion of this offering.
The 2004 Plan permits the grant of nonqualified stock options to
our and our affiliates employees. A maximum of
494,703 (this number has not been adjusted for the
4.6263-for-one stock split) shares of
100
common stock may be subject to awards under the 2004 Plan. The
number of shares of common stock issued or reserved pursuant to
the 2004 Plan, or pursuant to outstanding awards, is subject to
adjustment on account of mergers, consolidations,
reorganizations, stock splits, stock dividends, extraordinary
dividends and other dilutive changes in the shares of common
stock. Shares of common stock covered by awards that expire,
terminate or lapse will again be available for grant under the
2004 Plan. We do not intend to make any grants under the 2004
Plan following the completion of this offering.
The 2004 Plan is administered by our board of directors, which
may delegate its duties and powers in whole or in part to any
committee thereof. The board has the sole discretion to
determine the employees to whom awards may be granted under the
2004 Plan and the manner in which such awards will vest. Options
will be granted by the board to employees in such numbers and at
such times during the term of the 2004 Plan as the board shall
determine. The board is authorized to interpret the 2004 Plan,
to establish, amend and rescind any rules and regulations
relating to the 2004 Plan.
The board shall determine the exercise price for each option. An
option holder may exercise an option by written notice and
payment of the exercise price (1) in cash, (2) by the
surrender of a number of shares of common stock already owned by
the option holder, (3) by surrender of all or part of an
award or (4) in a combination of the foregoing methods. The
board may also prescribe any other method of paying the exercise
price that it determines is consistent with applicable law and
the purpose of the 2004 Plan. The board in its discretion may
permit option holders who are subject to the withholding of
federal and state income tax as a result of exercising an option
to satisfy the income tax withholding obligation through the
withholding of a portion of the shares of common stock to be
received upon exercise of the option.
Unless otherwise determined by the board, awards granted under
the 2004 Plan are not transferable other than by will, by the
laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Internal Revenue Code
of 1986, as amended, which we refer to as the Code.
Prior to the consummation of this offering, the options under
the 2004 Plan were fully vested and exercised and no options
remain outstanding under the 2004 Plan.
Our board of directors may amend, alter or discontinue the 2004
Plan in any respect at any time, but no amendment, alteration or
discontinuance may impair any of the rights of a participant
under any awards previously granted, without his or her consent.
2006 Chart Executive Incentive Compensation Plan
The following is a description of the 2006 Chart Executive
Incentive Compensation Plan, which we refer to as the 2006 Bonus
Plan. The 2006 Bonus Plan has been filed as an exhibit to the
registration statement of which this prospectus forms a part. We
adopted the 2006 Bonus Plan effective March 1, 2006. We
anticipate that the 2006 Bonus Plan will be approved by our
stockholders prior to the completion of this offering.
Employees who served or serve as executive officers in 2005 or
2006 and are selected by the compensation committee of our board
of directors to participate are eligible to receive a bonus
under the 2006 Bonus Plan. The 2006 Bonus Plan is designed to
provide our executive officers with incentive compensation based
upon the achievement of pre-established performance goals. The
purpose of the 2006 Bonus Plan is to attract, retain, motivate
and reward participants by providing them with the opportunity
to earn competitive compensation directly linked to our
performance.
The 2006 Bonus Plan is administered by the compensation
committee of our board of directors. The 2006 Bonus Plan
provides for the payment of incentive bonuses, in the form of
cash. If our performance relative to the 2006 Bonus Plans
targets exceeds threshold amounts, participants may earn a bonus
of up to a pre-determined percentage of the participants
base salary, ranging from 90% to 165% of the participants
base salary at maximum performance levels. Actual performance
below the minimum performance threshold for a performance
objective will result in no payment based on that objective.
101
The compensation committee of the board has established the
performance targets under the 2006 Bonus Plan. The material
targets under the 2006 Bonus Plan include working capital and
EBITDA targets. The performance period under the plan is our
fiscal year.
Following the end of the fiscal year, the compensation committee
of the board will determine (i) whether and to what extent
any of the performance objectives established have been
satisfied, and (ii) for each participant employed as of the
last day of the fiscal year, the actual bonus to which such
participant shall be entitled, taking into consideration the
extent to which the performance objectives have been met.
Employees on a leave of absence as of the last day of the fiscal
year are not eligible for payment under the plan unless and
until they return to active status. In addition, in certain
circumstances bonus amounts are pro-rated.
Payment of any bonus amount will be made to participants before
March 15, 2007.
Incentive Compensation Plan
The following is a description of the Chart Industries, Inc.
Incentive Compensation Plan, which we refer to as the Incentive
Compensation Plan. We adopted the Incentive Compensation Plan
effective ,
2006. We anticipate that the Incentive Compensation Plan will be
approved by our stockholders prior to the completion of this
offering. A copy of the Incentive Compensation Plan has been
filed as an exhibit to the registration statement of which this
prospectus forms a part.
Purpose. The Incentive Compensation Plan is a bonus plan
designed to provide certain employees of the Company and its
affiliates with Incentive Compensation based upon the
achievement of pre-established performance goals. The purpose of
the Incentive Compensation Plan is to attract, retain, motivate
and reward participants by providing them with the opportunity
to earn competitive compensation directly linked to our
performance.
Administration. The Incentive Compensation Plan is
administered by the compensation committee of our board of
directors. The committee may delegate its authority under the
Incentive Compensation Plan.
Eligibility; Awards. Awards may be granted to officers
and key employees of the Company and its affiliates in the sole
discretion of the committee. The Incentive Compensation Plan
provides for the payment of incentive bonuses in the form of
cash.
Performance Goals. The committee establishes the
performance periods over which performance objectives will be
measured. A performance period may be for a fiscal year or a
multi-year cycle, as determined by the committee. No later than
90 days after each performance period begins, the committee
will establish (1) the performance objective or objectives
that must be satisfied for a participant to receive a bonus for
such performance period, and (2) the target incentive bonus
for each participant. Performance objectives will be based upon
one or more of the following criteria, as determined by the
committee: (i) earnings before or after taxes (including
earnings before interest, taxes, depreciation and amortization
or earnings before taxes and interest); (ii) net income;
(iii) operating income; (iv) earnings per share;
(v) book value per share; (vi) return on
stockholders equity; (vii) expense management;
(viii) return on investment; (ix) improvements in
capital structure or capital expenses; (x) profitability of
an identifiable business unit or product; (xi) maintenance
or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) costs; (xv) liquidity
or cash flow; (xvi) working capital and working capital
metrics; (xvii) return on assets; (xviii) assets, debt
or net debt, (xix) total return; (xx) customer
satisfaction survey performance; (xxi) quality improvement
performance; (xxii) manufacturing productivity performance
and (xxiii) such other objective performance criteria as
determined by the committee in its sole discretion. The
foregoing criteria may relate to us, one or more of our
subsidiaries or one or more of our divisions or units, or any
combination of the foregoing, and may be applied on an absolute
basis and/or be relative to one or more peer group companies or
indices, or any combination thereof, all as the committee shall
determine. The committee may appropriately adjust any
performance evaluation under a performance objective or
objectives to reflect any of the following events that may occur
during the performance period: (1) asset gains or losses;
(2) litigation, claims, judgments or settlements;
(3) the effect of changes in tax law, accounting principles
or
102
other such laws or provisions affecting reported results;
(4) accruals for reorganization and restructuring programs;
and (5) any extraordinary, unusual, non-recurring or
non-cash items.
As soon as practicable following the applicable performance
period but in no event later than the date that is 75 days
after the end of the taxable year in respect of which the
applicable bonuses are payable, the committee will
(x) determine (i) whether and to what extent any of
the performance objectives established for such performance
period have been satisfied, and (ii) for each participant
employed as of the last day of the performance period for which
the bonus is payable, the actual bonus to which such participant
shall be entitled, taking into consideration the extent to which
the performance objectives have been met and such other factors
as the committee may deem appropriate and (y) within
75 days after the end of the taxable year in respect of
which the applicable bonuses are payable, cause such bonus to be
paid such participant. No participant may receive a bonus under
the Incentive Compensation Plan, with respect to any fiscal
year, in excess of $5 million. The committee has absolute
discretion to reduce or eliminate the amount otherwise payable
to any participant under the Incentive Compensation Plan and to
establish rules or procedures that have the effect of limiting
the amount payable to each participant to an amount that is less
than the maximum amount otherwise authorized as that
participants target incentive bonus, provided, however,
that following the occurrence of a Change of Control of us (as
defined in the Incentive Compensation Plan), the committee shall
continue to have such right only in the event that a participant
engages in misconduct or materially fails to fulfill his or her
individual duties, in each case, as determined by the committee
in its sole and absolute discretion.
Change in Control. If there is a Change in Control, the
committee, as constituted immediately prior to the Change in
Control, shall determine promptly in its discretion whether the
performance criteria have been met in the year in which the
Change in Control occurs and for any completed performance
period for which a determination under the plan has not been
made. If the committee determines the criteria have been met,
participants will receive their bonuses as soon as practicable,
but in no event more than 30 days after such determination.
Termination of Employment. Unless a participants
employment agreement otherwise provides, if a participant dies
or becomes disabled prior to the last day of a performance
period, the participant may receive an annual bonus equal to the
bonus otherwise payable to the participant or, if determined by
the committee, based upon actual company performance for the
applicable performance period, pro-rated for the days of
employment during the performance period. If a
participants employment terminates for any reason other
than due to death or disability prior to the last day of the
performance period for which the bonus under the Incentive
Compensation Plan is payable, such participant will not receive
a bonus.
Payment of Awards. Payment of any bonus amount is made to
participants as soon as practicable after the committee
certifies that one or more of the applicable objectives has been
attained, or, where the committee will reduce, eliminate or
limit the bonus, as described above, the committee determines
the amount of any such reduction; provided, however, that in no
event will such payment be made later than the date that is
75 days after the end of the taxable year in respect of
which the applicable bonuses are payable.
Amendment and Termination of Plan. Our board of directors
or the committee may at any time amend, suspend, discontinue or
terminate the Incentive Compensation Plan. Unless earlier
terminated, the Incentive Compensation Plan will expire
immediately prior to our first stockholder meeting in 2010 at
which directors will be elected.
Employment Agreements
On November 23, 2005, we entered into an employment
agreement with Samuel F. Thomas, pursuant to which
Mr. Thomas serves as our Chief Executive Officer and
President for a rolling term of three years. Under the
agreement, Mr. Thomas is entitled to an annual base salary
of $400,000 payable in regular installments in accordance with
our usual payroll practices. Mr. Thomas is also eligible to
earn an annual bonus award, for each full year during the term
of his employment agreement, of up to 150% of his annual
103
bonus target, which target for calendar year 2006 is $440,000
and may be increased in the sole discretion of our board of
directors, based upon the achievement of annual performance
targets established by our board. Mr. Thomas is also
generally entitled to participate in our employee benefit plans
on the same basis as those benefits are generally made available
to our other senior executives.
If Mr. Thomass employment is terminated by us without
cause or he resigns for good reason (as
such terms are defined in his employment agreement),
Mr. Thomas will be entitled to receive compensation and
benefits that are earned but unpaid as of the date of
termination and, subject to the execution and delivery of a
release of claims against us, (i) base salary for three
years, payable in installments and (ii) continued coverage
under our group health plans for three years or, to the extent
such coverage is not permissible under the terms of such plans,
an amount equal to the premium subsidy we would have otherwise
paid on Mr. Thomas behalf for such coverage.
Mr. Thomas is also subject to a covenant not to disclose
confidential information during the employment term and at all
times thereafter and covenants not to compete and not to solicit
employees or customers during the employment term and for three
years following termination of employment for any reason.
On December 1, 2005, we entered into an employment
agreement with Michael F. Biehl, pursuant to which
Mr. Biehl serves as our Executive Vice President, Chief
Financial Officer and Treasurer for a rolling term of two years.
Under the agreement, Mr. Biehl is entitled to an annual
base salary of $235,000 payable in regular installments in
accordance with our usual payroll practices. Mr. Biehl is
also eligible to earn an annual bonus award, for each full year
during the term of his employment agreement, of up to 150% of
his annual base salary, based upon the achievement of annual
performance targets established by our board. Mr. Biehl is
also generally entitled to participate in our employee benefit
plans on the same basis as those benefits are generally made
available to our other senior executives.
If Mr. Biehls employment is terminated by us without
cause or he resigns for good reason (as
such terms are defined in his employment agreement),
Mr. Biehl will be entitled to receive the compensation and
benefits that are earned but unpaid as of the date of
termination and, subject to the execution and delivery of a
release of claims against us, (i) base salary for two
years, payable in installments and (ii) continued coverage
under our group health plans for two years and, to the extent
such coverage is not permissible under the terms of such plans,
an amount equal to the premium subsidy we would have otherwise
paid on Mr. Biehls behalf for such coverage.
Mr. Biehl is also subject to a covenant not to disclose
confidential information during the employment term and at all
times thereafter and covenants not to compete and not to solicit
employees or customers during the term of his employment and for
two years following termination of employment for any reason.
On March 29, 2006, we entered into an employment agreement
with Matthew J. Klaben, pursuant to which Mr. Klaben serves
as our Vice President and General Counsel for a rolling term of
one year. Under the agreement, Mr. Klaben is entitled to an
annual base salary of $193,000, payable in regular installments
in accordance with our usual payroll practices. Mr. Klaben
is also entitled to receive a one-time $25,000 signing bonus,
which will be forfeited and repaid to the company if
Mr. Klaben resigns without good reason (as such
term is defined in his employment agreement) before
March 29, 2007. In addition, Mr. Klaben is also
eligible to earn an annual bonus award, for each full year
during the term of his employment agreement, of up to 105% of
his annual base salary, based upon the achievement of annual
performance targets established by our board. Mr. Klaben is
also generally entitled to participate in our employee benefit
plans on the same basis as those benefits are generally made
available to our other senior executives.
If Mr. Klabens employment is terminated by us without
cause or he resigns for good reason (as
such terms are defined in his employment agreement), he will be
entitled to receive the compensation and benefits that are
earned but unpaid as of the date of termination and, subject to
the execution and delivery of a
104
release of claims against us, (i) base salary for one year,
payable in installments and (ii) continued coverage under
our group health plans for one year and, to the extent such
coverage is not permissible under the terms of such plans, an
amount equal to the premium subsidy we would have otherwise paid
on Mr. Klabens behalf for such coverage.
Mr. Klaben is also subject to a covenant not to disclose
confidential information during his term of employment and at
all times thereafter and covenants not to compete and not to
solicit employees or customers during the term of his employment
and for one year following termination of employment for any
reason.
On May 5, 2006, we entered into an employment agreement
with James H. Hoppel, Jr. pursuant to which
Mr. Hoppel serves as our Chief Accounting Officer,
Controller and Assistant Treasurer for a rolling term of one
year. Under the agreement, Mr. Hoppel is entitled to an
annual base salary of $154,000, payable in regular installments
in accordance with our usual payroll practices. Mr. Hoppel
is also eligible to earn an annual bonus award for the 2006
fiscal year and each full year during the term of his employment
agreement, of up to 90% of his annual base salary, based upon
the achievement of annual performance targets established by our
board. Mr. Hoppel is also generally entitled to participate
in our employee benefit plans on the same terms as those
benefits are generally made available to our other senior
executives.
If Mr. Hoppels employment is terminated by us without
cause or he resigns for good reason (as
such terms are defined in his employment agreement), he will be
entitled to receive the compensation and benefits that are
earned but unpaid as of the date of termination and, subject to
the execution and delivery of a release of claims against us,
(i) base salary for one year, payable in installments and
(ii) continued coverage under our group health plans for
one year and, to the extent such coverage is not permissible
under the terms of such plans, an amount equal to the premium
subsidy we would have otherwise paid on Mr. Hoppels
behalf for such coverage.
Mr. Hoppel is also subject to a covenant not to disclose
confidential information during the term of his employment and
at all times thereafter and covenants not to compete and not to
solicit employees or customers during the term of his employment
and for one year following termination of employment for any
reason.
On December 1, 2005, we entered into an employment
agreement with Charles R. Lovett pursuant to which
Mr. Lovett serves as our Vice PresidentManufacturing
for a rolling term of one year. Under the agreement,
Mr. Lovett is entitled to an annual base salary of
$179,416, payable in regular installments in accordance with our
usual payroll practices. Mr. Lovett is also eligible to
earn an annual bonus award, for each full year during the term
of his employment agreement, of up to 150% of his annual base
salary, based upon the achievement of annual performance targets
established by our board. Mr. Lovett is also generally
entitled to participate in our employee benefit plans on the
same basis as those benefits are generally made available to our
other senior executives.
If Mr. Lovetts employment is terminated by us without
cause or he resigns for good reason (as
such terms are defined in the employment agreement), he will be
entitled to receive the compensation and benefits that are
earned but unpaid as of the date of termination and, subject to
the execution and delivery of a release of claims against us,
(i) base salary for one year, payable in installments and
(ii) continued coverage under our group health plans for
one year and, to the extent such coverage is not permissible
under the terms of such plans, an amount equal to the premium
subsidy we would have otherwise paid on Mr. Lovetts
behalf for such coverage.
Mr. Lovett is also subject to a covenant not to disclose
confidential information during his term of employment and at
all times thereafter and covenants not to compete and not to
solicit employees or
105
customers during the term of his employment and for one year
following termination of employment for any reason.
Management Equity
In connection with the Acquisition, the compensation committee
elected to adjust, in accordance with the terms of our 2004
Stock Option and Incentive Plan and the merger agreement, a
portion of certain then-outstanding stock options held by
certain executive officers or members of senior management to
represent options to acquire shares of our common stock after
the Acquisition. All other then-outstanding stock options were
cashed out pursuant to the merger agreement. All such rollover
options were exercised in the second quarter of 2006 for $3.50
per share. All shares of common stock acquired upon the exercise
of such rollover options are now subject to the terms of the
management stockholders agreements. See Certain
Related Party Transactions.
106
PRINCIPAL STOCKHOLDERS
The following table and accompanying footnotes show information
regarding the beneficial ownership of our common stock before
and after this offering by:
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each person who is known by us to own beneficially more than 5%
of our common stock; |
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each member of our board of directors and each of our named
executive officers; and |
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all members of our board of directors and our executive officers
as a group. |
The number of shares and percentages of beneficial ownership
before the offering set forth below are based on
11,213,049 shares of our common stock issued and
outstanding as of May 22, 2006 and after giving effect to
the 4.6263-for-one
stock split we expect to effect immediately prior to the
consummation of this offering. The number of shares and
percentages of beneficial ownership after the offering are based
on 25,588,049 shares of our common stock that will be
issued and outstanding immediately after this offering,
including 1,875,000 shares that will be dividended to our
existing stockholders assuming no exercise of the
underwriters over-allotment option.
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Shares Beneficially Owned Immediately | |
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After this Offering | |
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Shares Beneficially | |
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Assuming the | |
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Assuming the | |
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Owned Immediately | |
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Underwriters Option is | |
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Underwriters Option is | |
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Prior to this Offering | |
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Not Exercised(1) | |
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Exercised in Full | |
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Percent of | |
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Percent of | |
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Percent of | |
Name of Beneficial Holder |
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Number | |
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Common | |
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Number | |
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Common | |
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Number | |
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Common | |
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| |
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| |
First Reserve Fund X, L.P(2)
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10,603,192 |
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94.6% |
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12,376,214 |
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48.4 |
% |
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10,603,192 |
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41.4 |
% |
Samuel F. Thomas
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437,646 |
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3.9% |
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510,827 |
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2.0 |
% |
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437,646 |
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1.7 |
% |
Michael F. Biehl
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24,505 |
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* |
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28,602 |
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* |
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24,505 |
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* |
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Matthew J. Klaben
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James H. Hoppel, Jr.
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Charles R. Lovett
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24,154 |
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* |
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28,192 |
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* |
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24,154 |
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* |
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Ben A. Guill(3)
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Kenneth W. Moore(3)
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Timothy H. Day(3)
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All directors and officers as a group (8 persons)
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486,305 |
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4.3% |
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567,621 |
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2.2 |
% |
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486,305 |
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1.9 |
% |
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(1) |
We will grant the underwriters an option to purchase up to an
additional shares in this offering. Immediately prior to the
consummation of this offering, we will declare a stock dividend,
the terms of which will require that shortly after the
expiration of the underwriters over-allotment option
(assuming the option is not exercised in full) we issue to our
existing stockholders the number of shares equal to (x) the
number of additional shares the underwriters have an option to
purchase minus (y) the actual number of shares the
underwriters purchase from us pursuant to that option. |
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(2) |
94.6% of our common stock is owned by FR X Chart Holdings
LLC, which in turn is 100% owned and managed by First Reserve
Fund X, L.P., or Fund X. First Reserve GP X,
L.P., or GP X, is the general partner of Fund X. First
Reserve GP X, Inc., or GP X, Inc., is the general
partner of GP X. First Reserve Corporation is the advisor
to Fund X. The officers for GP X and GP X Inc.
are William E. Macaulay, John A. Hill, Ben A. Guill, Thomas R.
Denison, Cathleen M. Ellsworth, J.W.G. (Will) Honeybourne, Alex
T. Krueger, Mark A. McComiskey, Kenneth W. Moore, Thomas J.
Sikorski, Jennifer C. Zarrilli, Craig M. Jarchow, Timothy H.
Day, Joseph Robert Edwards, J. Hardy Murchison, Catia Cesari,
Glenn J. Payne, Kristin A. Custar, Rahman P. DArgenio,
Brian K. Lee, Bingfeng Leng, Timothy K. OKeefe, Jeffrey K.
Quake, Daniel S. Rice, Anne E. Gold, Valeria A. Thomason and
Damien T.J. Harris, who are all employees of First Reserve.
Decisions with respect to voting and investments are made by the
Investment Committee of First Reserve, made up of a subset of
these officers that includes the officers named above except for
Ms. Thomason and Mr. Harris. With respect to
investments held by these entities, decisions with respect to
operations oversight are made by the subset of these officers
that work |
107
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most closely on a given investment, which includes
Messrs. Macaulay, Guill, Moore and Day in the case of Chart
Industries, Inc. The address of FR X Chart Holdings LLC,
Fund X, GP X, GP X, Inc. and First Reserve
Corporation is c/o First Reserve Corporation, One Lafayette
Place, Greenwich, Connecticut 06830. |
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(3) |
Mr. Guill is the President, a Managing Director and a
member of the board of directors of First Reserve Corporation
and GP X, Inc. Mr. Moore is a Managing Director of
First Reserve Corporation and GP X, Inc. Mr. Day is a
Director of First Reserve Corporation and GP X, Inc.
Mr. Guill, Mr. Moore and Mr. Day all disclaim
beneficial ownership of any shares of the issuers equity
securities owned by such entities or their affiliates (including
First Reserve Fund X, L.P.). |
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* |
Less than 1%. |
108
CERTAIN RELATED PARTY TRANSACTIONS
Management Stockholders Agreements
We have entered into amended and restated management
stockholders agreements, conditioned on the occurrence of
this offering and effective as of April 1, 2006, with
certain members of our management, including
Messrs. Thomas, Biehl, Klaben, Hoppel and Lovett, which we
refer to as the management stockholders, and FR X Chart Holdings
LLC.
Tag-Along Rights. If FR X Chart Holdings LLC wishes to
transfer shares of common stock other than pursuant to a
registered offering, a transfer pursuant to Rule 144 under
the Securities Act, a transfer with the approval of the members
of the board not affiliated with FR X Chart Holdings LLC or a
transfer by FR X Chart Holdings LLC to any of its affiliates or
partners or our employees, then each management stockholder
shall have the right to tag-along and participate, on a pro rata
basis, in such transfer of common stock. The tag-along rights
will terminate upon the date that FR X Chart Holdings LLC
and its affiliates cease to be the beneficial owner (as defined
in Rule 13d-3 of
the Exchange Act) of at least 30% of our outstanding common
stock.
Piggyback Registration Rights. Pursuant to
and subject to the terms of the amended and restated management
stockholders agreements, each management stockholder will
have the opportunity to include in registered sales of our
common stock (other than an initial public offering or relating
to any employee benefit plan or corporate merger, acquisition or
reorganization) and any shelf registration statement filed by us
with respect to our common stock, all or any part of the
registrable securities (as such term is defined in
the amended and restated management stockholders
agreements) then held by such management stockholder. We will
pay all of the expenses associated with an offering of such
shares. Underwriting discounts will be shared proportionately.
Stockholders Agreement
In connection with this offering, we and First Reserve or one of
its affiliates intend to enter into a stockholders agreement
pursuant to which First Reserve or its affiliates has the right
to request us to register the sale of shares held by First
Reserve, on their behalf and may require us to make available
shelf registration statements permitting sales of shares into
the market from time to time over an extended period. In
addition, First Reserve has the ability to exercise certain
piggyback registration rights in connection with registered
offerings initiated by us. After the consummation of this
offering, First Reserve will own shares entitled to these
registration rights.
In addition, pursuant to the terms of the stockholders
agreement, after this offering, for so long as First Reserve
continues to hold (1) less than 50% but at least 25% of our
outstanding common stock, it shall have the right to designate
three director nominees, (2) less than 25% but more than
10% of our outstanding common stock, it will have the right to
designate two director nominees; and (3) 10% of our
outstanding common stock, it will have the right to designate
one director nominee. Once First Reserve holds less than 10% of
our outstanding common stock, it will have no right to designate
directors pursuant to the stockholders agreement. We have agreed
that neither First Reserve nor any director, officer or employee
of First Reserve who may serve as officer, director and/or
employee of ours will be liable to us (i) by reason of any
business decision or transaction undertaken by First Reserve
which may be adverse to our interests, (ii) by reason of
any activity undertaken by First Reserve or by any other person
in which First Reserve may have an investment or other financial
interest which is in competition with us or (iii) without
limiting the effect of Section 144 of the Delaware General
Corporation Law, by reason of any transaction with First
Reserve, or any transaction in which First Reserve will have a
financial interest, unless the party seeking to assert such
liability proves, by clear and convincing evidence, that such
transaction was not fair to us at the time it was authorized by
the Board or a committee thereof.
109
Warrant to Purchase our Shares
On November 23, 2005, we issued a warrant to FR X Chart
Holdings LLC to purchase up to 2,651,012 shares of our
common stock at a per share purchase price of $14.00 (subject to
adjustment per the terms of the warrant). The warrant was
exercised on a cash basis in May 2006 and we issued
2,651,012 shares to FR X Chart Holdings LLC under the
warrant. See Management Management Equity.
Legal Fees
On April 1, 2006, Matthew J. Klaben became our Vice
President, General Counsel and Secretary. Prior to joining us in
March 2006, Mr. Klaben was a partner with the law firm of
Calfee, Halter & Griswold LLP. During 2005 and during
the three months ended March 31, 2006, we paid $959,264 and
$41,765, respectively, in legal fees and expenses to the law
firm of Calfee, Halter & Griswold LLP for legal
services rendered.
110
DESCRIPTION OF INDEBTEDNESS
Senior Secured Credit Facility
In connection with the Acquisition, we entered into a senior
secured credit facility with Citicorp North America, Inc., as
administrative agent, Citigroup Global Markets Inc., as joint
lead arranger and joint book manager, Morgan Stanley Senior
Funding, Inc., as joint lead arranger, joint book manager and
syndication agent and each lender party thereto. We have
received the requisite consents and commitments from existing
lenders and other financial institutions to amend the senior
secured credit facility to increase the size of the revolving
credit facility by $55.0 million to $115.0 million,
remove certain restrictions on our ability to consummate this
offering and on the use of proceeds as described in Use of
Proceeds as well as make certain other amendments. Subject
to the satisfaction of certain conditions, the amendment will be
effective as of the date of the consummation of this offering.
The description of our senior secured credit facility that
follows gives effect to this amendment.
The senior secured credit facility provides senior secured
financing of $295.0 million, consisting of:
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a $180.0 million term loan facility; and |
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a $115.0 million revolving credit facility. |
The term loan portion of our senior secured credit facility was
fully funded on October 17, 2005 and we had approximately
$35.1 million of borrowing capacity under the revolving
portion of our senior secured credit facility at March 31,
2006, after giving effect to approximately $24.9 million of
letters of credit and bank guarantees outstanding at that date.
Since October 17, 2005, we have voluntarily prepaid
$35.0 million in principal amount of the term loan facility.
Upon the occurrence of certain events, we may request an
increase to the existing term loan facility and/or the existing
revolving credit facility in an amount not to exceed
$100.0 million, subject to receipt of commitments by
existing lenders or other financial institutions reasonably
acceptable to the administrative agent.
We are the borrower for the term loan facility and the revolving
credit facility. The revolving credit facility includes
borrowing capacity available for letters of credit and for
borrowings on same-day notice, referred to as swingline loans.
Borrowings under the senior secured credit facility bear
interest at a rate equal to an applicable margin plus, at our
option, either (a) a base rate determined by reference to
the highest of (1) the rate that the administrative agent
announces from time to time as its base commercial lending rate,
(2) the three month certificate of deposit rate plus 0.5%
and (3) the federal funds rate plus 0.5% or (b) a
LIBOR rate determined by the applicable screen rate or by
reference to the costs of funds for deposits in
U.S. dollars for the interest period relevant to such
borrowing adjusted for certain additional costs.
The initial applicable margin for borrowings under the revolving
credit facility is 1.50% with respect to base rate borrowings
and 2.50% with respect to LIBOR borrowings. After we deliver our
financial statements for the first fiscal quarter ending at
least six months after the closing date, such applicable margin
will be reduced to 1.25% and 2.25%, respectively if our leverage
ratio is less than 5.0 to 1.0 but greater than or equal to 4.0
to 1.0, and to 1.00% and 2.00%, respectively if our leverage
ratio is less than 4.0 to 1.0. The applicable margin for
borrowings under the term loan facility is 1.00% with respect to
base rate borrowings and 2.00% with respect to LIBOR borrowings.
In addition to paying interest on outstanding principal under
the senior secured credit facility, we are required to pay a
commitment fee to the lenders under the revolving credit
facility in respect of the unutilized commitments thereunder.
The initial commitment fee rate is 0.50% per annum (which
fee will be reduced to 0.375% per annum if our leverage
ratio is less than 4.0 to 1.0). We also have to pay letter of
credit fees equal to the applicable margin then in effect with
respect to LIBOR loans under the revolving credit facility on
the aggregate undrawn amount of all letters of credit
outstanding. We also have to pay to each bank issuing a letter
of credit fees equal to 0.25% on the face amount of each letter
of credit and other customary documentary and processing charges.
111
The senior secured credit facility requires us to prepay
outstanding term loans, subject to certain exceptions, with:
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beginning in the year ending December 31, 2006, 75% (which
percentage will be reduced to 50% if our leverage ratio is equal
to or less than 4.75 and greater than 3.75 to 1.00, and to 25%
if our leverage ratio is equal to or less than 3.75 to 1.00 and
greater than 2.75 to 1.00, and to 0% if our leverage ratio is
equal to or less than 2.75 to 1.00) of our annual excess cash
flow; |
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100% of the net cash proceeds in excess of an amount to be
determined from non-ordinary course asset sales and casualty and
condemnation events, if we do not reinvest or contract to
reinvest those proceeds within 12 months and use such
proceeds within 18 months of receipt, subject to certain
limitations; |
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100% of the net cash proceeds of any incurrence of debt, other
than certain debt permitted under the senior secured credit
facility; and |
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100% of amounts in excess of an aggregate amount of
$5.0 million in respect of certain claims arising out of
the Acquisition, subject to certain exceptions. |
The foregoing mandatory prepayments other than from excess cash
flow will be applied first, to the next eight installments of
the term loan facility and second, to the remaining installments
of the term loan facility on a pro rata basis. Mandatory
prepayments from excess cash flow and optional prepayments will
be applied to the remaining installments of the term loan
facility at our direction. Each lender has the right to decline
any mandatory prepayment of its term loans in which case the
amount of such prepayment will be retained by us.
We may voluntarily prepay outstanding loans under the senior
secured credit facility at any time without premium or penalty,
other than customary breakage costs with respect to
LIBOR loans.
We are required to repay installments on the loans under the
term loan facility in quarterly principal amounts equal to 0.25%
of their funded total principal amount for the first six years
and nine months, with the remaining amount payable on the date
that is seven years from the date of the closing of the senior
secured credit facility.
Principal amounts outstanding under the revolving credit
facility will be due and payable in full at maturity, five years
from the date of the closing of the senior secured credit
facility.
All our obligations under the senior secured credit facility are
unconditionally guaranteed by each of our existing and future
domestic wholly-owned subsidiaries (subject to exceptions with
respect to immaterial subsidiaries and with respect to any
guaranty that could create materially adverse tax consequences)
referred to, collectively, as Domestic Guarantors.
All our obligations under the senior secured credit facility and
the guarantees of our obligations under the senior secured
credit facility by the Domestic Guarantors are secured by
substantially all our assets and the assets of each Domestic
Guarantor, including, but not limited to, the following:
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subject to certain exceptions, a pledge of the capital stock of
each direct and indirect domestic subsidiary owned by us or a
Domestic Guarantor (other than subsidiaries substantially all of
whose assets consist of stock in controlled foreign
corporations) and 65% of the capital stock of each first tier
foreign subsidiary owned by us or a Domestic Guarantor and of
each first tier domestic subsidiary owned by us or a Domestic
Guarantor substantially all of whose assets consist of stock in
controlled foreign corporations; and |
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subject to certain exceptions, a security interest in
substantially all of the tangible and intangible assets owned by
us and each Domestic Guarantor. |
112
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Certain Covenants and Events of Default |
The senior secured credit facility contains a number of
covenants that, among other things, restrict, subject to certain
exceptions, our ability and the ability of each of our
subsidiaries to:
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sell assets; |
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incur additional indebtedness; |
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prepay, redeem or repurchase other indebtedness (including the
notes); |
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pay dividends and distributions or repurchase capital stock; |
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create liens on assets; |
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make investments, loans or advances; |
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make capital expenditures; |
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make certain acquisitions; |
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engage in mergers or consolidations; |
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engage in certain transactions with affiliates; |
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amend certain material agreements governing indebtedness
(including the notes); |
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change the business conducted by us and our subsidiaries; |
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enter into agreements that restrict dividends from subsidiaries; |
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enter into sale and lease-back transactions; and |
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enter into swap agreements. |
In addition, the senior secured credit facility requires us to
maintain the following financial covenants:
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a maximum consolidated net leverage ratio; and |
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a minimum interest coverage ratio. |
The senior secured credit facility also contains certain
customary affirmative covenants and events of default.
As of March 31, 2006, we were in compliance in all material
respects with all covenants and provisions contained under our
senior secured credit facility.
Senior Subordinated Notes
In October 2005, we issued
91/8
% senior subordinated notes that mature on
October 15, 2015 in an aggregate principal amount of
$170.0 million in a private transaction not subject to the
registration requirements under the Securities Act. The net
proceeds from that financing were used to finance the
Acquisition and pay related fees and expenses.
The notes are guaranteed, on a senior subordinated, unsecured
basis, by each of our direct and indirect wholly-owned
subsidiaries that were domestic subsidiaries on the issue date.
The notes are our general unsecured senior subordinated
obligations that rank junior to our existing and future senior
indebtedness, including obligations under the senior secured
credit facility, equally in right of
113
payment with all of our future senior subordinated debt and
senior in right of payment to all of our future subordinated
debt. They are effectively subordinated in right of payment to
all of our existing and future secured debt to the extent of the
value of the assets securing such debt, and are structurally
subordinated to all obligations of our subsidiaries that are not
guarantors.
At any time prior to October 15, 2008, we may on any one or
more occasions redeem up to 35% of the aggregate principal
amount of notes issued under the indenture (including any
additional notes issued after the issue date) at a redemption
price of 109.125% of the principal amount, plus accrued and
unpaid interest and additional interest, if any, to, but not
including, the redemption date, with the net cash proceeds of
one or more equity offerings (such as this offering); provided
that:
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(1) at least 65% of the aggregate principal amount of notes
issued under the indenture (excluding notes held by us and our
subsidiaries) remains outstanding immediately after the
occurrence of such redemption; and |
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|
(2) the redemption occurs within 180 days of the date
of the closing of such equity offering. |
Except pursuant to the preceding paragraph or as otherwise set
forth below, the notes will not be redeemable at our option
prior to October 15, 2010. We are not, however, prohibited
from acquiring the notes by means other than a redemption,
whether pursuant to a tender offer, open market purchase or
otherwise, so long as the acquisition does not violate the terms
of the indenture.
On or after October 15, 2010, we may redeem all or a part
of the notes at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid
interest and additional interest, if any, on the notes to be
redeemed, to, but not including, the applicable redemption date,
if redeemed during the twelve month period beginning on October
15 of the years indicated below, subject to the rights of
holders on the relevant record date to receive interest on the
relevant interest payment date.
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Year |
|
Percentage | |
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|
| |
2010
|
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104.563% |
|
2011
|
|
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103.042% |
|
2012
|
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101.521% |
|
2013 and thereafter
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|
100.000% |
|
In addition, at any time prior to October 15, 2010, we may
also redeem all or a part of the notes at a redemption price
equal to 100% of the principal amount of notes to be redeemed,
plus the applicable premium (an amount intended to approximate a
make-whole price based on the price of a
U.S. treasury security plus 50 basis points) as of,
and accrued and unpaid interest and additional interest, if any,
to, but not including, the redemption date, subject to the
rights of holders on the relevant record date to receive
interest due on the relevant interest payment date. Though the
notes may be redeemed prior to October 15, 2010 in this
way, because any make-whole premium would be
prohibitively expensive, we do not expect to make a redemption
pursuant to this provision of the indenture.
In the event of a change of control, which is defined in the
indenture governing the notes, each holder of the notes will
have the right to require us to repurchase all or any part of
such holders notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase.
114
The indenture governing the notes contains certain covenants
that, among other things, limit our ability and the ability of
some of our subsidiaries to:
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incur additional debt or issue certain preferred shares; |
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|
pay dividends on or make distributions in respect of our or any
of our restricted subsidiaries capital stock or make other
restricted payments; |
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make certain investments; |
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sell certain assets; |
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create liens on certain debt without securing the notes; |
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|
consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; |
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enter into certain transactions with our affiliates; and |
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|
designate our subsidiaries as unrestricted subsidiaries. |
The indenture governing the notes also provides for events of
default which, if any of them occurs, would permit or require
the principal of and accrued interest on such notes to become or
to be declared to be due and payable.
As of March 31, 2006 we were in compliance in all material
respects with all covenants and provisions contained under the
indenture governing the notes.
We are obligated to use commercially reasonable efforts to
register the notes under the Securities Act and consummate an
exchange offer no later than August 14, 2006. If this
requirement is not met, then the annual interest on the notes
will increase by (1) 0.25 percentage points for the
first 90 days following the end of such period and
(2) 0.25 percentage points at the beginning of each
subsequent 90 day period, up to a maximum of
1.0 percentage point until all such registration defaults
are cured.
Chart Ferox Credit Facility
Chart Ferox, a.s., our majority-owned subsidiary located in the
Czech Republic, currently maintains a secured revolving credit
facility with borrowing capacity of up to $9.6 million, of
which $4.4 million is available only for letters of credit
and bank guarantees. At December 31, 2005, there was
$0.8 million of borrowings outstanding under, and
$1.5 million of bank guarantees supported by, the Ferox
revolving credit facility. Ferox is the only borrower for this
revolving credit facility.
Under the revolving credit facility, 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%. Ferox is not required to pay a commitment fee to
the lenders under the revolving credit facility in respect of
the unutilized commitments thereunder. Ferox must pay letter of
credit and guarantee fees equal to 0.75% on the face amount of
each guarantee.
Feroxs land and buildings secure $4.6 million, and
Feroxs account receivables secure $2.5 million, of
this revolving credit facility.
115
DESCRIPTION OF CAPITAL STOCK
The following is a description of the material terms of our
amended and restated certificate of incorporation and amended
and restated bylaws that will be in effect immediately prior to
this offering. We refer you to the form of our amended and
restated certificate of incorporation and amended and restated
bylaws, copies of which have been filed as exhibits to the
registration statement of which this prospectus forms a part.
Authorized Capitalization
Our authorized capital stock consists of 150,000,000 shares
of common stock, par value $0.01 per share, of which
11,213,049 shares were issued and outstanding immediately
prior to this offering, and 10,000,000 shares of preferred
stock, par value $0.01 per share, of which no shares are
currently issued and outstanding. Immediately following the
completion of this offering, we will have 25,588,049 shares
of common stock outstanding. Immediately following completion of
the offering, there will be no shares of preferred stock
outstanding.
Voting Rights. Holders of common stock are entitled to
one vote per share on all matters to be voted upon by the
stockholders. The holders of common stock do not have cumulative
voting rights in the election of directors.
Dividend Rights. Subject to the rights of the holders of
any preferred stock that may be outstanding, holders of our
common stock are entitled to receive equally and ratably, share
for share dividends as may be declared by our board of directors
out of funds legally available to pay dividends. Dividends upon
our common stock may be declared by the board of directors at
any regular or special meeting, and may be paid in cash, in
property, or in shares of capital stock. Before payment of any
dividend, there may be set aside out of any of our funds
available for dividends, such sums as the board of directors
deems proper as reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any of our
property, or for any proper purpose, and the board of directors
may modify or abolish any such reserve. The senior secured
credit facility and the indenture governing the notes impose
restrictions on our ability to declare dividends with respect to
our common stock.
Liquidation Rights. Upon liquidation, dissolution,
distribution of assets or other winding up, the holders of
common stock are entitled to receive ratably the assets
available for distribution to the stockholders after payment of
liabilities and the liquidation preference of any of our
outstanding preferred stock. Neither a sale of substantially all
of the property and assets of the corporation nor a
consolidation or merger of the corporation into another
corporation shall be deemed a liquidation of the company.
Other Matters. The common stock has no preemptive or
conversion rights and is not subject to further calls or
assessment by us. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding
shares of our common stock, including the common stock offered
in this offering, are fully paid and non-assessable.
Our amended and restated certificate of incorporation authorizes
our board of directors to establish one or more series of
preferred stock and to determine, with respect to any series of
preferred stock, the terms and rights of that series, including:
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the designation of the series; |
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the number of shares of the series, which our board may, except
where otherwise provided in the preferred stock designation,
increase or decrease, but not below the number of shares then
outstanding; |
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whether dividends, if any, will be cumulative or non-cumulative
and the dividend rate of the series; |
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the dates at which dividends, if any, will be payable; |
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the redemption rights and price or prices, if any, for shares of
the series; |
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the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series; |
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the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up of the
affairs of our company, or upon any distribution of assets of
our company; |
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whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of our
company or any other corporation, and, if so, the specification
of the other class or series or other security, the conversion
price or prices or rate or rates, any rate adjustments, the date
or dates as of which the shares will be convertible and all
other terms and conditions upon which the conversion may be made; |
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the preferences and special rights, if any, of the series and
the qualifications and restrictions, if any, of the series; |
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the voting rights, if any, of the holders of the series; and |
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such other rights, powers and preferences with respect to the
series as our board of directors may deem advisable. |
Anti-Takeover Effects of Certain Provisions of Delaware Law
and our Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws
Certain provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, which are
summarized in the following paragraphs, may have an
anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in
a premium over the market price for the shares held by
stockholders.
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Removal of Directors; Vacancies |
Our amended and restated certificate of incorporation provides
that (i) prior to the date on which First Reserve ceases to
own at least 40% of the voting power of all shares of stock
entitled to vote generally in the election of directors,
directors may be removed for any reason upon the affirmative
vote of holders of at least a majority of the voting power of
all then outstanding shares of stock entitled to vote generally
in the election of directors, voting together as a single class
and (ii) on and after the date on which First Reserve
ceases to own at least 40% of the voting power of all shares of
stock entitled to vote generally in the election of directors,
directors may be removed with or without cause, at any time by
the affirmative vote of holders of at least 75% of the voting
power of all the then outstanding shares of stock entitled to
vote generally in the election of directors, voting together as
a single class. In addition, our amended and restated bylaws
also provide that any vacancies on our board of directors will
be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum or by the sole remaining
director.
The Delaware General Corporation Law, or DGCL, provides that
stockholders are not entitled to the right to cumulate votes in
the election of directors unless our amended and restated
certificate of incorporation provides otherwise. Our amended and
restated certificate of incorporation prohibits cumulative
voting.
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Calling of Special Meetings of Stockholders |
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that special meetings of our
stockholders may be called at any time only by the chairman of
the board of directors, the board of directors or a committee of
the board which has been designated by the board of directors.
117
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Stockholder Action by Written Consent |
The DGCL permits stockholder action by written consent unless
otherwise provided by our amended and restated certificate of
incorporation. Our amended and restated certificate of
incorporation precludes stockholder action by written consent
after the date on which First Reserve ceases to hold at least
40% in voting power of all shares entitled to vote generally in
the election of our directors.
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Advance Notice Requirements for Stockholder Proposals and
Director Nominations |
Our amended and restated bylaws provide that stockholders
seeking to nominate candidates for election as directors or to
bring business before an annual meeting of stockholders must
provide timely notice of their proposal in writing to the
corporate secretary.
Generally, to be timely, a stockholders notice must be
received at our principal executive offices not less than 90
calendar days nor more than 120 calendar days prior to the first
anniversary of the date on which we first mailed our proxy
materials for the preceding years annual meeting or at
such other time as specified in our amended and restated bylaws.
Our amended and restated bylaws also specify requirements as to
the form and content of a stockholders notice. These
provisions may impede stockholders ability to bring
matters before an annual meeting of stockholders or make
nominations for directors at an annual meeting of stockholders.
The DGCL provides generally that the affirmative vote of a
majority of the outstanding shares entitled to vote is required
to amend a corporations certificate of incorporation or
bylaws, unless the certificate of incorporation requires a
greater percentage. Our amended and restated certificate of
incorporation provides that the following provisions in our
amended and restated certificate of incorporation and amended
and restated bylaws may only be amended, altered, repealed or
rescinded by a vote of at least 75% of the voting power of all
of the outstanding shares of our stock entitled to vote
generally in the election of directors:
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the removal of directors; |
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the limitation of stockholder action by written consent; |
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the ability to call a special meeting of stockholders being
vested solely in our chairman of the board, our board of
directors and any committee of the board of directors which has
been designated by our board of directors; |
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the advance notice requirements for stockholder proposals and
director nominations; and |
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the amendment provision requiring that the above provisions be
amended only with a 75% supermajority vote. |
In addition, our amended and restated certificate of
incorporation grants our board of directors the authority to
amend or repeal our bylaws without a stockholder vote in any
manner not inconsistent with the laws of the State of Delaware
or our amended and restated certificate of incorporation.
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Limitations on Liability and Indemnification of Officers
and Directors |
The DGCL authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their
stockholders for monetary damages for breaches of
directors fiduciary duties. Our amended and restated
certificate of incorporation includes a provision that
eliminates the personal liability of directors for monetary
damages for breach of fiduciary duty as a director, except:
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for breach of duty of loyalty; |
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for acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law; |
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under Section 174 of the DGCL (unlawful dividends); or |
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for transactions from which the director derived improper
personal benefit. |
118
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that we must indemnify our
directors and officers to the fullest extent authorized by the
DGCL. We are also expressly authorized to, and do, carry
directors and officers insurance providing coverage
for our directors, officers and certain employees for some
liabilities. We believe that these indemnification provisions
and insurance are useful to attract and retain qualified
directors and executive officers.
The limitation of liability and indemnification provisions in
our amended and restated certificate of incorporation and
amended and restated bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification
provisions.
We have entered into indemnification agreements with each of our
directors and officers providing for additional indemnification
protection beyond that provided by the directors and
officers liability insurance policy. In the
indemnification agreements, we have agreed, subject to certain
exceptions, to indemnify and hold harmless the director or
officer to the maximum extent then authorized or permitted by
the provisions of the amended and restated certificate of
incorporation, the DGCL, or by any amendment(s) thereto.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
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Delaware Anti-takeover Statute |
We have opted out of Section 203 of the DGCL. Subject to
specified exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years after the date of the transaction in
which the person became an interested stockholder.
Business combinations include mergers, asset sales
and other transactions resulting in a financial benefit to the
interested stockholder. Subject to various
exceptions, an interested stockholder is a person
who together with his or her affiliates and associates, owns, or
within three years did own, 15% or more of the
corporations outstanding voting stock. These restrictions
generally prohibit or delay the accomplishment of mergers or
other takeover or
change-in-control
attempts.
Transfer Agent and Registrar
National City Bank is the transfer agent and registrar for our
common stock.
Listing
We intend to apply to have our common stock approved for
quotation on the Nasdaq National Market under the symbol
.
Authorized but Unissued Capital Stock
The DGCL does not require stockholder approval for any issuance
of authorized shares. However, the listing requirements of
Nasdaq, which would apply so long as our common stock is listed
on the Nasdaq National Market, require stockholder approval of
certain issuances (other than a public offering) equal to or
exceeding 20% of the then outstanding voting power or then
outstanding number of shares of common stock, as well as for
certain issuances of stock in compensatory transactions. These
additional shares may be used for a variety of corporate
purposes, including future public offerings, to raise additional
capital or to facilitate acquisitions. One of the effects of the
existence of unissued and unreserved common stock may be to
enable our board of directors to issue shares to persons
friendly to current management, which issuance could render more
difficult or discourage an attempt to obtain control of our
company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of our management
and possibly deprive the stockholders of opportunities to sell
their shares of common stock at prices higher than prevailing
market prices.
119
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for
our common stock, and we cannot predict what effect, if any,
market sales of shares of common stock or the availability of
shares of common stock for sale will have on the market price of
our common stock. Nevertheless, sales of substantial amounts of
common stock in the public market, or the perception that such
sales could occur, could materially and adversely affect the
market price of our common stock and could impair our future
ability to raise capital through the sale of our equity or
equity-related securities at a time and price that we deem
appropriate.
Upon the closing of this offering, we will have outstanding an
aggregate of approximately 25.6 million shares of common
stock, including an additional 1,875,000 shares that will
be issued upon the exercise of the underwriters
over-allotment option or otherwise dividended to our existing
stockholders. Of the outstanding shares, the shares sold in this
offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares
held by our affiliates, as that term is defined
under Rule 144 of the Securities Act, may be sold only in
compliance with the limitations described below. The remaining
outstanding shares of common stock will be deemed
restricted securities as that term is defined under
Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption
from registration under Rule 144, 144(k) or Rule 701
under the Securities Act, which are summarized below.
Under our stockholders agreement and management
stockholders agreements, we may be required to register
the sale of our shares held by First Reserve and certain
management stockholders. First Reserve and certain management
stockholders will have the ability to exercise certain
registration rights in connection with registered offerings
initiated by us or requested by First Reserve. Immediately after
this offering, First Reserve and management will own
10,603,192 shares and 609,857 shares, respectively,
entitled to these registration rights. See Certain Related
Party Transactions.
Rule 144
Subject to the lock-up
agreements described below and the volume limitations and other
conditions under Rule 144, additional shares of our common
stock will be available for sale in the public market pursuant
to exemptions from registration requirements as follows:
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Number of Shares |
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Date |
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7,952,180
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After days from the date of this
prospectus (subject to volume limitations and other conditions
under Rule 144 and to the lock-up agreements described
below) |
2,651,012
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After days from the date of this
prospectus (subject to volume limitations and other conditions
under Rule 144 and to the lock-up agreements described
below) |
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are required to be aggregated),
including an affiliate, who has beneficially owned shares of our
common stock for at least one year is entitled to sell in any
three-month period a number of shares that does not exceed the
greater of:
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1% of the then-outstanding shares of common stock; and |
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the average weekly reported volume of trading in the common
stock on the Nasdaq National Market during the four calendar
weeks preceding the date on which notice of sale is filed,
subject to restrictions. |
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Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of
current public information about us.
Rule 144(k)
In addition, a person who is not deemed to have been an
affiliate of ours at any time during the 90 days preceding
a sale and who has beneficially owned the shares proposed to be
sold for at least two years, would be
120
entitled to sell those shares under Rule 144(k) without
regard to the manner of sale, public information, volume
limitation or notice requirements of Rule 144. To the
extent that our affiliates sell their shares, other than
pursuant to Rule 144 or a registration statement, the
purchasers holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from
the affiliate.
Rule 701
In general, under Rule 701 of the Securities Act as
currently in effect, any of our employees, consultants or
advisors who purchases shares of our common stock from us
pursuant to options granted prior to the completion of this
offering under our existing stock option plans or other written
agreement is eligible to resell those shares 90 days after
the effective date of this offering in reliance on
Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in
Rule 144. The 609,857 shares that will be held by
management immediately after this offering will be eligible for
resale 90 days from the date of this prospectus.
Lock-Up Agreements
In connection with this offering, we, our executive offices,
directors and existing stockholders have agreed with the
underwriters, subject to certain exceptions, not to sell,
dispose of or hedge any of our common stock or securities
convertible into or exchangeable for shares of common stock,
during the period ending 180 days after the date of this
prospectus, except with the prior written consent of Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc. and UBS
Securities LLC. See Underwriting.
121
MATERIAL UNITED STATES FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO
NON-U.S. HOLDERS
The following is a summary of material United States federal
income and estate tax consequences of the purchase, ownership
and disposition of our common stock as of the date hereof.
Except where noted, this summary deals only with common stock
that is held as a capital asset by a
non-U.S. holder.
A
non-U.S. holder
means a beneficial owner of our common stock (other than an
entity that is treated as a partnership for United States
federal income tax purposes) that is not for United States
federal income tax purposes any of the following:
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an individual citizen or resident of the United States; |
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a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia; |
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or |
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person. |
This summary is based upon provisions of the Internal Revenue
Code of 1986, as amended, or the Code, and regulations, rulings
and judicial decisions as of the date hereof. Those authorities
may be changed, perhaps retroactively, so as to result in United
States federal income and estate tax consequences different from
those summarized below. This summary does not address all
aspects of United States federal income and estate taxes and
does not deal with foreign, state, local or other tax
considerations that may be relevant to
non-U.S. holders
in light of their personal circumstances. In addition, it does
not represent a detailed description of the United States
federal income and estate tax consequences applicable to you if
you are subject to special treatment under the United States
federal income tax laws (including if you are a United States
expatriate, controlled foreign corporation,
passive foreign investment company or a partnership
or other pass-through entity for United States federal income
tax purposes). We cannot assure you that a change in law will
not alter significantly the tax considerations that we describe
in this summary.
If a partnership holds our common stock, the tax treatment of a
partner will generally depend upon the status of the partner and
the activities of the partnership. If you are a partner of a
partnership holding our common stock, you should consult your
tax advisors.
If you are considering the purchase of our common stock, you
should consult your own tax advisors concerning the particular
United States federal income and estate tax consequences to you
of the ownership of the common stock, as well as the
consequences to you arising under the laws of any other taxing
jurisdiction.
Dividends
Dividends paid to a
non-U.S. holder of
our common stock generally will be subject to withholding of
United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the
conduct of a trade or business by the
non-U.S. holder
within the United States (and, where a tax treaty applies, are
attributable to a United States permanent establishment (or, for
an individual, a fixed base) of the non-U.S. holder) are
not subject to the withholding tax, provided certain
certification and disclosure requirements are satisfied.
Instead, such dividends are generally subject to United States
federal income tax on a net income basis in the same manner as
if the
non-U.S. holder
were a United States person as defined under the Code, unless an
applicable income tax treaty provides otherwise. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
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A non-U.S. holder
of our common stock who wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will be required (a) to
complete Internal Revenue Service Form W-8BEN (or other
applicable form) and certify under penalty of perjury that such
holder is not a United States person as defined under the Code
and is eligible for treaty benefits or (b) if our common
stock is held through certain foreign intermediaries, to satisfy
the relevant certification requirements of applicable United
States Treasury regulations. Special certification and other
requirements apply to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A non-U.S. holder
of our common stock eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate
claim for refund with the Internal Revenue Service.
Gain on Disposition of Common Stock
Any gain realized on the disposition of our common stock
generally will not be subject to United States federal income or
withholding tax unless:
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the gain is effectively connected with a trade or business of
the non-U.S.
holder in the United States (and, if required by an applicable
income tax treaty, is attributable to a United States permanent
establishment (or, for an individual, a fixed base) of the
non-U.S. holder); |
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the
non-U.S. holder is
an individual who is present in the United States for
183 days or more in the taxable year of the disposition,
and certain other conditions are met; or |
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we are or have been a United States real property holding
corporation for United States federal income tax purposes
at any time during the shorter of the five-year period ending on
the date of disposition and the
non-U.S. holders
holding period for our common stock. |
An individual
non-U.S. holder
described in the first bullet point immediately above will be
subject to tax on the net gain derived from the sale under
regular graduated United States federal income tax rates. An
individual
non-U.S. holder
described in the second bullet point immediately above will be
subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States source capital losses, even
though the individual is not considered a resident of the United
States. If a
non-U.S. holder
that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in
the same manner as if it were a United States person as defined
under the Code and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings
and profits or at such lower rate as may be specified by an
applicable income tax treaty.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
United States federal income tax purposes.
Federal Estate Tax
Common stock held by an individual
non-U.S. holder at
the time of death will be included in such holders gross
estate for United States federal estate tax purposes, unless an
applicable estate tax or other treaty provides otherwise.
Information Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payor does not have actual
123
knowledge or reason to know that such holder is a United States
person as defined under the Code), or such holder otherwise
establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
common stock within the United States or conducted through
certain United States-related financial intermediaries, unless
the beneficial owner certifies under penalty of perjury that it
is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
124
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus, each
of the underwriters named below have severally agreed to
purchase, and we have agreed to sell to them, severally, the
number of shares indicated in the table below. Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc. and
UBS Securities LLC are acting as book-running managers and as
representatives of the underwriters named below.
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Underwriters |
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Number of Shares | |
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Morgan Stanley & Co. Incorporated
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Lehman Brothers Inc.
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UBS Securities LLC
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Natexis Bleichroeder Inc.
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Simmons & Company International
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Howard Weil Incorporated
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Total
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12,500,000 |
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The underwriters are offering the common stock subject to their
acceptance of the shares from us and subject to prior sale. The
underwriting agreement provides that the obligations of the
several underwriters to pay for and accept delivery of the
common stock offered by this prospectus are subject to the
approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take
and pay for all of the common stock offered by this prospectus
if any such shares are taken. However, the underwriters are not
required to take or pay for the shares covered by the
underwriters over-allotment option described below.
The underwriters initially propose to offer part of the shares
of common stock directly to the public at the public offering
price listed on the cover page of this prospectus and part to
certain dealers at a price that represents a concession not in
excess of
$ a
share under the public offering price. Any underwriter may
allow, and such dealer may reallow, a concession not in excess
of
$ a
share to other underwriters or to certain dealers. After the
initial offering of the shares of common stock, the offering
price and other selling terms may from time to time be varied by
the representatives.
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to
an aggregate of 1,875,000 additional shares of common stock
at the public offering price listed on the cover page of this
prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered by this
prospectus. To the extent the option is exercised, each
underwriter will become obligated, subject to specified
conditions, to purchase approximately the same percentage of
additional shares of common stock as the number listed next to
the underwriters name in the preceding table bears to the
total number of shares of common stock listed next to the names
of all underwriters in the preceding table. If the
underwriters option is exercised in full, the total price
to the public would be
$ ,
the total underwriters discounts and commissions would be
$ ,
and total proceeds to us would be
$ .
The following table shows the per share and total underwriting
discounts and commissions to be paid to the underwriters by us.
Such amounts are shown assuming both no exercise and full
exercise by the underwriters of their over-allotment option.
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Paid by Chart Industries, Inc. |
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No Exercise | |
|
Full Exercise | |
|
|
| |
|
| |
Per Share
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
The expenses of this offering payable by us, not including the
underwriting discounts and commissions, are estimated at
$2.4 million.
The underwriters have informed us that they do not intend sales
to accounts over which any such underwriter exercises
discretionary authority to exceed five percent of the total
number of shares of common stock offered by them.
We intend to apply to have our common stock approved for
quotation on the Nasdaq National Market under the symbol
.
125
We, our executive officers, directors and existing stockholders
have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc. and
UBS Securities LLC on behalf of the underwriters, none of us
will, during the period ending 180 days after the date of
this prospectus:
|
|
|
|
|
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock or file any
registration statement under the Securities Act of 1933 (other
than a registration statement on
Form S-8) with
respect to the foregoing; or |
|
|
|
enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock; |
whether any transaction described above is to be settled by
delivery of common stock or such other securities, in cash or
otherwise.
The restrictions described in the previous paragraph do not
apply to:
|
|
|
|
|
the sale of shares to the underwriters pursuant to the
underwriting agreement; |
|
|
|
the issuance by us of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the
underwriters have been advised in writing; |
|
|
|
grants, issuances, or exercises under our existing employee
benefits plans; |
|
|
|
the issuance of common stock in connection with the acquisition
of, or joint venture with, another company, provided that the
recipient agrees to be bound by the restrictions described in
the previous paragraph; |
|
|
|
transactions by any person other than us relating to shares of
common stock or other securities acquired in open market
transactions after the completion of the offering of the shares; |
|
|
|
transfers by any person other than us of shares of common stock
or any security convertible, exchangeable for or exercisable
into common stock as a bona fide gift or gifts as a result of
operation of law or testate or in testate succession, provided
that such transferee agrees to be bound by the restrictions
described in the previous paragraph; |
|
|
|
|
transfers by any person other than us to a trust, partnership,
limited liability company or other entity, all of the beneficial
interests of which are held, directly, or indirectly by such
person or such persons spouse or children, provided that
such transferee agrees to be bound by the restrictions described
in the previous paragraph; or |
|
|
|
|
distributions by any person other than us of shares of common
stock or any security convertible, exchangeable for or
exercisable into common stock to limited partners or
stockholders of such person, provided that such distributee
agrees to be bound by the restrictions described in the previous
paragraph. |
At our request, the underwriters will reserve for sale, at the
initial public offering price, up to 5% of the shares
offered in this prospectus for our directors, officers,
employees, business associates and related persons. The number
of shares of common stock available for sale to the general
public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the
same basis as the other shares offered in this prospectus.
Prior to this offering, there has been no public market for the
common stock. The initial public offering price was negotiated
between us and the representatives of the underwriters. The
factors considered in determining the initial public offering
price of the shares, in addition to prevailing market
conditions, will be our historical performance, our business
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses, and the price-earnings ratios,
market prices of securities and other quantitative and
qualitative data relating to such businesses. The estimated
initial public offering price range set forth on the cover page
of this prospectus is subject to change as a result of market
conditions and other factors.
In order to facilitate the offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common stock. Specifically,
the underwriters may sell more shares than they are obligated to
purchase under the underwriting agreement, creating a short
position.
126
A short sale is covered if the short position is no
greater than the number of shares available for purchase by the
underwriters under the over-allotment option. The underwriters
can close out a covered short sale by exercising the
over-allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short
sale, the underwriters will consider, among other things, the
open market price of shares compared to the price available
under the over-allotment option. The underwriters may also sell
shares in excess of the over-allotment option, creating a
naked short position. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase
in the offering. As an additional means of facilitating the
offering, the underwriters may bid for, and purchase, common
stock in the open market to stabilize the price of the common
stock. The underwriting syndicate may also reclaim selling
concessions allowed to an underwriter or a dealer for
distributing common stock in the offering, if the syndicate
repurchases previously distributed common stock to cover
syndicate short positions, or to stabilize the price of the
common stock. These activities may raise or maintain the market
price of the common stock above independent market levels or
prevent or retard a decline in the market price of our common
stock. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares of common stock sold by
or for the account of such underwriter in stabilizing or short
covering transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of our stock, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be
effected on the Nasdaq National Market, in the
over-the-counter market
or otherwise.
A prospectus in electronic format may be made available by one
or more of the underwriters. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. The representatives will
allocate shares to underwriters that may make Internet
distributions on the same basis as other allocations. In
addition, shares may be sold by the underwriters to securities
dealers who resell shares to online brokerage account holders.
From time to time, some of the underwriters and their affiliates
have provided, and may continue to provide, investment banking,
commercial banking and capital raising services to us and our
affiliates for fees and commissions that we believe are
customary. Morgan Stanley Senior Funding, Inc. acts as joint
lead arranger, joint book manager and syndication agent and
Natexis Banques Populaires acts as co-documentation agent and
are lenders under our senior secured credit facility. UBS
Securities LLC acted as our financial advisor in connection with
the Acquisition.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
127
VALIDITY OF THE SHARES
The validity of the issuance of the shares of common stock to be
sold in this offering will be passed upon for us by Simpson
Thacher & Bartlett LLP, New York, New York.
Shearman & Sterling LLP, New York, New York will act as
counsel to the underwriters. Shearman &
Sterling LLP represents First Reserve on other matters.
EXPERTS
The accompanying consolidated balance sheets of Chart
Industries, Inc. and subsidiaries as of December 31, 2005
and 2004, and the related consolidated statements of operations,
shareholders equity and cash flows for the period from
October 17, 2005 through December 31, 2005, the period
from January 1, 2005 through October 16, 2005, the
year ended December 31, 2004, the three months ended
December 31, 2003, and the nine months ended
September 30, 2003, appearing in this prospectus have been
audited by Ernst & Young LLP, independent registered
public accounting firm, as set forth in their report thereon,
appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1 under the
Securities Act with respect to the issuance of shares of our
common stock being offered hereby. This prospectus, which forms
a part of the registration statement, does not contain all of
the information set forth in the registration statement and
exhibits and schedules. For further information with respect to
us and the shares of our common stock, reference is made to the
registration statement. Statements contained in this prospectus
as to the contents of any contract or other document are not
necessarily complete. We are not currently subject to the
informational requirements of the Exchange Act. After the
offering of the shares of our common stock, we will be subject
to the informational requirements of the Exchange Act, and, in
accordance therewith, will file reports and other information
with the SEC. The registration statement and the exhibits and
schedules to the registration statement, such reports and other
information can be inspected and copied at the Public Reference
Room of the SEC located at 100 F Street, N.E., Washington D.C.
20549. Copies of such materials, including copies of all or any
portion of the registration statement, can be obtained from the
Public Reference Room of the SEC at prescribed rates. You can
call the SEC at
1-800-SEC-0330 to
obtain information on the operation of the Public Reference
Room. Such materials may also be accessed electronically by
means of the SECs home page on the Internet
(http://www.sec.gov).
128
INDEX TO FINANCIAL STATEMENTS
|
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
F-2 |
|
|
F-4 |
Consolidated Statements of Operations for
the Period from October 17, 2005 to December 31, 2005,
the Period from January 1, 2005 to October 16, 2005,
the Year Ended December 31, 2004, the Three Months Ended
December 31, 2003 and the Nine Months Ended
September 30, 2003
|
|
F-5 |
|
|
F-6 |
Consolidated Statements of Cash Flows for
the Period from October 17, 2005 to December 31, 2005,
the Period from January 1, 2005 to October 16, 2005,
the Year Ended December 31, 2004, the Three Months Ended
December 31, 2003 and the Nine Months Ended
September 30, 2003
|
|
F-9 |
|
|
F-10 |
Unaudited Consolidated Financial Statements
|
|
|
|
|
F-44 |
|
|
F-45 |
|
|
F-46 |
|
|
F-47 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder 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,
2005 and 2004, and the related consolidated statements of
operations, shareholders equity and cash flows for the
period from October 17, 2005 through December 31,
2005, the period from January 1, 2005 through
October 16, 2005, the year ended December 31, 2004,
the three months ended December 31, 2003, and the nine
months ended September 30, 2003. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Chart Industries, Inc. and
subsidiaries at December 31, 2005 and 2004, and the
consolidated results of their operations and their cash flows
for the period from October 17, 2005 through
December 31, 2005, the period from January 1, 2005
through October 16, 2005, the year ended December 31,
2004, the three months ended December 31, 2003, and the
nine months ended September 30, 2003, in conformity with
U.S. generally accepted accounting principles.
As more fully described in Note A to the consolidated
financial statements, effective September 15, 2003, the
Company emerged from Chapter 11 Bankruptcy. In accordance
with American Institute of Certified Public Accountants
Statement of Position No. 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, the
Company has adopted Fresh Start reporting whereby
its assets, liabilities and new capital structure have been
adjusted to reflect estimated fair values as of
September 30, 2003. As a result, the consolidated financial
statements for periods from September 30, 2003 through
October 16, 2005 reflect this basis of reporting and are
not comparable to the Companys pre-reorganization
consolidated financial statements.
As more fully described in Note J to the consolidated
financial statements, on October 17, 2005, the Company
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.
Cleveland, Ohio
April 11, 2006, except for the effect of
the stock split discussed
in the third paragraph of Note A,
as to which the date
is
F-2
The accompanying consolidated financial statements of Chart
Industries, Inc. and subsidiaries (the Company) have
been adjusted as of December 31, 2005 and for the period
from October 17, 2005 to December 31, 2005 to give
effect to a 4.6263-for-one stock split of the common stock of
Chart Industries, Inc., which is to be effected in connection
with the Companys planned initial public offering. The
above opinion is in the form which will be signed by
Ernst & Young, LLP upon consummation of such stock
split, which is described in Note A to the accompanying
consolidated financial statements and assuming that, from
April 11, 2006 to the date of such stock split, no other
events shall have occurred that would affect the accompanying
consolidated financial statements or notes thereto.
Cleveland, Ohio
June 27, 2006
F-3
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
December 31, | |
|
|
December 31, | |
|
|
2005 | |
|
|
2004 | |
|
|
| |
|
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
15,433 |
|
|
|
$ |
14,814 |
|
|
Accounts receivable, net
|
|
|
62,463 |
|
|
|
|
45,744 |
|
|
Inventories, net
|
|
|
53,132 |
|
|
|
|
47,777 |
|
|
Unbilled contract revenue
|
|
|
23,813 |
|
|
|
|
10,528 |
|
|
Prepaid expenses
|
|
|
3,037 |
|
|
|
|
2,119 |
|
|
Other current assets
|
|
|
12,102 |
|
|
|
|
14,840 |
|
|
Assets held for sale
|
|
|
3,084 |
|
|
|
|
3,567 |
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
173,064 |
|
|
|
|
139,389 |
|
Property, plant and equipment, net
|
|
|
64,265 |
|
|
|
|
41,993 |
|
Goodwill
|
|
|
236,742 |
|
|
|
|
75,110 |
|
Identifiable intangible assets, net
|
|
|
154,063 |
|
|
|
|
48,472 |
|
Other assets, net
|
|
|
13,672 |
|
|
|
|
2,116 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
641,806 |
|
|
|
$ |
307,080 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
34,435 |
|
|
|
$ |
26,789 |
|
|
Customer advances and billings in excess of contract revenue
|
|
|
26,741 |
|
|
|
|
15,181 |
|
|
Accrued salaries, wages and benefits
|
|
|
19,797 |
|
|
|
|
16,148 |
|
|
Warranty reserve
|
|
|
3,598 |
|
|
|
|
2,812 |
|
|
Other current liabilities
|
|
|
17,606 |
|
|
|
|
12,353 |
|
|
Short-term debt
|
|
|
2,304 |
|
|
|
|
3,005 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
104,481 |
|
|
|
|
76,288 |
|
Long-term debt
|
|
|
345,000 |
|
|
|
|
76,406 |
|
Long-term deferred tax liability, net
|
|
|
56,038 |
|
|
|
|
12,939 |
|
Other long-term liabilities
|
|
|
19,957 |
|
|
|
|
25,807 |
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
Common stock of Successor and Reorganized Company, par value
$.01 per share 9,500,000 shares
authorized, 7,952,180 and 5,358,183 shares issued and
outstanding at December 31, 2005 and 2004,
respectively See Note A
|
|
|
80 |
|
|
|
|
54 |
|
|
|
Additional paid-in capital See Note A
|
|
|
117,304 |
|
|
|
|
90,652 |
|
|
|
Retained (deficit) earnings
|
|
|
(506 |
) |
|
|
|
22,631 |
|
|
|
Accumulated other comprehensive (loss) income
|
|
|
(548 |
) |
|
|
|
2,303 |
|
|
|
|
|
|
|
|
|
|
|
|
116,330 |
|
|
|
|
115,640 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$ |
641,806 |
|
|
|
$ |
307,080 |
|
|
|
|
|
|
|
|
|
* See accompanying notes to these consolidated financial
statements, including Note A Nature of
Operations and Summary of Significant Accounting Policies,
describing the Successor Company, Reorganized Company and
Predecessor Company. The accompanying notes are an integral part
of these consolidated financial statements.
F-4
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Predecessor | |
|
|
Company | |
|
|
Reorganized Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
October 17, | |
|
|
January 1, | |
|
Year | |
|
Three Months | |
|
|
Nine Months | |
|
|
2005 to | |
|
|
2005 to | |
|
Ended | |
|
Ended | |
|
|
Ended | |
|
|
December 31, | |
|
|
October 16, | |
|
December 31, | |
|
December 31, | |
|
|
September 30, | |
|
|
2005 | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
2003 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
Sales
|
|
$ |
97,652 |
|
|
|
$ |
305,497 |
|
|
$ |
305,576 |
|
|
$ |
68,570 |
|
|
|
$ |
197,017 |
|
Cost of sales
|
|
|
75,733 |
|
|
|
|
217,284 |
|
|
|
211,770 |
|
|
|
52,509 |
|
|
|
|
141,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
21,919 |
|
|
|
|
88,213 |
|
|
|
93,806 |
|
|
|
16,061 |
|
|
|
|
55,777 |
|
Selling, general and administrative expenses
|
|
|
16,632 |
|
|
|
|
59,826 |
|
|
|
53,374 |
|
|
|
14,147 |
|
|
|
|
44,211 |
|
Acquisition expenses
|
|
|
|
|
|
|
|
6,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
139 |
|
|
|
|
1,057 |
|
|
|
3,169 |
|
|
|
1,010 |
|
|
|
|
882 |
|
Loss (gain) on sale of assets
|
|
|
78 |
|
|
|
|
(131 |
) |
|
|
133 |
|
|
|
(57 |
) |
|
|
|
(1,061 |
) |
Loss on insolvent subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,682 |
|
Equity expense in joint venture
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,849 |
|
|
|
|
67,354 |
|
|
|
56,727 |
|
|
|
15,141 |
|
|
|
|
57,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,070 |
|
|
|
|
20,859 |
|
|
|
37,079 |
|
|
|
920 |
|
|
|
|
(1,937 |
) |
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(5,565 |
) |
|
|
|
(4,192 |
) |
|
|
(4,760 |
) |
|
|
(1,390 |
) |
|
|
|
(9,911 |
) |
|
Financing costs amortization
|
|
|
(308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,653 |
) |
|
Derivative contracts valuation income (expense)
|
|
|
9 |
|
|
|
|
28 |
|
|
|
48 |
|
|
|
46 |
|
|
|
|
(389 |
) |
|
Foreign currency gain (loss)
|
|
|
(101 |
) |
|
|
|
(659 |
) |
|
|
465 |
|
|
|
350 |
|
|
|
|
(287 |
) |
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,965 |
) |
|
|
|
(4,823 |
) |
|
|
(4,247 |
) |
|
|
(994 |
) |
|
|
|
(6,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes and
minority interest
|
|
|
(895 |
) |
|
|
|
16,036 |
|
|
|
32,832 |
|
|
|
(74 |
) |
|
|
|
(8,500 |
) |
Income tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,902 |
|
|
|
|
9,420 |
|
|
|
8,031 |
|
|
|
(751 |
) |
|
|
|
(3,245 |
) |
|
Deferred
|
|
|
(2,343 |
) |
|
|
|
(2,261 |
) |
|
|
2,103 |
|
|
|
626 |
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(441 |
) |
|
|
|
7,159 |
|
|
|
10,134 |
|
|
|
(125 |
) |
|
|
|
1,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before minority interest
|
|
|
(454 |
) |
|
|
|
8,877 |
|
|
|
22,698 |
|
|
|
51 |
|
|
|
|
(10,255 |
) |
Minority interest, net of taxes
|
|
|
(52 |
) |
|
|
|
(19 |
) |
|
|
(98 |
) |
|
|
(20 |
) |
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(506 |
) |
|
|
|
8,858 |
|
|
|
22,600 |
|
|
|
31 |
|
|
|
|
(10,318 |
) |
Income from discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
833 |
|
Gain on sale of discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(506 |
) |
|
|
$ |
8,858 |
|
|
$ |
22,600 |
|
|
$ |
31 |
|
|
|
$ |
(7,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(0.06 |
) |
|
|
$ |
1.65 |
|
|
$ |
4.22 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.39 |
) |
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
Gain on sale of discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share basic
|
|
$ |
(0.06 |
) |
|
|
$ |
1.65 |
|
|
$ |
4.22 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.27 |
) |
Net (loss) income per common share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(0.06 |
) |
|
|
$ |
1.57 |
|
|
$ |
4.10 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.39 |
) |
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
Gain on sale of discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share diluted
|
|
$ |
(0.06 |
) |
|
|
$ |
1.57 |
|
|
$ |
4.10 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.27 |
) |
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,952 |
|
|
|
|
5,366 |
|
|
|
5,351 |
|
|
|
5,325 |
|
|
|
|
26,336 |
|
|
Diluted
|
|
|
7,952 |
|
|
|
|
5,638 |
|
|
|
5,516 |
|
|
|
5,325 |
|
|
|
|
26,336 |
|
* See accompanying notes to these consolidated financial
statements, including Note A Nature of
Operations and Summary of Significant Accounting Policies,
describing the Successor Company, Reorganized Company and
Predecessor Company. The accompanying notes are an integral part
of these consolidated financial statements.
F-5
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIT)
(Dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
|
| |
|
Accumulated | |
|
|
|
Total | |
|
|
|
|
Additional | |
|
Retained | |
|
Other | |
|
|
|
Shareholders | |
|
|
Shares | |
|
|
|
Paid-In | |
|
Earnings | |
|
Comprehensive | |
|
Treasury | |
|
Equity | |
|
|
Outstanding | |
|
Amount | |
|
Capital | |
|
(Deficit) | |
|
(Loss) Income | |
|
Stock | |
|
(Deficit) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at January 1, 2003, Predecessor Company
|
|
|
25,554 |
|
|
$ |
257 |
|
|
$ |
45,792 |
|
|
$ |
(116,086 |
) |
|
$ |
(10,799 |
) |
|
$ |
(781 |
) |
|
$ |
(81,617 |
) |
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,085 |
) |
|
|
|
|
|
|
|
|
|
|
(7,085 |
) |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,532 |
|
|
|
|
|
|
|
7,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447 |
|
|
Contribution of stock to employee benefit plans
|
|
|
944 |
|
|
|
9 |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
343 |
|
|
Issuance of warrants to lenders
|
|
|
|
|
|
|
|
|
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430 |
|
|
Treasury stock acquisitions
|
|
|
(232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
|
(111 |
) |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2003, Predecessor Company
|
|
|
26,266 |
|
|
$ |
266 |
|
|
$ |
46,550 |
|
|
$ |
(123,180 |
) |
|
$ |
(3,267 |
) |
|
$ |
(886 |
) |
|
$ |
(80,517 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* See accompanying notes to these consolidated financial
statements, including Note A Nature of
Operations and Summary of Significant Accounting Policies,
describing the Successor Company, Reorganized Company and
Predecessor Company. The accompanying notes are an integral part
of these consolidated financial statements.
F-6
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIT)
(Dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
|
| |
|
Accumulated | |
|
|
|
Total | |
|
|
|
|
Additional | |
|
Retained | |
|
Other | |
|
|
|
Shareholders | |
|
|
Shares | |
|
|
|
Paid-In | |
|
Earnings | |
|
Comprehensive | |
|
Treasury |
|
Equity | |
|
|
Outstanding | |
|
Amount | |
|
Capital | |
|
(Deficit) | |
|
(Loss) Income | |
|
Stock |
|
(Deficit) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
Balance at September 30, 2003, (Date of
Reorganization)
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Issuance of new common shares
|
|
|
5,325 |
|
|
|
53 |
|
|
|
89,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,865 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914 |
|
|
|
|
|
|
|
914 |
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003, Reorganized Company
|
|
|
5,325 |
|
|
|
53 |
|
|
|
89,812 |
|
|
|
31 |
|
|
|
911 |
|
|
|
|
|
|
|
90,807 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,600 |
|
|
|
|
|
|
|
|
|
|
|
22,600 |
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,635 |
|
|
|
|
|
|
|
2,635 |
|
|
|
Minimum pension liability adjustment, net of taxes of $671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,243 |
) |
|
|
|
|
|
|
(1,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,992 |
|
Issuance of common shares
|
|
|
33 |
|
|
|
1 |
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004, Reorganized 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, Reorganized Company
|
|
|
5,409 |
|
|
$ |
54 |
|
|
$ |
89,715 |
|
|
$ |
31,489 |
|
|
$ |
63 |
|
|
$ |
|
|
|
$ |
121,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* See accompanying notes to these consolidated financial
statements, including Note A Nature of
Operations and Summary of Significant Accounting Policies,
describing the Successor Company, Reorganized Company and
Predecessor Company. The accompanying notes are an integral part
of these consolidated financial statements.
F-7
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
Additional | |
|
|
|
Other | |
|
Total | |
|
|
Shares | |
|
|
|
Paid-in | |
|
Retained | |
|
Comprehensive | |
|
Shareholders | |
|
|
Outstanding | |
|
Amount | |
|
Capital | |
|
(Deficit) | |
|
(Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at October 17, 2005 (Date of Acquisition)
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Equity contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash investment
|
|
|
1,719 |
|
|
|
17 |
|
|
|
111,281 |
|
|
|
|
|
|
|
|
|
|
|
111,298 |
|
|
|
Rollover of Reorganized 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)
|
|
|
6,233 |
|
|
|
63 |
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005, Successor Company
|
|
|
7,952 |
|
|
$ |
80 |
|
|
$ |
117,304 |
|
|
$ |
(506 |
) |
|
$ |
(548 |
) |
|
$ |
116,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* See accompanying notes to these consolidated financial
statements, including Note A Nature of
Operations and Summary of Significant Accounting Policies,
describing the Successor Company, Reorganized Company and
Predecessor Company. The accompanying notes are an integral part
of these consolidated financial statements.
F-8
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Predecessor | |
|
|
Company | |
|
|
Reorganized Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
|
|
|
Three | |
|
|
|
|
|
October 17, | |
|
|
January 1, | |
|
Year | |
|
Months | |
|
|
Nine Months | |
|
|
2005 to | |
|
|
2005 to | |
|
Ended | |
|
Ended | |
|
|
Ended | |
|
|
December 31, | |
|
|
October 16, | |
|
December 31, | |
|
December 31, | |
|
|
September 30, | |
|
|
2005 | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
2003 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(506 |
) |
|
|
$ |
8,858 |
|
|
$ |
22,600 |
|
|
$ |
31 |
|
|
|
$ |
(7,085 |
) |
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(833 |
) |
|
Inventory purchase accounting charge
|
|
|
8,903 |
|
|
|
|
|
|
|
|
|
|
|
|
5,368 |
|
|
|
|
|
|
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,677 |
) |
|
Reorganization value in excess of amounts allocable to
identifiable assets
|
|
|
|
|
|
|
|
|
|
|
|
1,430 |
|
|
|
|
|
|
|
|
|
|
|
Loss on insolvent subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,682 |
|
|
Financing costs amortization
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,653 |
|
|
Employee stock and stock option related compensation expense
|
|
|
437 |
|
|
|
|
9,509 |
|
|
|
2,433 |
|
|
|
|
|
|
|
|
|
|
|
Debt restructuring-related fees expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,046 |
|
|
Employee separation and plant closure costs
|
|
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
456 |
|
|
Loss (gain) on sale of assets
|
|
|
78 |
|
|
|
|
(131 |
) |
|
|
133 |
|
|
|
(57 |
) |
|
|
|
(4,753 |
) |
|
Purchased in-process research and development charge
|
|
|
|
|
|
|
|
2,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,088 |
|
|
|
|
6,808 |
|
|
|
8,490 |
|
|
|
2,225 |
|
|
|
|
7,607 |
|
|
Equity loss (income) from joint venture
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
41 |
|
|
|
|
|
|
|
Foreign currency transaction (gain) loss
|
|
|
101 |
|
|
|
|
659 |
|
|
|
(465 |
) |
|
|
(350 |
) |
|
|
|
287 |
|
|
Minority interest
|
|
|
95 |
|
|
|
|
29 |
|
|
|
198 |
|
|
|
34 |
|
|
|
|
105 |
|
|
Deferred income tax expense (benefit)
|
|
|
(2,343 |
) |
|
|
|
(2,261 |
) |
|
|
2,103 |
|
|
|
626 |
|
|
|
|
5,000 |
|
|
Contribution of stock to employee benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343 |
|
Changes in assets and liabilities, net of effects from
Acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,267 |
) |
|
|
|
(8,611 |
) |
|
|
(4,661 |
) |
|
|
(3,027 |
) |
|
|
|
2,486 |
|
|
Inventory
|
|
|
2,812 |
|
|
|
|
(6,463 |
) |
|
|
(11,566 |
) |
|
|
2,603 |
|
|
|
|
6,574 |
|
|
Unbilled contract revenues and other current assets
|
|
|
2,687 |
|
|
|
|
(11,039 |
) |
|
|
2,903 |
|
|
|
(853 |
) |
|
|
|
(1,304 |
) |
|
Accounts payable and other current liabilities
|
|
|
6,424 |
|
|
|
|
6,634 |
|
|
|
4,602 |
|
|
|
(1,838 |
) |
|
|
|
(1,527 |
) |
|
Deferred income taxes
|
|
|
779 |
|
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer advances and billings in excess of contract revenue
|
|
|
3,146 |
|
|
|
|
8,150 |
|
|
|
6,631 |
|
|
|
185 |
|
|
|
|
(3,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating Activities
|
|
|
18,742 |
|
|
|
|
15,641 |
|
|
|
35,059 |
|
|
|
4,988 |
|
|
|
|
19,466 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5,601 |
) |
|
|
|
(11,038 |
) |
|
|
(9,379 |
) |
|
|
(518 |
) |
|
|
|
(1,907 |
) |
|
Dividends received from joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
790 |
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
2,220 |
|
|
|
6,057 |
|
|
|
|
|
|
|
|
16,075 |
|
|
Acquisition of business
|
|
|
|
|
|
|
|
(12,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments to Reorganized Company shareholders for Transaction
|
|
|
(356,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investing activities
|
|
|
|
|
|
|
|
166 |
|
|
|
5 |
|
|
|
672 |
|
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used In) Provided By Investing Activities
|
|
|
(362,250 |
) |
|
|
|
(20,799 |
) |
|
|
(3,317 |
) |
|
|
154 |
|
|
|
|
15,101 |
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facilities
|
|
|
2,605 |
|
|
|
|
18,901 |
|
|
|
1,742 |
|
|
|
4,151 |
|
|
|
|
20,359 |
|
|
Payments on revolving credit facilities
|
|
|
(4,790 |
) |
|
|
|
(15,916 |
) |
|
|
(1,742 |
) |
|
|
(6,775 |
) |
|
|
|
(21,614 |
) |
|
Principal payments on long-term debt
|
|
|
(81,457 |
) |
|
|
|
(2,968 |
) |
|
|
(33,148 |
) |
|
|
(10,840 |
) |
|
|
|
(1,199 |
) |
|
Proceeds from equity contribution
|
|
|
111,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of financing costs
|
|
|
(11,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of exercised stock options
|
|
|
(15,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of Acquisition costs
|
|
|
(1,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt restructuring-related fees paid
|
|
|
|
|
|
|
|
|
|
|
|
(1,882 |
) |
|
|
|
|
|
|
|
(12,583 |
) |
|
Payments on interest rate collars
|
|
|
|
|
|
|
|
|
|
|
|
(805 |
) |
|
|
(512 |
) |
|
|
|
(759 |
) |
|
Proceeds from sale of stock
|
|
|
|
|
|
|
|
1,691 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In) Financing Activities
|
|
|
348,489 |
|
|
|
|
1,708 |
|
|
|
(35,744 |
) |
|
|
(13,976 |
) |
|
|
|
(15,907 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow provided by (used in) continuing operations
|
|
|
4,981 |
|
|
|
|
(3,450 |
) |
|
|
(4,002 |
) |
|
|
(8,834 |
) |
|
|
|
18,660 |
|
Cash flow provided by discontinued operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,981 |
|
|
|
|
(3,450 |
) |
|
|
(4,002 |
) |
|
|
(8,834 |
) |
|
|
|
20,252 |
|
Effect of exchange rate changes on cash
|
|
|
(1,018 |
) |
|
|
|
106 |
|
|
|
216 |
|
|
|
(381 |
) |
|
|
|
338 |
|
Cash and cash equivalents at beginning of period
|
|
|
11,470 |
|
|
|
|
14,814 |
|
|
|
18,600 |
|
|
|
27,815 |
|
|
|
|
7,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
15,433 |
|
|
|
$ |
11,470 |
|
|
$ |
14,814 |
|
|
$ |
18,600 |
|
|
|
$ |
27,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* See accompanying notes to these consolidated financial
statements, including Note A Nature of
Operations and Summary of Significant Accounting Policies,
describing the Successor Company, Reorganized Company and
Predecessor Company. The accompanying notes are an integral part
of these consolidated financial statements.
F-9
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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), a wholly-owned indirect subsidiary of
First Reserve Fund X, L.P. (First Reserve), 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 Companys 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
seven 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
Companys 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. The Companys Chart Heat Exchangers Limited
(CHEL) subsidiary, the equity of which was
100 percent owned by the Company, filed for a voluntary
administration under the U.K. Insolvency Act of 1986 on
March 28, 2003, as more fully described in Note F to
the consolidated financial statements. Since CHEL is not under
the control of the Company subsequent to March 28, 2003,
the consolidated financial statements do not include the
accounts or results of CHEL subsequent to this date.
Basis of Presentation: The consolidated financial
statements have been adjusted as of December 31, 2005 and
for the period from October 17, 2005 to December 31,
2005 to give effect to the 4.6263-for-one stock split of the
Companys common stock, and related adjustments to its
capital structure and stock options to be effected upon the
completion of the Companys planned initial public
offering. 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 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
F-10
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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. A more complete description of the Acquisition and the
terms of the Merger Agreement are set forth above in this
Prospectus under the caption Transaction.
On October 17, 2005, the closing of the Acquisition (the
Closing Date) took place under the terms of the
Merger Agreement as described above in this Prospectus under the
caption Transaction. 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
Companys 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 Companys 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 Successor
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
Companys 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 Reorganized Company stock options, repayment of
$76,458 of existing pre-Acquisition credit facility and certain
other debt, $1,852 of First Reserves acquisition expenses
and vested Rollover Reorganized Company stock options valued at
$5,947 to acquire stock of the Successor Company.
The table below summarizes the fair value assigned to the
Successor Companys 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 |
|
|
|
|
|
F-11
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
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 the accompanying notes
for the period from January 1 to October 16, 2005 for the
Reorganized Company are presented as the 2005 Reorganized
Period and for the period from October 17 to
December 31, 2005 for the Successor Company are presented
as the 2005 Successor Period.
On July 8, 2003, the Company and all of its then
majority-owned U.S. subsidiaries (the Predecessor
Company) filed voluntary petitions for reorganization
relief under Chapter 11 of the U.S. Bankruptcy Code to
implement an agreed upon senior debt restructuring plan through
a pre-packaged plan of reorganization. On September 15,
2003, the Company (as reorganized, the Reorganized
Company) and all of its then majority-owned
U.S. subsidiaries emerged from Chapter 11 proceedings
pursuant to the Amended Joint Prepackaged Reorganization Plan of
Chart Industries, Inc. and Certain Subsidiaries, dated
September 3, 2003 (the Reorganization Plan).
The Companys 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 (AICPA)
Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code
(SOP 90-7)
(Fresh-Start accounting). The Company used
September 30, 2003 as the date for adopting Fresh-Start
accounting in order to coincide with the Companys normal
financial closing for the month of September 2003. Upon adoption
of Fresh-Start accounting, a new reporting entity was deemed to
be created and the recorded amounts of assets and liabilities
were adjusted to reflect their estimated fair values.
Accordingly, the reported historical financial statements of the
Company prior to the adoption of Fresh-Start accounting for
periods ended prior to September 30, 2003 are not
necessarily comparable to those of the Reorganized Company.
In this prospectus, references to the Companys nine month
period ended September 30, 2003 and all periods ended prior
to September 30, 2003 refer to the Predecessor Company.
SOP 90-7 requires
that financial statements for the period following the
Chapter 11 filing through the bankruptcy confirmation date
distinguish transactions and events that are directly associated
with the reorganization from the ongoing operations of the
business. Accordingly, revenues, expenses, realized gains and
losses and provisions for losses directly associated with the
reorganization and restructuring of the business, including
adjustments to fair value assets and liabilities and the gain on
the discharge of pre-petition debt, are reported separately as
reorganization items, net, in the other income (expense) section
of the Predecessor Companys consolidated statement of
operations. In accordance with Fresh-Start accounting, all
assets and liabilities were recorded at their respective fair
values as of September 30, 2003. Such fair values
F-12
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
represented the Companys best estimates based on
independent appraisals and valuations. In applying Fresh-Start
accounting, adjustments to reflect the fair value of assets and
liabilities, on a net basis, and the restructuring of the
Companys capital structure and resulting discharge of the
senior lenders pre-petition debt, resulted in net other
income of $5,677 in the nine months ended September 30,
2003. The reorganization value exceeded the fair value of the
Reorganized Companys assets and liabilities, and this
excess is reported as goodwill in the Reorganized Companys
consolidated balance sheet.
Changes to Significant Accounting Policies: As part of
the provisions of
SOP 90-7, the
Reorganized Company was required to adopt on September 30,
2003 all accounting guidance that was going to be effective
within the twelve-month period following September 30,
2003. Additionally, Fresh-Start accounting required the
selection of appropriate accounting policies for the Reorganized
Company. The significant accounting policies previously used by
the Predecessor Company were generally continued to be used by
the Reorganized Company. As of September 30, 2003, the
Company changed its method of accounting for inventories at
sites of the Companys former Chart Heat Exchangers Limited
Partnership legal entity and former Process Systems, Inc. legal
entity from the
last-in, first-out
(LIFO) method to the
first-in, first-out
(FIFO) method since the value of inventory on the
LIFO method was approximately equal to the value on a FIFO basis.
All accounting policies of the Successor Company have generally
remained the same as the Reorganized Company, except for the
early adoption of SFAS No. 123(R) Share-Based
Payment on October 17, 2005 in conjunction with the
Acquisition. 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.
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,
2005 and 2004 balances include money market investments and cash.
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 51 percent,
52 percent and 49 percent of sales were to foreign
countries in 2005, 2004 and 2003, respectively. While no single
customer exceeded ten percent of consolidated sales in 2005,
2004 or 2003, sales to the Companys top ten customers
accounted for 39 percent, 45 percent and
43 percent of consolidated sales in 2005, 2004 and 2003,
respectively. The Companys sales to particular customers
fluctuate from period to period, but the 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 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, marketable
securities, interest rate collar agreements 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.
F-13
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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 customers 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, 2005 and 2004 was $1,304
and $1,520, respectfully.
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, 2005 and 2004.
The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
December 31, | |
|
|
December 31, | |
|
|
2005 | |
|
|
2004 | |
|
|
| |
|
|
| |
Raw materials and supplies
|
|
$ |
26,385 |
|
|
|
$ |
22,896 |
|
Work in process
|
|
|
13,003 |
|
|
|
|
16,918 |
|
Finished goods
|
|
|
13,744 |
|
|
|
|
7,963 |
|
|
|
|
|
|
|
|
|
|
|
$ |
53,132 |
|
|
|
$ |
47,777 |
|
|
|
|
|
|
|
|
|
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 Reorganized 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 $1,115 for the 2005 Successor Period, $4,122 for the
2005 Reorganized Period, $5,681 for the year ended
December 31,
F-14
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
2004, $1,523 for the three-months ended December 31, 2003,
and $6,441 for the nine months ended September 30, 2003.
The following table summarizes the components of property, plant
and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
|
|
Company |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
Classification |
|
Estimated Useful Life |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Land and buildings
|
|
20-35 years (buildings) |
|
$ |
34,450 |
|
|
|
$ |
24,264 |
|
Machinery and equipment
|
|
3-12 years |
|
|
19,750 |
|
|
|
|
21,917 |
|
Computer equipment, furniture and fixtures
|
|
3-7 years |
|
|
2,383 |
|
|
|
|
2,823 |
|
Construction in process
|
|
|
|
|
8,244 |
|
|
|
|
2,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,827 |
|
|
|
|
51,480 |
|
Less accumulated depreciation
|
|
|
|
|
(562 |
) |
|
|
|
(9,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
|
$ |
64,265 |
|
|
|
$ |
41,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 conjunction with
the Acquisition as previously explained above, the Company
recorded $236,742 of goodwill. 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 units Goodwill with the carrying
F-15
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
|
|
Reorganized Company | |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
December 31, 2005 | |
|
|
|
|
December 31, 2004 | |
|
|
Weighted | |
|
| |
|
|
Weighted | |
|
| |
|
|
Average | |
|
Gross | |
|
|
|
|
Average | |
|
Gross | |
|
|
|
|
Estimated | |
|
Carrying | |
|
Accumulated | |
|
|
Estimated | |
|
Carrying | |
|
Accumulated | |
|
|
Useful Life | |
|
Amount | |
|
Amortization | |
|
|
Useful Life | |
|
Amount | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
Finite-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpatented technology
|
|
|
9 years |
|
|
$ |
9,400 |
|
|
$ |
(235 |
) |
|
|
|
9 years |
|
|
$ |
3,305 |
|
|
$ |
(450 |
) |
|
Patents
|
|
|
10 years |
|
|
|
8,138 |
|
|
|
(298 |
) |
|
|
|
11 years |
|
|
|
4,269 |
|
|
|
(566 |
) |
|
Product names
|
|
|
20 years |
|
|
|
940 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
14 months |
|
|
|
5,440 |
|
|
|
(1,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
|
3 years |
|
|
|
1,344 |
|
|
|
(280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses and certificates
|
|
|
18 months |
|
|
|
48 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relations
|
|
|
13 years |
|
|
|
96,906 |
|
|
|
(1,480 |
) |
|
|
|
13 years |
|
|
|
23,960 |
|
|
|
(2,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
122,216 |
|
|
$ |
(3,433 |
) |
|
|
|
|
|
|
$ |
31,534 |
|
|
$ |
(3,511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$ |
236,742 |
|
|
|
|
|
|
|
|
|
|
|
$ |
75,110 |
|
|
|
|
|
|
Trademarks and trade names
|
|
|
|
|
|
|
35,280 |
|
|
|
|
|
|
|
|
|
|
|
|
20,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
272,022 |
|
|
|
|
|
|
|
|
|
|
|
$ |
95,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets subject to
amortization was $2,973, for the 2005 Successor Period, $2,686
for the 2005 Reorganized Period, $2,809 for the year ended
December 31, 2004, $702 for the three months ended
December 31, 2003, and $1,166 for the nine months ended
September 30, 2003, and is estimated to range from
approximately $15,500 to $10,300 annually for fiscal years 2006
through 2010, 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. The fair value of long-term debt is
estimated based on the present value of the underlying cash
flows discounted at the Companys estimated borrowing rate.
Under such method the Companys long-term debt approximated
its carrying value at December 31, 2005 and 2004.
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 Companys primary interest rate risk exposure results
from various floating rate pricing mechanisms in the
consolidated term loan and revolving credit facility. This
interest rate risk has been partially managed by the use of an
interest rate derivative contract relating to a portion of the
term debt. The interest rate derivative contract is generally
described as a collar and results in putting 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 Companys floating rate term debt. The Predecessor
Company entered into an interest rate collar in March 1999 to
manage interest rate risk exposure relative to its term debt.
This collar, in the amount of $4,430 at December 31, 2005,
expired in March 2006. The Companys interest rate collar
does not qualify as a hedge
F-16
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
under the provisions of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which
requires 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 fair
value of the contract related to the collar outstanding at
December 31, 2005 and 2004 is a liability of $5 and $312,
respectively and is recorded in accrued interest.
The change in fair value for the 2005 Successor Period, 2005
Reorganized Period, year ended December 31, 2004, three
months ended December 31, 2003, and the nine months ended
September 30, 2003 of $9, $28, $48, $46, and ($389)
respectively, is recorded in derivative contracts valuation
income (expense).
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 Companys foreign currency forward
contracts do not qualify as hedges under the provisions of
SFAS No. 133. Gains and losses recorded by the Company
related to foreign currency forward contracts during 2005, 2004
and 2003 were not material.
The Company held foreign exchange forward sale contracts for
notional amounts as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
Company |
|
|
Company |
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
USD
|
|
$ |
|
|
|
|
$ |
400 |
|
Euros
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,400 |
|
|
|
$ |
400 |
|
|
|
|
|
|
|
|
|
|
|
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 Companys consolidated warranty
reserve are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
Predecessor |
|
|
Company |
|
|
Reorganized Company |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
October 17, |
|
|
January 1, |
|
|
|
Three |
|
|
Nine |
|
|
2005 |
|
|
2005 |
|
Year |
|
Months |
|
|
Months |
|
|
to |
|
|
to |
|
Ended |
|
Ended |
|
|
Ended |
|
|
December 31, |
|
|
October 16, |
|
December 31, |
|
December 31, |
|
|
September 30, |
|
|
2005 |
|
|
2005 |
|
2004 |
|
2003 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$ |
3,439 |
|
|
|
$ |
2,812 |
|
|
$ |
3,208 |
|
|
$ |
3,803 |
|
|
|
$ |
4,032 |
|
|
Warranty expense
|
|
|
515 |
|
|
|
|
2,206 |
|
|
|
1,522 |
|
|
|
89 |
|
|
|
|
1,214 |
|
|
Warranty usage
|
|
|
(356 |
) |
|
|
|
(1,579 |
) |
|
|
(1,918 |
) |
|
|
(684 |
) |
|
|
|
(1,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
3,598 |
|
|
|
$ |
3,439 |
|
|
$ |
2,812 |
|
|
$ |
3,208 |
|
|
|
$ |
3,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: As a result of the
Acquisition, the Company had 7,952 shares of common stock
issued and outstanding at December 31, 2005. Also, in
connection with the Acquisition, a warrant for 2,651 shares
was granted in November 2005 to FR X Chart Holdings
LLC, the then sole shareholder and affiliate of First Reserve,
at an exercise price of $14.00 per share that expires in
March 2014. The warrant may
F-17
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
be exercised at anytime. The Company reports comprehensive
income in its consolidated statement of shareholders
equity. The components of accumulated other comprehensive (loss)
income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
Company |
|
|
Company |
|
|
December 31, |
|
|
December 31, |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
(286 |
) |
|
|
$ |
3,549 |
|
Minimum pension liability adjustments net of taxes of $162 and
$671 at December 31, 2005 and 2004, respectively
|
|
|
(262 |
) |
|
|
|
(1,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(548 |
) |
|
|
$ |
2,303 |
|
|
|
|
|
|
|
|
|
|
|
In 2004, the Company finalized the liquidation of the BioMedical
operation in Solingen, Germany and recognized $403 of foreign
currency gain, $258 net of tax, related to the elimination
of the foreign currency translation adjustments previously
recorded as part of this entity.
Revenue Recognition: For the majority of the
Companys 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 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, 2005, 2004 and 2003, totaled $126,122,
$47,978 and $73,360, 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 totaled $125,971, $43,343 and $65,309, in 2005,
2004, and 2003, respectively. The cumulative impact of revisions
in total cost estimates during the progress of work is reflected
in the period in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed
upon claims and change orders, if any. Losses expected to be
incurred on contracts in process, after consideration of
estimated minimum recoveries from claims and change orders, are
charged to 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.
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 $556 for the 2005 Successor Period, $2,151 for the 2005
Reorganized Period, $2,833 for the year ended December 31,
2004, $465 for the three months ended December 2003, $1,538 for
the nine months ended September 30, 2003. Such costs are
expensed as incurred.
Research and Development Costs: The Company incurred
research and development costs of $805 for the 2005 Successor
Period, $2,198 for the 2005 Reorganized Period, $3,279 for the
year ended December 31, 2004, $1,280 for the three months
ended December 31, 2003, and $2,551 for the nine months
ended September 30, 2003. Such costs are expensed as
incurred.
Foreign Currency Translation: The functional currency for
the majority of the Companys 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.
F-18
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
Deferred 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.
Employee Stock Options: In November 2005, the Successor
Company granted stock options (New Options), under
the 2005 Stock Incentive Plan (Stock Incentive Plan)
to certain management employees. In addition, under the
Companys 2004 Stock Option and Incentive Plan (2004
Plan) certain management employees rolled over stock
options (Rollover Options). The Company adopted
SFAS 123(R) Share-Based Payments, on
October 17, 2005 using the modified prospective method, to
account for these New Options. The New Options are exercisable
for a period of ten years and have two different vesting
schedules. The time-based (Time-based Options) vest
annually in equal installments over a five-year period and the
performance-based (Performance-based Options) vest
based upon specified actual returns on First Reserves
investment in the Company. Furthermore, certain of the Rollover
Options were vested on the Closing Date of the Acquisition and
the remaining unvested Rollover Options vest upon the
performance criteria as outlined in the 2004 Plan and related
option agreements. The New Options and Rollover Options
generally may not be transferred, and any shares of stock that
are acquired upon exercise of the New Options or Rollover
Options generally may not be sold, transferred, assigned or
disposed of except under certain predefined liquidity events or
in the event of a change in control. The Companys policy
is to issue authorized shares upon the exercise of any stock
options. In addition, all of the 2004 stock options (2004
Options) of the Reorganized Company, except for the
Rollover Options described above, were deemed to be exercised in
conjunction with the Transaction on October 17, 2005. These
2004 Options were accounted for under the intrinsic value method
of APB Opinion No. 25 Accounting for Stock Issued to
Employees and related interpretations in accounting for
employee stock options. See Note J for further discussions
regarding the stock options.
F-19
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
Predecessor |
|
|
Company |
|
|
Reorganized Company |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
October 17, |
|
|
January 1, |
|
Year |
|
Three Months |
|
|
Nine Months |
|
|
2005 to |
|
|
2005 to |
|
Ended |
|
Ended |
|
|
Ended |
|
|
December 31, |
|
|
October 16, |
|
December 31, |
|
December 31, |
|
|
September 30, |
|
|
2005 |
|
|
2005 |
|
2004 |
|
2003 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(506 |
) |
|
|
$ |
8,858 |
|
|
$ |
22,600 |
|
|
$ |
31 |
|
|
|
$ |
(10,318 |
) |
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
833 |
|
Gain on sales of discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(506 |
) |
|
|
$ |
8,858 |
|
|
$ |
22,600 |
|
|
$ |
31 |
|
|
|
$ |
(7,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(0.06 |
) |
|
|
$ |
1.65 |
|
|
$ |
4.22 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.39 |
) |
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
Gain on sales of discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(0.06 |
) |
|
|
$ |
1.65 |
|
|
$ |
4.22 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(0.06 |
) |
|
|
$ |
1.57 |
|
|
$ |
4.10 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.39 |
) |
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
Gain on sale of discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share diluted
|
|
$ |
(0.06 |
) |
|
|
$ |
1.57 |
|
|
$ |
4.10 |
|
|
$ |
0.01 |
|
|
|
$ |
(0.27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
7,952 |
|
|
|
|
5,366 |
|
|
|
5,351 |
|
|
|
5,325 |
|
|
|
|
26,336 |
|
Incremental shares issuable upon assumed exercise of stock
warrants
|
|
|
|
|
|
|
|
61 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
Incremental shares issuable upon assumed conversion and exercise
of stock options
|
|
|
|
|
|
|
|
222 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares diluted
|
|
|
7,952 |
|
|
|
|
5,649 |
|
|
|
5,516 |
|
|
|
5,325 |
|
|
|
|
26,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumed conversion of the Companys potentially
dilutive stock options and warrants was anti-dilutive for the
period from October 17, 2005 to December 31, 2005 and
for the nine months ended December 31, 2003. For the
purposes of computing diluted earnings per share, weighted
average common share equivalents do not include 1,107 and
1,658 warrants and stock options, respectively, for the
period from October 17, 2005 to December 31, 2005,
280 warrants for the three months ended
December 31, 2003, and 2,495 warrants and 1,991 stock
options, respectively, for the nine months ended
September 30, 2003 as the effect would be anti-dilutive.
Reclassifications: Certain prior year amounts have been
reclassified to conform to current year presentation.
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.
F-20
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
Recently Adopted Accounting Standards: The Financial
Accounting Standards Board (FASB) has recently
issued the following Statements of Financial Accounting
Standards that the Company has adopted as of December 31,
2005:
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.
SFAS 123(R) is effective for nonpublic entities for fiscal
years beginning after December 15, 2005. The Company
adopted SFAS 123(R) early on October 17, 2005 in
conjunction with the Acquisition.
In December 2004, the FASB issued FASB Staff Position
(FSP) FSP
No. 109-1,
Application for FASB Statement No 109, Accounting for
Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of
2004.
FSP 109-1 is
intended to clarify that the domestic manufacturing deduction
should be accounted for as a special deduction (rather than a
rate reduction) under SFAS No. 109, Accounting
for Income Taxes. A special deduction is recognized under
SFAS 109 as it is earned. The adoption of this statement
did not have a material impact on the Companys financial
position or results of operations.
In December 2004, the FASB issued FSP
No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004.
FSP 109-2 provides
guidance under SFAS No. 109, Accounting for
Income Taxes, with respect to recording the potential
impact of the repatriation provisions of the American Jobs
Creation Act of 2004 (the Jobs Act) on
enterprises income tax expense and deferred tax liability.
The Jobs Act was enacted on October 22, 2004.
FSP 109-2 states
that an enterprise is allowed time beyond the financial
reporting period of enactment to evaluate the effect of the Jobs
Act on its plan for reinvestment or repatriation of foreign
earnings for purposes of applying SFAS No. 109. The
Company completed evaluating the impact of the repatriation
provisions. The adjustment as provided for in
FSP 109-2 did not
have a material impact on the Companys tax expense or
deferred tax liability.
In March 2005, the FASB issued FASB Interpretation No. 47
Accounting for Conditional Asset Retirement
Obligations. This interpretation requires companies to
recognize a liability for the fair value of a legal obligation
to perform asset retirement activities that are conditional on a
future event if the amount can be reasonably estimated. This
statement is effective for the year ending December 31,
2005. The adoption of this statement did not have a material
affect on the Companys financial position, results of
operations, liquidity or cash flows.
Recently Issued Accounting Standards: The Financial
Accounting Standards Board (FASB) has recently
issued the following Statements of Financial Accounting
Standards that the Company has not adopted as of
December 31, 2005:
In December 2004, the FASB issued SFAS No. 151,
Inventory Costs. SFAS No. 151 requires
abnormal amounts of inventory costs related to idle facility,
freight handling and wasted material expenses to be recognized
as current period charges. Additionally SFAS No. 151
requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the
production facilities. The standard is effective for fiscal
years beginning after June 15, 2005. The Company is
currently evaluating the effect the adoption of
SFAS No. 151 will have on the Companys financial
position or results of operations.
In June 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
SFAS 154 replaces APB Opinion No. 20, Accounting
Changes and SFAS 3, Reporting Accounting
F-21
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
Changes in Interim Financial Statements. SFAS 154
requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial
statements presented on the new accounting principle.
SFAS 154 also requires that a change in method of
depreciating and amortizing a long-lived asset be accounted for
prospectively as a change in estimate, and the correction of
errors in previously issued financial statements should be
termed a restatement. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. SFAS 154 will only affect the
Companys consolidated financial statements to the extent
there are future accounting changes or errors.
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 Companys consolidated balance
sheet as of December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
Company |
|
|
Company |
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
306 |
|
|
|
$ |
425 |
|
|
Investment in leases
|
|
|
133 |
|
|
|
|
133 |
|
|
Deferred income taxes
|
|
|
6,429 |
|
|
|
|
7,125 |
|
|
Other receivables
|
|
|
5,234 |
|
|
|
|
7,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,102 |
|
|
|
$ |
14,840 |
|
|
|
|
|
|
|
|
|
|
|
Other assets net:
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
$ |
11,749 |
|
|
|
$ |
|
|
|
Investment in leases
|
|
|
64 |
|
|
|
|
185 |
|
|
Cash value life insurance
|
|
|
1,265 |
|
|
|
|
1,719 |
|
|
Unearned compensation
|
|
|
159 |
|
|
|
|
|
|
|
Other
|
|
|
435 |
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,672 |
|
|
|
$ |
2,116 |
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
$ |
4,599 |
|
|
|
$ |
324 |
|
|
Accrued income taxes
|
|
|
|
|
|
|
|
2,636 |
|
|
Accrued other taxes
|
|
|
1,948 |
|
|
|
|
936 |
|
|
Accrued rebates
|
|
|
3,152 |
|
|
|
|
2,734 |
|
|
Accrued employee separation and plant closure costs
|
|
|
2,007 |
|
|
|
|
2,763 |
|
|
Accrued other
|
|
|
5,900 |
|
|
|
|
2,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,606 |
|
|
|
$ |
12,353 |
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accrued environmental
|
|
$ |
6,608 |
|
|
|
$ |
6,460 |
|
|
Accrued pension cost
|
|
|
7,233 |
|
|
|
|
11,106 |
|
|
Minority interest
|
|
|
1,103 |
|
|
|
|
1,213 |
|
|
Accrued contingencies and other
|
|
|
5,013 |
|
|
|
|
7,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,957 |
|
|
|
$ |
25,807 |
|
|
|
|
|
|
|
|
|
|
|
F-22
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 Companys
borrowings at December 31, 2005 and 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
Company |
|
|
Company |
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Senior term loan, due October 2012 and September 2009,
respectively, average interest rate of 6.62% and 5.62% at
December 31, 2005 and 2004, respectively
|
|
$ |
175,000 |
|
|
|
$ |
78,395 |
|
Subordinated notes, due 2015, interest accrued at 9.125%
|
|
|
170,000 |
|
|
|
|
|
|
Industrial Development Revenue bonds, due August 2006, average
interest rate of 6.33% at December 31, 2004
|
|
|
|
|
|
|
|
1,016 |
|
Revolving foreign credit facility and other short-term debt
|
|
|
2,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
347,304 |
|
|
|
|
79,411 |
|
Less: current maturities
|
|
|
2,304 |
|
|
|
|
3,005 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
345,000 |
|
|
|
$ |
76,406 |
|
|
|
|
|
|
|
|
|
|
|
In connection with the Acquisition, the Company entered into a
$240,000 senior secured credit facility (the Senior Credit
Facility) and completed a $170,000 offering of
91/8
percent senior subordinated notes (the Subordinated
Notes). The Company repaid the then existing credit
facility of the Reorganized 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 $60,000 revolving credit facility (the
Revolver), of which $35,000 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 a
$5,000 voluntary principal prepayment in December 2005, the Term
Loan requires quarterly principal payments that equal
0.8 percent per annum of the funded balance commencing in
September 2008 and a remaining balloon payment on the maturity
date. Future principal payments will be adjusted for any
voluntary prepayments. The interest rate under the Senior Credit
Facility is, at the Companys option, the Alternative Base
Rate (ABR) plus 1.0 percent or LIBOR plus
2.0 percent on the Term loan and ABR plus 1.5 percent
or LIBOR plus 2.5 percent on the Revolver. In addition, the
Company is required to pay an annual administrative fee of $100,
a commitment fee of 0.5 percent on the unused Revolver
balance, a letter of credit participation fee of
2.5 percent per annum on the letter of credit exposure and
a letter of credit issuance fee of 0.25 percent. The
obligations under the Secured Credit Facility are secured by
substantially all of the assets of the Companys
U.S. Subsidiaries and 65 percent of the capital stock
of the Companys
non-U.S. Subsidiaries.
The Subordinated Notes are due in 2015 with interest payable
semi-annually on
April 15th and
October 15th.
Any of the Subordinated Notes may be redeemed solely at the
Companys 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 Companys 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 Companys 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 of the Company,
including the Senior
F-23
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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 Companys 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 Companys 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, 2005, there was $175,000 and $170,000
outstanding under the Term Loan and Subordinated Notes,
respectively, and letters of credit and bank guarantees totaling
$22,442 supported by the Revolver.
Chart Ferox, a.s. (Ferox), a majority-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 EUROBOR 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. Feroxs land and buildings,
and accounts receivable secure $4,600 and $2,500, respectively,
of the revolving credit facilities. At December 31, 2005,
there was $800 of borrowings outstanding under, and $1,506 of
bank guarantees supported by the Ferox revolving credit
facilities.
The scheduled annual maturities of long-term debt and credit
arrangements at December 31, 2005, are as follows:
|
|
|
|
|
Year |
|
Amount |
|
|
|
2006
|
|
$ |
|
|
2007
|
|
|
|
|
2008
|
|
|
720 |
|
2009
|
|
|
1,440 |
|
2010 and thereafter
|
|
|
342,840 |
|
|
|
|
|
|
|
|
$ |
345,000 |
|
|
|
|
|
|
Effective September 15, 2003, upon emergence from its
Chapter 11 bankruptcy reorganization, the Reorganized
Company entered into a term loan agreement and revolving credit
facility (collectively, the 2003 Credit Facility).
The 2003 Credit Facility provided a term loan of $120,000 with
final maturity in 2009 and revolving credit line of $55,000, of
which $15,000 would have expired on January 31, 2006 and
$40,000 on September 15, 2008, and of which $40,000 was
available for the issuance of letters of credit and bank
guarantees. Under the terms of the credit facility, the term
loan bore interest at rates, at the Companys option, equal
to the prime rate plus 2.50 percent or LIBOR plus
3.50 percent and the revolving credit line bore interest,
at the Companys option, at rates equal to the prime rate
plus 1.50 percent or LIBOR plus 2.50 percent.
The 2003 Credit Facility contained certain covenants and
conditions, which imposed limitations on the Company and its
operating units, including restriction on the payment of cash
dividends and a requirement to
F-24
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
meet certain financial tests and to maintain on a quarterly
basis certain consolidated financial ratios, including leverage,
interest coverage, minimum fixed coverage, minimum operating
cash flow and capital expenditures. The 2003 Credit Facility
also contained a feature whereby if the Company generated cash
from operations above a pre-defined calculated amount, the
Company was required to use a portion of that cash to make
principal prepayments on the term loan portion of the 2003
Credit Facility.
In 2004, the Company made prepayments on the term loan portion
of the Credit Facility totaling $30 million, which was in
addition to a $10 million prepayment made in December 2003.
The prepayments reduced all future scheduled term loan payments
on a pro-rata basis. As a result, the Company had borrowings
outstanding of $78,395 under the term loan portion of the 2003
Credit facility and letters of credit outstanding and bank
guarantees totaling $19,040 supported by the revolving credit
line portion of the 2003 Credit Facility.
The Company paid interest of $1,085 for the 2005 Successor
Period, $4,397 in the 2005 Reorganized Period, $5,615 in the
year ended December 31, 2004, $2,268 in the three months
ended December 31, 2003, and $10,021 in the nine months
ended September 30, 2003.
NOTE D Employee Separation and Plant Closure
Costs
In 2004, the Company continued its manufacturing facility
reduction plan which commenced in 2002. These actions resulted
in the closure of the Companys Energy and Chemicals
segment manufacturing facility in Wolverhampton, U.K. in March
2003, the closure in September 2003 of the Companys Energy
and Chemicals segment sales and engineering office in
Westborough, MA and the announcements in December 2003 and
January 2004 of the closure of the Companys Distribution
and Storage segment manufacturing facility in Plaistow, NH and
the BioMedical segment manufacturing and office facility in
Burnsville, MN, respectively. In 2004, the Company completed the
shutdown of the Plaistow, NH manufacturing facility and
continued the shutdown of the Burnsville, MN manufacturing
facility, which 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, MN for engineered tank production and
Canton, GA for medical respiratory production. During 2005 and
2004, the Company recorded employee separation and plant closure
costs related to the closures of these various facilities and
also recorded non-cash inventory valuation charges included in
cost of sales at certain of these sites.
The following tables summarize the Companys employee
separation and plant closure costs activity for 2005, 2004 and
2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 17, 2005 to December 31, 2005 Successor 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 16, 2005
|
|
|
104 |
|
|
|
305 |
|
|
|
1,553 |
|
|
|
5 |
|
|
|
1,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2005
|
|
$ |
239 |
|
|
$ |
190 |
|
|
$ |
1,557 |
|
|
$ |
|
|
|
$ |
1,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2005 to October 16, 2005Reorganized 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004Reorganized Company |
|
|
|
|
|
|
|
Distribution |
|
Energy & |
|
|
|
|
BioMedical |
|
& Storage |
|
Chemical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
One-time employee termination costs
|
|
$ |
381 |
|
|
$ |
215 |
|
|
$ |
303 |
|
|
$ |
398 |
|
|
$ |
1,297 |
|
Contract termination costs
|
|
|
|
|
|
|
317 |
|
|
|
29 |
|
|
|
|
|
|
|
346 |
|
Other associated costs
|
|
|
406 |
|
|
|
726 |
|
|
|
412 |
|
|
|
(18 |
) |
|
|
1,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
787 |
|
|
|
1,258 |
|
|
|
744 |
|
|
|
380 |
|
|
|
3,169 |
|
Inventory valuation in costs of sales
|
|
|
97 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
884 |
|
|
|
1,338 |
|
|
|
744 |
|
|
|
380 |
|
|
|
3,346 |
|
Reserve usage
|
|
|
(512 |
) |
|
|
(1,530 |
) |
|
|
(1,369 |
) |
|
|
(562 |
) |
|
|
(3,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
372 |
|
|
|
(192 |
) |
|
|
(625 |
) |
|
|
(182 |
) |
|
|
(627 |
) |
Reserves as of January 1, 2004
|
|
|
|
|
|
|
533 |
|
|
|
2,182 |
|
|
|
675 |
|
|
|
3,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2004
|
|
$ |
372 |
|
|
$ |
341 |
|
|
$ |
1,557 |
|
|
$ |
493 |
|
|
$ |
2,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2003Reorganized Company |
|
|
|
|
|
|
|
Distribution |
|
Energy & |
|
|
|
|
BioMedical |
|
& Storage |
|
Chemical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
One-time employee termination costs
|
|
$ |
139 |
|
|
$ |
633 |
|
|
$ |
28 |
|
|
$ |
19 |
|
|
$ |
819 |
|
Other associated costs
|
|
|
9 |
|
|
|
|
|
|
|
113 |
|
|
|
69 |
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
148 |
|
|
|
633 |
|
|
|
141 |
|
|
|
88 |
|
|
|
1,010 |
|
Reserve usage
|
|
|
(165 |
) |
|
|
(721 |
) |
|
|
(307 |
) |
|
|
48 |
|
|
|
(1,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
(17 |
) |
|
|
(88 |
) |
|
|
(166 |
) |
|
|
136 |
|
|
|
(135 |
) |
Reserves as of October 1, 2003
|
|
|
17 |
|
|
|
621 |
|
|
|
2,348 |
|
|
|
539 |
|
|
|
3,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2003
|
|
$ |
|
|
|
$ |
533 |
|
|
$ |
2,182 |
|
|
$ |
675 |
|
|
$ |
3,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2003 Predecessor Company |
|
|
|
|
|
|
|
Distribution |
|
Energy & |
|
|
|
|
BioMedical |
|
& Storage |
|
Chemicals |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
One-time employee termination costs
|
|
$ |
42 |
|
|
$ |
350 |
|
|
$ |
754 |
|
|
$ |
384 |
|
|
$ |
1,530 |
|
Contract termination costs
|
|
|
47 |
|
|
|
(1,604 |
) |
|
|
756 |
|
|
|
97 |
|
|
|
(704 |
) |
Other associated costs
|
|
|
10 |
|
|
|
8 |
|
|
|
30 |
|
|
|
8 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
99 |
|
|
|
(1,246 |
) |
|
|
1,540 |
|
|
|
489 |
|
|
|
882 |
|
Inventory valuation in cost of sales
|
|
|
16 |
|
|
|
440 |
|
|
|
|
|
|
|
|
|
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
(806 |
) |
|
|
1,540 |
|
|
|
489 |
|
|
|
1,338 |
|
Write-off due to CHEL insolvency
|
|
|
|
|
|
|
|
|
|
|
(2,976 |
) |
|
|
|
|
|
|
(2,976 |
) |
Reserve usage
|
|
|
(328 |
) |
|
|
(1,665 |
) |
|
|
(1,182 |
) |
|
|
(477 |
) |
|
|
(3,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
(213 |
) |
|
|
(2,471 |
) |
|
|
(2,618 |
) |
|
|
12 |
|
|
|
(5,290 |
) |
Reserves as of January 1, 2003
|
|
|
230 |
|
|
|
3,092 |
|
|
|
4,966 |
|
|
|
527 |
|
|
|
8,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of September 30, 2003
|
|
$ |
17 |
|
|
$ |
621 |
|
|
$ |
2,348 |
|
|
$ |
539 |
|
|
$ |
3,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E Acquisitions
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 Peoples Republic of China. The purchase
price was $13,664, consisting of cash of $12,198 and the
issuance of a promissory note of $1,466 payable to the seller.
The estimated fair value of the net assets acquired and goodwill
at the date of acquisition was $8,894 and $4,770, respectively.
For the 2005 Reorganized Period, 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 has been included in the Companys
Distribution and Storage operating segment and included
approximately $4,100 of revenue since the Acquisition.
On February 27, 2004, the Companys Coastal
Fabrication joint venture (Coastal Fabrication)
executed an agreement to redeem the joint venture partners
50 percent equity interest of $289 for cash consideration
of $250 and the possibility of additional consideration being
paid based upon the number of direct labor manufacturing hours
performed at the Companys New Iberia, LA facility during
2004 and 2005. The $39 difference between the cash consideration
paid and the value of the 50 percent equity interest was
recorded by Coastal Fabrication as a reduction of certain fixed
assets. As a result of the elimination of the joint venture
partner and the assumption of 100 percent of control by the
Company, the assets, liabilities and operating results of
Coastal Fabrication are included in these consolidated financial
statements subsequent to February 27, 2004.
NOTE F Loss on Insolvent Subsidiary
In March 2003, the Company completed the closure of its
Wolverhampton, United Kingdom manufacturing facility, operated
by CHEL, and all current heat exchanger manufacturing is now
being conducted at its LaCrosse, WI facility.
On March 28, 2003, CHEL filed for a voluntary
administration under the U.K. Insolvency Act of 1986.
CHELs 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,
the Company is 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.
F-27
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
Effective March 28, 2003, the Company recorded a non-cash
impairment charge of $13,682 to write off its net investment in
CHEL. The components of this impairment charge included:
|
|
|
|
|
Accounts receivable
|
|
$ |
2,413 |
|
Intercompany receivables
|
|
|
3,904 |
|
Property, plant and equipment, net
|
|
|
2,939 |
|
Other current assets
|
|
|
1,168 |
|
Accounts payable
|
|
|
(1,323 |
) |
Accrued and other current liabilities
|
|
|
(1,302 |
) |
Cumulative translation adjustment
|
|
|
3,268 |
|
Minimum pension liability
|
|
|
2,615 |
|
|
|
|
|
|
|
|
$ |
13,682 |
|
|
|
|
|
|
NOTE G 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
Companys deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
Company |
|
|
Company |
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Accruals and reserves
|
|
$ |
7,665 |
|
|
|
$ |
7,355 |
|
|
Pensions
|
|
|
2,699 |
|
|
|
|
3,209 |
|
|
Inventory
|
|
|
1,288 |
|
|
|
|
1,490 |
|
|
Other net
|
|
|
3,370 |
|
|
|
|
4,535 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$ |
15,022 |
|
|
|
$ |
16,589 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$ |
5,795 |
|
|
|
$ |
6,218 |
|
|
Intangibles
|
|
|
58,836 |
|
|
|
|
16,185 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$ |
64,631 |
|
|
|
$ |
22,403 |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities) asset
|
|
$ |
(49,609 |
) |
|
|
$ |
(5,814 |
) |
|
|
|
|
|
|
|
|
|
|
The Company has not provided for income taxes on approximately
$15,226 of foreign subsidiaries undistributed earnings as
of December 31, 2005, 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 2005 Reorganized
Period, the Company recorded income tax expense of $156 for the
repatriation of $2,970 of foreign earnings under the Act.
F-28
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
(Loss) income from continuing operations before income taxes and
minority interest consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized Company |
|
|
Predecessor |
|
|
Company |
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Three |
|
|
|
|
|
October 17, |
|
|
January 1, |
|
|
|
Months |
|
|
Nine Months |
|
|
2005 to |
|
|
2005 to |
|
Year Ended |
|
Ended |
|
|
Ended |
|
|
December 31, |
|
|
October 16, |
|
December 31, |
|
December 31, |
|
|
September 30, |
|
|
2005 |
|
|
2005 |
|
2004 |
|
2003 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
(1,425 |
) |
|
|
$ |
10,718 |
|
|
$ |
25,566 |
|
|
$ |
1,749 |
|
|
|
$ |
(13,689 |
) |
Foreign
|
|
|
530 |
|
|
|
|
5,319 |
|
|
|
7,266 |
|
|
|
(1,823 |
) |
|
|
|
5,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(895 |
) |
|
|
$ |
16,037 |
|
|
$ |
32,832 |
|
|
$ |
(74 |
) |
|
|
$ |
(8,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the provision for income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized Company |
|
|
Predecessor |
|
|
Company |
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Three |
|
|
|
|
|
October 17, |
|
|
January 1, |
|
|
|
Months |
|
|
Nine Months |
|
|
2005 to |
|
|
2005 to |
|
Year Ended |
|
Ended |
|
|
Ended |
|
|
December 31, |
|
|
October 16, |
|
December 31, |
|
December 31, |
|
|
September 30, |
|
|
2005 |
|
|
2005 |
|
2004 |
|
2003 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
1,476 |
|
|
|
$ |
6,601 |
|
|
$ |
5,224 |
|
|
$ |
|
|
|
|
$ |
(5,308 |
) |
|
State
|
|
|
199 |
|
|
|
|
1,013 |
|
|
|
928 |
|
|
|
181 |
|
|
|
|
158 |
|
|
Foreign
|
|
|
227 |
|
|
|
|
1,806 |
|
|
|
1,879 |
|
|
|
(932 |
) |
|
|
|
1,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,902 |
|
|
|
|
9,420 |
|
|
|
8,031 |
|
|
|
(751 |
) |
|
|
|
(3,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,055 |
) |
|
|
|
(1,793 |
) |
|
|
1,692 |
|
|
|
537 |
|
|
|
|
6,639 |
|
|
State
|
|
|
(185 |
) |
|
|
|
(161 |
) |
|
|
166 |
|
|
|
|
|
|
|
|
664 |
|
|
Foreign
|
|
|
(103 |
) |
|
|
|
(307 |
) |
|
|
245 |
|
|
|
89 |
|
|
|
|
(2,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,343 |
) |
|
|
|
(2,261 |
) |
|
|
2,103 |
|
|
|
626 |
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(441 |
) |
|
|
$ |
7,159 |
|
|
$ |
10,134 |
|
|
$ |
(125 |
) |
|
|
$ |
1,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized Company |
|
|
Predecessor |
|
|
Company |
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Three |
|
|
|
|
|
October 17, |
|
|
January 1, |
|
|
|
Months |
|
|
Nine Months |
|
|
2005 to |
|
|
2005 to |
|
Year Ended |
|
Ended |
|
|
Ended |
|
|
December 31, |
|
|
October 16, |
|
December 31, |
|
December 31, |
|
|
September 30, |
|
|
2005 |
|
|
2005 |
|
2004 |
|
2003 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense at U.S. statutory rates
|
|
$ |
(313 |
) |
|
|
$ |
5,691 |
|
|
$ |
11,491 |
|
|
$ |
(26 |
) |
|
|
$ |
(2,683 |
) |
State income taxes, net of federal tax benefit
|
|
|
129 |
|
|
|
|
659 |
|
|
|
612 |
|
|
|
118 |
|
|
|
|
102 |
|
Debt forgiveness income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,283 |
) |
Credit on foreign taxes paid
|
|
|
(127 |
) |
|
|
|
(408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate differential of earnings outside of U.S.
|
|
|
(71 |
) |
|
|
|
(463 |
) |
|
|
(488 |
) |
|
|
(205 |
) |
|
|
|
89 |
|
Federal tax benefit of foreign sales
|
|
|
(130 |
) |
|
|
|
(648 |
) |
|
|
(456 |
) |
|
|
(88 |
) |
|
|
|
(263 |
) |
Non-deductible (taxable) items goodwill and other
items
|
|
|
71 |
|
|
|
|
1,203 |
|
|
|
(525 |
) |
|
|
76 |
|
|
|
|
4,535 |
|
In-process research and development
|
|
|
|
|
|
|
|
969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh-Start accounting adjustments and valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,274 |
|
Repatriation of foreign earnings
|
|
|
|
|
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolved tax contingency
|
|
|
|
|
|
|
|
|
|
|
|
(500 |
) |
|
|
|
|
|
|
|
(4,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(441 |
) |
|
|
$ |
7,159 |
|
|
$ |
10,134 |
|
|
$ |
(125 |
) |
|
|
$ |
1,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 2005 Reorganized Period, 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
(refunds) of $3,113 in the 2005 Successor Period, $11,160
in the 2005 Reorganized Period, $8,035 in 2004, $362 in the
three months ended December 31, 2003, and $(1,262) in the
nine months ended September 30, 2003.
NOTE H Discontinued Operation and Assets Held for
Sale
On July 3, 2003, the Company sold certain assets and
liabilities of its former Greenville Tube, LLC stainless steel
tubing business, which the Company previously reported as a
component of its Energy and Chemicals operating segment. The
Company received gross proceeds of $15,500, consisting of
$13,550 in cash and $1,950 in a long-term subordinated note,
which resulted in a gain of $2,400, net of taxes of $1,292,
recorded in the nine months ended September 30, 2003. In
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company
classified the operating results of this business and the gain
on sale as a discontinued operation on its consolidated
statements of operations for the nine months ended
September 30, 2003. The amount of revenue reported in
discontinued operations was $8,807 for the nine months ended
September 30, 2003. The amount of pre-tax profit reported
in discontinued operations is equal to the income from
discontinued operation, net of income taxes, since the Company
did not allocate income tax expense to this business.
In September 2003, the Company decided to sell a vacant building
and a parcel of land at its New Prague, MN Distribution and
Storage manufacturing facility. These assets were sold in April
2004 for $550 and the Company recorded a loss of $11 due to
selling expenses. The net proceeds from this sale were used for
working capital purposes.
F-30
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
In January 2004, the Company decided to sell a building and
parcel of land at its Burnsville, MN Biomedical manufacturing
and office facility. In June 2004, the Company executed an
agreement to sell the Burnsville facility for $4,500. Because
the net sales price, estimated to be $4,175 after selling costs,
was lower than the carrying value, the assets were written down
to the net sales price by recording a $404 loss on sale of
assets in 2004. The net proceeds from this sale were used to pay
down $880 of debt outstanding under an industrial revenue bond
and the remainder was used for working capital purposes.
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 2005 Reorganization Period, an additional $483
fair value impairment loss was recognized by the Reorganized
Company as the Company entered into another agreement to sell
the land and building that expired in the first quarter of 2006.
At December 31, 2005 the carrying value of this property
equaled $3,084. The Plaistow facility is classified as held for
sale on its consolidated balance sheet as of December 31,
2005 and 2004. The Company continues to pursue the sale of the
land and building and expects a sale to be completed within the
next year. Net proceeds from such sale are expected to be
available for working capital purposes.
NOTE I Employee Benefit Plans
The Company has four defined benefit pension plans (the
Plans) covering certain U.S. hourly and salary
employees. As of December 31, 2005 and 2004, three of the
Plans were frozen. Effective February 28, 2006, the fourth
Plan was frozen. The Plans provided benefits primarily based on
the participants years of service and compensation.
The following table sets forth the components of net periodic
pension (benefit) cost for the 2005 Successor Period, the 2005
Reorganized Period, the year ended December 31, 2004, the
three months ended December 31, 2003 and the nine months
ended September 30, 2003 based on a December 31
measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized Company |
|
|
Predecessor |
|
|
Company |
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Three |
|
|
|
|
|
October 17, |
|
|
January 1, |
|
|
|
Months |
|
|
Nine Months |
|
|
2005 to |
|
|
2005 to |
|
Year Ended |
|
Ended |
|
|
Ended |
|
|
December 31, |
|
|
October 16, |
|
December 31, |
|
December 31, |
|
|
September 30, |
|
|
2005 |
|
|
2005 |
|
2004 |
|
2003 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
53 |
|
|
|
$ |
205 |
|
|
$ |
887 |
|
|
$ |
269 |
|
|
|
$ |
851 |
|
Interest cost
|
|
|
410 |
|
|
|
|
1,559 |
|
|
|
2,056 |
|
|
|
534 |
|
|
|
|
1,515 |
|
Expected return on plan assets
|
|
|
(474 |
) |
|
|
|
(1,807 |
) |
|
|
(2,135 |
) |
|
|
(472 |
) |
|
|
|
(1,197 |
) |
Amortization of net (gain) loss
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
|
431 |
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension (benefit) cost
|
|
$ |
(11 |
) |
|
|
$ |
(190 |
) |
|
$ |
760 |
|
|
$ |
331 |
|
|
|
$ |
1,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Reorganized |
|
|
Company |
|
|
Company |
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
January 1 projected benefit obligation
|
|
$ |
36,104 |
|
|
|
$ |
35,354 |
|
|
Service cost
|
|
|
258 |
|
|
|
|
887 |
|
|
Interest coat
|
|
|
1,969 |
|
|
|
|
2,056 |
|
|
Benefits paid
|
|
|
(990 |
) |
|
|
|
(943 |
) |
|
Plan Amendments
|
|
|
|
|
|
|
|
(2,015 |
) |
|
Actuarial losses and plan changes
|
|
|
63 |
|
|
|
|
765 |
|
|
|
|
|
|
|
|
|
|
|
December 31 projected benefit obligation
|
|
$ |
37,404 |
|
|
|
$ |
36,104 |
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value at January 1
|
|
$ |
27,789 |
|
|
|
$ |
25,244 |
|
|
Actual return
|
|
|
2,359 |
|
|
|
|
1,777 |
|
|
Employer contributions
|
|
|
946 |
|
|
|
|
1,711 |
|
|
Benefits paid
|
|
|
(990 |
) |
|
|
|
(943 |
) |
|
|
|
|
|
|
|
|
|
|
Fair value at December 31
|
|
$ |
30,104 |
|
|
|
$ |
27,789 |
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized:
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
|
$ |
(7,300 |
) |
|
|
$ |
(8,315 |
) |
|
Unrecognized actuarial loss (gain)
|
|
|
424 |
|
|
|
|
(874 |
) |
|
|
|
|
|
|
|
|
|
|
Net pension liability recognized
|
|
$ |
(6,876 |
) |
|
|
$ |
(9,189 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
|
$ |
(7,300 |
) |
|
|
$ |
(11,106 |
) |
Accumulated other comprehensive loss
|
|
|
424 |
|
|
|
|
1,917 |
|
|
|
|
|
|
|
|
|
|
|
Net pension liability recognized
|
|
$ |
(6,876 |
) |
|
|
$ |
(9,189 |
) |
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation is equal to the projected
benefit obligation at December 31, 2005 and 2004 because
three of the Plans were frozen at these dates and the remaining
plan was service related. A minimum pension liability adjustment
was required as of December 31, 2005 and 2004 as the
actuarial present value of a projected benefit obligations
exceeded plan assets and accrued pension liabilities.
At December 31, 2005, the Companys consolidated net
pension liability recognized was $6.9 million, a decrease
of $2.3 million from December 31, 2004. The decrease
is primarily due to an increase in the fair value of plan assets
during 2005 and the recognition of the net unamortized gain at
the Closing Date of the Acquisition in accordance with
SFAS 141 Business Combinations.
F-32
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
The actuarial assumptions used in determining the funded status
information and subsequent net periodic pension cost are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Predecessor | |
|
|
Company | |
|
|
Reorganized Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
|
|
|
Three | |
|
|
Nine | |
|
|
October 17, | |
|
|
January 1, | |
|
|
|
Months | |
|
|
Months | |
|
|
2005 to | |
|
|
2005 to | |
|
Year Ended | |
|
Ended | |
|
|
Ended | |
|
|
December 31, | |
|
|
October 16, | |
|
December 31, | |
|
December 31, | |
|
|
September 30, | |
|
|
2005 | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
2003 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
United States Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50 |
% |
|
|
|
5.75 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
|
6.50 |
% |
|
Weighted average rate of increase in compensation
|
|
|
* |
|
|
|
|
3.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
|
4.00 |
% |
|
Expected long-term weighted average rate of return on plan assets
|
|
|
8.25 |
% |
|
|
|
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 Companys 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.
Additionally, the Plans held 2,540 shares of the
Reorganized Companys common stock with fair values of $124
and $67 at December 31, 2004 and 2003, respectively, and
did not receive any dividends on these shares during 2004 or
2003. Investment risk is measured and monitored on an ongoing
basis through quarterly investment portfolio reviews, annual
liability measurements and periodic asset/liability studies. The
Companys pension plan weighted-average actual and target
asset allocations by asset category at December 31 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
|
|
|
|
|
|
|
Successor |
|
Reorganized |
|
|
|
|
Company |
|
Company |
|
|
Target |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Stocks
|
|
|
64 |
% |
|
|
57 |
% |
|
|
57 |
% |
Fixed income funds
|
|
|
34 |
% |
|
|
41 |
% |
|
|
41 |
% |
Cash and cash equivalents
|
|
|
2 |
% |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
The Companys funding policy is to contribute at least the
minimum funding amounts required by law. Based upon current
actuarial estimates, the Company expects to contribute $1,263 to
its defined benefit pension plans in 2006 and expects the
following benefit payments to be paid by the plans:
|
|
|
|
|
2006
|
|
$ |
1,176 |
|
2007
|
|
|
1,263 |
|
2008
|
|
|
1,327 |
|
2009
|
|
|
1,432 |
|
2010
|
|
|
1,578 |
|
|
|
|
|
|
|
|
$ |
6,776 |
|
|
|
|
|
|
The Company presently makes contributions to one bargaining unit
supported multi-employer pension plans resulting in expense of
$78 for the 2005 Successor Period, $282 for the 2005 Reorganized
Period, $313 for the year ended December 31, 2004, $110 for
the three months ended December 31, 2003 and $199 for the
nine months ended September 30, 2003. 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, 2005
and 2004. Any additional liability over this accrued amount is
not expected to have a material adverse impact on the
Companys 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
$517 for the 2005 Successor Period, $2,188 for the 2005
Reorganized Period, $1,483 for the year ended December 31,
2004, $313 for the three months ended December 31, 2003 and
$1,118 for the nine months ended September 30, 2003.
NOTE J Stock Option Plans
In November 2005, 2,208 New Options were granted to certain
management employees of the Company, under the 2005 Stock
Incentive Plan, to purchase shares of the Successor
Companys common stock at an exercise price of
$6.41 per share. In addition, certain members of management
rolled over 610 options from the Reorganized Companys
2004 Plan at an exercise price of $3.50 per share.
The New Options are exercisable for a period of ten years and
have two different vesting schedules. 779 of the New Options are
time-based (Time-based Options) and vest annually in
equal installments over a five year period, and 1,429 of the New
Options are performance-based (Performance-based
Options) and vest based upon specified actual returns on
First Reserves investment in the Company. In addition, 564
of the Rollover Options were vested on the Closing Date of the
Acquisition and 46 unvested Rollover Options vest upon the
performance criteria of the Companys 2004 Plan. As of
March 22, 2006, 596 of the Rollover Options were vested.
The New Options generally may not be transferred, and any shares
of stock that are acquired upon exercise of the New Options
generally may not be sold, transferred, assigned or disposed of
except under certain predefined liquidity events or in the event
of a change in control. As of December 31, 2005, there were
2,818 vested and unvested options outstanding. For the 2005
Successor Period, $437 of stock-based compensation expense was
recognized for the New Options and the Rollover Options. At
December 31, 2005, the unrecognized total share-based
compensation expense to be recorded over the next five years
related to non-vested awards is $2,716.
The fair value of the New Options was estimated at the date of
grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate
of 4.8 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys common shares of
F-34
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
47.0 percent; and a weighted-average expected life of
7.5 years for the options. Volatility was calculated using
an average of the Reorganized Companys historical closing
stock price on the OTCBB from October 2, 2003 to
October 14, 2005. Stock-based compensation expense for the
Time-based Options is recorded on a straight-line basis over the
vesting period.
On October 17, 2005, in conjunction with the Acquisition,
all of the unvested 2004 Options under the Reorganized
Companys 2004 Plan were vested upon the change of control,
except for 46 Rollover Options. The Reorganized
Companys 2004 Options are described further below. As a
result of normal vesting and the change in control, $9,508 of
share-based compensation expense was recognized for the 2005
Reorganized Period.
On March 19, 2004, the Reorganized Company granted 436 of
2004 Options to purchase shares of the Companys common
stock with an exercise price of $13.89 per share when the
closing market price of the Companys common stock was
$28.00 per share. These 2004 Options were accounted for
under the intrinsic value method of APB Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25). These non-qualified stock options
were exercisable for a period of 10 years and have two
different vesting schedules: 320 options were scheduled to
vest in equal annual installments over a four-year period and
116 options were scheduled to vest over a
45-month period, which
commenced April 1, 2004, based upon the achievement of
specific operating performance goals during that
45-month period as
determined by the Compensation Committee of the Board of
Directors. The 320 2004 Options on the time-based vesting
schedule were accounted for as a fixed compensatory plan under
APB 25. For these options, the Company expected to record
$4,313 as compensation expense over the vesting period based on
the $14.11 difference between the closing market price and the
exercise price on the date of grant. The 116 2004 Options on the
performance-based vesting schedule were accounted for as a
variable compensatory plan under APB 25. For these options,
the Company recorded compensation expense over the vesting
period based upon the difference between the closing market
price of the Companys stock and the exercise price at each
balance sheet measurement date, and the Companys estimate
of the number of options that will ultimately vest based upon
actual and estimated performance in comparison to the
performance targets.
During 2004, 14 options on the time-based vesting schedule and
14 options on the performance-based vesting schedule were
cancelled due to the resignation of eligible employees, and 42
additional 2004 Options on the time-based vesting schedule and
30 additional 2004 Options on the performance-based vesting
schedule were issued at the closing market price on the date of
grant to then new eligible employees and non-employee members of
the Companys Board of Directors. The 42 2004 Options with
the time-based vesting schedule were accounted for as a fixed
plan under APB 25. For these options, the Company recorded
no compensation expense, since the exercise price was equal to
the market price at the date of grant. The 30 Options with
the performance-based vesting schedule were accounted for as a
variable compensatory plan under APB 25 and the Company
recorded compensation expense using the same method as the
initial 116 performance-based options. As of
December 31, 2004, there were 480 options outstanding.
For the year ended December 31, 2004, the Company
recognized $1,998 of stock-based compensation expense.
F-35
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
Certain information for the 2005 Successor Company and the year
ended December 31, 2004, relative to the Successor
Companys and Reorganized Companys stock option plans
is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
Reorganized Company | |
|
|
December 31, 2005 | |
|
|
December 31, 2004 | |
|
|
| |
|
|
| |
|
|
|
|
Weighted | |
|
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
|
Average | |
|
|
Number | |
|
Exercise | |
|
|
Number | |
|
Exercise | |
|
|
of Shares | |
|
Price | |
|
|
of Shares | |
|
Price | |
|
|
| |
|
| |
|
|
| |
|
| |
Outstanding balance at beginning of period
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
Rollover
|
|
|
610 |
|
|
|
3.50 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,208 |
|
|
|
6.41 |
|
|
|
|
508 |
|
|
|
18.04 |
|
Expired or canceled
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
13.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,818 |
|
|
$ |
5.78 |
|
|
|
|
480 |
|
|
$ |
18.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year *
|
|
|
596 |
|
|
$ |
3.50 |
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
$ |
37.03 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participants at end of year
|
|
|
32 |
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future grant at end of year
|
|
|
68 |
|
|
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Remaining contractual term of 8 years and 3 months. |
NOTE K Lease Commitments
The Company incurred $717, $2,665, $3,478, $974 and $3,756 of
rental expense under operating leases for the 2005 Successor
Period, the 2005 Reorganized Period, the year ended
December 31, 2004, the three months ended December 31,
2003 and the nine months ended September 30, 2003. 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,
2005, future minimum lease payments for non-cancelable operating
leases for the next five years total $8,547 and are payable as
follows: 2006 $2,040; 2007 $1,855;
2008 $1,713; 2009 $1,600; and
2010 $1,339.
NOTE L Contingencies
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, 2005 and 2004, the Company had undiscounted
accrued environmental reserves of $6,608 and $6,460,
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.
F-36
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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 Companys financial
position, liquidity, cash flows or results of operations.
In conjunction with the Acquisition and the Notice of Merger
dated October 25, 2005, certain of the former shareholders
of the Reorganized Company representing 244,180 shares of
common stock, gave notice of their right under Delaware General
Corporation Law to exercise appraisal rights. In February 2006,
before the former shareholders filed suit in court under
Delaware General Corporation Law, the Company settled this
appraisal rights matter by paying additional proceeds to these
former shareholders of $0.5 million. This settlement amount
was accrued at December 31, 2005.
In March 2003, the Company completed the closure of its
Wolverhampton, United Kingdom manufacturing facility, operated
by CHEL, and all current heat exchanger manufacturing is being
conducted at the Companys La Crosse, WI facility. On
March 28, 2003, CHEL filed for a voluntary administration
under the United Kingdom (U.K.) Insolvency Act of
1986. CHELs application for voluntary administration was
approved on April 1, 2003 and an administrator was
appointed. Additionally, the Company received information that
indicated that CHELs 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 of approximately
$12.0 million as of March 2003. Based on the Companys
financial condition in March 2003, it determined not to advance
funds to CHEL in amounts necessary to fund CHELs
obligations. Since CHEL was unable to fund its net pension
deficit, pay remaining severance due to former employees, or pay
other creditors, 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.
The Company does not believe that it is legally obligated to
fund the net pension deficit of the CHEL pension plan because
CHEL, which is no longer one of the Companys consolidated
subsidiaries, was the sponsor of the pension plan and the entity
with primary responsibility for the plan. In addition, the
Company considered itself and its consolidated subsidiaries
legally released from being the primary obligor of any CHEL
liabilities. Further, at the time the insolvency administrator
assumed control of CHEL, the Company no longer had control of
the assets or liabilities of CHEL. As a result, in March 2003,
the Company wrote-off its net investment in CHEL. In addition,
any claims of CHEL against the Company were discharged in
bankruptcy as part of the Companys Reorganization Plan.
While no claims presently are pending against the Company
related to CHELs insolvency, persons impacted by the
insolvency or others could bring a claim against the Company
asserting that the Company is directly responsible for pension
and benefit related liabilities of CHEL. Although the Company
would contest any claim of this kind, it can provide no
assurance that claims will not be asserted against it in the
future. To the extent the Company has a significant liability
related to CHELs insolvency and pension wind-up,
satisfaction of that liability could have a material adverse
impact on the Companys liquidity, results of operations
and financial position.
F-37
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
Chapter 11 Reorganization |
On July 8, 2003, the Company and all of its then
majority-owned U.S. subsidiaries filed voluntary petitions
for reorganization relief under Chapter 11 of the
U.S. Bankruptcy Code with the United States Bankruptcy
Court for the District of Delaware to implement an agreed upon
senior debt restructuring plan through a pre-packaged plan of
reorganization. None of the Companys
non-U.S. subsidiaries
were included in the filing in the Bankruptcy Court. On
September 15, 2003, the Reorganized Company and all of its
majority-owned U.S. subsidiaries emerged from
Chapter 11 proceedings pursuant to the Amended Joint
Prepackaged Reorganization Plan of Chart Industries, Inc. and
Certain Subsidiaries, dated September 3, 2003. The Company
has resolved all proofs of claim asserted in the bankruptcy
proceedings, including the settlement in July 2005 of a
finders fee claim in the amount of $1.1 million
asserted by a former shareholder of the Company, against which
the Company had filed an objection in the Bankruptcy Court. The
Company expects to move forward to close these proceedings in
2006.
|
|
|
Performance Under Contracts |
The Company is occasionally subject to various other legal
actions related to performance under contracts, product
liability and other matters, several of which actions claim
substantial damages, in the ordinary course of its business.
Based on the Companys historical experience in litigating
these actions, as well as the Companys current assessment
of the underlying merits of the actions and applicable
insurance, the Company believes the resolution of these other
legal actions will not have a material adverse effect on the
Companys financial position, liquidity, cash flows or
results of operations.
The Company is a party to other legal proceedings incidental to
the normal course of its business. Based on the Companys
historical experience in litigating these actions, as well as
the Companys 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 Companys financial
position, liquidity, cash flows or results of operations.
NOTE M Reporting Segments
The Companys structure of its internal organization is
divided into the following three reportable segments: Energy and
Chemicals, Distribution and Storage, and BioMedical. The
Companys 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
CO2
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. The
Company moved the management and reporting of the LNG
alternative fuel systems product line from the Energy and
Chemicals segment to the Distribution and Storage segment
effective December 31, 2004. All segment information for
all periods presented has been restated to conform to this
presentation. Corporate headquarters includes operating expenses
for executive management, accounting, tax, treasury, human
resources, information technology, legal, risk management and
stock-based compensation expense that are not allocated to the
reportable segments.
F-38
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
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.
Information for the Companys three reportable segments and
its corporate headquarters, and product revenue and geographic
information for the Company, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company |
|
|
|
|
|
October 17, 2005 to December 31, 2005 |
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
|
|
|
|
Energy and |
|
Distribution |
|
|
|
|
|
|
Chemicals |
|
and Storage |
|
BioMedical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenues 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(B)(C)
|
|
|
177,915 |
|
|
|
341,644 |
|
|
|
93,929 |
|
|
|
28,318 |
|
|
|
641,806 |
|
Capital expenditures
|
|
|
877 |
|
|
|
3,338 |
|
|
|
1,255 |
|
|
|
131 |
|
|
|
5,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company |
|
|
|
|
|
January 1, 2005 to October 16, 2005 |
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
|
|
|
|
Energy and |
|
Distribution |
|
|
|
|
|
|
Chemicals |
|
and Storage |
|
BioMedical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenues 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(B)(D)
|
|
|
85,203 |
|
|
|
151,404 |
|
|
|
99,001 |
|
|
|
7,499 |
|
|
|
343,107 |
|
Capital expenditures
|
|
|
2,817 |
|
|
|
5,878 |
|
|
|
1,490 |
|
|
|
853 |
|
|
|
11,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company |
|
|
|
|
|
Year Ended December 31, 2004 |
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
|
|
|
|
Energy and |
|
Distribution |
|
|
|
|
|
|
Chemicals |
|
and Storage |
|
BioMedical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$ |
69,609 |
|
|
$ |
162,508 |
|
|
$ |
73,459 |
|
|
$ |
|
|
|
$ |
305,576 |
|
Employee separation and plant closure costs
|
|
|
744 |
|
|
|
1,258 |
|
|
|
787 |
|
|
|
380 |
|
|
|
3,169 |
|
Depreciation and amortization expense
|
|
|
1,180 |
|
|
|
2,614 |
|
|
|
1,386 |
|
|
|
3,310 |
|
|
|
8,490 |
|
Equity expense in joint venture
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Operating income (loss)
|
|
|
11,545 |
|
|
|
27,951 |
|
|
|
14,208 |
|
|
|
(16,625 |
) |
|
|
37,079 |
|
Total assets(B)(D)
|
|
|
65,212 |
|
|
|
118,555 |
|
|
|
100,768 |
|
|
|
22,545 |
|
|
|
307,080 |
|
Capital expenditures
|
|
|
1,681 |
|
|
|
4,643 |
|
|
|
2,357 |
|
|
|
698 |
|
|
|
9,379 |
|
F-39
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company |
|
|
|
|
|
Three Months Ended December 31, 2003 |
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
|
|
|
|
Energy and |
|
Distribution |
|
|
|
|
|
|
Chemicals |
|
and Storage |
|
BioMedical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$ |
15,699 |
|
|
$ |
37,863 |
|
|
$ |
15,008 |
|
|
$ |
|
|
|
$ |
68,570 |
|
Employee separation and plant closure costs
|
|
|
141 |
|
|
|
633 |
|
|
|
148 |
|
|
|
88 |
|
|
|
1,010 |
|
Depreciation and amortization expense
|
|
|
356 |
|
|
|
991 |
|
|
|
791 |
|
|
|
87 |
|
|
|
2,225 |
|
Equity expense in joint venture
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
Operating income (loss)(A)
|
|
|
3,298 |
|
|
|
1,613 |
|
|
|
(479 |
) |
|
|
(3,512 |
) |
|
|
920 |
|
Total assets(B)(D)
|
|
|
62,558 |
|
|
|
105,508 |
|
|
|
105,127 |
|
|
|
26,444 |
|
|
|
299,637 |
|
Equity investment in joint venture
|
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
Capital expenditures
|
|
|
42 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company |
|
|
|
|
|
Nine Months Ended September 30, 2003 |
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
|
|
|
|
Energy and |
|
Distribution |
|
|
|
|
|
|
Chemicals |
|
and Storage |
|
BioMedical |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$ |
42,910 |
|
|
$ |
102,469 |
|
|
$ |
51,638 |
|
|
$ |
|
|
|
$ |
197,017 |
|
Employee separation and plant closure costs (benefit)
|
|
|
1,540 |
|
|
|
(1,246 |
) |
|
|
99 |
|
|
|
489 |
|
|
|
882 |
|
Depreciation and amortization expense
|
|
|
934 |
|
|
|
4,639 |
|
|
|
1,505 |
|
|
|
529 |
|
|
|
7,607 |
|
Loss on insolvent subsidiary
|
|
|
13,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,682 |
|
Operating income (loss)(A)
|
|
|
(8,694 |
) |
|
|
9,112 |
|
|
|
12,381 |
|
|
|
(14,736 |
) |
|
|
(1,937 |
) |
Total assets(B)(D)
|
|
|
59,307 |
|
|
|
105,147 |
|
|
|
109,196 |
|
|
|
39,272 |
|
|
|
312,922 |
|
Equity investment in joint venture
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381 |
|
Capital expenditures
|
|
|
138 |
|
|
|
1,573 |
|
|
|
196 |
|
|
|
|
|
|
|
1,907 |
|
|
|
|
(A) |
|
Corporate operating loss for the nine months ended
September 30, 2003 includes $6,046 of professional fees
incurred by the Company related to its debt restructuring
activities. |
|
(B) |
|
Corporate assets at December 31, 2005, October 16,
2005, December 31, 2004, December 31, 2003 and
September 30, 2003 consist primarily of cash and cash
equivalents and deferred income taxes. |
|
(C) |
|
Total assets at December 31, 2005 includes goodwill of
$72,833, $128,653 and $35,256 for the Energy and Chemicals,
Distribution and Storage, and BioMedical segments, respectively. |
|
(D) |
|
Total assets at October 16, 2005, December 31, 2004,
December 31, 2003 and September 30, 2003 includes
goodwill of $31,648, $2,787 and $40,675 for the Energy and
Chemicals, Distribution and Storage, and BioMedical segments,
respectively. |
F-40
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
A reconciliation of the total of the reportable segments
operating income (loss) from continuing operations to
consolidated (loss) income from continuing operations before
income taxes, minority interest and cumulative effect of change
in accounting principle is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Predecessor | |
|
|
Company | |
|
|
Reorganized Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
October 17, | |
|
|
January 1, | |
|
|
|
Three | |
|
|
Nine | |
|
|
2005 | |
|
|
2005 | |
|
Year | |
|
Months | |
|
|
Months | |
|
|
to | |
|
|
to | |
|
Ended | |
|
Ended | |
|
|
Ended | |
|
|
December 31, | |
|
|
October 16, | |
|
December 31, | |
|
December 31, | |
|
|
September 30, | |
|
|
2005 | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
2003 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
Operating income (loss) from continuing operations
|
|
$ |
5,070 |
|
|
|
$ |
20,859 |
|
|
$ |
37,079 |
|
|
$ |
920 |
|
|
|
$ |
(1,937 |
) |
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(5,565 |
) |
|
|
|
(4,192 |
) |
|
|
(4,760 |
) |
|
|
(1,390 |
) |
|
|
|
(9,911 |
) |
|
Financing costs amortization
|
|
|
(308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,653 |
) |
|
Derivative contracts valuation income (expense)
|
|
|
9 |
|
|
|
|
28 |
|
|
|
48 |
|
|
|
46 |
|
|
|
|
(389 |
) |
Foreign currency gain (loss)
|
|
|
(101 |
) |
|
|
|
(659 |
) |
|
|
465 |
|
|
|
350 |
|
|
|
|
(287 |
) |
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes and
minority interest
|
|
$ |
(895 |
) |
|
|
$ |
16,036 |
|
|
$ |
32,832 |
|
|
$ |
(74 |
) |
|
|
$ |
(8,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Predecessor | |
|
|
Company | |
|
|
Reorganized Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
| |
|
|
October 17, | |
|
|
January 1, | |
|
|
|
Three | |
|
|
Nine | |
|
|
2005 | |
|
|
2005 | |
|
Year | |
|
Months | |
|
|
Months | |
|
|
to | |
|
|
to | |
|
Ended | |
|
Ended | |
|
|
Ended | |
|
|
December 31, | |
|
|
October 16, | |
|
December 31, | |
|
December 31, | |
|
|
September 30, | |
|
|
2005 | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
2003 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
Product Revenue Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and Chemicals Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heat exchangers
|
|
$ |
22,218 |
|
|
|
$ |
52,702 |
|
|
$ |
48,091 |
|
|
$ |
10,975 |
|
|
|
$ |
31,430 |
|
|
Cold boxes and LNG VIP
|
|
|
11,917 |
|
|
|
|
34,218 |
|
|
|
21,518 |
|
|
|
4,724 |
|
|
|
|
11,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,135 |
|
|
|
|
86,920 |
|
|
|
69,609 |
|
|
|
15,699 |
|
|
|
|
42,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and Storage Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cryogenic bulk storage systems
|
|
|
22,626 |
|
|
|
|
70,180 |
|
|
|
73,118 |
|
|
|
17,950 |
|
|
|
|
43,248 |
|
|
Cryogenic packaged gas systems and beverage liquid CO
2
systems
|
|
|
18,150 |
|
|
|
|
65,713 |
|
|
|
59,706 |
|
|
|
13,447 |
|
|
|
|
41,677 |
|
|
Cryogenic systems and components
|
|
|
2,862 |
|
|
|
|
11,571 |
|
|
|
14,767 |
|
|
|
3,798 |
|
|
|
|
8,424 |
|
|
Cryogenic services
|
|
|
4,194 |
|
|
|
|
13,865 |
|
|
|
14,917 |
|
|
|
2,668 |
|
|
|
|
9,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,832 |
|
|
|
|
161,329 |
|
|
|
162,508 |
|
|
|
37,863 |
|
|
|
|
102,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioMedical Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical products and biological storage systems
|
|
|
13,355 |
|
|
|
|
48,488 |
|
|
|
62,873 |
|
|
|
12,337 |
|
|
|
|
41,355 |
|
|
MRI components and other
|
|
|
2,330 |
|
|
|
$ |
8,760 |
|
|
|
10,586 |
|
|
|
2,671 |
|
|
|
|
10,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,685 |
|
|
|
|
57,248 |
|
|
|
73,459 |
|
|
|
15,008 |
|
|
|
|
51,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$ |
97,652 |
|
|
|
$ |
305,497 |
|
|
$ |
305,576 |
|
|
$ |
68,570 |
|
|
|
$ |
197,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
|
|
|
Reorganized | |
|
|
| |
|
|
Predecessor Company | |
|
|
Company | |
|
|
|
|
|
| |
|
|
| |
|
|
October 17, | |
|
|
January 1, | |
|
|
|
Three | |
|
|
Nine | |
|
|
2005 | |
|
|
2005 | |
|
Year | |
|
Months | |
|
|
Months | |
|
|
to | |
|
|
to | |
|
Ended | |
|
Ended | |
|
|
Ended | |
|
|
December 31, | |
|
|
October 16, | |
|
December 31, | |
|
December 31, | |
|
|
September 30, | |
|
|
2005 | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
2003 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
| |
|
|
|
|
Long-Lived | |
|
|
|
|
|
|
Long-Lived | |
|
|
|
|
|
Geographic Information: |
|
Revenues | |
|
Assets | |
|
|
Revenues | |
|
Revenues | |
|
Assets | |
|
Revenues | |
|
|
Revenues | |
|
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
United States
|
|
$ |
75,692 |
|
|
$ |
398,576 |
|
|
|
$ |
233,669 |
|
|
$ |
233,466 |
|
|
$ |
156,181 |
|
|
$ |
52,828 |
|
|
|
$ |
155,451 |
|
Czech Republic
|
|
|
12,829 |
|
|
|
27,944 |
|
|
|
|
42,645 |
|
|
|
43,163 |
|
|
|
5,494 |
|
|
|
10,205 |
|
|
|
|
20,406 |
|
Other Non-U.S. Countries
|
|
|
9,131 |
|
|
|
42,222 |
|
|
|
|
29,183 |
|
|
|
28,947 |
|
|
|
6,016 |
|
|
|
5,537 |
|
|
|
|
21,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
97,652 |
|
|
$ |
468,742 |
|
|
|
$ |
305,497 |
|
|
$ |
305,576 |
|
|
$ |
167,691 |
|
|
$ |
68,570 |
|
|
|
$ |
197,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars and shares in thousands, except per share
amounts)
Note N Quarterly Data (Unaudited)
Selected quarterly data for the years ended December 31,
2005 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 | |
|
|
| |
|
|
|
|
Successor | |
|
|
Reorganized Company | |
|
Company | |
|
|
| |
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter(a) | |
|
Quarter(a) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Sales
|
|
$ |
85,170 |
|
|
$ |
99,721 |
|
|
$ |
105,787 |
|
|
$ |
14,819 |
|
|
$ |
97,652 |
|
Gross Profit
|
|
|
24,898 |
|
|
|
29,932 |
|
|
|
30,101 |
|
|
|
3,282 |
|
|
|
21,919 |
|
Employee separation and plant closure costs
|
|
|
604 |
|
|
|
201 |
|
|
|
200 |
|
|
|
52 |
|
|
|
139 |
|
Operating Income
|
|
|
9,893 |
|
|
|
15,332 |
|
|
|
12,505 |
|
|
|
(16,871 |
) |
|
|
5,070 |
|
Net Income
|
|
|
5,795 |
|
|
|
8,658 |
|
|
|
7,228 |
|
|
|
(12,823 |
) |
|
|
(506 |
) |
|
|
|
(a) |
|
The fourth quarter for the Reorganized Company is the period
October 1, 2005 to October 16, 2005 and the fourth
quarter for the Successor Company is the period October 17,
2005 to December 31, 2005. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 | |
|
|
| |
|
|
Reorganized Company | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Sales
|
|
$ |
68,782 |
|
|
$ |
74,665 |
|
|
$ |
76,380 |
|
|
$ |
85,749 |
|
|
$ |
305,576 |
|
Gross Profit
|
|
|
21,831 |
|
|
|
22,136 |
|
|
|
23,687 |
|
|
|
26,152 |
|
|
|
93,806 |
|
Employee separation and plant closure costs
|
|
|
(964 |
) |
|
|
(776 |
) |
|
|
(618 |
) |
|
|
(811 |
) |
|
|
(3,169 |
) |
Operating Income
|
|
|
7,804 |
|
|
|
7,809 |
|
|
|
9,775 |
|
|
|
11,691 |
|
|
|
37,079 |
|
Net Income
|
|
|
4,034 |
|
|
|
4,223 |
|
|
|
6,924 |
|
|
|
7,419 |
|
|
|
22,600 |
|
NOTE O Subsequent Events
In February 2006, the Company paid $1,498, including fees to
acquire the remaining 4.3% of minority interest in Chart Ferox,
a.s. The Company expects to own a 100% interest in Chart Ferox,
a.s. during 2006, subject to Czech Republic court approval.
F-43
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
19,462 |
|
|
$ |
15,433 |
|
|
Accounts receivable, net
|
|
|
64,237 |
|
|
|
62,463 |
|
|
Inventories, net
|
|
|
53,596 |
|
|
|
53,132 |
|
|
Unbilled contract revenue
|
|
|
32,440 |
|
|
|
23,813 |
|
|
Other current assets
|
|
|
17,272 |
|
|
|
15,139 |
|
|
Assets held for sale
|
|
|
3,084 |
|
|
|
3,084 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
190,091 |
|
|
|
173,064 |
|
Property, plant and equipment, net
|
|
|
66,205 |
|
|
|
64,265 |
|
Goodwill
|
|
|
236,810 |
|
|
|
236,742 |
|
Identifiable intangible assets, net
|
|
|
150,495 |
|
|
|
154,063 |
|
Other assets, net
|
|
|
12,882 |
|
|
|
13,672 |
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
656,483 |
|
|
$ |
641,806 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
38,130 |
|
|
$ |
34,435 |
|
|
Customer advances and billings in excess of contract revenue
|
|
|
40,166 |
|
|
|
26,741 |
|
|
Accrued expenses and other current liabilities
|
|
|
36,648 |
|
|
|
41,001 |
|
|
Short-term debt
|
|
|
1,513 |
|
|
|
2,304 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,457 |
|
|
|
104,481 |
|
Long-term debt
|
|
|
340,000 |
|
|
|
345,000 |
|
Other long-term liabilities
|
|
|
75,880 |
|
|
|
75,995 |
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share
9,500,000 shares authorized, 7,952,180 shares issued
and outstanding at March 31, 2006 and December 31, 2005
|
|
|
80 |
|
|
|
80 |
|
|
Additional paid-in capital
|
|
|
117,625 |
|
|
|
117,304 |
|
|
Retained earnings (deficit)
|
|
|
5,539 |
|
|
|
(506 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
902 |
|
|
|
(548 |
) |
|
|
|
|
|
|
|
|
|
|
124,146 |
|
|
|
116,330 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$ |
656,483 |
|
|
$ |
641,806 |
|
|
|
|
|
|
|
|
The balance sheet at December 31, 2005 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
U.S. generally accepted accounting principles for complete
financial statements.
See accompanying notes to these unaudited condensed consolidated
financial statements. The accompanying notes are an integral
part of these unaudited condensed consolidated financial
statements.
F-44
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
Three Months | |
|
|
Three Months | |
|
|
Ended | |
|
|
Ended | |
|
|
March 31, 2006 | |
|
|
March 31, 2005 | |
|
|
| |
|
|
| |
Sales
|
|
$ |
120,840 |
|
|
|
$ |
85,170 |
|
Cost of sales
|
|
|
83,853 |
|
|
|
|
60,532 |
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36,987 |
|
|
|
|
24,638 |
|
Selling, general and administrative expenses
|
|
|
21,039 |
|
|
|
|
14,401 |
|
Employee separation and plant closure costs
|
|
|
162 |
|
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
21,201 |
|
|
|
|
15,005 |
|
Operating income
|
|
|
15,786 |
|
|
|
|
9,633 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(6,545 |
) |
|
|
|
(1,023 |
) |
|
Financing costs amortization
|
|
|
(370 |
) |
|
|
|
|
|
|
Derivative contracts valuation income
|
|
|
|
|
|
|
|
38 |
|
|
Foreign currency gain (loss)
|
|
|
148 |
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
(6,767 |
) |
|
|
|
(1,006 |
) |
|
|
|
|
|
|
|
|
Income from operations before income taxes and minority interest
|
|
|
9,019 |
|
|
|
|
8,627 |
|
Income tax expense
|
|
|
2,980 |
|
|
|
|
3,071 |
|
|
|
|
|
|
|
|
|
Income from operations before minority interest
|
|
|
6,039 |
|
|
|
|
5,556 |
|
Minority interest, net of taxes
|
|
|
(6 |
) |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,045 |
|
|
|
$ |
5,535 |
|
|
|
|
|
|
|
|
|
Net income per sharebasic
|
|
$ |
0.76 |
|
|
|
$ |
1.03 |
|
|
|
|
|
|
|
|
|
Net income per sharediluted
|
|
$ |
0.73 |
|
|
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstandingbasic
|
|
|
7,952 |
|
|
|
|
5,358 |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstandingdiluted
|
|
|
8,285 |
|
|
|
|
5,609 |
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited condensed consolidated
financial statements. The accompanying notes are an integral
part of these unaudited condensed consolidated financial
statements.
F-45
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
Three Months | |
|
|
Three Months | |
|
|
Ended | |
|
|
Ended | |
|
|
March 31, 2006 | |
|
|
March 31, 2005 | |
|
|
| |
|
|
| |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,045 |
|
|
|
$ |
5,535 |
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,824 |
|
|
|
|
1,944 |
|
|
Employee stock and stock option related compensation expense
|
|
|
321 |
|
|
|
|
592 |
|
|
Financing costs amortization
|
|
|
370 |
|
|
|
|
|
|
|
Other non-cash operating activities
|
|
|
(159 |
) |
|
|
|
155 |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,840 |
) |
|
|
|
25 |
|
|
Inventories
|
|
|
30 |
|
|
|
|
(4,261 |
) |
|
Unbilled contract revenue and other current assets
|
|
|
(9,486 |
) |
|
|
|
(9,057 |
) |
|
Accounts payable and other current liabilities
|
|
|
998 |
|
|
|
|
676 |
|
|
Customer advances and billings in excess of contract revenue
|
|
|
13,224 |
|
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
12,327 |
|
|
|
|
(4,063 |
) |
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,566 |
) |
|
|
|
(1,734 |
) |
|
Other investing activities
|
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,566 |
) |
|
|
|
(1,629 |
) |
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facilities
|
|
|
|
|
|
|
|
1,029 |
|
|
Payments on revolving credit facilities
|
|
|
(839 |
) |
|
|
|
(1,029 |
) |
|
Principal payments on long-term debt
|
|
|
(5,000 |
) |
|
|
|
(651 |
) |
|
Other financing activities
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(5,839 |
) |
|
|
|
(624 |
) |
Net increase (decrease) in cash and cash equivalents
|
|
|
3,922 |
|
|
|
|
(6,316 |
) |
Effect of exchange rates on cash
|
|
|
107 |
|
|
|
|
204 |
|
Cash and cash equivalents at beginning of period
|
|
|
15,433 |
|
|
|
|
14,814 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
19,462 |
|
|
|
$ |
8,702 |
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited condensed consolidated
financial statements. The accompanying notes are an integral
part of these unaudited condensed consolidated financial
statements.
F-46
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31, 2006
(Dollars and shares in thousands, except per share
amounts)
NOTE A Basis of Preparation
The accompanying unaudited condensed consolidated financial
statements of Chart Industries, Inc. and its subsidiaries (the
Company) have been prepared in accordance with
U.S. generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of
the information and footnotes required by U.S. generally
accepted accounting principles for annual financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior year amounts have
been reclassified to conform to the current year presentation.
Operating results for the three months ended March 31, 2006
are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006.
Principles of Consolidation: The unaudited condensed
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 Companys 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.
Use of Estimates: The preparation of financial statements
in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Nature of Operations: The Company, a wholly-owned
indirect subsidiary of First Reserve Fund X, L.P., is a
leading global supplier of standard and custom-engineered
products and systems serving a wide variety of low-temperature
and cryogenic applications. As of April 30, 2006, the
Company was no longer a wholly-owned indirect subsidiary of
First Reserve upon the issuance of shares of common stock to
certain members of management. See Note I for further
disclosure regarding the issuance of common stock. The Company
has developed an expertise in cryogenic systems and equipment,
which operate at low temperatures sometimes approaching absolute
zero. The majority of the Companys 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
seven states, including its principal executive offices located
in Garfield Heights, Ohio, and an international presence in
Australia, China, the Czech Republic, Germany and the United
Kingdom.
Basis of Presentation: The consolidated financial
statements have been adjusted as of March 31, 2006 and
December 31, 2005 and for the three months ended
March 31, 2006 to give effect to the 4.6263-for-one stock
split of the Companys common stock, and related
adjustments to its capital structure and stock options to be
effected upon the completion of the Companys planned
initial public offering. On August 2, 2005, the Company
entered into an agreement and plan of merger (Merger
Agreement) with First Reserve Fund X, L.P.
(First Reserve) and CI Acquisition, Inc. (a
wholly-owned subsidiary of First Reserve). The Merger Agreement
provided for the sale of shares of common stock of the Company
to CI Acquisition (the Stock Purchase) and the
merger of CI Acquisition with and into the Company (which is
referred to after the merger as the Successor
Company), with the Company surviving the merger as a
wholly-owned indirect subsidiary of First Reserve. On
October 17, 2005, the merger and Stock Purchase (the
Acquisition) took place under the terms of the
Merger Agreement (Closing Date). The Acquisition was
accounted for at October 17, 2005 in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations.
These financial statements and accompanying notes for the three
months ended March 31, 2006 are for the Successor Company
and the three months ended March 31, 2005 are for the
Reorganized Company, as defined in the notes to the
December 31, 2005 audited financial statements.
F-47
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
Inventories: Inventories are stated at the lower of cost
or market with cost being determined by the
first-in, first-out
(FIFO) method. The components of inventories are as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Raw materials and supplies
|
|
$ |
27,721 |
|
|
$ |
26,385 |
|
Work in process
|
|
|
12,594 |
|
|
|
13,003 |
|
Finished goods
|
|
|
13,281 |
|
|
|
13,744 |
|
|
|
|
|
|
|
|
|
|
$ |
53,596 |
|
|
$ |
53,132 |
|
|
|
|
|
|
|
|
Revenue Recognition: For the majority of the
Companys 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 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. The cumulative impact of
revisions in total cost estimates during the progress of work is
reflected in the period in which these changes become known.
Earned revenue reflects the original contract price adjusted for
agreed upon claims and change orders, if any. Losses expected to
be incurred on contracts in process, after consideration of
estimated minimum recoveries from claims and change orders, are
charged to 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. Timing of amounts billed on contracts varies from
contract to contract and could cause significant variation in
working capital requirements.
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 Companys consolidated warranty
reserve during the three months ended March 31, 2006 and
2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
Three Months | |
|
|
Three Months | |
|
|
Ended | |
|
|
Ended | |
|
|
March 31, 2006 | |
|
|
March 31, 2005 | |
|
|
| |
|
|
| |
Balance as of January 1
|
|
$ |
3,598 |
|
|
|
$ |
2,812 |
|
|
Warranty expense
|
|
|
875 |
|
|
|
|
478 |
|
|
Warranty usage
|
|
|
(713 |
) |
|
|
|
(532 |
) |
|
|
|
|
|
|
|
|
Balance as of March 31
|
|
$ |
3,760 |
|
|
|
$ |
2,758 |
|
|
|
|
|
|
|
|
|
Goodwill and Other Intangible Assets: In accordance with
Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations, and
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,
F-48
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
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
reporting unit goodwill with the carrying amount of that
goodwill.
The following table displays the gross carrying amount and
accumulated amortization for all intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006 | |
|
As of December 31, 2005 | |
|
|
Weighted | |
|
| |
|
| |
|
|
Average | |
|
Gross | |
|
|
|
Gross | |
|
|
|
|
Estimated | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Accumulated | |
|
|
Useful Life | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Finite-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpatented technology
|
|
|
9 years |
|
|
$ |
9,400 |
|
|
$ |
(517 |
) |
|
$ |
9,400 |
|
|
$ |
(235 |
) |
|
Patents
|
|
|
10 years |
|
|
|
8,138 |
|
|
|
(544 |
) |
|
|
8,138 |
|
|
|
(298 |
) |
|
Product names
|
|
|
20 years |
|
|
|
940 |
|
|
|
(22 |
) |
|
|
940 |
|
|
|
(10 |
) |
|
Backlog
|
|
|
14 months |
|
|
|
5,440 |
|
|
|
(2,287 |
) |
|
|
5,440 |
|
|
|
(1,110 |
) |
|
Non-compete agreements
|
|
|
3 years |
|
|
|
1,344 |
|
|
|
(392 |
) |
|
|
1,344 |
|
|
|
(280 |
) |
|
Licenses and certificates
|
|
|
18 months |
|
|
|
48 |
|
|
|
(28 |
) |
|
|
48 |
|
|
|
(20 |
) |
|
Customer relations
|
|
|
13 years |
|
|
|
96,906 |
|
|
|
(3,211 |
) |
|
|
96,906 |
|
|
|
(1,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
122,216 |
|
|
$ |
(7,001 |
) |
|
$ |
122,216 |
|
|
$ |
(3,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$ |
236,810 |
|
|
|
|
|
|
$ |
236,742 |
|
|
|
|
|
|
Trademarks and trade names
|
|
|
|
|
|
|
35,280 |
|
|
|
|
|
|
|
35,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
272,090 |
|
|
|
|
|
|
$ |
272,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for finite-lived intangible assets was
$3,568 and $702 for the three months ended March 31, 2006
and 2005, respectively, and annually is estimated to be
approximately $13,900 for 2006 and $9,600 for fiscal years 2007
through 2009.
Employee Stock Options: On October 17, 2005, the
Company adopted SFAS No. 123(R) Share-Based
Payments, using the modified prospective method, which
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. Prior to the adoption of
SFAS No. 123(R), the Company followed the intrinsic
value method of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related
interpretations in accounting for its employee stock options.
In November 2005 and March 2006, the Successor Company granted
2,208 and 101 stock options (New Options),
respectively, under the 2005 Stock Incentive Plan (Stock
Incentive Plan) to certain management employees. In
addition, in October 2005 under the Companys 2004 Stock
Option and Incentive Plan (2004 Plan) certain
management employees rolled over 610 stock options
(Rollover Options). The New Options are exercisable
for a period of ten years and have two different vesting
schedules. The time-based options (Time-based
Options) vest annually in equal installments over a
five-year period and the performance-based
(Performance-based Options) vest based upon
specified actual returns on First Reserves investment in
the Company. Furthermore, certain of the Rollover Options were
vested on the Closing Date of the Acquisition and the remaining
unvested Rollover Options vest based upon the
F-49
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
performance criteria as outlined in the 2004 Plan and related
option agreements. In April 2006, the Board of Directors took
action to vest all remaining Rollover Options that had not
previously vested and, accordingly, recorded a charge of $159 to
accelerate the unrecognized compensation expense related to such
options. The New Options and Rollover Options generally may not
be transferred, and any shares of stock that are acquired upon
exercise of the New Options or Rollover Options generally may
not be sold, transferred, assigned or disposed of except under
certain predefined liquidity events or in the event of a change
in control. The Companys policy is to issue authorized
shares upon the exercise of any stock options. In addition, all
of the 2004 stock options (2004 Options) of the
Reorganized Company, except for the Rollover Options described
above, were deemed to be exercised in conjunction with the
Acquisition on October 17, 2005.
As of March 31, 2006, there were 815 Time-based Options and
1,494 Performance-based Options outstanding under the Stock
Incentive Plan. As of March 31, 2005, there were 346
time-based options and 132 performance-based options
outstanding under the 2004 Plan. For the three months ended
March 31, 2006, the Company recorded $321 in compensation
expense related to the Time-based Options. For the three months
ended March 31, 2005, the Company recorded $270 in
compensation expense related to the time-based options and $322
related to the performance-based options. As of March 31,
2006, the total share-based compensation expense expected to be
recognized over the weighted average period of 4.5 years is
$2,395.
The Companys 2005 pro forma disclosure showing the
estimated fair value of employee stock options, amortized to
expense over their vesting periods, is as follows:
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
2005 | |
|
|
| |
Reported net income
|
|
$ |
5,535 |
|
Add: Share-based employee compensation expense included in
reported net income, net of related tax effect
|
|
|
391 |
|
Deduct: Total share-based employee compensation expense
determined under the fair value method for all awards, net of
related tax effect
|
|
|
(661 |
) |
|
|
|
|
Pro-forma net income
|
|
$ |
5,265 |
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
Reported net income
|
|
$ |
1.03 |
|
Add: Share-based employee compensation expense included in
reported net income, net of related tax effect
|
|
|
0.07 |
|
Deduct: Total share-based employee compensation expense
determined under the fair value method for all awards, net of
related tax effect
|
|
|
(0.12 |
) |
|
|
|
|
Pro forma net income
|
|
$ |
0.98 |
|
|
|
|
|
NOTE B Debt and Credit Arrangements
In connection with the Acquisition, the Company entered into a
$240,000 senior secured credit facility (the Senior Credit
Facility) and completed a $170,000 offering of
91/8
% senior subordinated notes (the Subordinated
Notes). The Company repaid the then existing credit
facility of the Reorganized Company and certain other debt on or
before October 17, 2005, the Closing Date of the
Acquisition. The Senior Credit Facility consists of $180,000
term loan facility (the Term Loan) and a $60,000
revolving credit facility (the Revolver), of which
$35,000 may be used for letters of credit extending beyond one
year from their date of issuance. The Term Loan and the
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 two $5,000
F-50
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
voluntary principal prepayments made in December 2005 and March
2006, the Term Loan requires quarterly principal payments
commencing in March 2011 and a remaining balloon payment on the
maturity date. Future principal payments may be adjusted for any
voluntary prepayments. The interest rate under the Senior Credit
Facility is, at the Companys 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 and its U.S. Subsidiaries and 65%
of the capital stock of the Companys
non-U.S. Subsidiaries.
The Subordinated Notes are due in 2015 with interest payable
semi-annually on April 15th and October 15th. Any
of the Subordinated Notes may be redeemed solely at the
Companys option beginning on October 15, 2010. The
initial redemption price is 104.563% of the principal amount,
plus accrued interest. Also, any of the notes may be redeemed
solely at the Companys 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% of the Subordinated Notes may
be redeemed solely at the Companys option at a price of
109.125% 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 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 Companys 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 Companys ability to incur additional indebtedness,
create liens or other encumbrances, sell assets, enter into sale
and lease-bank 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.
As of March 31, 2006, there was $170,000 outstanding under
the Term Loan, $170,000 outstanding under the Subordinated Notes
and letters of credit and bank guarantees totaling $24,884
supported by the Revolver.
Chart Ferox, a.s. (Ferox), a majority-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 Korunas,
Euros and U.S. dollars. Borrowings in Koruna are at PRIBOR,
borrowings in Euros are at EUROBOR 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% on the face amount
of each guarantee. Feroxs land and buildings and accounts
receivable secure $4,600 and $2,500, respectively, of the
revolving credit facilities. As of March 31, 2006, there
were $1,739 of bank guarantees supported by the Ferox revolving
credit facilities.
F-51
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
NOTE C Earnings per Share
The following table presents calculations of income per share of
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
Three Months | |
|
|
Three Months | |
|
|
Ended | |
|
|
Ended | |
|
|
March 31, | |
|
|
March 31, | |
|
|
2006 | |
|
|
2005 | |
|
|
| |
|
|
| |
Net income
|
|
$ |
6,045 |
|
|
|
|
5,535 |
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$ |
0.76 |
|
|
|
$ |
1.03 |
|
Net income per common share diluted
|
|
$ |
0.73 |
|
|
|
$ |
0.99 |
|
Weighted average number of common shares outstanding
basic
|
|
|
7,952 |
|
|
|
|
5,358 |
|
Incremental shares issuable upon assumed exercise of stock
warrants
|
|
|
26 |
|
|
|
|
55 |
|
Incremental shares issuable upon assumed conversion and exercise
of stock options
|
|
|
307 |
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
Total shares diluted
|
|
|
8,285 |
|
|
|
|
5,609 |
|
|
|
|
|
|
|
|
|
For the purposes of computing diluted earnings per share,
weighted average common share equivalents do not include 781 and
11 stock options for the three months ended March 31, 2006
and 2005, respectively, as the effect would be anti-dilutive.
NOTE D Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss)
is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Foreign currency translation adjustments
|
|
$ |
1,164 |
|
|
$ |
(286 |
) |
Minimum pension liability adjustments, net of tax of $162
|
|
|
(262 |
) |
|
|
(262 |
) |
|
|
|
|
|
|
|
|
|
$ |
902 |
|
|
$ |
(548 |
) |
|
|
|
|
|
|
|
Comprehensive income for the three months ended March 31,
2006 and 2005 was $7,495 and $4,706, respectively.
NOTE E Employee Separation and Plant Closure
Costs
For the three months ended March 31, 2006, the Company
recorded employee separation and plant closure costs of $162
primarily related to the closure of the Distribution and Storage
segments idle Plaistow, New Hampshire facility. For the
three months ended March 31, 2005, the Company recorded
employee separation and plant closure costs of $604 related to
the closure of the BioMedical facility in Burnsville, Minnesota
and relocation of the manufacturing operation to Canton,
Georgia, closure of the Distribution and Storage segments
idle facility in Plaistow, New Hampshire, and general headcount
reductions throughout the Company. During the three months ended
March 31, 2005, the Company also recorded a non-cash
inventory valuation charge of $99 that is included in cost of
sales for the write-off of inventory at the Biomedical facility
in Burnsville, Minnesota.
F-52
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
The following tables summarize the Companys employee
separation and plant closure costs activity for the three months
ended March 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
| |
|
|
Three Months Ended March 31, 2006 | |
|
|
| |
|
|
Energy & | |
|
Distribution & | |
|
|
|
|
Chemicals | |
|
Storage | |
|
BioMedical | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
One-time employee termination costs
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other associated costs
|
|
|
9 |
|
|
|
153 |
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
9 |
|
|
|
153 |
|
|
|
|
|
|
|
162 |
|
Inventory valuation in cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
153 |
|
|
|
|
|
|
|
162 |
|
Reserve usage
|
|
|
(9 |
) |
|
|
(153 |
) |
|
|
(97 |
) |
|
|
(259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
|
|
|
|
|
|
|
|
(97 |
) |
|
|
(97 |
) |
Reserves as of January 1, 2006
|
|
|
1,557 |
|
|
|
190 |
|
|
|
239 |
|
|
|
1,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of March 31, 2006
|
|
$ |
1,557 |
|
|
$ |
190 |
|
|
$ |
142 |
|
|
$ |
1,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The employee separation and plant closure costs reserve of
$1,889 at March 31, 2006 was for one-time employee
termination costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company | |
|
|
| |
|
|
Three Months Ended March 31, 2005 | |
|
|
| |
|
|
Energy & | |
|
Distribution | |
|
|
|
|
Chemicals | |
|
& Storage | |
|
BioMedical | |
|
Corporate | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
One-time employee termination costs
|
|
$ |
|
|
|
$ |
28 |
|
|
$ |
|
|
|
$ |
7 |
|
|
$ |
35 |
|
Other associated costs
|
|
|
54 |
|
|
|
218 |
|
|
|
285 |
|
|
|
12 |
|
|
|
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant closure costs
|
|
|
54 |
|
|
|
246 |
|
|
|
285 |
|
|
|
19 |
|
|
|
604 |
|
Inventory valuation in cost of sales
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
246 |
|
|
|
384 |
|
|
|
19 |
|
|
|
703 |
|
Reserve usage
|
|
|
(54 |
) |
|
|
(276 |
) |
|
|
(505 |
) |
|
|
(147 |
) |
|
|
(982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
|
|
|
|
(30 |
) |
|
|
(121 |
) |
|
|
(128 |
) |
|
|
(279 |
) |
Reserves as of January 1, 2005
|
|
|
1,557 |
|
|
|
341 |
|
|
|
372 |
|
|
|
493 |
|
|
|
2,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of March 31, 2005
|
|
$ |
1,557 |
|
|
$ |
311 |
|
|
$ |
251 |
|
|
$ |
365 |
|
|
$ |
2,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The employee separation and plant closure costs reserve at
March 31, 2005 consisted of $141 for contract termination
and facility-related closure costs and other associated costs
and $2,343 for one-time employee termination costs.
NOTE F Assets Held for Sale
The Company continues to pursue the sale of the idle building
and a parcel of land at its Plaistow, New Hampshire facility. In
the second quarter of 2006, the Company entered into an
agreement to sell the building and parcel of land on which it is
situated. This sale is expected to close in the first half of
2006. The Plaistow facility is classified as assets held for
sale on the Companys unaudited condensed consolidated
balance sheet as of March 31, 2006 and the audited
consolidated balance sheet as of December 31, 2005 based on
the estimated fair value of $3,084.
F-53
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
NOTE G Employee Benefit Plans
The Company has four defined benefit pension plans covering
certain U.S. hourly and salary employees. All of these
plans were frozen as of February 28, 2006. The defined
benefit plans provide benefits based primarily on the
participants years of service and compensation.
The following table sets forth the components of net periodic
pension cost for the three months ended March 31, 2006 and
2005.
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Reorganized | |
|
|
Company | |
|
|
Company | |
|
|
| |
|
|
| |
|
|
Three Months | |
|
|
Three Months | |
|
|
Ended March 31, | |
|
|
Ended March 31, | |
|
|
2006 | |
|
|
2005 | |
|
|
| |
|
|
| |
Service cost
|
|
$ |
65 |
|
|
|
$ |
222 |
|
Interest cost
|
|
|
492 |
|
|
|
|
404 |
|
Expected return on plan assets
|
|
|
(570 |
) |
|
|
|
(414 |
) |
Recognized net actuarial gain
|
|
|
(37 |
) |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
Total pension (benefit) cost
|
|
$ |
(50 |
) |
|
|
$ |
200 |
|
|
|
|
|
|
|
|
|
NOTE H Reporting Segments
The structure of the Companys internal organization is
divided into the following three reportable segments: Energy and
Chemicals (E&C), Distribution and Storage
(D&S) and BioMedical. The Companys
reportable segments are business units that offer different
products and are each managed separately because they
manufacture and distribute distinct products with different
production processes and sales and marketing approaches. The
E&C segment sells heat exchangers, cold boxes and liquefied
natural gas vacuum-insulated pipe used by major natural gas,
petrochemical processing and industrial gas companies in the
production of their products. The D&S segment sells
cryogenic bulk storage systems, cryogenic packaged gas systems,
cryogenic systems and components, beverage liquid
CO2
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 intersegment sales.
Corporate headquarters includes operating expenses for executive
management, accounting, tax, treasury, human resources,
information technology, legal, risk management and stock-based
compensation expenses that are not allocated to the reportable
segments.
The Company evaluates performance and allocates resources based
on operating income or loss before gain on sale of assets, net
interest expense, financing costs amortization expense,
derivative contracts valuation expense, foreign currency loss,
income taxes, and minority interest. The accounting policies of
the reportable segments are the same as those described in the
summary of significant accounting policies.
Information for the Companys three reportable segments and
its corporate headquarters is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
| |
|
|
Three Months Ended March 31, 2006 | |
|
|
| |
|
|
Energy | |
|
|
|
|
and | |
|
Distribution | |
|
|
|
|
Chemicals | |
|
and Storage | |
|
BioMedical | |
|
Corporate | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Sales
|
|
$ |
41,174 |
|
|
$ |
60,318 |
|
|
$ |
19,348 |
|
|
$ |
|
|
|
$ |
120,840 |
|
Operating income (loss)
|
|
|
5,933 |
|
|
|
11,053 |
|
|
|
3,714 |
|
|
|
(4,914 |
) |
|
|
15,786 |
|
F-54
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial
Statements March 31,
2006 (Continued)
(Dollars and shares in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company | |
|
|
| |
|
|
Three Months Ended March 31, 2005 | |
|
|
| |
|
|
Energy | |
|
|
|
|
and | |
|
Distribution | |
|
|
|
|
Chemicals | |
|
and Storage | |
|
BioMedical | |
|
Corporate | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Sales
|
|
$ |
23,663 |
|
|
$ |
44,665 |
|
|
$ |
16,842 |
|
|
$ |
|
|
|
$ |
85,170 |
|
Operating income (loss)
|
|
|
3,576 |
|
|
|
8,364 |
|
|
|
2,115 |
|
|
|
(4,422 |
) |
|
|
9,633 |
|
NOTE I Subsequent Events
In the second quarter of 2006, FR X Chart Holdings LLC,
controlling shareholder of the Company and an affiliate of First
Reserve, exercised a warrant for 2,651 shares of common
stock, at an exercise price of $14.00 per share, resulting
in cash proceeds of $37,103 to the Company. In addition, certain
members of management exercised rollover options at an exercise
price of $3.50 per share, resulting in the issuance of
610 of shares of common stock, and in cash proceeds of
$2,134 to the Company. The shares purchased by certain
management members will be accounted for in accordance with
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. In the second quarter of 2006, the Company used
$16,476 of these proceeds to complete an acquisition and the
remainder of these proceeds and cash on hand to make a voluntary
principal prepayment of $25,000 under the Term Loan.
Effective upon the completion of the Companys proposed
initial public offering of common stock, the Senior Secured
Credit Facility will be amended to increase the Revolver to
$115,000, of which the entire $115,000 may be used for the
issuance of letters of credit, $55,000 of which may be letters
of credit extending more than one year beyond their date of
issuance. As a result of an aggregate of $35,000 voluntary
principal prepayments since October 2005, the Term Loan requires
no principal payments until the remaining balloon payment is due
on the maturity date. In addition, upon the occurrence of
certain events, the Company may request an increase to the Term
Loan and/or the Revolver in an amount not to exceed $100,000,
subject to receipt of commitments by existing lenders or other
financial institutions reasonably acceptable to the
administrative agent.
F-55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 13. |
Other Expenses of Issuance and Distribution. |
The following table sets forth the costs and expenses payable in
connection with the distribution of the securities being
registered. All amounts are estimated except the Securities and
Exchange Commission registration fee.
|
|
|
|
|
|
Securities and Exchange Commission Registration Fee
|
|
$ |
32,300 |
|
Nasdaq Listing Fees
|
|
$ |
105,000 |
|
Blue Sky Fees and Expenses
|
|
$ |
30,000 |
|
Printing and Engraving Expenses
|
|
$ |
325,000 |
|
Legal Fees
|
|
$ |
1,100,000 |
|
Accounting Fees
|
|
$ |
300,000 |
|
Registrar and Transfer Agent Fees
|
|
$ |
20,000 |
|
Directors and Officers Insurance
|
|
$ |
415,000 |
|
NASD Filing Fee
|
|
$ |
30,600 |
|
|
|
|
|
|
Total
|
|
$ |
2,357,900 |
|
|
|
|
|
|
|
Item 14. |
Indemnification of Directors and Officers. |
Section 145 of the Delaware General Corporation Law (the
DGCL) grants each corporation organized thereunder
the power to indemnify any person who is or was a director,
officer, employee or agent of a corporation or enterprise,
against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in
the right of the corporation, by reason of being or having been
in any such capacity, if he acted in good faith in a manner
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action, or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 102(b)(7) of the DGCL enables a corporation in its
certificate of incorporation or an amendment thereto to
eliminate or limit the personal liability of a director to the
corporation or its stockholders of monetary damages for
violations of the directors fiduciary duty of care, except
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from
which a director derived an improper personal benefit. The
Amended and Restated Certificate of Incorporation and Amended
and Restated By-Laws for Chart Industries, Inc. provide for such
limitations on liability.
We have entered into indemnification agreements with each of our
directors and officers providing for additional indemnification
protection beyond that provided by the Directors and Officers
Liability Insurance Policy. In the indemnification agreements,
we have agreed, subject to certain exceptions, to indemnify and
hold harmless the director or officer to the maximum extent then
authorized or permitted by the provisions of the Amended and
Restated Certificate of Incorporation, the DGCL, or by any
amendment(s) thereto.
|
|
Item 15. |
Recent Sales of Unregistered Securities. |
We have issued unregistered securities in the transactions
described below. The number of securities issued and the
exercise prices have not been adjusted for the stock split to be
effected prior to completion of the offering described in the
prospectus included in this registration statement. These
securities were offered and sold in reliance upon the exemptions
provided for in Section 1145(a) of the U.S. Bankruptcy
Code, relating to issuance of securities pursuant to our
bankruptcy reorganization plan, Section 4(2) of the
Securities Act, relating to sales not involving any public
offering, Rule 506 of the Securities Act relating to
II-1
sales to accredited investors and Rule 701 of the
Securities Act relating to a compensatory benefit plan. The
sales were made without the use of an underwriter and any
certificates representing the securities sold (other than
securities issued pursuant to the exemption provided by
Section 1145(a) of the U.S. Bankruptcy Code) contain a
restrictive legend that prohibits transfer without registration
or an applicable exemption.
Pursuant to the terms of our bankruptcy reorganization plan, on
September 15, 2003, we issued an aggregate of
5,325,331 shares of common stock to our then senior lenders
and our pre-bankruptcy stockholders and we issued warrants to
acquire an aggregate of 280,281 shares of our common stock
to our pre-bankruptcy stockholders. These shares of common stock
and warrants were issued in accordance with the terms of our
reorganization plan, which was confirmed by the U.S. Bankruptcy
Court for the District of Delaware by an order entered on
September 4, 2003, in reliance on the exemption from the
registration requirements of the Securities Act provided by
Section 1145(a) of the U.S. Bankruptcy Code. The common
stock issued to our then senior lenders was issued in exchange
for claims under our pre-bankruptcy senior credit facilities,
and the common stock and warrants issued to our pre-bankruptcy
stockholders were issued in exchange for their cancelled
pre-bankruptcy stock.
The following table shows the shares of our common stock that we
have issued upon the exercise of warrants for the prices
indicated therein for the past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common | |
Date of Exercise |
|
Warrants Exercised | |
|
Exercise Price |
|
Stock Issued | |
|
|
| |
|
|
|
| |
July 15, 2004
|
|
|
2 |
|
|
$32.97 per share |
|
|
2 |
|
August 12, 2004
|
|
|
26,390 |
|
|
$32.97 per share; cashless |
|
|
5,323 |
|
September 29, 2004
|
|
|
53 |
|
|
$32.97 per share |
|
|
53 |
|
October 19, 2004
|
|
|
5 |
|
|
$32.97 per share |
|
|
5 |
|
October 22, 2004
|
|
|
19 |
|
|
$32.97 per share |
|
|
19 |
|
November 11, 2004
|
|
|
1 |
|
|
$32.97 per share |
|
|
1 |
|
November 19, 2004
|
|
|
53 |
|
|
$32.97 per share |
|
|
53 |
|
December 8, 2004
|
|
|
6 |
|
|
$32.97 per share |
|
|
6 |
|
December 10, 2004
|
|
|
24 |
|
|
$32.97 per share |
|
|
24 |
|
January 4, 2005
|
|
|
9 |
|
|
$32.97 per share |
|
|
9 |
|
February 11, 2005
|
|
|
1 |
|
|
$32.97 per share |
|
|
1 |
|
February 25, 2005
|
|
|
1 |
|
|
$32.97 per share |
|
|
1 |
|
March 9, 2005
|
|
|
819 |
|
|
$32.97 per share |
|
|
819 |
|
April 12, 2005
|
|
|
987 |
|
|
$32.97 per share |
|
|
987 |
|
April 12, 2005
|
|
|
107 |
|
|
$32.97 per share |
|
|
107 |
|
April 27, 2005
|
|
|
1 |
|
|
$32.97 per share |
|
|
1 |
|
May 10, 2005
|
|
|
77 |
|
|
$32.97 per share |
|
|
77 |
|
May 16, 2005
|
|
|
53 |
|
|
$32.97 per share |
|
|
53 |
|
May 23, 2005
|
|
|
9 |
|
|
$32.97 per share |
|
|
9 |
|
June 3, 2005
|
|
|
124 |
|
|
$32.97 per share |
|
|
124 |
|
June 20, 2005
|
|
|
2 |
|
|
$32.97 per share |
|
|
2 |
|
June 30, 2005
|
|
|
2 |
|
|
$32.97 per share |
|
|
2 |
|
July 7, 2005
|
|
|
14 |
|
|
$32.97 per share |
|
|
14 |
|
July 12, 2005
|
|
|
20 |
|
|
$32.97 per share |
|
|
20 |
|
July 25, 2005
|
|
|
6 |
|
|
$32.97 per share |
|
|
6 |
|
July 27, 2005
|
|
|
1,157 |
|
|
$32.97 per share |
|
|
1,157 |
|
August 5, 2005
|
|
|
7 |
|
|
$32.97 per share |
|
|
7 |
|
August 5, 2005
|
|
|
1,043 |
|
|
$32.97 per share |
|
|
1,043 |
|
II-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common | |
Date of Exercise |
|
Warrants Exercised | |
|
Exercise Price |
|
Stock Issued | |
|
|
| |
|
|
|
| |
August 10, 2005
|
|
|
2,000 |
|
|
$32.97 per share |
|
|
2,000 |
|
August 11, 2005
|
|
|
1,780 |
|
|
$32.97 per share |
|
|
1,780 |
|
August 11, 2005
|
|
|
1,458 |
|
|
$32.97 per share |
|
|
1,458 |
|
August 12, 2005
|
|
|
820 |
|
|
$32.97 per share |
|
|
820 |
|
August 15, 2005
|
|
|
1 |
|
|
$32.97 per share |
|
|
1 |
|
August 15, 2005
|
|
|
5,148 |
|
|
$32.97 per share |
|
|
5,148 |
|
August 18, 2005
|
|
|
32 |
|
|
$32.97 per share |
|
|
32 |
|
August 24, 2005
|
|
|
4,279 |
|
|
$32.97 per share |
|
|
4,279 |
|
August 31, 2005
|
|
|
1 |
|
|
$32.97 per share |
|
|
1 |
|
September 6, 2005
|
|
|
7,116 |
|
|
$32.97 per share |
|
|
7,116 |
|
September 13, 2005
|
|
|
2 |
|
|
$32.97 per share |
|
|
2 |
|
September 14, 2005
|
|
|
2,100 |
|
|
$32.97 per share |
|
|
2,100 |
|
September 16, 2005
|
|
|
7 |
|
|
$32.97 per share |
|
|
7 |
|
September 19, 2005
|
|
|
53 |
|
|
$32.97 per share |
|
|
53 |
|
September 21, 2005
|
|
|
551 |
|
|
$32.97 per share |
|
|
551 |
|
September 28, 2005
|
|
|
15,000 |
|
|
$32.97 per share |
|
|
15,000 |
|
September 29, 2005
|
|
|
300 |
|
|
$32.97 per share |
|
|
300 |
|
October 3, 2005
|
|
|
3,200 |
|
|
$32.97 per share |
|
|
3,200 |
|
October 4, 2005
|
|
|
1,900 |
|
|
$32.97 per share |
|
|
1,900 |
|
October 5, 2005
|
|
|
434 |
|
|
$32.97 per share |
|
|
434 |
|
October 6, 2005
|
|
|
200 |
|
|
$32.97 per share |
|
|
200 |
|
October 7, 2005
|
|
|
357 |
|
|
$32.97 per share |
|
|
357 |
|
October 12, 2005
|
|
|
134 |
|
|
$32.97 per share |
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
77,865 |
|
|
|
|
|
56,798 |
|
With respect to each of the issuances above, the issuance of the
shares of our common stock upon the exercise of the warrants was
made in reliance on the exemption from the registration
requirements of the Securities Act of 1933, as amended, provided
by Section 1145(a) of the U.S. Bankruptcy Code, on the
basis that the common stock was offered and sold upon the
exercise of warrants that were offered and sold under a plan of
a debtor in exchange for an interest in the debtor. The warrants
were governed by a Warrant Agreement, dated September 15,
2003, between the Company and National City Bank, as warrant
agent. The Warrant Agreement terminated upon consummation of the
Acquisition.
On February 26, 2004, we issued an aggregate of
28,797 shares to Samuel F. Thomas, our Chief Executive
Officer, for an aggregate purchase price of $399,990 in reliance
on the exemption from the registration requirements of the
Securities Act provided by Section 4(2) and Rule 506
thereunder on the basis that the transaction did not involve a
public offering.
On October 17, 2005, in connection with the Acquisition and
in the same merger transaction in which all of our
pre-Acquisition securities were cancelled, we issued an
aggregate of 1,718,896 shares of our common stock to
FR X Chart Holdings LLC pursuant to the terms of the
agreement and plan of merger, dated August 2, 2005, by and
among certain of our then-existing stockholders, First Reserve
Fund X, L.P. and CI Acquisition, a wholly-owned subsidiary
of First Reserve Fund X, L.P. in reliance on the exemption
from the registration requirements of the Securities Act
provided by Section 4(2) thereunder. These
1,718,896 shares were acquired by a subsidiary of First
Reserve Fund X, L.P., FR X Chart Holdings LLC, which was
the sole shareholder of CI Acquisition, the company that merged
with and into us in the merger, upon the conversion in the
merger of the pre-merger shares of CI Acquisition held by FR X
Chart Holdings LLC into the only shares of our company that were
outstanding immediately following the merger. These shares were
acquired
II-3
for an investment of $64.75 per share, or an aggregate
equity investment of approximately $111.3 million by FR X
Chart Holdings LLC.
On November 23, 2005, we issued 218,408 options under the
2005 Stock Option Plan in reliance on the exemption from the
registration requirements of the Securities Act provided by
Rule 701 promulgated thereunder.
On March 29, 2006, we issued 10,000 options under the 2005
Stock Option Plan to one of our executive officers in reliance
on the exemption from the registration requirements of the
Securities Act provided by Rule 701 promulgated thereunder.
On April 27, 2006, we issued 6,749 options under the 2005
Stock Option Plan to twenty-four employees in reliance on the
exemption from the registration requirements of the Securities
Act provided by Rule 701 promulgated thereunder.
On April 30, 2006, we issued 13,395 shares to two employees
upon the exercise of their options for cash at $16.19 per share
in reliance on the exemption from the registration requirements
of the Securities Act provided by Rule 701 promulgated
thereunder.
On May 3, 2006, we issued 1,029 shares to one employee upon
the exercise of his options for cash at $16.19 per share in
reliance on the exemption from the registration requirements of
the Securities Act provided by Rule 701 promulgated
thereunder.
On May 4, 2006, we issued 5,221 shares to one employee upon
the exercise of his options for cash at $16.19 per share in
reliance on the exemption from the registration requirements of
the Securities Act provided by Rule 701 promulgated
thereunder.
On May 18, 2006, we issued 573,027 shares to FR X
Chart Holdings LLC upon the exercise of its warrant for cash at
$64.75 per share in reliance on the exemption from the
registration requirements of the Securities Act provided by
Section 4(2) thereunder.
On May 19, 2006, we issued 112,178 shares to two executive
officers and three employees upon the exercise of their options
for cash at $16.19 per share in reliance on the exemption from
the registration requirements of the Securities Act provided by
Rule 701 promulgated thereunder.
On May 26, 2006, we issued 10,000 options under the 2005
Stock Option Plan to one employee in reliance on the exemption
from the registration requirements of the Securities Act
provided by Rule 701 promulgated thereunder.
|
|
Item 16. |
Exhibits and Financial Statement Schedules. |
(a) Exhibits
Reference is made to the information contained in the
Exhibit Index filed as part of this Registration Statement,
which information is incorporated herein by reference pursuant
to Rule 411 of the Securities and Exchange
Commissions Rules and Regulations under the Securities Act.
(b) Financial Statement Schedules
All applicable financial statement schedule disclosure
requirements are included in the prospectus which forms a part
of this registration statement, which information is
incorporated herein by reference pursuant to Rule 411 of
the Securities and Exchange Commissions Rules and
Regulations under the Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director,
II-4
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
|
|
|
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective. |
|
|
(2) For purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. |
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Garfield Heights,
State of Ohio, on June 27, 2006.
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Name: Michael F. Biehl |
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Title: Executive Vice President, Chief
Financial Officer and Treasurer |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the
following persons in the capacities indicated on June 27,
2006.
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Signature |
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Title |
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*
Samuel F. Thomas |
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Chief Executive Officer, President and Director
(Principal Executive Officer) |
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/s/ Michael F. Biehl
Michael F. Biehl |
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Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer) |
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*
Ben A. Guill |
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Chairman of the Board of Directors |
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*
Kenneth W. Moore |
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Director |
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*
Timothy H. Day |
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Director |
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/s/ James H. Hoppel,
Jr.
James H. Hoppel, Jr. |
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Controller and Chief Accounting Officer
(Principal Accounting Officer) |
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*By: |
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/s/ Matthew J. Klaben
Matthew
J. Klaben
Attorney-in-Fact |
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II-6
EXHIBIT INDEX
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Exhibit |
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|
No. |
|
Description of Exhibit |
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|
|
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1 |
.1** |
|
Form of Underwriting Agreement |
|
2 |
.1* |
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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. |
|
2 |
.2* |
|
Asset Purchase Agreement among GT Acquisition Company and
Greenville Tube, LLC, dated July 1, 2003 |
|
3 |
.1 |
|
Form of Amended and Restated Certificate of Incorporation |
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3 |
.2 |
|
Form of Amended and Restated By-Laws |
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4 |
.1* |
|
Form of certificate of Chart Industries, Inc. common stock |
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4 |
.2* |
|
Indenture, dated as of October 17, 2005, between Chart
Industries, Inc. and The Bank of New York as trustee |
|
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 |
|
4 |
.4* |
|
Form of Senior Subordinated Note (included in Exhibit 4.2) |
|
5 |
.1 |
|
Opinion of Simpson Thacher & Bartlett LLP |
|
10 |
.1* |
|
Credit Agreement, dated as of October 17, 2005, among FR X
Chart Holdings LLC, CI Acquisition, Inc., as borrower, the
lenders party thereto, Citicorp North America, Inc., as
administrative agent, Morgan Stanley Senior Funding, Inc., as
syndication agent, Citigroup Global Markets Inc. and Morgan
Stanley Senior Funding, Inc., as joint lead arrangers and joint
book managers and Natexis Banques Populaires and Sovereign Bank,
as co-documentation agents |
|
10 |
.2* |
|
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 |
|
10 |
.3* |
|
Employment Agreement, dated November 23, 2005, between
Chart Industries, Inc. and Samuel F. Thomas |
|
10 |
.4* |
|
Employment Agreement, dated December 1, 2005, between Chart
Industries, Inc. and Michael F. Biehl |
|
10 |
.5* |
|
Employment Agreement, dated December 1, 2005, between Chart
Industries, Inc. and Charles R. Lovett |
|
10 |
.6* |
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Employment Agreement, dated March 29, 2006, between Chart
Industries, Inc. and Matthew J. Klaben |
|
10 |
.7* |
|
Employment Agreement, dated May 5, 2006, between Chart
Industries, Inc. and James H. Hoppel, Jr. |
|
10 |
.8* |
|
IAM Agreement 2004-2007, effective February 8, 2004, by and
between Chart Heat Exchangers, L.P. and Local Lodge 2191 of
District Lodge 66 of the International Association of
Machinists and Aerospace Workers, AFL-CIO |
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10 |
.9* |
|
Amended and Restated Chart Industries, Inc. Voluntary Deferred
Income Plan |
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10 |
.10 |
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Form of Management Stockholders Agreement |
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10 |
.11** |
|
Form of Stockholders Agreement |
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10 |
.12* |
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Chart Industries, Inc. 2004 Stock Option and Incentive Plan |
|
10 |
.13* |
|
Amendment No. 1 to the 2004 Stock Option and Incentive Plan |
|
10 |
.14* |
|
Form of Stock Option Agreement under the 2004 Stock Option and
Incentive Plan (for Samuel F. Thomas) |
|
10 |
.15* |
|
Form of Stock Option Agreement under the 2004 Stock Option and
Incentive Plan (for those other than Samuel F. Thomas) |
|
10 |
.16** |
|
Amended and Restated Chart Industries, Inc. 2005 Stock Incentive
Plan |
|
10 |
.17* |
|
Form of Stock Option Agreement under the Amended and Restated
Chart Industries, Inc. 2005 Stock Incentive Plan |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Exhibit |
|
|
|
|
10 |
.18* |
|
2006 Chart Executive Incentive Compensation Plan |
|
10 |
.19 |
|
Incentive Compensation Plan |
|
10 |
.20* |
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Form of Indemnification Agreement |
|
10 |
.21 |
|
Form of Amendment No. 1 to the Credit Agreement |
|
10 |
.22** |
|
Form of Restricted Stock Unit Agreement (for non-employee
directors) under the Amended and Restated Chart Industries, Inc.
2005 Stock Incentive Plan |
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21 |
.1* |
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List of Subsidiaries |
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23 |
.1 |
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Consent of Simpson Thacher & Bartlett LLP (included as
part of its opinion filed as Exhibit 5.1 hereto) |
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23 |
.2** |
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Consent of Ernst & Young LLP |
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23 |
.3** |
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Consent of Steven W. Krablin |
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24 |
.1* |
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Powers of Attorney |
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|
** |
To be filed by amendment. |
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Filed herewith. |