Chart Industries, Inc. S-4/A
As filed with the Securities and Exchange Commission on
March 6, 2007
Registration
No. 333-140932
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1 to
Form S-4
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF
1933
Chart Industries,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
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Delaware
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3443
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34-1712937
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(State or Other Jurisdiction
of
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(Primary Standard
Industrial
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(I.R.S. Employer
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Incorporation or
Organization)
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Classification Code
Number)
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Identification
No.)
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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)
Copy To:
Arthur C. Hall III, Esq.
Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio
44114-2688
Tel.:
(216) 622-8200
Fax:
(216) 241-0816
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this registration statement.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, 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,
please 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
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, as amended, or until the
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
ADDITIONAL
REGISTRANTS
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Jurisdiction
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IRS Employer
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Exact Name of Additional
Registrants*
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of Formation
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Identification No.
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Chart Inc.
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Delaware
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41-1396485
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CAIRE Inc.
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Delaware
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41-1739055
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Chart Energy & Chemicals,
Inc.
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Delaware
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34-1945782
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Chart Cooler Service Company,
Inc.
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Delaware
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34-1957885
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Chart International Holdings,
Inc.
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Delaware
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41-1935723
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Chart Asia, Inc.
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Delaware
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41-1827744
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Chart International, Inc.
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Delaware
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34-1858187
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The address for each of the
additional Registrants is c/o Chart Industries, Inc., One
Infinity Corporate Centre Drive, Suite 300, Garfield
Heights, Ohio
44125-5370.
The primary standard industrial classification number for each
of the additional Registrants is 3443.
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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 dated
March 6, 2007)
$170,000,000
Chart Industries,
Inc.
OFFER TO EXCHANGE
91/8%
SENIOR SUBORDINATED NOTES DUE 2015
FOR ANY AND ALL
OUTSTANDING
91/8%
SENIOR SUBORDINATED NOTES DUE 2015
We are offering to exchange all of our outstanding
91/8% Senior
Subordinated Notes due 2015, or the initial notes, for new
91/8% Senior
Subordinated Notes due 2015, or the exchange notes. The terms of
the exchange notes are identical in all material respects to the
terms of the initial notes, except that the exchange notes have
been registered under the Securities Act, and the transfer
restrictions and registration rights relating to the initial
notes do not apply to the exchange notes. The exchange notes
will be fully and unconditionally guaranteed on an unsecured
basis by Chart Industries, Inc.s direct and indirect
wholly-owned subsidiaries that guarantee Chart Industries,
Inc.s indebtedness under its senior secured credit
facility.
The exchange offer will expire at 5:00 p.m.,
New York time, on April 6, 2007 (the
21st business day following the date of this prospectus),
unless we extend the exchange offer in our sole and absolute
discretion.
To exchange your initial notes for exchange notes:
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You are required to make the representations described on
page 180 to us.
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If you hold initial notes in certificated form, the
exchange agent, The Bank of New York, must receive your
completed letter of transmittal that accompanies this prospectus
by 5:00 p.m., New York time on April 6,
2007.
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If you hold initial notes through The Depository
Trust Company (DTC), you must comply with the
Automated Tender Offer Program procedures of DTC, by
5:00 p.m., New York time on April 6, 2007.
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You should read the section titled The Exchange
Offer for further information on how to exchange your
initial notes for exchange notes.
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Investing in the exchange
notes involves risks similar to those associated with the
initial notes. See Risk Factors beginning on
page 17 for a discussion of certain risks that you should
consider before participating in the exchange
offer.
Neither the Securities and Exchange Commission (the
SEC) 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.
Broker-Dealers
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Each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
exchange notes. The letter of transmittal states that by so
acknowledging and delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an underwriter
within the meaning of the Securities Act of 1933.
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This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired by such
broker-dealer as a result of market-making activities or other
trading activities.
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We have agreed that, for a period of 180 days after the
consummation of the exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any
such resale. See Plan of Distribution.
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The date of this prospectus
is ,
2007
TABLE OF
CONTENTS
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Page
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ii
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iii
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F-1
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EX-21.1 |
EX-23.1 |
This prospectus incorporates important business and financial
information about us that is not included in or delivered with
this prospectus. This information is available without charge to
you upon written or oral request. Requests should be made to:
Chart Industries, Inc., One Infinity Corporate Centre Drive,
Suite 300, Garfield Heights, Ohio
44125-5370,
telephone
(440) 753-1490,
attention: Corporate Secretary.
To obtain timely delivery of this information, you must
request the information no later than March 30, 2007, which
is five business days before the expiration date of the exchange
offer.
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 not offering to sell or seeking offers to buy these
securities in jurisdictions where offers and sales are not
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.
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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 or delay 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, including exposure to
fixed pricing on long-term customer contracts;
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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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additional liabilities related to taxes;
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the possibility that our controlling stockholders
interests will conflict with ours or yours;
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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.
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There may be other factors that may cause our actual results to
differ materially from the forward-looking statements.
All forward-looking statements attributable to us or persons
acting on our behalf apply only as of the date of this
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.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange
Act and, in accordance therewith, file reports and other
information with the SEC. 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).
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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 making your investment decision.
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
consumption of hydrocarbon and industrial gases, based on our
sales and the estimated sales of our competitors. We supply
engineered equipment used throughout the global liquid gas
supply chain. The largest portion of end-use applications for
our products is energy-related, accounting for 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; 273º Centigrade; 459º
Fahrenheit). The majority of our products, including
vacuum-insulated containment vessels, heat exchangers, cold
boxes and other cryogenic components, are used throughout the
liquid gas supply chain for the purification, liquefaction,
distribution, storage and consumption of hydrocarbon and
industrial gases.
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 nine months ended September 30, 2006 and 2005, we
generated sales of $393.0 million and $290.7 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.
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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.
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Competitive
Strengths
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. 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.
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
September 30, 2006 was $260.0 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.
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.
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.
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 13 primary facilities and three
continents. This scale and the related substantial operational
flexibility enable us to be a low-cost producer for our products.
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.
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 to 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.
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 investment in
manufacturing, sales and marketing capabilities positions us to
increase our market share in growing international markets.
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 July 31, 2006, we completed our initial public offering,
or our IPO, of 12,500,000 shares of our common stock for
net proceeds of approximately $175.3 million. We used
$25.0 million of the net proceeds to repay a portion of the
term loan under our senior secured credit facility. The
remaining $150.3 million of net proceeds was used to pay a
dividend to our stockholders existing immediately prior to the
IPO, consisting of affiliates of First Reserve Fund X,
L.P., which we refer to as First Reserve, a Delaware limited
partnership, and certain members of management. On
August 25, 2006, following expiration of the
underwriters over-allotment option without its being
exercised, a stock dividend of 1,875,000 shares was issued
to the stockholders existing immediately prior to the completion
of the IPO. In addition, our senior secured credit facility was
amended upon the completion of the IPO. The amendment primarily
increased the size of the revolving credit facility by
$55.0 million to $115.0 million and increased the
amount available for letters of credit extending beyond one year
from their issuance date to $55.0 million from
$35.0 million.
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
$15.9 million, net of cash acquired. Cooler Service has
been included in our Energy and Chemicals segment and
contributed $11.7 million of sales to our 2006 operating
results from the date of acquisition through September 30,
2006.
Our
Uncertainties
Investing in our securities involves substantial risk. You
should carefully consider all the information in this prospectus
prior to investing in our securities. 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, operations and business
strategies. For example, our strategy relating to potential
acquisitions 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 17 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 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.
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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
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needed to finance the Acquisition, including related fees and
expenses, was provided by funds raised by the offering of our
initial 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
was amended effective upon the closing of our IPO in July 2006
to increase the size of the revolving credit facility to
$115.0 million. See The Transactions and
Description of Our Other Indebtedness.
Corporate
Structure
Chart Industries issued the initial notes and will issue the
exchange notes offered by this prospectus. Each of our existing
and future direct and indirect domestic wholly-owned
subsidiaries that guarantees our indebtedness under our senior
secured credit facility will guarantee our obligations under the
notes on a senior subordinated unsecured basis. The following
chart summarizes our corporate structure. For a more detailed
description of the notes, see Description of Notes.
For a more detailed description of our senior secured credit
facility, see Description of Our Other Indebtedness.
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(1)
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The guarantors of the notes also
guarantee our senior secured credit facility on a senior secured
basis. Certain U.S. subsidiaries will not provide
guarantees.
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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. Since the completion of our IPO we have filed
periodic and other reports with the Securities and Exchange
Commission. The financial statements and other financial data
presented in this prospectus are of Chart Industries, Inc. and
its direct and indirect subsidiaries.
4
Adjustments
Unless we specifically state otherwise, all information in this
prospectus gives effect to (i) the 4.6263-for-one stock
split of our common stock that occurred on July 20, 2006,
(ii) related adjustments to our capital structure and stock
options that were effected upon the completion of our IPO on
July 31, 2006, (iii) the stock dividend of
1,875,000 shares to stockholders existing immediately prior
to the completion of our IPO that was made on August 25,
2006 following expiration of the underwriters
over-allotment option without its being exercised and
(iv) 12,500,000 shares of our common stock issued in
the IPO. For more information, see Prospectus
Summary Recent Developments and the footnotes
to the financial statements that accompany this prospectus.
5
The
Exchange Offer
|
|
|
Notes Offered |
|
We are offering to exchange up to $170,000,000 of our
91/8%
Senior Subordinated Notes due October 15, 2015. The terms
of the exchange notes are identical in all material respects to
the terms of the initial notes, except that the exchange notes
have been registered under the Securities Act, and the transfer
restrictions and registration rights relating to the initial
notes do not apply to the exchange notes. |
|
The Exchange Offer |
|
We are offering to issue the exchange notes in exchange for a
like principal amount of your initial notes. We are offering to
issue the exchange notes to satisfy our obligations contained in
the registration rights agreement entered into when the initial
notes were sold in transactions permitted by Rule 144A
under the Securities Act and therefore not registered with the
SEC. For procedures for tendering your initial notes, see
The Exchange Offer. |
|
Tenders, Expiration Date, Withdrawal |
|
The exchange offer will expire at 5:00 p.m. New York City
time on April 6, 2007 unless it is extended. If you decide
to exchange your initial notes for exchange notes, you must
acknowledge that you are not engaging in, and do not intend to
engage in, a distribution of the exchange notes. If you decide
to tender your initial notes in the exchange offer, you may
withdraw them any time prior to April 6, 2007. If we decide
for any reason not to accept any initial notes for exchange,
your initial notes will be returned to you promptly after the
exchange offer expires. |
|
Conditions of the Exchange Offer |
|
The exchange offer is subject to the following customary
conditions, which we may waive: |
|
|
|
the exchange offer, or the making of any
exchange by a holder of initial notes, will not violate any
applicable law or interpretation by the staff of the SEC;
|
|
|
|
no action may be pending or threatened in any
court or before any governmental agency with respect to the
exchange offer that may impair our ability to proceed with the
exchange offer; and
|
|
|
|
no stop order may be threatened or in effect
with respect to the exchange offer or the qualification of the
indenture under the Trust Indenture Act.
|
|
Material U.S. Federal Income Tax Considerations |
|
Your exchange of initial notes for exchange notes in the
exchange offer will not result in any income, gain or loss to
you for federal income tax purposes. See Material United
States Federal Income Tax Consequences. |
|
Use of Proceeds |
|
We will not receive any proceeds from the issuance of the
exchange notes in the exchange offer. |
|
Exchange Agent |
|
The Bank of New York is the exchange agent for the exchange
offer. |
|
Failure to Tender Your Initial Notes |
|
If you fail to tender your initial notes in the exchange offer,
you will not have any further rights under the registration
rights agreement, except under limited circumstances. Because
the initial notes are not registered under the Securities Act,
the initial notes and exchange notes will not be
interchangeable. Consequently, if you fail to tender |
6
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|
|
|
|
your initial notes in the exchange offer, you will not be able
to trade your initial notes with the exchange notes we issue. If
most of the initial notes are tendered in the exchange offer,
holders of notes that have not been exchanged will likely have
little trading liquidity. |
|
Consequences of Exchanging Your Initial Notes |
|
Based on interpretations of the staff of the SEC, we believe
that you may offer for resale, resell or otherwise transfer the
exchange notes that we issue in the exchange offer without
complying with the registration and prospectus delivery
requirements of the Securities Act if you: |
|
|
|
acquire the exchange notes issued in the
exchange offer in the ordinary course of your business;
|
|
|
|
are not participating, do not intend to
participate, and have no arrangement or undertaking with anyone
to participate, in the distribution of the exchange notes issued
to you in the exchange offer; and
|
|
|
|
are not an affiliate of Chart
Industries as defined in Rule 405 of the Securities Act.
|
|
|
|
If any of these conditions is not satisfied and you transfer any
exchange notes issued to you in the exchange offer without
delivering a proper prospectus or without qualifying for a
registration exemption, you may incur liability under the
Securities Act. We will not be responsible for or indemnify you
against any liability you may incur. |
|
|
|
Any broker-dealer that acquires exchange notes in the exchange
offer for its own account in exchange for initial notes which it
acquired through market-making or other trading activities, must
acknowledge that it will deliver a prospectus when it resells or
transfers any exchange notes issued in the exchange offer as
described in more detail under Plan of Distribution. |
|
Risk Factors |
|
An investment in the notes is subject to certain risks. Risks
related to the exchange offer and exchange notes include the
following: |
|
|
|
if all of our outstanding indebtedness became
accelerated, it is unlikely that we would be able to repay all
of our indebtedness simultaneously;
|
|
|
|
holders of initial notes who do not
participate in the exchange offer could experience significant
diminution in value compared to the value of the exchange notes;
|
|
|
|
the exchange notes are effectively
subordinated to the rights of our existing and future secured
indebtedness, to the extent of the value of the assets securing
such indebtedness, and will be structurally subordinated to all
obligations of each of our subsidiaries that are not guarantors
of the notes;
|
|
|
|
if we do not receive cash distributions,
dividends or other payments from our subsidiaries, we may not be
able to make payments on the notes; and
|
|
|
|
an active trading market for the exchange
notes may not develop.
|
7
|
|
|
|
|
See Prospectus Summary Our Uncertainties
on page 3 and Risk Factors beginning on
page 17 of this prospectus and the other information in
this prospectus for a discussion of factors you should consider
carefully before deciding to invest in the notes. |
|
Accounting Treatment |
|
The exchange notes will be recorded in our accounting records at
the same carrying value as the initial notes, as reflected in
our accounting records on the date of the exchange. Accordingly,
no gain or loss for accounting purposes will be recognized by
us. The costs of the exchange offer and the expenses related to
the issuance of the initial notes will be amortized over the
term of the exchange notes. |
8
The
Exchange Notes
The terms of the exchange notes and the initial notes are
identical in all material respects, except that the exchange
notes have been registered under the Securities Act, and the
transfer restrictions and registration rights relating to the
initial notes do not apply to the exchange notes. The following
summary contains basic information about the exchange notes and
is not intended to be complete. It does not contain all the
information that may be important to you. For a more complete
understanding of the exchange notes, please refer to the section
in this prospectus entitled Description of Notes.
You should read the entire prospectus, including the financial
data and related notes included or incorporated by reference in
this prospectus, before making an investment decision.
|
|
|
|
|
|
|
Issuer |
|
Chart Industries, Inc. |
|
Notes Offered |
|
$170,000,000 aggregate principal amount of
91/8% senior
subordinated notes due 2015. |
|
Maturity Date |
|
October 15, 2015. |
|
Interest |
|
91/8% per
annum, payable semi-annually in arrears. |
|
Interest Payment Dates |
|
April 15 and October 15 of each year, beginning on
April 15, 2006. Interest will accrue from the issue date of
the notes. |
|
Optional Redemption |
|
We may redeem any of the notes beginning on October 15,
2010. The initial redemption price is 104.563% of their
principal amount, plus accrued interest. The redemption price
will decline each year after 2010 and will be 100% of their
principal amount, plus accrued interest, beginning on
October 15, 2013. |
|
|
|
We may also redeem any of the notes at any time prior to
October 15, 2010, at a redemption price equal to 100% of
the principal amount of the notes to be redeemed, plus the
Applicable Premium, defined under Description of
NotesCertain Definitions as of, and accrued interest
to, the redemption date. |
|
|
|
We may redeem up to 35% of the notes on or prior to
October 15, 2008 from the proceeds of certain equity
offerings at 109.125% of the principal amount of the notes, plus
accrued and unpaid interest, if any, to the date of redemption
only if, after the redemption, at least 65% of the aggregate
principal amount of the notes originally issued remains
outstanding and the redemption occurs within 180 days of
the date of the equity offering. See Description of
NotesOptional Redemption. |
|
Change of Control |
|
Upon a change of control, as defined under the section entitled
Description of Notes, we will be required to make an
offer to purchase the notes then outstanding at a purchase price
equal to 101% of their principal amount, plus accrued interest
to the date of repurchase. We may not have sufficient funds
available at the time of a change of control to repurchase the
notes. |
|
Guarantees |
|
The wholly-owned domestic subsidiaries of the issuer that
guarantee our obligations under the senior secured credit
facility will guarantee the notes. Each guarantor will provide a
guarantee of the payment of the principal, premium and interest
on the notes on a senior, subordinated, unsecured basis. |
9
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|
|
The guarantee by each guarantor will be subordinated to all
existing and future senior indebtedness of such guarantor,
including such guarantors guarantee of our obligations
under the senior secured credit facility. |
|
Ranking |
|
The notes will be the issuers senior subordinated
unsecured obligations. Accordingly, the notes will: |
|
|
|
rank junior in right of payment to any of the
issuers existing and future senior indebtedness, including
borrowings under the senior secured credit facility;
|
|
|
|
rank equally in right of payment with any of
the issuers future senior subordinated indebtedness;
|
|
|
|
be effectively subordinated in right of
payment to any of the issuers existing and future secured
indebtedness (including obligations under the senior secured
credit facility), to the extent of the value of the assets
securing such indebtedness, and will be structurally
subordinated to all obligations of each of our subsidiaries that
are not guarantors of the notes; and
|
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|
|
rank senior in right of payment to any of the
issuers future indebtedness that expressly provides for
its subordination to the notes.
|
|
|
|
Similarly, the senior subordinated note guarantees will be
senior subordinated unsecured obligations of the guarantors and
will: |
|
|
|
rank junior in right of payment to all of the
applicable guarantors existing and future senior
indebtedness including obligations under the senior secured
credit facility;
|
|
|
|
rank equally in right of payment with all of
the applicable guarantors future senior subordinated
indebtedness;
|
|
|
|
be effectively subordinated in right of
payment to all of the applicable guarantors existing and
future secured indebtedness (including the applicable
guarantors guarantee under the senior secured credit
facility), to the extent of the value of the assets securing
such indebtedness, and will be structurally subordinated to all
obligations of any subsidiary of a guarantor if that subsidiary
is not a guarantor; and
|
|
|
|
rank senior in right of payment to all of the
applicable guarantors existing and future indebtedness
that expressly provides for its subordination to the applicable
guarantors guarantee.
|
|
|
|
As of September 30, 2006, we had $290.0 million
principal amount of indebtedness, which includes the notes,
$120.0 million (excluding approximately $27.3 million
of letters of credit) of senior secured indebtedness under the
senior secured credit facility and no other additional
indebtedness effectively senior to the notes. |
|
Certain Covenants |
|
The terms of the notes will limit our ability and the ability of
our restricted subsidiaries to: |
|
|
|
incur additional indebtedness;
|
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|
|
create liens;
|
10
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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.
|
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|
These covenants are subject to a number of important exceptions
and qualifications. See Description of Notes. |
|
Absence of Public Market |
|
The exchange notes will be freely transferable, but will be new
securities for which there will not initially be a market.
Accordingly, there is no assurance that a market for the
exchange notes will develop or as to the liquidity of any market. |
Additional
Interest for the Notes
Under the registration rights agreement, we agreed to consummate
the exchange offer by August 14, 2006. Because we have not
met this requirement, until the consummation of the exchange
offer the annual interest on the notes will increase by
0.25% per annum for 90 days following August 14,
2006 and an additional 0.25% per annum at the beginning of
each subsequent
90-day
period, provided that the additional interest in the aggregate
shall not exceed 1.0% per annum. Accordingly, as of the date of
this prospectus annual interest on the notes has increased by
0.75% per annum. The additional interest will cease to
accrue upon consummation of the exchange offer.
11
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
nine months ended September 30, 2005 and as of and for the
nine months ended September 30, 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 nine months ended September 30, 2005 and
as of and for the nine months ended September 30, 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 statements of
operations information for the year ended December 31, 2005
and the nine months ended September 30, 2006 have been
prepared to give pro forma effect to the IPO, 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. 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 the IPO 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.
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.
12
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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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Pro Forma As
|
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|
Pro Forma As
|
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|
Nine Months
|
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|
Three Months
|
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|
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|
January 1,
|
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|
Nine Months
|
|
|
|
October 17,
|
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|
Nine Months
|
|
|
|
Adjusted Year
|
|
|
Adjusted Nine
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
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|
Ended
|
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Months 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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|
September 30,
|
|
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|
December 31,
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|
September 30,
|
|
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|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
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(dollars and shares in thousands, except per share data)
|
|
Statement of Operations
Data:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
197,017
|
|
|
|
$
|
68,570
|
|
|
$
|
305,576
|
|
|
$
|
305,497
|
|
|
$
|
290,678
|
|
|
|
$
|
97,652
|
|
|
$
|
393,032
|
|
|
|
$
|
403,149
|
|
|
$
|
393,032
|
|
Cost of
sales(1)
|
|
|
141,240
|
|
|
|
|
52,509
|
|
|
|
211,770
|
|
|
|
217,284
|
|
|
|
205,747
|
|
|
|
|
75,733
|
|
|
|
280,492
|
|
|
|
|
293,017
|
|
|
|
280,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
55,777
|
|
|
|
|
16,061
|
|
|
|
93,806
|
|
|
|
88,213
|
|
|
|
84,931
|
|
|
|
|
21,919
|
|
|
|
112,540
|
|
|
|
|
110,132
|
|
|
|
112,540
|
|
Selling, general and administrative
expenses
|
|
|
44,211
|
|
|
|
|
14,147
|
|
|
|
53,374
|
|
|
|
59,826
|
|
|
|
44,005
|
|
|
|
|
16,632
|
|
|
|
53,372
|
|
|
|
|
84,764
|
|
|
|
53,372
|
|
Restructuring and other operating
expenses,
net(2)(3)(4)
|
|
|
13,503
|
|
|
|
|
994
|
|
|
|
3,353
|
|
|
|
7,528
|
|
|
|
3,196
|
|
|
|
|
217
|
|
|
|
11,689
|
|
|
|
|
7,745
|
|
|
|
11,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,714
|
|
|
|
|
15,141
|
|
|
|
56,727
|
|
|
|
67,354
|
|
|
|
47,201
|
|
|
|
|
16,849
|
|
|
|
65,061
|
|
|
|
|
92,509
|
|
|
|
65,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,937
|
)
|
|
|
|
920
|
|
|
|
37,079
|
|
|
|
20,859
|
|
|
|
37,730
|
|
|
|
|
5,070
|
|
|
|
47,479
|
|
|
|
|
17,623
|
|
|
|
47,479
|
|
Interest expense,
net(5)
|
|
|
10,300
|
|
|
|
|
1,344
|
|
|
|
4,712
|
|
|
|
4,164
|
|
|
|
3,934
|
|
|
|
|
5,556
|
|
|
|
19,256
|
|
|
|
|
24,088
|
|
|
|
17,600
|
|
Other expense (income)
|
|
|
(3,737
|
)
|
|
|
|
(350
|
)
|
|
|
(465
|
)
|
|
|
659
|
|
|
|
550
|
|
|
|
|
409
|
|
|
|
955
|
|
|
|
|
2,239
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
6,563
|
|
|
|
|
994
|
|
|
|
4,247
|
|
|
|
4,823
|
|
|
|
4,484
|
|
|
|
|
5,965
|
|
|
|
20,211
|
|
|
|
|
26,327
|
|
|
|
18,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations before income taxes and minority interest
|
|
|
(8,500
|
)
|
|
|
|
(74
|
)
|
|
|
32,832
|
|
|
|
16,036
|
|
|
|
33,246
|
|
|
|
|
(895
|
)
|
|
|
27,268
|
|
|
|
|
(8,704
|
)
|
|
|
28,924
|
|
Income tax (benefit) expense
|
|
|
1,755
|
|
|
|
|
(125
|
)
|
|
|
10,134
|
|
|
|
7,159
|
|
|
|
11,480
|
|
|
|
|
(441
|
)
|
|
|
8,862
|
|
|
|
|
(2,343
|
)
|
|
|
9,491
|
|
(Loss) income from continuing
operations before minority interest
|
|
|
(10,255
|
)
|
|
|
|
51
|
|
|
|
22,698
|
|
|
|
8,877
|
|
|
|
21,766
|
|
|
|
|
(454
|
)
|
|
|
18,406
|
|
|
|
|
(6,361
|
)
|
|
|
19,433
|
|
Minority interest, net of taxes and
other
|
|
|
(63
|
)
|
|
|
|
(20
|
)
|
|
|
(98
|
)
|
|
|
(19
|
)
|
|
|
(85
|
)
|
|
|
|
(52
|
)
|
|
|
(120
|
)
|
|
|
|
(71
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations
|
|
|
(10,318
|
)
|
|
|
|
31
|
|
|
|
22,600
|
|
|
|
8,858
|
|
|
|
21,681
|
|
|
|
|
(506
|
)
|
|
|
18,286
|
|
|
|
|
(6,432
|
)
|
|
|
19,313
|
|
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
|
|
|
$
|
21,681
|
|
|
|
$
|
(506
|
)
|
|
$
|
18,286
|
|
|
|
$
|
(6,432
|
)
|
|
$
|
19,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
data(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share:
|
|
$
|
(0.27
|
)
|
|
|
$
|
0.01
|
|
|
$
|
4.22
|
|
|
$
|
1.65
|
|
|
$
|
4.04
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.45
|
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.75
|
|
Diluted (loss) earnings per
share(8)
|
|
$
|
(0.27
|
)
|
|
|
$
|
0.01
|
|
|
$
|
4.10
|
|
|
$
|
1.57
|
|
|
$
|
3.88
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.40
|
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.74
|
|
Weighted average sharesbasic
|
|
|
26,336
|
|
|
|
|
5,325
|
|
|
|
5,351
|
|
|
|
5,366
|
|
|
|
5,363
|
|
|
|
|
7,952
|
|
|
|
12,579
|
|
|
|
|
25,614
|
|
|
|
25,614
|
|
Weighted average
sharesdiluted(8)
|
|
|
26,336
|
|
|
|
|
5,325
|
|
|
|
5,516
|
|
|
|
5,649
|
|
|
|
5,593
|
|
|
|
|
7,952
|
|
|
|
13,107
|
|
|
|
|
25,614
|
|
|
|
26,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
operating activities
|
|
$
|
19,466
|
|
|
|
$
|
4,988
|
|
|
$
|
35,059
|
|
|
$
|
15,641
|
|
|
$
|
19,115
|
|
|
|
$
|
18,742
|
|
|
$
|
33,563
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
investing activities
|
|
$
|
15,101
|
|
|
|
$
|
154
|
|
|
$
|
(3,317
|
)
|
|
$
|
(20,799
|
)
|
|
$
|
(20,595
|
)
|
|
|
$
|
(362,250
|
)
|
|
$
|
(29,368
|
)
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by
financing activities
|
|
$
|
(15,907
|
)
|
|
|
$
|
(13,976
|
)
|
|
$
|
(35,744
|
)
|
|
$
|
1,708
|
|
|
$
|
5,484
|
|
|
|
$
|
348,489
|
|
|
$
|
3,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization(9)
|
|
$
|
9,260
|
|
|
|
$
|
2,225
|
|
|
$
|
8,490
|
|
|
$
|
6,808
|
|
|
$
|
5,970
|
|
|
|
$
|
4,396
|
|
|
$
|
16,383
|
|
|
|
$
|
20,987
|
|
|
$
|
16,383
|
|
EBITDA(10)
|
|
$
|
15,522
|
|
|
|
$
|
3,475
|
|
|
$
|
45,936
|
|
|
$
|
26,989
|
|
|
$
|
43,065
|
|
|
|
$
|
9,005
|
|
|
$
|
62,787
|
|
|
|
$
|
36,300
|
|
|
$
|
62,787
|
|
Capital expenditures
|
|
$
|
1,907
|
|
|
|
$
|
518
|
|
|
$
|
9,379
|
|
|
$
|
11,038
|
|
|
$
|
10,208
|
|
|
|
$
|
5,601
|
|
|
$
|
13,497
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
$
|
51,781
|
|
|
|
$
|
49,635
|
|
|
$
|
129,278
|
|
|
$
|
206,215
|
|
|
$
|
198,758
|
|
|
|
$
|
233,639
|
|
|
$
|
260,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
December 31,
|
|
September 30,
|
|
|
2005
|
|
2006
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,433
|
|
|
$
|
22,958
|
|
Working
capital(11)
|
|
$
|
55,454
|
|
|
$
|
56,051
|
|
Total assets
|
|
$
|
639,748
|
|
|
$
|
698,772
|
|
Debt:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
2,304
|
|
|
$
|
|
|
Long-term debt
|
|
$
|
345,000
|
|
|
$
|
290,000
|
|
Total debt
|
|
$
|
347,304
|
|
|
$
|
290,000
|
|
Shareholders equity
|
|
$
|
116,330
|
|
|
$
|
200,661
|
|
|
|
|
(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. In addition, 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 effected prior to consummation of
the IPO and (ii) the stock dividend of
1,875,000 shares to stockholders existing immediately prior
to the completion of the IPO that was made on August 25,
2006 following expiration of the underwriters
over-allotment option without its being exercised and
12,500,000 shares of our common stock issued in the IPO.
|
(8)
|
|
The basic and diluted loss or
earnings per share for the nine months ended September 30,
2003, the three months ended December 31, 2003, the 2005
Successor Period and the pro forma as adjusted year ended
December 31, 2005 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 nine
months ended September 30, 2006 include financing costs
amortization of $1.7 million, $0.3 million and
$1.1 million, respectively.
|
(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 U.S. 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):
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
|
|
|
Pro Forma As
|
|
|
Pro Forma As
|
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
|
|
|
January 1,
|
|
|
Nine Months
|
|
|
|
October 17,
|
|
|
Nine Months
|
|
|
|
Adjusted Year
|
|
|
Adjusted Nine
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net income (loss)
|
|
$
|
(7,085
|
)
|
|
|
$
|
31
|
|
|
$
|
22,600
|
|
|
$
|
8,858
|
|
|
$
|
21,681
|
|
|
|
$
|
(506
|
)
|
|
$
|
18,286
|
|
|
|
$
|
(6,432
|
)
|
|
$
|
19,313
|
|
Income tax expense (benefit)
|
|
|
3,047
|
|
|
|
|
(125
|
)
|
|
|
10,134
|
|
|
|
7,159
|
|
|
|
11,480
|
|
|
|
|
(441
|
)
|
|
|
8,862
|
|
|
|
|
(2,343
|
)
|
|
|
9,491
|
|
Interest
expensenet(a)
|
|
|
10,300
|
|
|
|
|
1,344
|
|
|
|
4,712
|
|
|
|
4,164
|
|
|
|
3,934
|
|
|
|
|
5,556
|
|
|
|
19,256
|
|
|
|
|
24,088
|
|
|
|
17,600
|
|
Depreciation and
amortization(b)
|
|
|
9,260
|
|
|
|
|
2,225
|
|
|
|
8,490
|
|
|
|
6,808
|
|
|
|
5,970
|
|
|
|
|
4,396
|
|
|
|
16,383
|
|
|
|
|
20,987
|
|
|
|
16,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
15,522
|
|
|
|
$
|
3,475
|
|
|
$
|
45,936
|
|
|
$
|
26,989
|
|
|
$
|
43,065
|
|
|
|
$
|
9,005
|
|
|
$
|
62,787
|
|
|
|
$
|
36,300
|
|
|
$
|
62,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 nine
months ended September 30, 2006 include financing costs
amortization of $1.7 million, $0.3 million and
$1.1 million, respectively.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Reorganized Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
Successor Company
|
|
|
|
Pro Forma
|
|
|
Pro Forma As
|
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
|
|
|
January 1,
|
|
|
Months
|
|
|
|
October 17,
|
|
|
Nine Months
|
|
|
|
As Adjusted
|
|
|
Adjusted Nine
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
Year Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
EBITDA
|
|
$
|
15,522
|
|
|
|
$
|
3,475
|
|
|
$
|
45,936
|
|
|
$
|
26,989
|
|
|
$
|
43,065
|
|
|
|
$
|
9,005
|
|
|
$
|
62,787
|
|
|
|
$
|
36,300
|
|
|
$
|
62,787
|
|
Stock-based compensation
expense(a)
|
|
|
|
|
|
|
|
|
|
|
|
2,433
|
|
|
|
9,508
|
|
|
|
1,799
|
|
|
|
|
437
|
|
|
|
1,428
|
|
|
|
|
9,945
|
|
|
|
1,428
|
|
Inventory valuation
charge(b)
|
|
|
|
|
|
|
|
5,368
|
|
|
|
|
|
|
|
|
|
|
|
1,018
|
|
|
|
|
8,903
|
|
|
|
|
|
|
|
|
8,903
|
|
|
|
|
|
Acquisition
expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602
|
|
|
|
|
|
In-process research and development
charge(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768
|
|
|
|
|
|
Hurricane & storm costs
(recoveries)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057
|
|
|
|
1,049
|
|
|
|
|
406
|
|
|
|
(900
|
)
|
|
|
|
1,463
|
|
|
|
(900
|
)
|
Employee separation and plant
closure
costs(f)
|
|
|
1,338
|
|
|
|
|
1,010
|
|
|
|
3,346
|
|
|
|
1,700
|
|
|
|
1,584
|
|
|
|
|
255
|
|
|
|
304
|
|
|
|
|
1,955
|
|
|
|
304
|
|
Reorganization
expenses(g)
|
|
|
369
|
|
|
|
|
357
|
|
|
|
706
|
|
|
|
1,470
|
|
|
|
1,460
|
|
|
|
|
88
|
|
|
|
162
|
|
|
|
|
1,558
|
|
|
|
162
|
|
Appraisal rights
settlement(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Management
fees(i)
|
|
|
|
|
|
|
|
|
|
|
|
380
|
|
|
|
306
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
assets(j)
|
|
|
8,929
|
|
|
|
|
(57
|
)
|
|
|
133
|
|
|
|
(131
|
)
|
|
|
1,347
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
Income from discontinued
operations(k)
|
|
|
(833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
25,325
|
|
|
|
$
|
10,153
|
|
|
$
|
52,934
|
|
|
$
|
50,269
|
|
|
$
|
51,607
|
|
|
|
$
|
19,672
|
|
|
$
|
63,781
|
|
|
|
$
|
69,941
|
|
|
$
|
63,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(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.
|
15
|
|
|
(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.
|
(e)
|
|
Represents losses and costs
incurred related to Hurricane Rita at our New Iberia, Louisiana
facilities, net of insurance recoveries, and storm costs
incurred at a customer project site.
|
(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 stockholders
appraisal rights claims as a result of the Acquisition.
|
(i)
|
|
Represents non-recurring management
fees charged by our Reorganized Company majority stockholders,
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)
|
|
Working capital is defined as
current assets excluding cash minus current liabilities
excluding short-term debt.
|
16
RISK
FACTORS
You should carefully consider the risks described below as
well as the other information contained in this prospectus
before deciding to tender your outstanding notes in the exchange
offer. Any of the following risks could materially adversely
affect our business, financial condition and results of
operations. In such case, you may lose all or part of your
original investment.
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 or delay 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
or delay in orders or anticipated spending by such customers
could materially reduce our revenues and profitability. Our
largest customers, could also engage in business combinations
which could increase their size and increase or decrease the
portion of our total sales concentration to any single customer.
For example Linde and BOC engaged in a business combination in
2006. Additionally, we currently sell all of our magnetic
resonance imaging, or MRI, components to GE, a leading worldwide
manufacturer of MRI equipment, which accounted for
$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
17
reductions or increased spending on research and development and
marketing and sales, any of which could materially reduce our
revenues, profitability or both. In the event of an industry
downturn, customers who typically outsource their need for
cryogenic systems to us may use their excess capacity to produce
such systems themselves. We also compete in the sale of a
limited number of products with certain of our major customers.
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 securities.
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 required to be 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 have a negative effect on the
trading prices of our securities.
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;
|
|
|
|
restrictions on our ability to repatriate dividends from our
foreign subsidiaries;
|
|
|
|
difficulty in collecting international accounts receivable;
|
18
|
|
|
|
|
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.
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 have invested or plan to invest up to
$30 million in new capital expenditures in the United
States and China in 2006, 2007 and 2008 related to the expected
growth of our E&C and D&S segments. If we fail to
implement these capital projects in a timely and effective
manner, we may lose the opportunity to obtain some customer
orders. Even if we effectively implement these projects, the
orders needed to support the capital expenditure may not be
obtained, may be delayed or may be less than expected, which may
result in sales or profitability at lower levels than
anticipated. We have experienced some delay in orders related to
our E&C segment expansion from the timing initially
anticipated in connection with that expansion, which has
resulted in the underutilization of some of our capacity, and we
cannot provide assurance when those orders will be obtained, if
ever. 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.
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 cryogenic or
low temperature
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technologies and know-how, and many of the markets we serve
represent niche markets for these specialized applications.
Accordingly, we rely heavily on engineers, salespersons,
business unit leaders, senior management and other key employees
who have experience in these specialized applications and are
knowledgeable about these niche markets, our products, and our
company. Additionally, we may modify our management structure
from time to time. The loss of the services of these senior
managers or other key employees, the modification of our
management structure or the failure to attract or retain other
qualified personnel could reduce the competitiveness of our
business or otherwise impair our business prospects.
Fluctuations
in the prices and availability of raw materials and our exposure
to fixed-price contracts, including exposure to fixed pricing on
long-term customer contracts, could negatively impact our
financial results.
The pricing and availability of raw materials for use in our
businesses can be volatile due to numerous factors beyond our
control, including general, domestic and international economic
conditions, labor costs, production levels, competition,
consumer demand, import duties and tariffs and currency exchange
rates. This volatility can significantly affect the availability
and cost of raw materials for us, and may, therefore, increase
the short-term or long-term costs of raw materials.
The commodity metals we use, including aluminum and stainless
steel, have experienced significant upward fluctuations in
price. On average, 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, 2005 and 2006, 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, which may
involve long-term fixed price commitments to customers. Among
our long-term fixed-price contracts, we presently are executing
two large projects each involving over $20 million of
revenue on which our margins have deteriorated significantly, as
previously disclosed. On one of these projects, we have
experienced significant cost overruns, and the other was
disrupted by a storm and related damage. The customer made the
decision in the first quarter of 2007 to repair the damage
through costly purchases of new replacement materials. We may be
required to pay for some of these repair costs in the future to
the extent the customer asserts a valid claim that we are
responsible for the damage occurring, which we would contest
vigorously. To the extent that original cost estimates in these
or other contracts prove to be inaccurate or the contracts do
not permit us to pass increased costs on to our customers,
profitability from a particular contract may decrease, which, in
turn, could decrease our revenues and overall profitability.
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
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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.
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.
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 September 30, 2006, we had goodwill and
indefinite-lived intangible assets of approximately
$281 million, which represented 40% 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.
We may
be required to make material expenditures in order to comply
with environmental, health and safety laws, or incur additional
liabilities under these laws.
We are subject to numerous environmental, health and safety laws
and regulations that impose various environmental controls on us
or otherwise relate to environmental protection and various
health and safety matters, including the discharge of pollutants
in the air and water, the handling, use, treatment, storage and
clean-up of
solid and hazardous materials and wastes, the investigation and
remediation of soil and groundwater affected by
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hazardous substances, and the requirement to obtain and
maintain permits and licenses. These laws and regulations often
impose strict, retroactive and joint and several liability for
the costs of, and damages resulting from, cleaning up our, or
our predecessors, past or present facilities and third
party disposal sites. Compliance with these laws generally
increases the costs of transportation and storage of raw
materials and finished products, as well as the costs of storing
and disposing waste, and could decrease our liquidity and
profitability and increase our liabilities. Health and safety
and other laws in the jurisdictions in which we operate impose
various requirements on us, including state licensing
requirements that may benefit our customers. If we are found to
have violated any of these laws, we may become subject to
corrective action orders and fines or penalties, and incur
substantial costs, including substantial remediation costs
including commercial liability to our customers. For example, in
a project involving over $20 million in total revenue, we
are subject to an investigation that commenced in the fourth
quarter of 2006 by state regulators concerning whether one of
our subsidiaries is required to have a license to install our
manufactured equipment. Although we do not believe we are
required to be licensed, if we were formally found to be in
violation of the licensing requirement, we could owe substantial
penalties to the state or be required to return job revenues to
the customer. Further, we also could be subject to future
liability resulting from conditions that are currently unknown
to us that could be discovered in the future.
We are currently remediating or developing work plans for
remediation of environmental conditions involving certain
current or former facilities. For example, the discovery of
contamination arising from historical industrial operations at
our Clarksville, Arkansas property has exposed us, and in the
future may continue to expose us, to remediation obligations. To
date, our environmental remediation expenditures and costs for
otherwise complying with environmental laws and regulations have
not been material, but the uncertainties associated with the
investigation and remediation of contamination and the fact that
such laws or regulations change frequently makes predicting the
cost or impact of such laws and regulations on our future
operations uncertain. Stricter environmental, safety and health
laws, regulations or enforcement policies could result in
substantial costs and liabilities to us and could subject us to
more rigorous scrutiny. Consequently, compliance with these laws
could result in significant expenditures as well as other costs
and liabilities that could decrease our liquidity and
profitability and increase our liabilities.
The
insolvency of 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.
Due to
the nature of our business and products, we may be liable for
damages based on product liability and warranty
claims.
Due to the high pressures and low temperatures at which many of
our products are used and the fact that some of our products are
relied upon by our customers or end users in their facilities or
operations, or are manufactured for relatively broad consumer
use, we face an inherent risk of exposure to claims in the event
that the failure, use or misuse of our products results, or is
alleged to result, in bodily injury, property damage or economic
loss. We believe that we meet or exceed existing professional
specification standards recognized or required in the industries
in
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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 and may not cover warranty claims. A successful
product liability claim or series of claims against us,
including one or more consumer claims purporting to constitute
class actions, in excess of our insurance coverage or a
significant warranty claim or series of claims against us could
materially decrease our liquidity and impair our financial
condition.
Increases
in labor costs, potential labor disputes and work stoppages at
our facilities could materially decrease our revenues and
profitability.
Our financial performance is affected by the availability of
qualified personnel and the cost of labor. As of
December 31, 2006, we had 2,690 employees, including 904
salaried, 318 union hourly and 1,468 non-union hourly employees.
Employees represented by a union were subject to one collective
bargaining agreement in the United States that expired in
February 2007. A new three-year agreement was entered into in
February 2007, and expires in February 2010. In connection with
negotiating this new collective bargaining agreement, we
experienced a work stoppage from the time that the previous
agreement expired on February 3, 2007 until the terms of
the new agreement were reached on February 7, 2007. If we
are unable to enter into new, satisfactory labor agreements with
our unionized employees when necessary in the future or other
labor controversies or union organizing efforts arise, we could
experience a significant disruption to our operations, lose
business or experience an increase in our operating expenses,
which could reduce our profit margins.
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 contributed approximately
$1.3 million to our U.S. defined benefit pension plans
during 2006 and expect to contribute $0.7 million during
2007. If the performance of our assets in our pension plans does
not meet our expectations or if other actuarial assumptions are
modified, our contributions could be higher than we expect, thus
reducing the available cash for our business.
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 from time to time. These weather
events can disrupt our operations, result in damage to our
properties and negatively affect the local economy in which
these facilities operate. In 2005, for example, our New Iberia,
Louisiana operations encountered some damage from the storm
surge and flooding caused by Hurricane Rita. Future hurricanes
may cause production or delivery delays as a result of the
physical damage to the facilities, the unavailability of
employees and temporary workers, the shortage of or delay in
receiving certain raw materials or manufacturing supplies and
the diminished availability or delay of transportation for
customer shipments, any of which may have an adverse affect on
our revenues and profitability. Although we maintain insurance
subject to certain deductibles, which may cover some of our
losses, that insurance may become unavailable or prove to be
inadequate.
Failure
to protect our intellectual property and know-how could reduce
or eliminate any competitive advantage and reduce our sales and
profitability.
We rely on a combination of internal procedures, nondisclosure
agreements, intellectual property rights assignment agreements,
licenses, patents, trademarks and copyright law to protect our
intellectual property and know-how. Our intellectual property
rights may not be successfully asserted in the future or may be
invalidated, circumvented or challenged. For example, we
frequently explore and evaluate potential relationships and
projects with other parties, which often requires that we
provide the potential partner with confidential technical
information. While confidentiality agreements are typically put
in place, there is a risk the potential partner could violate
the confidentiality agreement and use our technical information
for its own benefit or the benefit of others or compromise the
confidentiality. In addition, the laws of certain foreign
countries in which our products may be sold or manufactured do
not protect our intellectual property rights to the same extent
as the laws of the United States. For example, we are increasing
our manufacturing capabilities and sales in China, where laws
may not protect our intellectual property rights to the same
extent as in the United States. Failure or inability to protect
our proprietary information could result in a decrease in our
sales or profitability.
We have obtained and applied for some U.S. and foreign trademark
and patent registrations and will continue to evaluate the
registration of additional trademarks and patents, as
appropriate. We cannot guarantee that any of our pending
applications will be approved. Moreover, even if the
applications are approved, third parties may seek to oppose or
otherwise challenge them. A failure to obtain registrations in
the United States or elsewhere could limit our ability to
protect our trademarks and technologies and could impede our
business. The patents in our patent portfolio are scheduled to
expire between 2007 and 2024.
In addition, we may be unable to prevent third parties from
using our intellectual property rights and know-how without our
authorization or from independently developing intellectual
property that is the same as or similar to ours, particularly in
those countries where the laws do not protect our intellectual
property rights as fully as in the United States. We compete in
a number of industries (for example, heat exchangers and
cryogenic storage) that are small or specialized, which makes it
easier for a competitor to monitor our activities and increases
the risk that ideas will be stolen. The unauthorized use of our
know-how by third parties could reduce or eliminate any
competitive advantage we have developed, cause us to lose sales
or otherwise harm our business or increase our expenses as we
attempt to enforce our rights.
We may
be subject to claims that our products or processes infringe the
intellectual property rights of others, which may cause us to
pay unexpected litigation costs or damages, modify our products
or processes or prevent us from selling our
products.
Although it is our intention to avoid infringing or otherwise
violating the intellectual property rights of others, third
parties may nevertheless claim 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
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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.
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.
Additional
liabilities related to taxes could adversely impact our
financial results, financial condition and cash
flow.
We are subject to tax and related obligations in the
jurisdictions in which we operate or do business, including
state, local, federal and foreign taxes. The taxing rules of the
various jurisdictions in which we operate or do business often
are complex and subject to varying interpretations, and tax
authorities may challenge tax positions that we take or
historically have taken, and may assess taxes where we have not
made tax filings or may audit the tax filings we have made and
assess additional taxes. Some of these assessments may be
substantial, and also may involve the imposition of substantial
penalties and interest. For example, a state in which we
operate has asserted that we may be liable for substantial state
income taxes, penalties and interest related to our operations
in the state from 1993 to 2000. The taxes asserted by the state
pre-date the Acquisition, and we believe that if the state
issued a formal assessment and was successful in pursuing that
assessment against us, the amounts owed, except for penalties
and interest for periods after the Acquisition, would increase
our goodwill instead of being charged against our earnings, but
the negative cash flow impact could be significant and there
could be a negative impact on our earnings related to
post-Acquisition penalties and interest. We would vigorously
contest any such assessment, if issued, including through
administrative and court proceedings, but we may be unsuccessful
and ultimately required to pay additional taxes, penalties and
interest. The payment of substantial additional taxes, penalties
or interest resulting from these assessments could materially
and adversely impact our financial results, financial condition
and cash flow.
As a
provider of products to the U.S. government, we are subject
to federal rules, regulations, audits and investigations, the
violation or failure of which could adversely affect our
business.
We sell certain of our products to the U.S. government and,
therefore, we must comply with and are affected by laws and
regulations governing purchases by the U.S. government.
Government contract laws and regulations affect how we do
business with our government customers and, in some instances,
impose added costs on our business. For example, a violation of
specific laws and regulations could result in the imposition of
fines and penalties or the termination of our contracts or
debarment from bidding on contracts. In some instances, these
laws and regulations impose terms or rights that are more
favorable to the government than those typically available to
commercial parties in negotiated transactions.
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We are
controlled by First Reserve, whose interests may not be aligned
with yours or ours.
First Reserve owns a significant portion of our common 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 it is less than 50%, First Reserve will
continue to be able to strongly influence or effectively control
our decisions.
Risks
Related to the Exchange Notes
Our
substantial leverage and significant debt service obligations
could adversely affect our financial condition, limit our
ability to raise additional capital to fund our operations,
limit our ability to react to changes in the economy or our
industry, expose us to interest rate risk to the extent of our
variable rate debt and prevent us from fulfilling our debt
service obligations, including under the notes, and operate our
business.
We are highly leveraged and have significant debt service
obligations. Our financial performance could be affected by our
substantial leverage. As of September 30, 2006, our total
indebtedness was $290.0 million. In addition, at that date,
we had approximately $27.3 million of letters of credit and
bank guarantees outstanding and borrowing capacity of
approximately $87.7 million under the revolving portion of
our senior secured credit facility, after giving effect to the
letters of credit 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 flow to pay
interest and satisfy our obligations with respect to the notes;
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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 will need to use a substantial portion of our available cash
flow to pay interest and principal on our debt, which will
reduce the amount of money available to finance our operations
and other business activities;
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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;
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we may have insufficient funds, and our debt level may also
restrict us from raising the funds necessary, to repurchase all
of the notes tendered to us upon the occurrence of a change of
control, which would constitute an event of default under the
notes; 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
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sell assets, could result in an event of default that, if not
cured or waived, could have a material adverse effect on our
business or prospects.
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Our net cash flow generated from operating activities was
$33.6 million, $34.4 million (on a combined basis),
$35.1 million and $24.5 million (on a combined basis)
for the nine months ended September 30, 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 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 Our Other Indebtedness.
Despite
our current leverage, we may still be able to incur
substantially more debt. This could further exacerbate the risks
that we and our subsidiaries face.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the
indenture do not fully prohibit us or our subsidiaries from
doing so. The revolving credit portion of our senior secured
credit facility provides commitments of up to
$115.0 million, approximately $87.7 million of which
would have been available for future borrowings (after giving
effect to letters of credit and bank guarantees outstanding) as
of September 30, 2006. We may also increase the size of our
senior secured credit facility further. See Description of
Our Other Indebtedness Senior Secured Credit
Facility. All of those borrowings would be secured, and as
a result, would be effectively senior to the notes and the
guarantees of the notes by our subsidiary guarantors. If we
incur any additional indebtedness that ranks equally with the
notes, the holders of that debt will be entitled to share
ratably with the holders of the notes in any proceeds
distributed in connection with any insolvency, liquidation,
reorganization, dissolution or other
winding-up
of us. This may have the effect of reducing the amount of
proceeds paid to you. If new debt is added to our current debt
levels, the related risks that we and our subsidiaries now face
could intensify.
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 or 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
27
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.
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The senior secured credit facility also requires us to achieve
certain financial and operating results and maintain compliance
with specified financial ratios. Our ability to comply with
these ratios may be affected by events beyond our control.
The restrictions contained in the senior secured credit facility
and the indenture 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.
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A breach of any of these covenants or our inability to comply
with the required financial ratios could result in a default
under our senior secured credit facility
and/or the
indenture. If an event of default occurs under our senior
secured credit facility, which includes an event of default
under the indenture 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;
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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 the senior secured credit facility, which constitutes
substantially all of our and our domestic wholly-owned
subsidiaries assets. Although holders of the notes could
accelerate the notes upon the acceleration of the obligations
under our senior secured credit facility, we cannot assure you
that sufficient assets will remain to repay the notes after we
have paid all the borrowings under our senior secured credit
facility and any other senior debt.
We are
a holding company and we depend upon cash from our subsidiaries
to service our debt. If we do not receive cash distributions,
dividends or other payments from our subsidiaries, we may be
unable to make payments on the notes.
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 debt service obligations, including the
required payments on the notes. If we do not receive such cash
distributions, dividends or other payments from our
subsidiaries, we may be unable to pay the principal or interest
on the notes. In addition, certain of our subsidiaries who are
guarantors of the
28
notes are holding companies that rely on subsidiaries of their
own as a source of funds to meet any obligations that might
arise under their guarantees.
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. Although
the indenture governing the notes will limit the extent to which
our subsidiaries may restrict their ability to make dividend and
other payments to us, these limitations will be subject to
significant qualifications and exceptions. 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 or our subsidiary guarantors may
be unable to obtain that cash to satisfy our obligations under
the notes or its guarantee, as applicable.
Your
right to receive payments on the notes is effectively junior to
those lenders who have a security interest in our
assets.
Our obligations under the notes and our guarantors
obligations under their guarantees of the notes are unsecured,
but our obligations under our senior secured credit facility and
each guarantors obligations under their respective
guarantees of the senior secured credit facility are secured by
a security interest in substantially all of our domestic
tangible and intangible assets and the assets and a portion of
the stock of certain of our
non-U.S. subsidiaries.
If we are declared bankrupt or insolvent, or if we default under
our senior secured credit facility, the lenders could declare
all of the funds borrowed thereunder, together with accrued
interest, immediately due and payable. If we were unable to
repay such indebtedness, the lenders could foreclose on the
pledged assets to the exclusion of holders of the notes, even if
an event of default exists under the indenture under which the
notes will be issued at such time. Furthermore, if the lenders
foreclose and sell the pledged equity interests in any
subsidiary guarantor under the notes, then that guarantor will
be released from its guarantee of the notes automatically and
immediately upon such sale. In any such event, because the notes
will not be secured by any of our assets or the equity interests
in subsidiary guarantors, it is possible that there would be no
assets remaining from which your claims could be satisfied or,
if any assets remained, they might be insufficient to satisfy
your claims fully. See Description of Our Other
Indebtedness.
As of September 30, 2006, the notes and the guarantees were
subordinated or effectively subordinated to $120.0 million
of secured indebtedness (all of which represented borrowings
under the term loan portion of our senior secured credit
facility and which would not have included availability of
approximately $87.7 million under the revolving portion of
our senior secured credit facility). The indenture permits the
incurrence of substantial additional indebtedness by us and our
restricted subsidiaries in the future, including secured
indebtedness.
Claims
of noteholders are structurally subordinate to claims of
creditors of all of our
non-U.S. subsidiaries
and some of our U.S. subsidiaries because they do not
guarantee the notes.
The notes are not guaranteed by any of our
non-U.S. subsidiaries,
our less than wholly-owned domestic subsidiaries or certain
other domestic subsidiaries. Accordingly, claims of holders of
the notes are structurally subordinate to the claims of
creditors of these non-guarantor subsidiaries, including trade
creditors. Without limiting the generality of the foregoing,
claims of holders of the notes also are structurally subordinate
to claims of the lenders under our senior secured credit
facility to the extent of the guarantees by
non-U.S. subsidiaries
of the senior secured credit facility. All obligations of our
non-guarantor subsidiaries will have to be satisfied before any
of the assets of such subsidiaries would be available for
distribution, upon a liquidation or otherwise, to us or a
guarantor of the notes.
As of September 30, 2006, our non-guarantor subsidiaries
had assets of approximately $131.0 million, or 19% of our
consolidated assets, and liabilities excluding intercompany
liabilities of approximately $29.0 million, or 6% of our
total consolidated liabilities. Our non-guarantor subsidiaries
had net sales of $93.4 million and $89.6 million and
operating income of $20.5 million and $9.4 million for
the nine months ended September 30, 2006 and the combined
year ended December 31, 2005, respectively.
29
Because a portion of our operations are conducted by
subsidiaries that do not guarantee the notes, our cash flow and
our ability to service debt, including our and the
guarantors ability to pay the interest on and principal of
the notes when due, are dependent to a significant extent on
interest payments, cash dividends and distributions and other
transfers of cash from subsidiaries that do not guarantee the
notes. In addition, any payment of interest, dividends,
distributions, loans or advances by subsidiaries that do not
guarantee the notes to us and the guarantors, as applicable,
could be subject to taxation or other restrictions on dividends
or repatriation of earnings under applicable local law, monetary
transfer restrictions and foreign currency exchange regulations
in the jurisdiction in which these subsidiaries operate.
Moreover, payments to us and the guarantors by subsidiaries that
do not guarantee the notes will be contingent upon these
subsidiaries earnings.
Our subsidiaries that do not guarantee the notes are separate
and distinct legal entities and have no obligation, contingent
or otherwise, to pay any amounts due pursuant to the notes, or
to make any funds available therefor, whether by dividends,
loans, distributions or other payments. Any right that we or the
guarantors have to receive any assets of any subsidiaries that
do not guarantee the notes upon the liquidation or
reorganization of those subsidiaries, and the consequent rights
of holders of notes to realize proceeds from the sale of any of
those subsidiaries assets, will be effectively
subordinated to the claims of that subsidiarys creditors,
including trade creditors and holders of debt of that subsidiary.
We also have joint ventures and subsidiaries in which we own
less than 100% of the equity so that, in addition to the
structurally senior claims of creditors of those entities, the
equity interests of our joint venture partners or other
stockholders in any dividend or other distribution made by these
entities would need to be satisfied on a proportionate basis
with us. These joint ventures and less than wholly-owned
subsidiaries may also be subject to restrictions on their
ability to distribute cash to us in their financing or other
agreements and, as a result, we may not be able to access their
cash flow to service our debt obligations, including in respect
of the notes.
Your
right to receive payments on the notes is junior to all of our
existing and future senior indebtedness and the guarantees of
the notes are junior to all the guarantors existing and
future senior indebtedness.
The notes are general unsecured obligations that are junior in
right of payment to all our existing and future senior
indebtedness, including our senior secured credit facility. The
guarantees are general unsecured obligations of the guarantors
that are junior in right of payment to all of the applicable
guarantors existing and future senior indebtedness,
including our senior secured credit facility.
We and the guarantors may not pay principal, premium, if any,
interest or other amounts on account of the notes or the
guarantees in the event of a payment default or certain other
defaults in respect of certain of our senior indebtedness,
including debt under the senior secured credit facility, unless
the senior indebtedness has been paid in full or the default has
been cured or waived. In addition, in the event of certain other
defaults with respect to the senior indebtedness, we or the
guarantors may not be permitted to pay any amount on account of
the notes or the guarantees for a designated period of time.
Because of the subordination provisions in the notes and the
guarantees, in the event of a bankruptcy, liquidation or
dissolution of us or any guarantor, our or the guarantors
assets will not be available to pay obligations under the notes
or the applicable guarantee until we or the guarantor has made
all payments on its respective senior indebtedness. We and the
guarantors may not have sufficient assets after all these
payments have been made to make any payments on the notes or the
applicable guarantee, including payments of principal or
interest when due.
As of September 30, 2006, the notes and the guarantees were
subordinated or effectively subordinated to $120.0 million
of indebtedness (all of which represented borrowings under the
term loan portion of our senior secured credit facility) and
approximately $87.7 million was available for borrowing
(after giving effect to letters of credit outstanding) as
additional senior indebtedness under our senior secured credit
facility, subject to compliance with covenants and conditions to
borrowing under our senior secured credit facility. The
indenture permits the incurrence of substantial additional
indebtedness, including senior debt, by us and our restricted
subsidiaries in the future.
30
If we
default on our obligations to pay our other indebtedness, we may
be unable to make payments on the notes.
Any default under the agreements governing our indebtedness,
including a default under our senior secured credit facility
that is not waived by the required lenders, and the remedies
sought by the holders of such indebtedness could make us unable
to pay principal, premium, if any, and interest on the notes and
substantially decrease the market value of the notes. If we are
unable to generate sufficient cash flow and are otherwise unable
to obtain funds necessary to meet required payments of
principal, premium, if any, and interest on our indebtedness, or
if we otherwise fail to comply with the various covenants,
including financial and operating covenants, in the instruments
governing our indebtedness (including our senior secured credit
facility), we could be in default under the terms of the
agreements governing such indebtedness. In the event of such
default, the holders of such indebtedness could elect to declare
all the funds borrowed thereunder to be due and payable,
together with accrued and unpaid interest, the lenders under the
revolving portion of our senior secured credit facility could
elect to terminate their commitments, cease making further loans
and institute foreclosure proceedings against our assets, and we
could be forced into bankruptcy or liquidation. If our operating
performance declines, we may in the future need to seek to
obtain waivers from the required lenders under our senior
secured credit facility to avoid being in default. If we breach
our covenants under our senior secured credit facility and seek
a waiver, we may not be able to obtain a waiver from the
required lenders. If this occurs, we would be in default under
our senior secured credit facility, the lenders could exercise
their rights as described above, and we could be forced into
bankruptcy or liquidation. See Description of Our Other
Indebtedness Senior Secured Credit Facility
and Description of Notes.
We may
be unable to repurchase the notes upon a change of
control.
Upon the occurrence of specific kinds of change of control
events, we will be required to offer to repurchase all
outstanding notes at 101% of their principal amount, plus
accrued and unpaid interest, unless such notes have been
previously called for redemption. We may have insufficient
financial resources to purchase all of the notes that are
tendered upon a change of control offer. The occurrence of a
change of control could also constitute an event of default
under our senior secured credit facility. Our bank lenders may
have the right to prohibit any such purchase or redemption, in
which event we will seek to obtain waivers from the required
lenders under the senior secured credit facility, but may be
unable to do so. See Description of Notes
Change of Control.
Certain
covenants contained in the indenture will not be applicable if
the notes are rated investment grade by both Standard &
Poors and Moodys in the future.
The indenture provides that certain covenants will not apply to
us if, in the future, the notes are rated investment grade by
both Standard & Poors and Moodys. The
covenants restrict, among other things, our ability to pay
dividends, incur debt and to enter into other transactions. We
cannot assure you that the notes will ever be rated investment
grade, or that if they are rated investment grade, the notes
will maintain such rating. In addition, if the notes are rated
investment grade and fail to maintain such rating, the covenants
which were suspended will not be reinstated. Suspension of these
covenants would allow us to engage in certain transactions that
would not be permitted while these covenants were in force and
any such actions that we take while these covenants are not in
force will be permitted even if the notes are subsequently
downgraded below investment grade. See Description of
Notes Certain Covenants Changes in
Covenants When Notes Rated Investment Grade.
Federal
and state fraudulent transfer laws may permit a court to void
the notes and the guarantees and if that occurs, you may not
receive any payments on the notes.
The issuance of the notes and the guarantees may be subject to
review under federal bankruptcy law or relevant state fraudulent
transfer and conveyance statutes. While the relevant laws may
vary from state to state, under such laws the payment of
consideration will be a fraudulent conveyance if (1) we
paid the consideration with the intent of hindering, delaying or
defrauding creditors or (2) we or any of the guarantors, as
applicable, received less than
31
reasonably equivalent value or fair consideration in return for
issuing either the notes or a guarantee, and, in the case of
(2) only, one of the following is also true:
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we or any of the guarantors was insolvent or rendered insolvent
by reason of the incurrence of the indebtedness; or
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payment of the consideration left us or any of the guarantors
with an unreasonably small amount of capital to carry on the
business; or
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we or any of the guarantors intended to, or believed that it
would, incur debts beyond its ability to pay as they mature.
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If a court were to find that the issuance of the notes or a
guarantee was a fraudulent conveyance, the court could void the
payment obligations under the notes or such guarantee or further
subordinate the notes or such guarantee to presently existing
and future indebtedness of ours or such guarantor, or require
the holders of the notes to repay any amounts received with
respect to the notes or such guarantee. In the event of a
finding that a fraudulent conveyance occurred, you may not
receive any repayment on the notes.
Further, the voidance of the notes could result in an event of
default with respect to our and our subsidiaries other
debt that could result in acceleration of such debt.
Generally, an entity would be considered insolvent if, at the
time it incurred indebtedness:
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the sum of its debts, including contingent liabilities, was
greater than the fair salable value of all its assets; or
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the present fair salable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts and liabilities, including contingent
liabilities, as they become absolute and mature; or
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it could not pay its debts as they become due.
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We cannot be certain as to the standards a court would use to
determine whether or not we or the guarantors were solvent at
the relevant time, or regardless of the standard that a court
uses, that the issuance of the notes and the guarantees would
not be further subordinated to our or any of our
guarantors other debt.
If the guarantees were legally challenged, any guarantee could
also be subject to the claim that, since the guarantee was
incurred for our benefit, and only indirectly for the benefit of
the applicable guarantor, the obligations of the applicable
guarantor were incurred for less than fair consideration. A
court could thus void the obligations under the guarantees,
subordinate them to the applicable guarantors other debt
or take other action detrimental to the holders of the notes.
We believe that, at the time the guarantors initially incur the
debt represented by the guarantees, the guarantors:
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will not be insolvent or rendered insolvent by the
incurrence; and
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will have sufficient capital to run their businesses effectively.
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We have relied on a limitation contained in the guarantors
guarantees that limits each guarantee as necessary to prevent it
from constituting a fraudulent conveyance under applicable law.
However, a court passing on these questions might not reach the
same conclusions.
Risks
Related to the Exchange Offer
You
may have difficulty selling your initial notes that you do not
exchange and any initial notes that you do not exchange could
experience a significant diminution in value compared to the
value of the exchange notes.
If you do not exchange your outstanding notes for the exchange
notes offered in this exchange offer, you will continue to be
subject to the restrictions on the transfer of your initial
notes. Those transfer restrictions are described in the
indenture governing the initial notes and in the legend
contained on the initial notes, and arose because we originally
issued the initial notes under an exemption from, and in
transactions not subject to, the registration requirements of
the Securities Act.
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In general, you may offer to sell your initial notes only if
they are registered under the Securities Act and applicable
state securities laws, or if they are offered and sold pursuant
to an exemption from those requirements.
If a large number of initial notes are exchanged for exchange
notes issued in the exchange offer, it may be more difficult for
you to sell your initial notes. Upon completion of the exchange
offer, due to restrictions on transfer of the initial notes and
the absence of such restrictions applicable to the exchange
notes, it is likely that the market, if any, for the initial
notes will be relatively less liquid than the market for the
exchange notes. Consequently, holders of initial notes who do
not participate in the exchange offer could experience
significant diminution in the value of their initial notes,
compared to the value of the exchange notes.
An
active trading market for the exchange notes may not
develop.
The exchange notes are a new issue of securities, there is no
existing market for the exchange notes and we do not know if a
market will develop or, if a market does develop, whether it
will be sustained. Although the placement agents of the initial
notes informed us in connection with the issuance of the initial
notes that they intended to make a market in the exchange notes,
they have no obligation to do so and may discontinue making a
market at any time without notice. Accordingly, we cannot assure
you that a liquid market will develop for the exchange notes,
that you will be able to sell your exchange notes at a
particular time or that the prices that you receive when you
sell the exchange notes will be favorable.
We do not intend to apply for listing or quotation of the notes
on any securities exchange or stock market.
Historically, the market for non-investment grade debt has been
subject to disruptions that have caused substantial volatility
in the prices of these securities. We cannot assure you that the
market for the exchange notes will be free from similar
disruptions. Any such disruptions could have an adverse effect
on holders of the exchange notes.
33
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.
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 in our
filings with the SEC.
The
Acquisition
General
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.
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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.
34
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.
Agreement
and Plan of Merger
The merger agreement contained 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 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.
The following table illustrates the approximate sources and uses
for the Acquisition.
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|
|
|
|
|
|
|
|
Sources
|
|
|
|
|
Uses
|
|
|
|
(in millions)
|
|
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
facility(1)
|
|
$
|
|
|
|
Purchase of
equity(2)
|
|
$
|
378.8
|
|
Term loan B facility
|
|
|
180.0
|
|
|
Repayment of then-existing
debt(3)
|
|
|
66.8
|
|
Senior subordinated notes
|
|
|
170.0
|
|
|
Funded
cash(2)
|
|
|
3.4
|
|
Equity
contribution(4)
|
|
|
117.7
|
|
|
Fees and expenses
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sources of Funds
|
|
$
|
467.7
|
|
|
Total Uses of Funds
|
|
$
|
467.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(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.
|
(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.
|
(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.
|
35
USE OF
PROCEEDS
We will not receive any proceeds from the issuance of the
exchange notes in the exchange offer. We will receive in
exchange initial notes in like principal amount. We will retire
or cancel all of the initial notes tendered in the exchange
offer.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
January 1, 2005
|
|
|
Ended
|
|
|
|
October 17, 2005
|
|
|
Ended
|
|
|
|
December 31
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
to October 16,
|
|
|
September 30,
|
|
|
|
to December 31,
|
|
|
September 30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
Ratio of earnings to fixed charges
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
n/a
|
|
|
|
6.6
|
|
|
|
4.2
|
|
|
|
8.0
|
|
|
|
|
n/a
|
|
|
|
2.3
|
|
Earnings deficiency
|
|
$
|
8,992
|
|
|
$
|
123,183
|
|
|
$
|
8,500
|
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
895
|
|
|
$
|
|
|
For the purpose of calculating the ratio of earnings to fixed
charges, earnings represent pre-tax income from
continuing operations before adjustments for minority interests
in consolidated subsidiaries and income or loss from equity
investees, plus fixed charges. Fixed charges consist
of interest expense, including amortization of financing costs
and that portion of rental expense deemed representative of
interest.
For the years ended December 31, 2001 and 2002, the nine
months ended September 30, 2003, the three months ended
December 31, 2003, and the period October 17, 2005 to
December 31, 2005, earnings were inadequate to cover fixed
charges. The dollar amount of coverage deficiency is disclosed
in the table above.
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 nine months ended
September 30, 2006. The unaudited pro forma statements of
operations for the year ended December 31, 2005 and the
nine months ended September 30, 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) the IPO and the use of
proceeds from the IPO, as if they had been consummated on
January 1, 2005. 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 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
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,
|
|
|
IPO
|
|
|
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(5)
|
|
|
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(5)
|
|
|
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(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per
share(8)
|
|
$
|
1.65
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
(1.06
|
)
|
|
|
|
|
|
$
|
(0.25
|
)
|
Diluted (loss) earnings per
share(8)
|
|
$
|
1.57
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
(1.06
|
)
|
|
|
|
|
|
$
|
(0.25
|
)
|
Weighted-average shares
basic
|
|
|
5,366
|
|
|
|
|
7,952
|
|
|
|
|
|
|
|
7,952
|
|
|
|
|
|
|
|
25,614
|
|
Weighted-average shares
diluted
|
|
|
5,649
|
|
|
|
|
7,952
|
|
|
|
|
|
|
|
7,952
|
|
|
|
|
|
|
|
25,614
|
|
(See accompanying notes starting on page 40.)
38
CHART
INDUSTRIES, INC.
UNAUDITED
PRO FORMA STATEMENT OF OPERATIONS
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Successor
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
As Adjusted
|
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
Pro Forma
|
|
|
September 30,
|
|
|
IPO
|
|
|
September 30,
|
|
|
|
2006
|
|
|
Adjustments(3)
|
|
|
2006
|
|
|
Adjustments(4)
|
|
|
2006
|
|
|
|
(in thousands, except per share data)
|
|
|
Sales
|
|
$
|
393,032
|
|
|
$
|
|
|
|
$
|
393,032
|
|
|
$
|
|
|
|
$
|
393,032
|
|
Cost of sales
|
|
|
280,492
|
|
|
|
|
|
|
|
280,492
|
|
|
|
|
|
|
|
280,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
112,540
|
|
|
|
|
|
|
|
112,540
|
|
|
|
|
|
|
|
112,540
|
|
Selling, general and administrative
expenses
|
|
|
53,372
|
|
|
|
|
|
|
|
53,372
|
|
|
|
|
|
|
|
53,372
|
|
Amortization Expense
|
|
|
11,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,385
|
|
Employee separation and plant
closure costs
|
|
|
304
|
|
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,061
|
|
|
|
|
|
|
|
65,061
|
|
|
|
|
|
|
|
65,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
47,479
|
|
|
|
|
|
|
|
47,479
|
|
|
|
|
|
|
|
47,479
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net(5)
|
|
|
19,256
|
|
|
|
|
|
|
|
19,256
|
|
|
|
(1,656
|
)
|
|
|
17,600
|
|
Financing costs amortization
|
|
|
1,132
|
|
|
|
|
|
|
|
1,132
|
|
|
|
|
|
|
|
1,132
|
|
Foreign currency loss (gain)
|
|
|
(177
|
)
|
|
|
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,211
|
|
|
|
|
|
|
|
20,211
|
|
|
|
(1,656
|
)
|
|
|
18,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before
income taxes and minority interest
|
|
|
27,268
|
|
|
|
|
|
|
|
27,268
|
|
|
|
1,656
|
|
|
|
28,924
|
|
Income tax (benefit)
expense(5)
|
|
|
8,862
|
|
|
|
|
|
|
|
8,862
|
|
|
|
629
|
|
|
|
9,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before
minority interest
|
|
|
18,406
|
|
|
|
|
|
|
|
18,406
|
|
|
|
1,027
|
|
|
|
19,433
|
|
Minority interest, net of taxes
|
|
|
(120
|
)
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,286
|
|
|
$
|
|
|
|
$
|
18,286
|
|
|
$
|
1,027
|
|
|
$
|
19,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings Per
Share
Data(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share(8)
|
|
$
|
1.45
|
|
|
|
|
|
|
$
|
1.45
|
|
|
|
|
|
|
$
|
0.75
|
|
Diluted earnings per
share(8)
|
|
$
|
1.40
|
|
|
|
|
|
|
$
|
1.40
|
|
|
|
|
|
|
$
|
0.74
|
|
Weighted-average shares
basic
|
|
|
12,579
|
|
|
|
|
|
|
|
12,579
|
|
|
|
|
|
|
|
25,614
|
|
Weighted-average shares
diluted
|
|
|
13,107
|
|
|
|
|
|
|
|
13,107
|
|
|
|
|
|
|
|
26,141
|
|
(See accompanying notes starting on page 40.)
39
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
stockholders, 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 the IPO and the use of proceeds
therefrom.
|
|
(5)
|
Reflects the offering adjustment to historical interest expense
for the $50,000 principal payment of our senior secured credit
facility using the proceeds from the exercise of a warrant to
acquire 2,651,012 shares of our common stock by First
Reserve in the second quarter of 2006 and the exercise of
rollover options held by management to acquire
609,851 shares of our common stock in the second quarter of
2006, cash on hand and the proceeds of the IPO for the year
ended December 31, 2005 and the nine months ended
September 30, 2006. The interest rate used in the
calculation is 6.625% per annum. This interest is variable
and was calculated as LIBOR plus 2.0%, 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 as
adjusted income before taxes by $163 and $40 for the year ended
December 31, 2005 and the nine months ended
September 30, 2006, respectively. The income tax effect of
our offering adjustments has been calculated using an estimated
statutory tax rate of 38% for both the year ended
December 31, 2005 and the three months ended March 31,
2006.
|
|
(6)
|
Unaudited pro forma as adjusted 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. In addition,
pro forma as adjusted weighted average shares for purposes of
the unaudited pro forma as adjusted basic and diluted earnings
per share calculation, has been adjusted to reflect (i) the
4.6263-for-one stock split we effected prior to the consummation
of the IPO and (ii) the stock dividend of
1,875,000 shares to stockholders existing immediately prior
to the completion of the IPO that was made on August 25,
2006 following expiration of the underwriters
over-allotment option without its being exercised and
12,500,000 shares of our common stock issued in the IPO.
|
|
(7)
|
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 nine months ended
September 30, 2006, the incremental shares issuable upon
conversion of stock options are 527,359. For the purposes of
computing diluted earnings per share, weighted average common
share equivalents do not include 318,660 stock options for the
2005 Successor Period as the effect would be anti-dilutive.
|
|
(8)
|
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 the IPO whose proceeds were used for the repayment
of debt and the payment of any dividend.
|
40
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
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Basic and diluted pro forma net
income per common share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6.4
|
)
|
|
$
|
19.3
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding(a)
|
|
|
13.1
|
|
|
|
13.1
|
|
Less: Weighted-average unvested
common shares subject to repurchase or cancellation
|
|
|
|
|
|
|
|
|
Add: Shares from the IPO whose
proceeds would be (were) used for the repayment of
debt(b)
|
|
|
1.8
|
|
|
|
1.8
|
|
Shares from the IPO whose proceeds
would be (were) used for the payment of a
dividend(c)
|
|
|
10.7
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic calculation
|
|
|
25.6
|
|
|
|
25.6
|
|
Effect for dilutive securities:
|
|
|
|
|
|
|
|
|
Add: Weighted-average stock
options and unvested common shares subject to repurchase or
cancellation
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted calculation
|
|
|
25.6
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income per
common share basic
|
|
$
|
(0.25
|
)
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income per
common share diluted
|
|
$
|
(0.25
|
)
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents weighted-average shares
outstanding after an adjustment for (i) the 4.6263-for-one
stock split we effected prior to consummation of the IPO and
(ii) the stock dividend of 1,875,000 shares to our
stockholders existing immediately prior to the completion of the
IPO that was made following expiration of the underwriters
over-allotment option as follows:
|
|
|
|
|
|
Shares outstanding at
December 31, 2005
|
|
|
7,952,180
|
|
Issuance of shares upon exercise of
FR X Chart Holdings LLC warrant
|
|
|
2,651,012
|
|
Issuance of shares upon exercise of
certain members of managements rollover options
|
|
|
609,851
|
|
Shares issued for stock dividend to
pre-IPO stockholders
|
|
|
1,875,000
|
|
|
|
|
|
|
Weighted-average common shares
outstanding
|
|
|
13,088,043
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Calculated as $25.3 million of
proceeds used in the repayment of debt, including accrued
interest thereon through the anticipated date of repayment,
divided by the IPO proceeds of $14.025 per share, net of
issuance costs and expenses.
|
(c)
|
|
Calculated as $150.3 million
of IPO proceeds to be used in the payment of a dividend, divided
by the offering proceeds of $14.025 per share, net of
issuance costs and expenses.
|
41
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 nine
months ended September 30, 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 nine months ended September 30, 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.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
|
|
|
Nine
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Months
|
|
|
|
|
|
January 1,
|
|
|
Months
|
|
|
|
October 17,
|
|
|
Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
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
|
|
|
$
|
290,678
|
|
|
|
$
|
97,652
|
|
|
$
|
393,032
|
|
Cost of
sales(1)
|
|
|
226,266
|
|
|
|
205,595
|
|
|
|
141,240
|
|
|
|
|
52,509
|
|
|
|
211,770
|
|
|
|
217,284
|
|
|
|
205,747
|
|
|
|
|
75,733
|
|
|
|
280,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
79,022
|
|
|
|
70,758
|
|
|
|
55,777
|
|
|
|
|
16,061
|
|
|
|
93,806
|
|
|
|
88,213
|
|
|
|
84,931
|
|
|
|
|
21,919
|
|
|
|
112,540
|
|
Selling, general and administrative
expenses
|
|
|
55,128
|
|
|
|
65,679
|
|
|
|
44,211
|
|
|
|
|
14,147
|
|
|
|
53,374
|
|
|
|
59,826
|
|
|
|
44,005
|
|
|
|
|
16,632
|
|
|
|
53,372
|
|
Restructuring and other operating
expenses,
net(2)(3)(4)
|
|
|
6,329
|
|
|
|
104,477
|
|
|
|
13,503
|
|
|
|
|
994
|
|
|
|
3,353
|
|
|
|
7,528
|
|
|
|
3,196
|
|
|
|
|
217
|
|
|
|
11,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,457
|
|
|
|
170,156
|
|
|
|
57,714
|
|
|
|
|
15,141
|
|
|
|
56,727
|
|
|
|
67,354
|
|
|
|
47,201
|
|
|
|
|
16,849
|
|
|
|
65,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
17,565
|
|
|
|
(99,398
|
)
|
|
|
(1,937
|
)
|
|
|
|
920
|
|
|
|
37,079
|
|
|
|
20,859
|
|
|
|
37,730
|
|
|
|
|
5,070
|
|
|
|
47,479
|
|
Interest expense,
net(5)
|
|
|
24,465
|
|
|
|
19,176
|
|
|
|
10,300
|
|
|
|
|
1,344
|
|
|
|
4,712
|
|
|
|
4,164
|
|
|
|
3,934
|
|
|
|
|
5,556
|
|
|
|
19,256
|
|
Other expense (income)
|
|
|
1,567
|
|
|
|
4,240
|
|
|
|
(3,737
|
)
|
|
|
|
(350
|
)
|
|
|
(465
|
)
|
|
|
659
|
|
|
|
550
|
|
|
|
|
409
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,032
|
|
|
|
23,416
|
|
|
|
6,563
|
|
|
|
|
994
|
|
|
|
4,247
|
|
|
|
4,823
|
|
|
|
4,484
|
|
|
|
|
5,965
|
|
|
|
20,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations before income taxes and minority interest
|
|
|
(8,467
|
)
|
|
|
(122,814
|
)
|
|
|
(8,500
|
)
|
|
|
|
(74
|
)
|
|
|
32,832
|
|
|
|
16,036
|
|
|
|
33,246
|
|
|
|
|
(895
|
)
|
|
|
27,268
|
|
Income tax (benefit) expense
|
|
|
398
|
|
|
|
11,136
|
|
|
|
1,755
|
|
|
|
|
(125
|
)
|
|
|
10,134
|
|
|
|
7,159
|
|
|
|
11,480
|
|
|
|
|
(441
|
)
|
|
|
8,862
|
|
(Loss) income from continuing
operations before minority interest
|
|
|
(8,865
|
)
|
|
|
(133,950
|
)
|
|
|
(10,255
|
)
|
|
|
|
51
|
|
|
|
22,698
|
|
|
|
8,877
|
|
|
|
21,766
|
|
|
|
|
(454
|
)
|
|
|
18,406
|
|
Minority interest, net of taxes and
other
|
|
|
(199
|
)
|
|
|
(52
|
)
|
|
|
(63
|
)
|
|
|
|
(20
|
)
|
|
|
(98
|
)
|
|
|
(19
|
)
|
|
|
(85
|
)
|
|
|
|
(52
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations
|
|
|
(9,064
|
)
|
|
|
(134,002
|
)
|
|
|
(10,318
|
)
|
|
|
|
31
|
|
|
|
22,600
|
|
|
|
8,858
|
|
|
|
21,681
|
|
|
|
|
(506
|
)
|
|
|
18,286
|
|
Income from discontinued operation,
including gain on sale, net of
tax(6)
|
|
|
3,906
|
|
|
|
3,217
|
|
|
|
3,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(5,158
|
)
|
|
$
|
(130,785
|
)
|
|
$
|
(7,085
|
)
|
|
|
$
|
31
|
|
|
$
|
22,600
|
|
|
$
|
8,858
|
|
|
$
|
21,681
|
|
|
|
$
|
(506
|
)
|
|
$
|
18,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per share
data(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.21
|
)
|
|
$
|
(5.22
|
)
|
|
$
|
(0.27
|
)
|
|
|
$
|
0.01
|
|
|
$
|
4.22
|
|
|
$
|
1.65
|
|
|
$
|
4.04
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.45
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.21
|
)
|
|
$
|
(5.22
|
)
|
|
$
|
(0.27
|
)
|
|
|
$
|
0.01
|
|
|
$
|
4.10
|
|
|
$
|
1.57
|
|
|
$
|
3.88
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.40
|
|
Weighted average shares
basic
|
|
|
24,573
|
|
|
|
25,073
|
|
|
|
26,336
|
|
|
|
|
5,325
|
|
|
|
5,351
|
|
|
|
5,366
|
|
|
|
5,363
|
|
|
|
|
7,952
|
|
|
|
12,579
|
|
Weighted average shares
diluted
|
|
|
24,573
|
|
|
|
25,073
|
|
|
|
26,336
|
|
|
|
|
5,325
|
|
|
|
5,516
|
|
|
|
5,649
|
|
|
|
5,593
|
|
|
|
|
7,952
|
|
|
|
13,107
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
operating activities
|
|
$
|
7,458
|
|
|
$
|
5,249
|
|
|
$
|
19,466
|
|
|
|
$
|
4,988
|
|
|
$
|
35,059
|
|
|
$
|
15,641
|
|
|
$
|
19,115
|
|
|
|
$
|
18,742
|
|
|
$
|
33,563
|
|
Cash (used in) provided by
investing activities
|
|
|
(6,261
|
)
|
|
|
1,288
|
|
|
|
15,101
|
|
|
|
|
154
|
|
|
|
(3,317
|
)
|
|
|
(20,799
|
)
|
|
|
(20,595
|
)
|
|
|
|
(362,250
|
)
|
|
|
(29,368
|
)
|
Cash (used in) provided by
financing activities
|
|
|
504
|
|
|
|
(17,614
|
)
|
|
|
(15,907
|
)
|
|
|
|
(13,976
|
)
|
|
|
(35,744
|
)
|
|
|
1,708
|
|
|
|
5,484
|
|
|
|
|
348,489
|
|
|
|
3,228
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization(8)
|
|
$
|
17,783
|
|
|
$
|
14,531
|
|
|
$
|
9,260
|
|
|
|
$
|
2,225
|
|
|
$
|
8,490
|
|
|
$
|
6,808
|
|
|
$
|
5,970
|
|
|
|
$
|
4,396
|
|
|
$
|
16,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
|
|
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
|
|
|
$
|
22,958
|
|
|
|
|
|
Working
capital(9)
|
|
|
57,438
|
|
|
|
48,563
|
|
|
|
35,826
|
|
|
|
|
47,161
|
|
|
|
51,292
|
|
|
|
43,486
|
|
|
|
|
55,454
|
|
|
|
56,051
|
|
|
|
|
|
Total assets
|
|
|
408,980
|
|
|
|
279,294
|
|
|
|
299,745
|
|
|
|
|
299,637
|
|
|
|
307,080
|
|
|
|
343,107
|
|
|
|
|
639,748
|
(11)
|
|
|
698,772
|
(11)
|
|
|
|
|
Long-term
debt(10)
|
|
|
259,120
|
|
|
|
1,161
|
(10)
|
|
|
122,537
|
|
|
|
|
109,081
|
|
|
|
76,406
|
|
|
|
74,480
|
|
|
|
|
345,000
|
|
|
|
290,000
|
|
|
|
|
|
Total debt
|
|
|
272,083
|
|
|
|
263,900
|
|
|
|
126,012
|
|
|
|
|
112,561
|
|
|
|
79,411
|
|
|
|
80,943
|
|
|
|
|
347,304
|
|
|
|
290,000
|
|
|
|
|
|
Shareholders equity (deficit)
|
|
|
49,340
|
|
|
|
(81,617
|
)
|
|
|
89,865
|
|
|
|
|
90,807
|
|
|
|
115,640
|
|
|
|
121,321
|
|
|
|
|
116,330
|
|
|
|
200,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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 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.
|
(4)
|
|
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.
|
(5)
|
|
Includes derivative contracts
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)
|
|
The basic and diluted loss and
earnings per share for the years ended December 31, 2001
and 2002, the nine months ended September 30, 2003, the
three months ended December 31, 2003 and the 2005 Successor
Period are the same because incremental shares issuable upon
conversion are anti-dilutive.
|
(8)
|
|
Includes financing costs
amortization for the years ended December 31, 2001 and
2002, the nine months ended September 30, 2003, the 2005
Successor Period and the nine months ended September 30,
2006 of $1.5 million, $3.2 million, $1.7 million,
$0.3 million, and $1.1 million, respectively.
|
(9)
|
|
Working capital is defined as
current assets excluding cash minus current liabilities
excluding short-term debt.
|
(10)
|
|
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.
|
(11)
|
|
Includes $236.7 million of
goodwill and $154.1 million of finite-lived and
indefinite-lived intangible assets as of December 31, 2005.
Includes $245.7 million of goodwill and $150.7 million
of finite-lived and indefinite-lived intangible assets as of
September 30, 2006.
|
44
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 section 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
consumption of hydrocarbon and industrial gases. We supply
engineered equipment used throughout the global liquid gas
supply chain. The largest portion of end-use applications for
our products is energy-related. 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;
−273º Centigrade; −459º Fahrenheit). The
majority of our products, including vacuum-insulated containment
vessels, heat exchangers, cold boxes and other cryogenic
components, are used throughout the liquid gas supply chain for
the purification, liquefaction, distribution, storage and
consumption of hydrocarbon and industrial gases.
For the nine months ended September 30, 2006, we
experienced growth in our sales and operating income compared to
the nine months ended September 30, 2005, primarily due to
growth in the global hydrocarbon processing and industrial gas
markets served by our Energy and Chemicals (E&C)
and Distribution and Storage (D&S) segments and
growth and penetration of the biological storage and
international medical respiratory therapy markets served by our
BioMedical segment. Sales for the nine months ended
September 30, 2006 were $393.0 million compared to
sales of $290.7 million for the nine months ended
September 30, 2005, reflecting an increase of
$102.3 million, or 35.2%. Our gross profit for the nine
months ended September 30, 2006 was $112.5 million, or
28.6% of sales, as compared to $84.9 million, or 29.2% of
sales, for the same period in 2005. In addition, our operating
income for the nine months ended September 30, 2006 was
$47.5 million compared to $37.7 million for the same
period in 2005. Increased sales volume in all three of our
operating segments, manufacturing productivity improvements in
our D&S and Biomedical segments, sales mix shift to higher
margin products and product price increases in our D&S
segment, were contributing factors to the growth in our gross
profit and operating income in the first nine months of 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 $260.0 million as of September 30,
2006, and our focus on energy-related industries, we presently
expect to experience continued sales and operating income growth
for the remaining three months of 2006 as compared to the same
period in 2005. We also believe that our cash flow from
operations,
45
available cash and available 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 three 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 the
notes 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 was
included in our E&C segment. Our results of operations for
the last seven months of 2006 will include the results from the
Cooler Service business.
Stock-Based
Compensation Expense
We granted options to purchase an aggregate of
266,400 shares of our common stock (93,179 time-based
options and 173,221 performance-based options) on March 29,
2006, April 27, 2006 and May 26, 2006 under the
Amended and Restated 2005 Stock Incentive Plan to certain
members of management. In connection with the time-based
options, we will record pre-tax non-cash stock-based
compensation expense of approximately $1.3 million in the
aggregate. This expense will be amortized over the five-year
vesting period of the 93,179 time-based options, including
approximately $0.1 million over the remaining three months
of 2006, commencing with the second quarter of 2006. Further, we
may also record additional stock-based compensation expense in
future periods related to the 1,580,607 performance-based
options granted on November 23, 2005, March 29, 2006,
April 27, 2006 and May 26, 2006 under the Amended and
Restated 2005 Stock Incentive Plan to certain members of
management if it becomes probable that any of the future
performance criteria will be achieved. The amount of the expense
relating to the performance-based options cannot be estimated at
this time.
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, which we
refer to as the Reorganization Plan.
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
46
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.
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 nine months ended September 30,
2005, the period from October 17, 2005 to December 31,
2005, which we refer to as the 2005 Successor Period, and the
nine months ended September 30, 2006. The Predecessor,
Reorganized and Successor Company are further described in our
audited financial statements and related notes thereto included
elsewhere in this prospectus.
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|
|
|
|
|
|
|
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|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
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|
|
Nine Months
|
|
|
|
Three Months
|
|
|
|
|
|
January 1,
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Nine Months
|
|
|
|
October 17,
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
2005 to
|
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|
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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September 30,
|
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|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
Sales
|
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of
sales(1)
|
|
|
71.7
|
|
|
|
|
76.6
|
|
|
|
69.3
|
|
|
|
71.1
|
|
|
|
70.8
|
|
|
|
|
77.6
|
|
|
|
71.4
|
|
Gross profit
|
|
|
28.3
|
|
|
|
|
23.4
|
|
|
|
30.7
|
|
|
|
28.9
|
|
|
|
29.2
|
|
|
|
|
22.4
|
|
|
|
28.6
|
|
Selling, general and administrative
expenses(2)(3)(4)(5)(6)
|
|
|
22.5
|
|
|
|
|
20.6
|
|
|
|
17.5
|
|
|
|
19.6
|
|
|
|
15.1
|
|
|
|
|
17.0
|
|
|
|
16.5
|
|
Acquisition
expense(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant
closure costs
|
|
|
0.4
|
|
|
|
|
1.5
|
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
(Loss) gain on sale of assets
|
|
|
0.5
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
Loss on insolvent subsidiary
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity expense in joint venture
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1.0
|
)
|
|
|
|
1.3
|
|
|
|
12.2
|
|
|
|
6.8
|
|
|
|
12.9
|
|
|
|
|
5.2
|
|
|
|
12.0
|
|
Interest expense, net
|
|
|
(5.0
|
)
|
|
|
|
(2.1
|
)
|
|
|
(1.6
|
)
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
|
|
|
(5.7
|
)
|
|
|
(4.9
|
)
|
Financing costs amortization
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Derivative contracts valuation
income (expense)
|
|
|
(0.2
|
)
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency income (loss)
|
|
|
(0.1
|
)
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
|
Reorganization items, net
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
|
0.8
|
|
|
|
|
(0.2
|
)
|
|
|
3.3
|
|
|
|
2.3
|
|
|
|
3.9
|
|
|
|
|
(0.5
|
)
|
|
|
2.2
|
|
(Loss) income from continuing
operations
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
7.4
|
|
|
|
2.9
|
|
|
|
7.4
|
|
|
|
|
(0.4
|
)
|
|
|
4.6
|
|
Income from discontinued operation,
including gain on sale, net of tax
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
7.4
|
|
|
|
2.9
|
|
|
|
7.4
|
|
|
|
|
(0.4
|
)
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes non-cash inventory
valuation charges of $9.0 million, $0.6 million,
$0.6 million, $0.2 million, $5.4 million, and
$0.5 million, representing 9.2%, 0.2%, 0.2%, 0.1%, 7.9%,
and 0.2% of sales, for the 2005 Successor Period, the nine
months ended September 30, 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.
|
(2)
|
|
Includes $0.2 million,
$1.5 million, $1.5 million, $0.7 million, and
$6.4 million, representing 0.0%, 0.5%, 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 nine
|
47
|
|
|
|
|
months ended September 30,
2006, the nine months ended September 30, 2005, 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 $1.4 million, $0.4 million,
$1.8 million, $9.5 million, and $2.4 million,
representing 0.4%, 0.4%, 0.6% 3.1%, and 0.8% of sales, for the
nine months ended September 30, 2006, the 2005 Successor
Period, the nine months ended September 30, 2005, the 2005
Reorganized Period, and the year ended December 31, 2004,
respectively.
|
(4)
|
|
Includes costs and losses, net of
insurance recoveries related to Hurricane Rita, and storm costs
incurred at a customer project site of $(0.9) million,
$0.4 million, $1.0 million, and $1.1 million,
representing (0.2)%, 0.4%, 0.4% and 0.3% of sales, for the nine
months ended September 30, 2006, the 2005 Successor Period,
the nine months ended September 30, 2005, and the 2005
Reorganized Period, respectively.
|
(5)
|
|
Includes a charge for the
settlement of former stockholders 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 $11.4 million, $3.0 million,
$2.5 million, $2.7 million, $2.8 million,
$0.7 million, and $1.2 million, representing 2.9%,
3.0%, 0.9%, 0.9%, 0.9%, 1.0%, and 0.6% of sales, for the nine
months ended September 30, 2006, the 2005 Successor Period,
the nine months ended September 30, 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, primarily
professional fees, incurred by us related to the Acquisition.
|
Segment
Information
The following table sets forth sales, gross profit, gross profit
margin and operating income or loss for our operating segments
for the periods indicated during the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
|
|
|
January 1,
|
|
|
Nine Months
|
|
|
|
October 17,
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
2005 to
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
42,910
|
|
|
|
$
|
15,699
|
|
|
$
|
69,609
|
|
|
$
|
86,920
|
|
|
$
|
80,562
|
|
|
|
$
|
34,135
|
|
|
$
|
138,075
|
|
Distribution and Storage
|
|
|
102,469
|
|
|
|
|
37,863
|
|
|
|
162,508
|
|
|
|
161,329
|
|
|
|
155,047
|
|
|
|
|
47,832
|
|
|
|
194,783
|
|
BioMedical
|
|
|
51,638
|
|
|
|
|
15,008
|
|
|
|
73,459
|
|
|
|
57,248
|
|
|
|
55,069
|
|
|
|
|
15,685
|
|
|
|
60,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
197,017
|
|
|
|
$
|
68,570
|
|
|
$
|
305,576
|
|
|
$
|
305,497
|
|
|
$
|
290,678
|
|
|
|
$
|
97,652
|
|
|
$
|
393,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
12,683
|
|
|
|
$
|
5,405
|
|
|
$
|
21,475
|
|
|
$
|
23,391
|
|
|
$
|
21,766
|
|
|
|
$
|
10,494
|
|
|
$
|
28,083
|
|
Distribution and Storage
|
|
|
25,515
|
|
|
|
|
8,682
|
|
|
|
46,588
|
|
|
|
47,120
|
|
|
|
46,054
|
|
|
|
|
8,861
|
|
|
|
62,791
|
|
BioMedical
|
|
|
17,579
|
|
|
|
|
1,974
|
|
|
|
25,743
|
|
|
|
17,702
|
|
|
|
17,111
|
|
|
|
|
2,564
|
|
|
|
21,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,777
|
|
|
|
$
|
16,061
|
|
|
$
|
93,806
|
|
|
$
|
88,213
|
|
|
$
|
84,931
|
|
|
|
$
|
21,919
|
|
|
$
|
112,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
|
29.6
|
%
|
|
|
|
34.4
|
%
|
|
|
30.9
|
%
|
|
|
26.9
|
%
|
|
|
27.0
|
%
|
|
|
|
30.7
|
%
|
|
|
20.3
|
%
|
Distribution and Storage
|
|
|
24.9
|
%
|
|
|
|
22.9
|
%
|
|
|
28.7
|
%
|
|
|
29.2
|
%
|
|
|
29.7
|
%
|
|
|
|
18.5
|
%
|
|
|
32.2
|
%
|
BioMedical
|
|
|
34.0
|
%
|
|
|
|
13.2
|
%
|
|
|
35.0
|
%
|
|
|
30.9
|
%
|
|
|
31.1
|
%
|
|
|
|
16.4
|
%
|
|
|
36.0
|
%
|
Total
|
|
|
28.3
|
%
|
|
|
|
23.4
|
%
|
|
|
30.7
|
%
|
|
|
28.9
|
%
|
|
|
29.2
|
%
|
|
|
|
22.4
|
%
|
|
|
28.6
|
%
|
Operating (Loss)
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
(8,694
|
)
|
|
|
$
|
3,298
|
|
|
$
|
11,545
|
|
|
$
|
13,717
|
|
|
$
|
13,228
|
|
|
|
$
|
5,092
|
|
|
$
|
11,738
|
|
Distribution & Storage
|
|
|
9,112
|
|
|
|
|
1,613
|
|
|
|
27,951
|
|
|
|
27,005
|
|
|
|
30,012
|
|
|
|
|
3,947
|
|
|
|
39,605
|
|
BioMedical
|
|
|
12,381
|
|
|
|
|
(479
|
)
|
|
|
14,208
|
|
|
|
8,343
|
|
|
|
9,068
|
|
|
|
|
714
|
|
|
|
12,855
|
|
Corporate
|
|
|
(14,736
|
)
|
|
|
|
(3,512
|
)
|
|
|
(16,625
|
)
|
|
|
(28,206
|
)
|
|
|
(14,578
|
)
|
|
|
|
(4,683
|
)
|
|
|
(16,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,937
|
)
|
|
|
$
|
920
|
|
|
$
|
37,079
|
|
|
$
|
20,859
|
|
|
$
|
37,730
|
|
|
|
$
|
5,070
|
|
|
$
|
47,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
48
Results
of Operations for the Nine Months Ended September 30, 2006
and 2005
Sales
Sales for the nine months ended September 30, 2005 were
$393.0 million compared to $290.7 million for the nine
months ended September 30, 2005, reflecting an increase of
$102.3 million, or 35.2%. E&C segment sales were
$138.1 million for the nine months ended September 30,
2006 compared with sales of $80.6 million for the same
period in 2005 which represented a $57.5 million increase,
or 71.3%. This increase in sales resulted primarily from higher
volume, particularly from large heat exchanger and process
systems projects, which were driven by continued growth in the
LNG and natural gas segments of the hydrocarbon processing
market, and $11.7 million of air cooled heat exchanger
sales from Cooler Service. D&S segment sales increased
$39.7 million, or 25.6% to $194.7 million for the nine
months ended September 30, 2006 from $155.0 million
for the nine months ended September 30, 2005. Bulk storage
and packaged gas systems sales increased $31.4 million and
$8.3 million, respectively, for the nine months ended
September 30, 2006 compared to the same period in 2005.
These increases were driven primarily by increased volume due to
continued growth in the global industrial gas market and to a
lesser extent price increases to absorb escalating raw material
costs. BioMedical segment sales increased $5.1 million, or
9.3% to $60.2 million for the nine months ended
September 30, 2006 compared to $55.1 million for the
nine months ended September 30, 2005. Biological storage
systems sales increased $3.0 million as a result of higher
volume in the U.S. and international markets. Medical
respiratory product sales increased $1.9 million as a
result of higher volume in international markets partially
offset by a decrease in the U.S. market due to
U.S. government reimbursement reductions for liquid oxygen
therapy systems announced in late 2005. Other product sales in
the BioMedical segment increased $0.2 million due to higher
volume.
Gross
Profit and Margin
Gross profit for the nine months ended September 30, 2006
was $112.5 million, or 28.6% of sales versus
$84.9 million, or 29.2% of sales, for the nine months ended
September 30, 2005 and reflected an increase of
$27.6 million. E&C segment gross profit increased
$6.3 million in the 2006 period compared to the 2005 period
primarily due to the increased sales volume, in particular large
heat exchanger and process systems projects and the inclusion of
air cooled heat exchanger sales. The E&C segment gross
profit margin decreased 6.7 percentage points in 2006
primarily due to lower margins on primarily two long-term field
installation process systems projects. Gross profit for the
D&S segment increased $16.7 million, or
2.5 percentage points, in the 2006 period compared to the
2005 period primarily due to higher sales volume, manufacturing
productivity improvements, sales mix shifts to higher margin
products, and to a lesser extent the timing of product price
increases to absorb higher raw material costs in bulk storage
and packaged gas systems. BioMedical gross profit increased
$4.6 million, or 4.9 percentage points, in the 2006
period compared to the 2005 period primarily due to higher sales
volume and improved manufacturing productivity, particularly for
the medical respiratory product line. In 2005, higher
manufacturing costs were incurred as result of transitioning
this product lines manufacturing from our closed
Burnsville, Minnesota facility to our Canton, Georgia facility.
SG&A
SG&A expenses for the nine months ended September 30,
2006 were $53.4 million, or 13.6% of sales, compared to
$44.0 million, or 15.1% of sales, for the nine months ended
September 30, 2005. SG&A expenses for the E&C
segment were $10.3 million for the nine months ended
September 30, 2006 compared to $8.8 million for the
nine months ended September 30, 2005, an increase of
$1.5 million. The increase for the E&C segment was
primarily the result of higher employee-related and
infrastructure expenses to support business growth and higher
medical costs. Also during the nine month 2006 period, the
E&C segment recorded $2.5 million of income related to
the settlement of a Hurricane Rita insurance claim for losses at
its New Iberia, Louisiana facility offset by $1.0 million
of storm-related costs incurred at its New Iberia, Louisiana
facility related to Hurricane Rita and at one of its customer
project sites. During the same period in 2005, we recorded
$1.0 million of costs and losses related to Hurricane Rita.
D&S segment SG&A expenses for the nine months ended
September 30, 2006 were $18.7 million compared to
$14.2 million for the nine months ended September 30,
2005, an increase of $4.5 million. This increase was
primarily attributable to higher employee-related and
infrastructure expenses to support business growth and higher
medical costs. SG&A expenses for the BioMedical segment were
$7.6 million for the nine months ended
49
September 30, 2006, an increase of $1.0 million
compared to the nine months ended September 30, 2005.
Corporate SG&A expenses for the nine months ended
September 30, 2006 were $16.7 million compared to
$14.4 million for the nine months ended September 30,
2005. This increase of $2.3 million is primarily
attributable to higher employee-related and infrastructure
expenses to support business growth and Sarbanes-Oxley
implementation costs incurred during the nine months ended
September 30, 2006.
Amortization
Expense
Amortization expense was $11.4 million and
$2.5 million for the nine months ended September 30,
2006 and 2005, respectively. This increase of $8.9 was due to
higher amortization expense for finite-lived intangible assets
that were recorded at fair value on October 17, 2005 as a
result of the Acquisition. The increase in amortization expense
in the 2006 nine month period compared to the same period in
2005 was $4.7 million, $4.1 million and
$0.1 million for the E&C, D&S and BioMedical
segments, respectively.
Transaction
Expenses
During the nine months ended September 30, 2005, Corporate
recorded $1.0 million in transaction expenses related to
the Acquisition, which consisted primarily of legal, accounting
and investment banking fees.
Employee
Separation and Plant Closure Costs
For the nine months ended September 30, 2006 and 2005,
employee separation and plant closure costs were
$0.3 million and $1.0 million, respectively. The costs
for the 2006 period were related to the idle Plaistow, New
Hampshire facility which is being held for sale, while the costs
for the 2005 period were for the closure of both the Burnsville,
Minnesota and Plaistow, New Hampshire facilities. The sale of
the Burnsville, Minnesota facility was completed in 2004 and was
vacated in 2005.
Operating
Income
As a result of the foregoing, operating income for the nine
months ended September 30, 2006 was $47.5 million, or
12.1% of sales, an increase of $9.8 million compared to
operating income of $37.7 million, or 13.0% of sales, for
the same period in 2005.
Net
Interest Expense
Net interest expense for the nine months ended
September 30, 2006 and 2005 was $19.3 million and
$3.9 million, respectively. This increase in interest
expense of $15.4 million for the nine months ended
September 30, 2006 compared to the same period in 2005 was
primarily attributable to increased long-term debt outstanding
as a result of entering into the senior secured credit facility
and issuing the notes on October 17, 2005 in conjunction
with the Acquisition.
Other
Expenses and Income
For the nine months ended September 30, 2006, financing
costs amortization expense was $1.1 million, an increase of
$1.1 million compared to the same period in 2005. This
increase in amortization expense was attributable to deferred
loan costs incurred for the senior secured credit facility and
the notes entered into on October 17, 2005 as a result of
the Acquisition.
For the nine months ended September 30, 2006 foreign
currency gains were $0.2 million as compared to foreign
currency losses of $0.6 million for the same period in
2005. This increase in income of $0.8 million was the
result of the timing of transactions in currencies other than
functional currencies primarily in the D&S and BioMedical
segments.
Income
Tax Expense
Income tax expense of $8.9 million and $11.5 million
for the nine months ended September 30, 2006 and 2005,
respectively, represents taxes on both domestic and foreign
earnings at an estimated annual effective income tax rate
50
of 32.5% and 34.5%, 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 expected mix of foreign
earnings.
Net
Income
As a result of the foregoing, reported net income for the nine
months ended September 30, 2006 and 2005 was
$18.3 million and $21.7 million, respectively.
2005
Successor Period
Sales
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.
Gross
Profit and Margin
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
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 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
51
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 stockholders 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 notes
that were issued, on October 17, 2005 in connection with
the Acquisition.
Foreign
Currency Loss
We recorded $0.1 million of foreign currency losses due to
certain of our subsidiaries entering into transactions in
currencies other than their functional currencies.
Income
Tax Expense
Income tax benefit of $0.4 million for the 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.
Net
Loss
As a result of the foregoing, we reported a net loss for the
2005 Successor Period of $0.5 million.
2005
Reorganized Period
Sales
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 preceding seven
quarters, which included three large orders each of
approximately $20.0 million, driven by continued growth in
the LNG and natural gas segments of the hydrocarbon processing
market. D&S segment sales were $161.3 million as bulk
storage systems and packaged gas systems volume remained strong
due to continued demand growth in the global industrial gas
market. Other factors contributing favorably to D&S segment
sales for this period were higher product pricing, and favorable
foreign currency translation of approximately $3.5 million
as a result of the weaker U.S. dollar compared to the Euro
and Czech Koruna. BioMedical segment sales were
$57.2 million. Sales of medical respiratory products were
unfavorably affected by lower volume in the United States, and
in particular to one of our major customers, primarily resulting
from announced U.S. government reimbursement reductions for
liquid oxygen therapy systems. This unfavorable volume trend in
U.S. medical respiratory product sales was partially offset
by continued sales volume growth in medical respiratory product
sales in Europe and Asia and biological storage systems in the
United States, Europe and Asia as we further penetrated these
markets. See the discussion under the caption
2005 Successor Period Sales
above for information regarding the BioMedical segment volume
trends.
52
Gross
Profit and Margin
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
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 Changzhou
CEM Cryo Equipment Co., Ltd., or 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
stockholder 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.
Acquisition
Expenses
During the 2005 Reorganized Period, we incurred
$6.6 million of investment banking, legal and other
professional fees related to the Acquisition.
Employee
Separation and Plant Closure Costs
For the 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.
Gain
on Sale of Assets
We recorded a net gain on the sale of assets of
$0.1 million, including a gain recorded at Corporate of
$1.7 million on the settlement of a promissory note
receivable related to the 2003 sale of our former Greenville
Tube, LLC stainless tubing business, a loss of $0.5 million
recorded at Corporate for the write down of the Plaistow
facility held for sale to its estimated fair value and a
$1.2 million loss for the write-off of several assets that
were deemed to be impaired. This impairment loss was
$0.1 million, $0.9 million and $0.2 million for
the E&C segment, BioMedical segment and Corporate,
respectively.
53
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
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.
Foreign
Currency Loss
We recorded $0.7 million of foreign currency losses due to
certain of our subsidiaries entering into transactions in
currencies other than their functional currencies.
Income
Tax Expense
Income tax expense of $7.2 million for the 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.
Net
Income
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
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 CO(2) 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.
Gross
Profit and Margin
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
54
$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
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 $5.3 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 $1.2 million of
employee incentive compensation expense, $0.5 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
$1.8 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 million 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.
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, $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.
Loss
on Sale of Assets
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
55
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.
Operating
Income
As a result of the foregoing, operating income for the year
ended December 31, 2004 was $37.1 million, or 12.1% of
sales.
Equity
Loss
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
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.
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.
Foreign
Currency Gain
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.
Income
Tax Expense
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%.
Net
Income
As a result of the foregoing, we recorded net income of
$22.6 million in 2004.
Three
Months Ended December 31, 2003
Sales
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
56
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 CO(2) 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.
Gross
Profit and Margin
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
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 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.
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.
57
Operating
Income
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.
Equity
Loss
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
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.
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.
Foreign
Currency Gain
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.
Income
Tax Benefit
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.
Net
Income
As a result of the foregoing, we had net income of
$0.03 million for the three months ended December 31,
2003.
Nine
Months Ended September 30, 2003
Sales
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.
58
Gross
Profit and Margin
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
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.
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.
Gain
on Sale of Assets
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 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.
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.
59
Operating
Loss
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
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.
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.
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.
Foreign
Currency Loss
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.
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
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
60
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.
Net
Income
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
September 30, 2006 and as of December 31, 2005, 2004
and 2003 was $260.0 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 plus, in the case of the
September 30, 2006 backlog, $20.2 million of
acquired backlog of air-cooled heat exchangers from the Cooler
Service acquisition in May 2006.
The table below sets forth orders and backlog by segment for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Successor Company
|
|
|
|
Nine
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
Three
|
|
|
|
Months
|
|
|
|
Months
|
|
|
|
|
|
January 1,
|
|
|
|
October 17,
|
|
|
Months
|
|
|
Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
2005 to
|
|
|
|
2005 to
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
Orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
28,621
|
|
|
|
$
|
15,262
|
|
|
$
|
121,793
|
|
|
$
|
130,786
|
|
|
|
$
|
67,232
|
|
|
$
|
53,967
|
|
|
$
|
34,530
|
|
Distribution & Storage
|
|
|
105,233
|
|
|
|
|
37,696
|
|
|
|
193,156
|
|
|
|
191,188
|
|
|
|
|
45,859
|
|
|
|
75,069
|
|
|
|
69,622
|
|
BioMedical
|
|
|
52,751
|
|
|
|
|
14,492
|
|
|
|
77,893
|
|
|
|
62,396
|
|
|
|
|
13,768
|
|
|
|
21,036
|
|
|
|
23,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
186,605
|
|
|
|
$
|
67,450
|
|
|
$
|
392,842
|
|
|
$
|
384,370
|
|
|
|
$
|
126,859
|
|
|
$
|
150,072
|
|
|
$
|
127,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy & Chemicals
|
|
$
|
20,673
|
|
|
|
$
|
19,834
|
|
|
$
|
70,766
|
|
|
$
|
114,633
|
|
|
|
$
|
147,732
|
|
|
$
|
168,243
|
|
|
$
|
149,226
|
|
Distribution & Storage
|
|
|
28,591
|
|
|
|
|
27,993
|
|
|
|
53,900
|
|
|
|
83,194
|
|
|
|
|
79,524
|
|
|
|
103,071
|
|
|
|
102,524
|
|
BioMedical
|
|
|
2,517
|
|
|
|
|
1,808
|
|
|
|
4,613
|
|
|
|
8,388
|
|
|
|
|
6,383
|
|
|
|
5,543
|
|
|
|
8,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,781
|
|
|
|
$
|
49,635
|
|
|
$
|
129,279
|
|
|
$
|
206,215
|
|
|
|
$
|
233,639
|
|
|
$
|
276,857
|
|
|
$
|
260,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&C orders for the three months ended September 30,
2006 totaled $34.5 million, compared with
$54.0 million for the three months ended June 30,
2006. E&C backlog totaled $149.2 million at
September 30, 2006, compared with $168.2 million of
backlog at June 30, 2006. This decrease in orders of
$19.4 million during the three months ended
September 30, 2006 is primarily due to the timing of large
process system orders. During the three months ended
June 30, 2006, there were two large process system orders
totaling $22.0 million. This decrease in orders was
partially offset by a $4.0 million increase in air cooled
heat exchanger orders in the three months ended
September 30, 2006 as a result of the Cooler Service
acquisition in May 2006.
61
D&S orders for the three months ended September 30,
2006 totaled $69.6 million compared with $75.1 million
for the three months ended June 30, 2006. D&S backlog
totaled $102.5 million at September 30, 2006 compared
with $103.1 million of backlog at June 30, 2006.
Orders for bulk storage systems decreased during the three
months ended September 30, 2006 by $8.0 million due to
lower LNG tank orders. Packaged gas system orders increased by
$2.5 million during the three months ended
September 30, 2006 due to higher demand across all product
lines.
BioMedical orders for the three months ended September 30,
2006 totaled $23.3 million compared with $21.0 million
for the three months ended June 30, 2006. BioMedical
backlog totaled $8.3 million at September 30, 2006
compared with $5.5 million of backlog at June 30,
2006. Orders for medical respiratory products and biological
storage systems for the three months ended September 30,
2006 were $0.6 million below the three months ended
June 30, 2006, but remained at strong levels due to
continued growth in the international markets. Orders for other
BioMedical products increased $2.9 million for the three
months ended September 30, 2006 due primarily to stronger
demand for liquid oxygen tanks.
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.
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.
62
Liquidity
and Capital Resources
On July 31, 2006, we completed our IPO of
12,500,000 shares of our common stock for net proceeds of
approximately $175.3 million. We used $25.0 million of
the net proceeds to repay a portion of the term loan under our
senior secured credit facility. The remaining
$150.3 million of net proceeds was used to pay a dividend
to our stockholders existing immediately prior to the IPO,
consisting of affiliates of First Reserve and certain members of
management. On August 25, 2006, following expiration of the
underwriters over-allotment option without its being
exercised, a stock dividend of 1,875,000 shares was issued
to the stockholders existing immediately prior to the completion
of the IPO. In addition, the senior secured credit facility was
amended upon the completion of the IPO. The amendment primarily
increased the size of the revolving credit facility by
$55.0 million to $115.0 million and increased the
amount available for letters of credit extending beyond one year
from their issuance date to $55.0 million from
$35.0 million.
Debt
Instruments and Related Covenants
In connection with the Acquisition, we entered into a senior
secured credit facility and completed the $170.0 million
offering of the initial notes. 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 the IPO, 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 Our Other Indebtedness
Senior Secured Credit Facility.
As of September 30, 2006, the Company had
$120.0 million outstanding under the term loan portion of
the senior secured credit facility, $170.0 million in
aggregate principal amount of notes outstanding and
$27.3 million of letters of credit and bank guarantees
supported by the revolving portion of the senior secured credit
facility. The Company believes that it is in compliance with all
covenants, including its financial covenants, under the senior
secured credit facility and indenture governing the notes.
The registration rights agreement related to the notes required
the Company to file an Exchange Offer Registration Statement and
complete the exchange offer for the senior subordinated notes by
August 14, 2006. Since the exchange offer has not been
completed, additional interest will accrue in increments of
0.25% per annum, up to a maximum of 1.0% per annum,
each subsequent
90-day
period until this exchange offer is completed. Additional
interest at a rate of 0.25% per annum will be paid to
holders of the notes for the
90-day
period ending November 11, 2006 and additional interest at
a total incremental rate of 0.50% per annum will be paid to
the holders of the notes for the
90-day
period ending February 9, 2007. Effective February 10,
2007, additional interest began accruing at a total incremental
rate of 0.75% per annum.
The senior secured credit facility and provisions of the
indenture governing the initial 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 Our Other Indebtedness.
At
63
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 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
September 30, 2006 and December 31, 2005, there were
$0.0 million and $0.8 million of borrowings,
respectively, outstanding under, and $2.0 million and
$1.5 million of bank guarantees, respectively, supported
by, the Ferox revolving credit facilities.
Our debt and related covenants are further described in the
notes to our consolidated financial statements included in this
prospectus.
Sources
and Uses of Cash
Nine
Months Ended September 30, 2006 and 2005
Cash provided by operations for the nine months ended
September 30, 2006 was $33.6 million compared with
cash provided by operations of $19.1 million for the nine
months ended September 30, 2005. The increase in cash
provided by operations in the 2006 period compared to the 2005
period was primarily attributable to increased net income before
changes in operating assets and liabilities, and improved
working capital management. Also, in the 2005 period, the
E&C segment 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 nine months ended
September 30, 2006 was $29.4 million compared to
$20.6 million for the nine months ended September 30,
2005. In 2006, $15.8 million of cash, net of cash acquired,
was used to purchase Cooler Service, and for the same period in
2005, $12.0 million of cash was used to acquire CEM, as
described in Sources and Uses of Cash 2005
Reorganized Period below. Capital expenditures for the nine
months ended September 30, 2006 were $13.5 million
compared with $10.2 million for the nine months ended
September 30, 2005. Capital expenditures for the nine
months ended September 30, 2006 were primarily for E&C
segment heat exchanger and process system facility expansions in
LaCrosse, Wisconsin and Houston, Texas and D&S segment bulk
tank facility expansions in New Prague, Minnesota and Decin,
Czech Republic to support business growth. Capital expenditures
during the same period in 2005 were primarily for expansion of
existing facilities and construction of a new manufacturing
facility in China to support growth in business.
For the nine months ended September 30, 2006 and 2005, cash
provided by financing activities was $3.2 million and
$5.5 million, respectively. In May 2006, we received
$37.1 million and $2.1 million in cash proceeds,
respectively, from the exercise of warrants for
2,651,012 shares and rollover options for
609,851 shares of common stock. On July 31, 2006, our
IPO was completed and we received $175.3 million in net
proceeds. A cash dividend of $150.3 million was paid to
stockholders existing immediately prior to the completion of the
IPO. During the nine months ended September 30, 2006, we
made $55.0 million in voluntary principal prepayments under
the term loan portion of our senior secured credit facility,
$0.8 million of payments under the Ferox revolving credit
facilities and a $1.5 million payment on the seller note
related to the CEM acquisition. During the nine months ended
September 30, 2005, we made $2.4 million of scheduled
principal payments under the term loan portion of the 2003
Credit Facility and borrowed $12.0 million under the
revolving credit portion of the 2003 Credit Facility to purchase
CEM.
64
2005
Successor Period
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 stockholders as a result of
the Acquisition and $5.6 million was used for capital
expenditures. The significant capital expenditures were for the
construction of the new manufacturing facility in China, the
expansion of the biological storage product line manufacturing
facility in New Prague, Minnesota and reinvestment to upgrade
existing facilities to support business growth.
Cash provided by financing activities for the 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 issuance of the initial
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 stockholders, 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.
2005
Reorganized Period
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 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
65
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, 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
cryopump 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.
Cash
Requirements
The Company does not anticipate any unusual cash requirements
for working capital needs for the fourth quarter of 2006. We
expect to use $8.0 to $10.0 million of cash for capital
expenditures. A significant portion of the capital expenditures
will be used for facility expansions to increase capacity in the
E&C and D&S segments. Management believes that these
expansions support our current backlog levels and our expected
growth due to an increase in global demand for our products.
For the fourth quarter of 2006, cash requirements for debt
service are forecasted to be approximately
$10.2 million for scheduled interest payments under
our senior secured credit facility and the notes. We are not
required to make any scheduled principal payments during the
fourth quarter of 2006 under the term loan portion of
66
the senior secured credit facility due to the voluntary
principal payments that have been made to date. For the fourth
quarter of 2006, we expect to use approximately
$0.5 million of cash for both U.S. and foreign income taxes
and contribute approximately $0.3 million of cash to our
four defined benefit pension plans to meet ERISA minimum funding
requirements.
Contractual
Obligations
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 repaid an additional
$25.0 million of term indebtedness using a portion of the
net proceeds from the IPO. This will reduce our long-term debt
and interest obligations. See 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 the 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Structure
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 2,175,186 stock options,
which we refer to as the New Options, under the Amended and
Restated 2005 Stock Incentive Plan were granted to management to
purchase shares of our common stock at an exercise price of
$6.50 per share. In addition, certain members of management
rolled over 609,851 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 767,800 of the New Options are
time-based, or Time-based Options, and vest 20% per year
over a five-year period, and
67
approximately 1,407,385 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, 566,581 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 609,851 rollover options have been exercised for an
equivalent number of shares. Each of such exercises was done on
a cash basis. In March 2006, April 2006 and May 2006, the
Company granted 99,592, 67,206 and 99,592 stock options,
respectively, under the Amended and Restated 2005 Stock
Incentive Plan to certain management employees. These options
are exercisable over a period of ten years and have two
different vesting schedules.
On July 31, 2006, the Company completed its IPO of
12,500,000 shares of its common stock for net proceeds of
$175.3 million. As a result of the IPO, First Reserve is no
longer the majority stockholder of the Company. On
August 1, 2006, the Company used $25 million of the
net proceeds to repay a portion of the term loan portion of the
senior secured credit facility. The remaining
$150.3 million net proceeds was used to pay a dividend to
the stockholders existing immediately prior to the completion of
the IPO, consisting of affiliates of First Reserve and certain
members of management. On August 25, 2006, following
expiration of the underwriters over-allotment option
without its being exercised, a stock dividend of
1,875,000 shares was issued to the stockholders existing
immediately prior to the completion of the IPO.
At January 31, 2007, there were 25,588,043 outstanding
shares of the Companys common stock.
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
Business Legal 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 claims
related to performance under contracts, product liability, taxes
and other matters, several of which claims assert substantial
damages, in the ordinary course of our business. Based on our
historical experience in litigating these claims, as well as our
current assessment of the underlying merits of the claims and
applicable insurance, if any, we currently believe the
resolution of these other legal claims will not have a material
adverse effect on our financial position, liquidity, cash flows
or results of operations. Future developments may, however,
result in resolution of these legal claims in a way that could
have a material adverse effect. See Risk Factors.
68
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 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
69
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 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.
70
Revenue Recognition Long-Term
Contracts. We recognize revenue and gross profit
as work on long-term contracts progresses using the percentage
of completion method of accounting, which relies on estimates of
total expected contract revenues and costs. We follow this
method since reasonably dependable estimates of the revenue and
costs applicable to various stages of a contract can be made.
Since the financial reporting of these contracts depends on
estimates, which are assessed continually during the term of the
contract, recognized revenues and profit are subject to
revisions as the contract progresses toward completion.
Revisions in profit estimates are reflected in the period in
which the facts that give rise to the revision become known.
Accordingly, favorable changes in estimates result in additional
profit recognition, and unfavorable changes will result in the
reversal of previously recognized revenue and profits. When
estimates indicate a loss is expected to be incurred under a
contract, cost of sales is charged with a provision for such
loss. As work progresses under a loss contract, revenue and cost
of sales continue to be recognized in equal amounts, and the
excess of costs over revenues is charged to the contract loss
reserve. Change orders resulting in additional revenue and
profit are recognized upon approval by the customer based on the
percentage that incurred costs to date bear to total estimated
costs at completion. We use the percentage of completion method
of accounting primarily in the E&C segment, with the balance
made up by the D&S segment.
Recently
Adopted Accounting Standards
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 adoption of this
statement did not have a material effect on our financial
position, results of operations, liquidity or cash flows.
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 did 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.
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
71
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
Recently Issued Accounting Pronouncements. In
June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48. Accounting for
Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes by
prescribing thresholds and attributes for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The interpretation also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, and disclosure.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the
impact of adopting FIN 48 on its financial position and
results of operations.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS No. 157) which is
effective for fiscal years beginning after November 15,
2007. SFAS No. 157 defines fair value to be applied to
U.S. GAAP guidance requiring use of fair value, establishes
a framework for measuring fair value and expands the disclosure
requirements for fair value measurements. The Company is
currently evaluating the impact of SFAS No. 157 on its
financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Pension Benefit
Plans and Other Postretirement Plans. This statement
requires recognition on the balance sheet of the underfunded or
overfunded status of pension and postretirement benefit plans.
SFAS No. 158 also requires the recognition of changes
in the funded status through other comprehensive income in the
year that the changes occur. The amount of net periodic benefit
cost recognized in an entitys results of operation will
not change. SFAS No. 158 is effective for fiscal years
ending after December 15, 2006. The Company is currently
evaluating the impact of this statement on its consolidated
financial statements. Application of SFAS No. 158 at
December 31, 2005 would have resulted in an increase of
approximately $0.4 million to the Companys pension
liability.
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 200 basis points (2%) from
September 30, 2006 rates, and assuming no changes in debt
from the September 30, 2006 levels, our additional annual
expense would be approximately $2.4 million on a pre-tax
basis. Effective August 15, 2006, the interest rate on the
notes increased 0.25%, and increased an additional 0.25% on
November 12, 2006 and an additional 0.25% on
February 10, 2007 for a total incremental rate of 0.75%
because the exchange offer required by the registration rights
agreement was not completed.
We have assets, liabilities and cash flows in foreign currencies
creating exposure to foreign currency exchange fluctuations in
the normal course of business. Our primary exchange rate
exposure is with the Euro, the British
72
pound, the Czech koruna and the Chinese yuan. Monthly
measurement, evaluation and forward exchange rate contracts are
employed as methods to reduce this risk. We enter into foreign
exchange forward contracts to hedge anticipated and firmly
committed foreign currency transactions. We do not use
derivative financial instruments for speculative or trading
purposes. The terms of the contracts are one year or less. We
held immaterial positions in foreign exchange forward contracts
at September 30, 2006.
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 facility and
indenture, our ability to engage in activities such as incurring
additional indebtedness, making investments and paying dividends
is also tied to ratios based on Adjusted EBITDA.
Covenant levels and pro forma ratios for the four quarters ended
September 30, 2006 are as follows:
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Four Quarters Ended
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September 30, 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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1.75
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x
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3.37x
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Maximum funded indebtedness to
Adjusted EBITDA ratio
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6.50
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x
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3.16x
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Indenture(2)
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Minimum pro forma Adjusted EBITDA
to pro forma fixed charge coverage ratio required to incur
additional debt pursuant to ratio
provisions(3)
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2.0
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x
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3.4x
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(1)
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The senior secured credit facility
requires us to maintain an Adjusted EBITDA to cash interest
ratio starting at a minimum of 1.75x and a funded indebtedness
to Adjusted EBITDA ratio starting at a maximum of 6.50x. Failure
to satisfy these ratio requirements would constitute a default
under the senior secured credit facility. If lenders under the
senior secured credit facility failed to waive any such default,
repayment obligations under the senior secured credit facility
could be accelerated, which would also constitute a default
under the indenture.
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(2)
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Our ability to incur additional
debt and make certain restricted payments under our indenture,
subject to specified exceptions, is tied to an Adjusted EBITDA
to fixed charge ratio of at least 2.0 to 1.0.
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(3)
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The ratio is calculated giving pro
forma effect to the Acquisition and the incurrence of debt under
the indenture and the senior secured credit facility.
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Adjusted EBITDA as used herein is defined as net income before
interest expense, provision for income taxes, depreciation and
amortization and further adjusted to exclude non-recurring
items, non-cash items and other adjustments permitted in
calculating covenants contained in the related senior secured
credit facility and indenture governing the 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. The presentation of Adjusted EBITDA, a
non-GAAP financial measure, and ratios based thereon, do not
comply with U.S. generally accepted accounting principles.
73
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Predecessor
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Successor Company
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Company
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Reorganized Company
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Pro Forma
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Nine
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Three
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Nine
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Nine
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Nine
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Pro Forma
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Months
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Months
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Year
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January 1,
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Months
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October 17,
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Months
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Months
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Year
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Ended
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Ended
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Ended
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2005 to
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Ended
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2005 to
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Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 16,
|
|
|
September 30,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2003
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2006(m)
|
|
|
2005(m)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net income (loss)
|
|
$
|
(7,085
|
)
|
|
|
$
|
31
|
|
|
$
|
22,600
|
|
|
$
|
8,858
|
|
|
$
|
21,681
|
|
|
|
$
|
(506
|
)
|
|
$
|
18,286
|
|
|
$
|
19,313
|
|
|
$
|
(6,432
|
)
|
Income tax expense (benefit)
|
|
|
3,047
|
|
|
|
|
(125
|
)
|
|
|
10,134
|
|
|
|
7,159
|
|
|
|
11,480
|
|
|
|
|
(441
|
)
|
|
|
8,862
|
|
|
|
9,491
|
|
|
|
(2,343
|
)
|
Interest expensenet
|
|
|
10,300
|
|
|
|
|
1,344
|
|
|
|
4,712
|
|
|
|
4,164
|
|
|
|
3,934
|
|
|
|
|
5,556
|
|
|
|
19,256
|
|
|
|
17,600
|
|
|
|
24,088
|
|
Depreciation and
amortization(a)
|
|
|
9,260
|
|
|
|
|
2,225
|
|
|
|
8,490
|
|
|
|
6,808
|
|
|
|
5,970
|
|
|
|
|
4,396
|
|
|
|
16,383
|
|
|
|
16,383
|
|
|
|
20,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
15,522
|
|
|
|
$
|
3,475
|
|
|
$
|
45,936
|
|
|
$
|
26,989
|
|
|
|
43,065
|
|
|
|
$
|
9,005
|
|
|
$
|
62,787
|
|
|
$
|
62,787
|
|
|
$
|
36,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
15,522
|
|
|
|
$
|
3,475
|
|
|
$
|
45,936
|
|
|
$
|
26,989
|
|
|
$
|
43,065
|
|
|
|
$
|
9,005
|
|
|
$
|
62,787
|
|
|
$
|
62,787
|
|
|
$
|
36,300
|
|
Stock-based compensation
expense(b)
|
|
|
|
|
|
|
|
|
|
|
|
2,433
|
|
|
|
9,508
|
|
|
|
1,799
|
|
|
|
|
437
|
|
|
|
1,428
|
|
|
|
1,428
|
|
|
|
9,945
|
|
Inventory valuation
charge(c)
|
|
|
|
|
|
|
|
5,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,903
|
|
|
|
|
|
|
|
|
|
|
|
8,903
|
|
Acquisition
expenses(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,602
|
|
In-process research and development
charge(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,768
|
|
Hurricane and storm costs
(recoveries)(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057
|
|
|
|
1,049
|
|
|
|
|
406
|
|
|
|
(900
|
)
|
|
|
(900
|
)
|
|
|
1,463
|
|
Employee separation and plant
closure
costs(g)
|
|
|
1,338
|
|
|
|
|
1,010
|
|
|
|
3,346
|
|
|
|
1,700
|
|
|
|
1,584
|
|
|
|
|
255
|
|
|
|
304
|
|
|
|
304
|
|
|
|
1,955
|
|
Reorganization
expenses(h)
|
|
|
369
|
|
|
|
|
357
|
|
|
|
706
|
|
|
|
1,470
|
|
|
|
1,460
|
|
|
|
|
88
|
|
|
|
162
|
|
|
|
162
|
|
|
|
1,558
|
|
Appraisal rights
settlement(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
Management
fees(j)
|
|
|
|
|
|
|
|
|
|
|
|
380
|
|
|
|
306
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
assets(k)
|
|
|
8,929
|
|
|
|
|
(57
|
)
|
|
|
133
|
|
|
|
(131
|
)
|
|
|
1,347
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations(l)
|
|
|
(833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
25,325
|
|
|
|
$
|
10,153
|
|
|
$
|
52,934
|
|
|
$
|
50,269
|
|
|
$
|
51,607
|
|
|
|
$
|
19,672
|
|
|
$
|
63,781
|
|
|
$
|
63,781
|
|
|
$
|
69,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The nine months ended
September 30, 2003, the 2005 Successor Period and the nine
months ended September 30, 2006 include financing costs
amortization of $1.7 million, $0.3 million and
$1.1 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.
|
(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.
|
(f)
|
|
Represents losses and costs
incurred related to Hurricane Rita at our New Iberia, Louisiana
facilities, net of insurance recoveries, and storm costs
incurred at a customer project site.
|
(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.
|
74
|
|
|
(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 stockholders
appraisal rights claims as a result of the Acquisition.
|
(j)
|
|
Represents non-recurring management
fees charged by our Reorganized Company majority stockholders,
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.
|
(m)
|
|
Pro forma adjustments for these
periods are described under Unaudited Pro Forma Financial
Information.
|
75
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.
Energy Ventures Analysis projects LNG liquefaction capacity to
increase 15.2% per annum from 2005 through 2011.
76
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.
77
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.
78
BUSINESS
Overview
We are a leading independent global manufacturer of highly
engineered equipment used in the production, storage and
consumption of hydrocarbon and industrial gases, based on our
sales and the estimated sales of our competitors. We supply
engineered equipment used throughout the global liquid gas
supply chain. The largest portion of end-use applications for
our products is energy-related, accounting for 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;
273º Centigrade; 459º Fahrenheit). The
majority of our products, including vacuum-insulated containment
vessels, heat exchangers, cold boxes and other cryogenic
components, are used throughout the liquid gas supply chain for
the purification, liquefaction, distribution, storage and
consumption of hydrocarbon and industrial gases.
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 nine months ended September 30, 2006 and 2005, we
generated sales of $393.0 million and $290.7 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.
|
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.
79
|
|
|
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
September 30, 2006 was $260.0 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.
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
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
80
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
financial performance 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 to 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 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
81
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 and growing international
industrial 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:
Heat
Exchangers
We are a leading designer and manufacturer of brazed aluminum
and air cooled heat exchangers. Using technology pioneered by
us, our brazed aluminum 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, our brazed aluminum heat
exchangers allow producers to obtain purified hydrocarbon
by-products, such as methane, ethane, propane and ethylene,
which are commercially marketable for various industrial or
residential uses. In the industrial gas market, our brazed
aluminum heat exchangers are used to obtain high purity
atmospheric gases, such as oxygen, nitrogen and argon, which
have numerous diverse industrial applications. Our air cooled
heat exchangers are used in multiple markets, including
hydrocarbon, petrochemical, and industrial gas processing and
power generation. 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 few years, resulting primarily from
increased activity in the LNG and natural gas segments of the
hydrocarbon processing market as well as the Asian industrial
gas market. 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 brazed aluminum heat exchangers
are Linde, Sumitomo, Kobe and Nordon, and we face competition
from a variety of competitors for air cooled heat exchangers.
Management believes that we are the only producer of large
brazed aluminum heat exchangers in the United States and that we
are 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.
Cold
Boxes
We are a leading designer and fabricator of cold boxes. Cold
boxes are highly engineered systems used to significantly reduce
the temperature of gas mixtures to the point where component
gases liquefy and can be separated and purified for further use
in multiple industrial, scientific and commercial applications.
In the
82
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 brazed aluminum heat
exchangers and other equipment packaged in a box
consisting of metal framing and a complex system of piping and
valves. Cold boxes, which are designed and fabricated to order,
sell in the price range of $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 -100º 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 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
83
liquid cylinders. The ORCA Micro-Bulk system is the substantial
market leader in this growing product line. The
Tri-fecta®
Laser Gas assist system was developed to meet the assist
gas performance requirements for new high powered lasers
being used in the metal fabrication industry.
Cryogenic
Systems and Components
Our line of cryogenic components, including VIP, engineered bulk
gas installations and specialty liquid nitrogen end-use
equipment are recognized in the market for their reliability,
quality and performance. These products are sold to industrial
gas producers, as well as to a diverse group of distributors,
resellers and end users. We compete with a number of suppliers
of cryogenic systems and components, including Acme Cryogenics,
Vacuum Barrier Corporation and others.
LNG
Vehicle Fuel Systems
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 CO(2) Systems
This product line consists primarily of vacuum-insulated, bulk
liquid CO(2) containers used for beverage carbonation in
restaurants, convenience stores and cinemas, in sizes ranging
from 100 pounds to 750 pounds of liquid CO(2) storage. We also
manufacture and market non-insulated, bulk fountain syrup
containers for
side-by-side
installation with our CO(2) systems. Our beverage systems are
sold to national restaurant chains, soft drink companies and
CO(2) distributors. Our primary competitors for our bulk liquid
CO(2) beverage delivery systems are Taylor-Wharton and other
producers of high-pressure gaseous CO(2) cylinders.
Cryogenic
Services
We operate three locations in the United States providing
installation, service and maintenance of cryogenic products
including storage tanks, liquid cylinders, cryogenic trailers,
cryogenic pumps and VIP.
BioMedical
Segment
The BioMedical segment, which accounted for 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:
Medical
Products
Our medical oxygen product line is comprised of a limited range
of medical respiratory products, including liquid oxygen systems
and ambulatory oxygen systems, both of which are used for the
in-home supplemental oxygen treatment of patients with chronic
obstructive pulmonary diseases, such as bronchitis, emphysema
and asthma.
Individuals for whom supplemental oxygen is prescribed generally
receive an oxygen system from a home healthcare provider,
medical equipment dealer, or gas supplier. The provider or
physician usually selects which type of oxygen system to
recommend to its customers: liquid oxygen systems, oxygen
concentrators or high-pressure oxygen cylinders. Of these
modalities, physicians generally believe that liquid oxygen
offers greater long-term therapeutic benefits by providing the
option of increased patient ambulation.
Our primary competitor in the medical products line is
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.
84
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.
MRI
Components
The basis of the MRI technique is that the magnetic properties
of certain nuclei of the human body can be detected, measured
and converted into images for analysis. MRI equipment uses
high-strength magnetic fields, applied radio waves and
high-speed computers to obtain cross-sectional images of the
body. The major components of the MRI assembly are a series of
concentric thermal shields and a supercooled electromagnet
immersed in a liquid helium vessel, a cryostat, that maintains a
constant, extremely low temperature (4 kelvin; -452º
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.
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
85
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 September 30, 2006,
December 31, 2005 and December 31, 2004 was
$260.0 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. 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.
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.
86
Employees
As of December 31, 2006, we had 2,690 employees, including
1,700 domestic employees and 990 international employees. These
employees consisted of 904 salaried, 318 bargaining unit hourly
and 1,468 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 318 employees at our La Crosse, Wisconsin heat
exchanger facility expired in February 2007. A new three-year
agreement was ratified and will expire in February 2010. In
connection with negotiating this new collective bargaining
agreement, we experienced a work stoppage from February 3,
2007 to February 7, 2007, when the terms of a new agreement
were reached. 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 239 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, except for the February 2007 LaCrosse facility strike
referred to above, and we otherwise 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
2.2 million square feet, with the majority devoted to
manufacturing, assembly and storage. Of these manufacturing
facilities, approximately 1.6 million square feet are owned
and 0.6 million square feet are occupied under operating
leases. We consider our manufacturing facilities sufficient to
meet our current and planned operational needs in the Biomedical
segment. However, we have commenced the expansion of our E&C
and D&S segment facilities over the next few years to meet
significant current order backlog levels and expected growth in
business as both we and our competitors reach capacity. We lease
approximately 15,200 square feet for our corporate office
in Garfield Heights, Ohio. Our major owned facilities in the
United States are subject to mortgages securing our senior
secured credit facility.
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,
87
New Hampshire facility is classified as an asset held for
sale in our consolidated balance sheet as of
September 30, 2006 and December 31, 2005.
The following table sets forth certain information about
facilities occupied by us as of December 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/Office
|
Tulsa, Oklahoma
|
|
Energy & Chemicals
|
|
|
58,500
|
|
|
Owned
|
|
Manufacturing/Office
|
Tulsa, Oklahoma
|
|
Energy & Chemicals
|
|
|
140,000
|
|
|
Leased
|
|
Manufacturing/Office
|
Wolverhampton, United Kingdom
|
|
Energy & Chemicals
|
|
|
1,600
|
|
|
Leased
|
|
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
|
|
|
638,000
|
|
|
Owned
|
|
Manufacturing/Office
|
Houston, Texas
|
|
Distribution & Storage
|
|
|
22,000
|
|
|
Owned
|
|
Service
|
Plaistow, New
Hampshire(1)
|
|
Distribution & Storage
|
|
|
164,400
|
|
|
Owned
|
|
Manufacturing/Office
|
Shanghai, China
|
|
Distribution & Storage
|
|
|
1,900
|
|
|
Leased
|
|
Office
|
Solingen, Germany
|
|
Distribution & Storage
|
|
|
3,000
|
|
|
Leased
|
|
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
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Bracknell, United Kingdom
|
|
BioMedical
|
|
|
12,500
|
|
|
Leased
|
|
Office/Warehouse
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Lidcombe, Australia
|
|
BioMedical
|
|
|
2,400
|
|
|
Leased
|
|
Office/Warehouse
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New Prague, Minnesota
|
|
BioMedical
|
|
|
11,700
|
|
|
Leased
|
|
Warehouse
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Burnsville,
Minnesota(2)
|
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Corporate
|
|
|
7,000
|
|
|
Leased
|
|
Office
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Garfield Heights, Ohio
|
|
Corporate
|
|
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15,200
|
|
|
Leased
|
|
Office
|
Clarksville,
Arkansas(3)
|
|
Discontinued operation
|
|
|
110,000
|
|
|
Owned
|
|
Manufacturing/Office
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|
|
|
(1)
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This facility is being held for
sale.
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(2)
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This facility will be vacated no
later than when the lease expires in January 2008.
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(3)
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This facility is leased from us,
with a purchase option, by the company that owns certain assets
of the former Greenville Tube LLC stainless steel tubing
business.
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Regulatory
Environment
We are subject to federal, state and local regulations relating
to the discharge of materials into the environment, production
and handling of our hazardous and regulated materials and our
products and the conduct and condition of our production
facilities. We do not believe that these regulatory requirements
have had a material effect upon our capital expenditures,
earnings or competitive position. We are not anticipating any
material capital expenditures in 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.
88
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.
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 stockholders, against which we had filed an objection in
the Bankruptcy Court. All bankruptcy proceedings were closed in
May 2006.
We are occasionally subject to various other legal claims
related to performance under contracts, product liability, taxes
and other matters, several of which claims assert substantial
damages, in the ordinary course of our business. Based on our
historical experience in litigating these claims, as well as our
current assessment of the underlying merits of the claims and
applicable insurance, if any, we currently believe the
resolution of these other legal claims will not have a material
adverse effect on our financial position, liquidity, cash flows
or results of operations. Future developments may, however,
result in resolution of these legal claims in a way that could
have a material adverse effect. See Risk Factors.
89
MANAGEMENT
The following table sets forth the name, age as of
February 1, 2007 and position of each person that serves as
an executive officer or director of our company. Our directors
each serve for a term of one year until the next annual meeting
of stockholders and our executive officers each serve for a term
of one year at the discretion of the board of directors.
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Name
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Age
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Position
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Samuel F. Thomas
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|
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55
|
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Chief Executive Officer, President
and Director
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Michael F. Biehl
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|
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51
|
|
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Executive Vice President, Chief
Financial Officer and Treasurer
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Matthew J. Klaben
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|
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37
|
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Vice President, General Counsel
and Secretary
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James H. Hoppel, Jr.
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|
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42
|
|
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Chief Accounting Officer,
Controller and Assistant Treasurer
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Ben A. Guill
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|
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56
|
|
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Chairman of the Board of Directors
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Kenneth W. Moore
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|
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37
|
|
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Director
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Timothy H. Day
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|
|
36
|
|
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Director
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Steven W. Krablin
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|
|
56
|
|
|
Director
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Michael W. Press
|
|
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59
|
|
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Director
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Richard E. Goodrich
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|
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63
|
|
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Director
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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 in
this position since April 2006. Mr. Hoppel joined Chart in
November 2004 as our Controller. Prior to joining us,
Mr. Hoppel served as Vice President, Finance for W.W.
Holdings, LLC, a manufacturer and distributor of doors and
hardware. 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.
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 National Oilwell Varco, Inc.
90
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.
Steven W. Krablin became a director on
July 25, 2006. 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.
Michael W. Press became a director on
August 15, 2006. Mr. Press has been self-employed
since 2001. Prior to that, he spent 27 years in the energy
industry in senior management and executive positions. From 1997
to 2001, Mr. Press was Chief Executive Officer of KBC
Advanced Technologies Plc, an international petroleum consulting
firm. Mr. Press also serves as a director of Petrofac Ltd.
and T-3 Energy Services, Inc.
Richard E. Goodrich became a director on
August 15, 2006. Mr. Goodrich is a retired Executive
Vice President and Chief Financial Officer of Chicago
Bridge & Iron Company N.V. (CB&I), an
engineering, procurement and construction company that provides
services to customers in the chemicals and energy industries.
Prior to retiring, Mr. Goodrich served as Executive Vice
President and Chief Financial Officer of CB&I from 2001 to
2005, and until June 2006, as acting Chief Financial Officer.
Mr. Goodrich serves as a director of Gundle/SLT
Environmental, Inc.
Composition
of the Board of Directors
Our board of directors currently consists of seven directors.
Each of Messrs. Goodrich, Krablin and Press is independent
under the listing standards of the Nasdaq Global Market. The
listing standards of the Nasdaq Global Market generally require
that a majority of an issuers board of directors must
consist of independent directors, but provide for a phase-in
period of one year from the date of listing. In accordance with
this phase-in rule, we intend to have a board of directors
consisting of a majority of independent directors within one
year of our initial public offering.
Board
Committees
Our board of directors has an audit committee, a compensation
committee and a nominations and corporate governance committee.
Audit
Committee
Our audit committee consists of Richard E. Goodrich, Timothy H.
Day and Steven W. Krablin. Mr. Krablin serves as the audit
committee chairman. We expect that our audit committee will be
comprised of three independent directors within the transition
periods specified in
Rule 10A-3
under the Exchange Act. Our board of directors has determined
that Mr. Krablin 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, compensating, evaluating and
terminating our independent auditors and approving in advance
any audit or non-
91
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.
The audit committee has approved and adopted 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 security holders.
Compensation
Committee
Our compensation committee consists of Timothy H. Day, Richard
E. Goodrich and Michael W. Press. Mr. Goodrich serves as
the compensation committee chairman. 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.
Nominations
and Corporate Governance Committee
Our nominations and corporate governance committee consists of
Steven W. Krablin, Kenneth W. Moore and Michael W. Press.
Mr. Press serves as the chairman of the committee. The
nominations and corporate governance committee is responsible
for (1) developing, recommending and reviewing the adequacy
of the corporate governance principles applicable to us,
(2) consulting with our audit committee and the board of
directors regarding the adoption of a code of conduct applicable
to all employees and directors when required by the rules of
Nasdaq and adopting procedures for monitoring and enforcing
compliance with such code of conduct, (3) reviewing our
compliance with state and federal laws and regulations and with
the Nasdaq corporate governance listing requirements,
(4) making recommendations to the board of directors
regarding the size and composition of the board of directors,
(5) establishing criteria for the selection of new
directors to serve on the board of directors and reviewing the
appropriate skills and characteristics required of directors,
(6) identifying, screening and recommending nominees to be
proposed by us for election as directors at the annual meeting
of stockholders, or to fill vacancies, (7) considering and
reviewing the qualifications of any nominations of director
candidates validly made by stockholders, (8) reviewing the
committee structure of the board of directors and recommending
directors to serve as members of each committee,
(9) overseeing the annual evaluation of management, the
board of directors, its members and committees and
(10) establishing criteria for and leading the annual
performance self-evaluation of the board of directors and each
committee.
92
Compensation
Committee Interlocks and Insider Participation
Since August 15, 2006, our compensation committee has
consisted of Richard E. Goodrich, Timothy H. Day and Michael W.
Press. During 2006, Ben A. Guill and Kenneth W. Moore also
served as members of our compensation committee. None of
Messrs. Goodrich, Day, Press, Guill or Moore is a present
or past employee or officer of ours or any of our subsidiaries.
Messrs. Day, Guill and Moore are employees of First
Reserve, a related party with which we have engaged in certain
transactions described in Certain Related Party
Transactions. None of our executive officers has served on
the board or compensation committee (or other committee serving
an equivalent function) of any other entity, one of whose
executive officers served on our board or compensation committee.
Executive
Compensation
Compensation
Discussion and Analysis
The primary objectives of the compensation committee of our
board of directors with respect to the determination and
administration of our companys executive compensation
programs historically have been to:
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create and enhance stockholder value by attracting and retaining
key executive talent;
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align our executive officers incentives with stockholder
value creation by tying compensation to the achievement of
measurable operational and strategic objectives; and
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award compensation at levels commensurate with each executive
officers performance, experience and responsibilities.
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Historically, our committees guiding philosophy with
respect to executive officer compensation has emphasized
performance-based compensation. Accordingly, our committee
historically has provided for significant cash incentive
compensation awards and the vesting of a portion of stock option
grants based upon financial and stock performance, including, in
the case of pre-IPO stock option grants, the return on
investment that First Reserve realizes when and if it disposes
of its remaining ownership interest in us. To achieve its
objectives, our compensation committee historically has
maintained compensation plans that tie a substantial portion of
overall compensation for our named executive officers to our
financial performance and the price of our common stock.
Historically, our executive compensation program has been
intended to provide base salaries below the median of executives
at companies considered to be peers, with a total potential
compensation package (including performance-based compensation)
above median among such historical peers if maximum performance
levels were achieved. Companies that may have been considered
peers or potential peers for compensation purposes before our
IPO, however, may not be the same companies that our
compensation committee selects as peers for compensation
purposes in the future.
Since October 2005, we have been controlled by our largest
stockholder, First Reserve. With the exception of 2007 targets
under the Chart Industries, Inc. Incentive Compensation Plan and
2007 base salary levels, described below, all compensation
arrangements currently in place were put in place prior to our
IPO, which occurred on July 25, 2006, and were not
modified, except for those modifications necessary to reflect
our companys public company status, in connection with the
IPO. Although our board of directors and compensation committee
were responsible for the implementation and administration of
all of our current benefit and compensation plans before our
IPO, all compensation decisions relating to the Chief Executive
Officer and the other executive officers named in the 2006
Summary Compensation Table below were subject to the review of
First Reserve directly or through its representatives. Moreover,
the board of directors under which our executive compensation
plans were adopted before our IPO was comprised of
Mr. Guill, Mr. Day, Mr. Moore and
Mr. Thomas. The compensation committee of the board of
directors was comprised of Mr. Guill, Mr. Day and
Mr. Moore, all of whom are affiliated with First Reserve.
As part of and subsequent to our IPO, we have appointed three
additional independent directors to our board of directors and
have altered the membership of our compensation committee so
that a majority of the members are independent directors.
Currently, the compensation committee is comprised of
Mr. Goodrich (Chairperson), Mr. Press and
Mr. Day. Our compensation committee presently is
undertaking a review of our entire executive
93
compensation program for our executive officers, with the
assistance of an independent outside compensation consulting
firm engaged by the committee. This review includes a study to
determine the companies that should be considered as peer group
companies for executive compensation purposes, as well as a
review of our compensation objectives and philosophy, and the
individual components of our total compensation package for
executive officers. This review is ongoing at the present time.
Accordingly, except as otherwise indicated, this Compensation
Discussion and Analysis reflects a discussion of our historical
compensation objectives and philosophy, as well as the
historical elements of our total executive officer compensation
package.
At the time of the acquisition by First Reserve while we were a
private company, we entered into new employment agreements with
Mr. Thomas and Mr. Biehl, and the compensation
committee implemented new executive compensation programs,
substantially as they are today. We subsequently entered into
employment agreements with Mr. Klaben and Mr. Hoppel
in March and May of 2006, respectively, while we were a private
company before our IPO. The terms of all four employment
agreements were negotiated by or with the input of
representatives of First Reserve based upon prevailing market
conditions for private equity investments and factors specific
to the circumstances of our company and our executive officers.
Our Chief Executive Officer periodically evaluates the
performance of all other senior executives, and our board and
compensation committee periodically evaluate the Chief Executive
Officers and other executive officers performance,
in each case based on quantitative and qualitative performance
criteria. These evaluations take place informally as well as
formally in the setting of board and compensation committee
meetings, and are considered by the committee in making
individual compensation determinations.
Elements
of Compensation
Executive compensation consists of the following primary
components:
Base Salary. Base salaries are reviewed
annually, and adjusted from time to time to reflect performance,
experience, responsibilities and market conditions. Salary
review is conducted by the compensation committee before or
during the early part of the fiscal year for which the base
salary will become effective. The compensation committee is
responsible for setting the base salary of the Chief Executive
Officer, and historically has taken into account his individual
responsibilities, performance and experience, and the
competitive market compensation paid by other companies of
similar size in a similar industry. The current base salary for
the CEO, which is $450,000 for 2007, an increase from $400,000
for 2006, was determined after a survey of certain potential
peer group companies and based on the experience of the members
of the compensation committee, taking into account his
individual responsibilities, performance and experience relative
to those of chief executive officers at companies similarly
situated to the company. Increases in base salary with respect
to the executive officers, other than the Chief Executive
Officer, are recommended to the compensation committee by the
Chief Executive Officer. In making this recommendation, the CEO
considers each executive officers individual
responsibilities, performance and experience, and competitive
market compensation paid by similarly situated companies in
similar geographic markets. However, any increase in base salary
is granted at the sole discretion of the compensation committee.
The current base salaries for the executive officers other than
the Chief Executive Officer and President are $245,000 for the
Executive Vice President, Chief Financial Officer and Treasurer
for 2007 (an increase from $235,000 for 2006), $200,000 for the
Vice President, General Counsel and Secretary for 2007 (an
increase from $193,000 for 2006) and $170,000 for the Chief
Accounting Officer, Controller and Assistant Treasurer (an
increase from $154,000 for 2006).
Annual and Other Cash Incentive Awards. In
addition to their base salary, executive officers are eligible
to earn an annual cash incentive bonus. Under the 2006 Chart
Executive Incentive Compensation Plan (the 2006 Bonus
Plan), adopted by the board of directors and approved by
our stockholders on March 1, 2006 and July 18, 2006,
respectively, executive officers were eligible to earn a cash
incentive bonus for 2006 in an amount up to a pre-determined
percentage, ranging from 90% to 165% of the executive
officers base salary (with higher ranked officers being
compensated at a higher percentage of base salary), at maximum
performance levels. The compensation committee established
performance targets under the 2006 Bonus Plan for the 2006
fiscal year. The material targets included working capital and
EBITDA targets. When these targets were set in early 2006, they
were set at levels that were believed to represent significant
performance that would involve some difficulty at the
94
threshold levels, increased difficulty at the 100% target
levels, and significant difficulty at the maximum levels, in
each case relative to historical trends and future expectations
at the time the levels were set. Management believes that EBITDA
is a typical performance measure among private equity portfolio
companies, and that EBITDA and working capital also reflect key
performance measures used to track the companys value,
operational performance and cash flow externally and internally.
2006 Bonus Plan terms provide that if actual performance falls
below the minimum threshold for a performance objective, the
executive officer will receive no payment based on that
objective, and provide for payment determination on a
straight-line basis for performance between the minimum and 100%
target and between 100% target and maximum level. Following the
end of the fiscal year, the compensation committee determines
(i) whether and to what extent any of the established
performance objectives have been satisfied, and (ii) for
each executive officer employed as of the last day of the fiscal
year, the actual bonus to which such executive officer shall be
entitled. The committee has determined that our financial
performance for our 2006 fiscal year has exceeded the maximum
target levels for each executive officer performance measure
under the 2006 Bonus Plan, subject to our audited 2006 financial
results. Accordingly, we expect to pay the following cash
payments under the 2006 Bonus Plan to our executive officers by
March 15, 2007, by which time we expect our 2006 audited
financial results to be complete: Chief Executive Officer and
President, $660,000; Executive Vice President, Chief Financial
Officer and Treasurer, $352,500; Vice President, General Counsel
and Secretary, $202,650; and Chief Accounting Officer,
Controller and Assistant Treasurer, $138,600.
In addition to any incentive awards granted under the 2006 Bonus
Plan, Mr. Klaben received a signing bonus, in the amount of
$25,000, as an inducement related to his joining our company in
March 2006.
In March 2006, Messrs. Thomas, Biehl and Hoppel received
annual bonus incentive compensation, pursuant to the terms of
the Chart Industries, Inc. 2005 Incentive Compensation Plan, in
the amount of $600,000, $319,800 and $106,500, respectively.
Mr. Klaben did not receive a cash incentive bonus under
this plan, as he was not our employee during fiscal year 2005.
The target amounts, performance measures (which included
earnings before interest, taxes, depreciation, amortization and
restructuring charges (EBITDAR), but not working capital) and
thresholds set under our 2005 Incentive Compensation Plan, which
was adopted before we were acquired by First Reserve in October
2005, were different than those under our 2006 Bonus Plan,
reflecting anticipated performance of the company and
performance measure priorities in early 2005 as set by our
compensation committee and board of directors in the period
prior to our acquisition by First Reserve.
Beginning with fiscal 2007 and going forward, annual cash
bonuses, if any, will be awarded under the Chart Industries,
Inc. Incentive Compensation Plan (the Incentive
Compensation Plan), which was adopted by the board of
directors and approved by our stockholders on July 17 and
July 18, 2006, respectively. The Incentive Compensation
Plan provides the compensation committee with greater
flexibility to establish performance criteria and performance
periods for which cash incentive compensation will be awarded.
Prior to adoption of this plan, the company adopted a new plan
for awarding cash incentive bonuses each fiscal year. Under the
Incentive Compensation Plan, a performance period may be for a
fiscal year or a multi-year cycle, as determined by the
compensation committee, and the performance objectives upon the
attainment of which target incentive bonuses will be awarded may
be based on one or more of certain performance criteria which
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
compensation committee may appropriately adjust any performance
evaluation under a performance objective or objectives to
reflect or exclude certain extraordinary events that may occur
during the performance period. If there is a change in control,
as defined in the Incentive Compensation Plan, the compensation
committee will 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 the determination.
Pursuant to the terms of the Incentive Compensation Plan, no
executive officer or other participant may receive a bonus, with
respect to any fiscal year, in excess of $5 million. The
committee has absolute discretion to reduce or eliminate the
amount otherwise payable under the Incentive Compensation Plan
and to establish rules or procedures
95
which limit the amount payable to a participant to an amount
that is less than the amount otherwise approved as that
participants target incentive bonus.
Our compensation committee has set annual incentive compensation
targets and performance measures for 2007 under the Incentive
Compensation Plan. Under these targets, our executive officers
are eligible to earn a cash incentive bonus for fiscal 2007 in
an amount up to a pre-determined percentage, ranging from 97.5%
to 165% of the executive officers base salary (with higher
ranked officers being compensated at a higher percentage of base
salary), at maximum performance levels. The performance measures
established under the Incentive Compensation Plan for the 2007
fiscal year for executive officers are operating income, net
income and working capital. The committee selected these
measures for 2007 in an effort to more closely align executive
officer cash bonus measures to measures that are believed to be
meaningful indications of our performance for our public
stockholders. These performance measures were set at levels that
were believed to represent, when they were set in early 2007,
significant performance that would involve some difficulty at
the threshold levels, increased difficulty at the 100% target
levels, and significant difficulty at the maximum levels, in
each case relative to historical trends and future expectations
at the time the levels were set. Following the end of the 2007
fiscal year, the compensation committee will determine
(i) whether and to what extent any of the established
performance objectives have been satisfied for 2007, and
(ii) for each executive officer employed as of the last day
of 2007, the actual bonus to which such executive officer will
be entitled for 2007. Executive officers will be entitled to the
following cash payments under the Incentive Compensation Plan
for 2007, based on a percentage of 2007 base salary, if company
performance meets the minimum threshold for each performance
measure, meets the 100% target for each performance measure, or
meets or exceeds the maximum level for each performance measure
for 2007, respectively: Chief Executive Officer and President,
$0, $495,000 and $742,500, respectively; Executive Vice
President, Chief Financial Officer and Treasurer, $0, $245,000
and $367,500, respectively; Vice President, General Counsel and
Secretary, $0, $140,000 and $210,000, respectively; and Chief
Accounting Officer, Controller and Assistant Treasurer, $0,
$110,500 and $165,750, respectively. If actual performance falls
below the minimum performance threshold for a performance
measure, the executive officer will receive no payment based on
that measure, and for performance levels between the minimum and
100% target, and between 100% target and the maximum level,
payments are determined based on a straight-line relationship.
Once bonus amounts have been determined, those bonuses, if any,
are required to be paid to executive officers by March 15,
2008.
Payments made under the 2006 Bonus Plan and the Incentive
Compensation Plan are intended to be exempt from the deduction
limitations of Section 162(m) of the Internal Revenue Code
under transition reliance period rules applicable to
compensation paid pursuant to a plan that existed before we
became publicly held and that was disclosed in our IPO
prospectus, assuring that we will continue to be able to deduct
cash bonuses paid to the executive officers under these existing
plans during the transitional reliance period.
Consistent with our historical compensation philosophy, the
annual incentive performance bonus historically has been a
significant portion of total compensation. The purpose of both
the 2006 Bonus Plan and 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. The plans were designed to
provide our executive officers with incentive compensation based
upon the achievement of pre-established performance goals. The
performance criteria are tied to company, rather than individual
performance. This approach historically has been taken by our
company in light of our historical emphasis on performance-based
compensation tied to company financial and stock performance,
rather than qualitative individual performance assessments.
Equity Compensation. All of our executive
officers have received equity compensation under one or both of
our 2004 Stock Option and Incentive Plan or our Amended and
Restated 2005 Stock Incentive Plan. We have not adopted stock
ownership guidelines, and, therefore, our stock incentive plans
have provided the principal method for our executive officers to
acquire equity interests in our company.
96
Amended
and Restated 2005 Stock Incentive Plan
The Amended and Restated Chart Industries, Inc. 2005 Stock
Incentive Plan (the 2005 Stock Incentive Plan) was
initially adopted effective November 23, 2005, in
connection with the acquisition by First Reserve. The plan, as
amended and restated, was adopted by the board of directors and
approved by our stockholders in connection with our IPO. The
2005 Stock Incentive Plan was amended and restated at that time
to reflect the fact that our public company status made certain
provisions under the original plan no longer applicable. The
2005 Stock Incentive Plan provides for the grant of
non-qualified stock options, stock appreciation rights,
restricted stock, restricted stock units, and other stock-based
grants, including shares of our common stock sold to our
non-employee directors, executive officers, other key employees
and consultants. The 2005 Stock Incentive 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 delegated administration of the 2005 Stock Incentive Plan to
the compensation committee.
Despite the flexibility afforded under the 2005 Stock Incentive
Plan to award a variety of equity-based awards, the compensation
committee previously has awarded to the executive officers only
stock options. The compensation committee may in the future, as
part of its evaluation of overall executive compensation
arrangements, make grants of other kinds of equity compensation
awards to our executive officers or other employees. To date,
the compensation committee has granted to our executive officers
under the 2005 Stock Incentive Plan certain options as
non-qualified stock options, which have been granted as follows:
approximately 35% vest and become exercisable over the passage
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. The
performance based stock options vest based upon the return on
investment that First Reserve realizes when it liquidates its
ownership interest in us. 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.
In fiscal 2006, we awarded a total of 108,555 options, at an
exercise price of $12.16 per share, to executive officers,
under the 2005 Stock Incentive Plan. Mr. Klaben was awarded
99,592 options, in connection with the commencement of his
employment as Vice President, General Counsel and Secretary of
the company on March 29, 2006, and Mr. Hoppel was
awarded 8,963 options, in connection with grants to a number of
employees, on April 27, 2006. Each of the options granted
on March 29 and April 27, 2006 have similar terms, which
are as follows: they have a
10-year term
unless they are earlier terminated and approximately 35% are
time options, and the remaining portion are
performance options, each as described above.
With respect to the non-qualified stock options granted under
the 2005 Stock Incentive Plan, we will be entitled to a tax
deduction in the year in which the non-qualified stock option is
exercised in an amount equal to the amount by which the fair
market value of the shares underlying the non-qualified stock
options on the date of exercise exceeds the exercise price of
the option. For a description of the compensation expense we
incurred in 2006 related to stock options held by executive
officers, and related valuation assumptions under, see note
(1) to 2006 Summary Compensation Table.
The 2005 Stock Incentive Plan is intended to aid us in
recruiting and retaining key employees, directors and
consultants of outstanding ability and to motivate such
employees, directors or consultants to exert their best efforts
on behalf of us and our affiliates by providing incentives
through the granting of awards. Our compensation committee
historically has taken the view that providing our executive
officers with a proprietary interest in our success further
aligns the incentives of our executive officers with those of
our stockholders. The allocation of option awards between time
vesting and performance vesting allows us to satisfy both
components of our compensation philosophy which focuses on
retaining top executive talent and aligning the incentives of
our executive officers with our stockholders. The fact that the
vesting of 65% of the stock options that have been granted to
our executive officers are tied directly to the return on
investment which is realized by First Reserve is consistent with
the fact that the grants were made during a time when the
company was under the control of a private equity
97
investor. However, this is not inconsistent with our overall
executive compensation philosophy, as an increase in stock value
which benefits a significant stockholder should benefit all
stockholders.
In connection with the completion of our IPO in 2006, we made a
9.95928-for-one adjustment with respect to the number of shares
underlying options outstanding under our 2005 Stock Incentive
Plan at the time of our IPO and a corresponding adjustment to
the exercise prices of such options. These options included the
options under the 2005 Stock Incentive Plan held by executive
officers. The 9.95928-for-one adjustment with respect to the
number of shares underlying options outstanding at the time of
our IPO reflected both the 4.6263-for-one stock split on our
shares of common stock outstanding before the consummation of
the IPO, plus additional adjustments to both the exercise price
and the number of shares underlying the options in order also to
take into account, consistent with applicable tax standards and
in accordance with the terms of the 2005 Stock Incentive Plan,
the decrease in value of our pre-IPO common stock which resulted
from the payment of the dividends received by our stockholders
existing immediately prior to the IPO. Other than through these
adjustments to their options, option holders would not have
participated in the stock split or the dividends. In accordance
with SFAS 123(R), Share Based Payments, we
concluded that this cumulative 9.95928-for-one adjustment to the
shares underlying options resulted in no additional stock-based
compensation expense because our 2005 Stock Incentive Plan
includes an anti-dilution modification provision that applies to
share splits and extraordinary cash dividends, such as those
that took place in connection with our IPO, and this
modification represents an adjustment to keep the option holders
in the same economic position as they were in before our IPO
with respect to their options.
2004
Stock Option and Incentive Plan
The Chart Industries, Inc. 2004 Stock Option and Incentive Plan
(the 2004 Stock Plan), was adopted effective
February 12, 2004 and approved by our stockholders on
July 18, 2006. The 2004 Plan permits the grant of
nonqualified stock options to our and our affiliates
employees. Prior to the consummation of our IPO, all options
that were outstanding under the 2004 Stock Plan were fully
vested and exercised, and no options remain outstanding under
the 2004 Stock Plan. We have not made any additional grants
under the 2004 Stock Plan since the completion of our IPO, and
we do not intend to make any grants under the 2004 Stock Plan
going forward. For a description of stock options under our 2004
Stock Option Plan exercised in 2006 by executive officers,
consisting of options held by Messrs. Thomas and Biehl, see
2006 Stock Option Exercises and Stock Vested Table.
Those employees who exercised their options outstanding under
the 2004 Stock Plan in 2006 before our IPO, including
Messrs. Thomas and Biehl, became holders of our common
stock before our IPO and, accordingly, participated ratably in
the cash dividend paid to our stockholders existing immediately
prior to the IPO from the net proceeds of the IPO, and
participated ratably in the stock dividend we distributed to the
same pre-IPO stockholders on August 25, 2006 as part of the
IPO, which we distributed after our IPO underwriters did not
exercise their over-allotment option. Messrs. Thomas and
Biehl received $5,866,697 and $328,493, respectively, as
stockholders in the cash dividend and 73,181 and
4,097 shares of our common stock, respectively, as
stockholders in the stock dividend. See Management
Equity below.
Deferred Compensation. The terms of our
Amended and Restated Voluntary Deferred Income Plan are
described below under 2006 Nonqualified Deferred
Compensation Table. Participation in this plan is entirely
voluntary, and we presently do not offer any matching moneys or
contributions. Of the executive officers, only Mr. Thomas
elected to participate in this plan in 2006, and he deferred
part of his bonus payable for our 2005 fiscal year in 2006 under
this plan.
Other Benefits. Executive officers are
eligible to participate in all of our employee benefit plans,
including our 401(k) Plan, health, life and disability
insurance, retirement, deferred compensation and fringe
benefits, as well as any equity compensation plans, as in effect
from time to time, on the same basis as those benefits are
generally made available to other senior executives of the
company.
Additionally, all of our executive officers receive automobile
allowances. In accordance with our performance-based
compensation philosophy, we intend to continue to maintain
modest executive benefits and perquisites for officers; however,
the compensation committee in its discretion may revise, amend
or add to the officers executive benefits and perquisites
if it deems it advisable.
98
Option
Grant Policies
For stock options granted under the 2005 Stock Incentive Plan,
the exercise price per share is equal to the fair market value
on the applicable date of grant. In March 2006 we hired an
independent valuation firm to determine the fair market value of
our common stock as of March 31, 2006. All stock options
granted to our employees, including our executive officers,
during fiscal 2006 and prior to our IPO were granted at fair
market value, on the grant date in accordance with the valuation
determined by our independent, outside valuation firm. The value
of these options is reflected in our consolidated financial
statements, based upon the applicable accounting guidance, using
a fair market value formulation derived from the price at which
we initially proposed to offer our stock to the public in our
IPO, which was significantly higher than the price at which we
actually offered our stock to the public. Equity grants in the
form of restricted stock units made to our non-employee
directors, as discussed below under Director
Compensation were granted and reflected in our
consolidated financial statements, based upon the applicable
accounting guidance, at fair market value, as determined by the
market price per share of a share of our common stock on the
date of grant. Other than with respect to regular annual grants
of restricted stock units made to our non-employee directors as
described below, we do not have any program, plan or policy
which requires us to grant equity compensation on specified
dates; however, we have not made any equity grants in connection
with the release or withholding of material non-public
information.
Change in
Control Payments
None of the executive officers respective employment
agreements provide for change in control payments; however
accelerated vesting of outstanding stock options will occur upon
a change in control pursuant to the terms of the 2005 Stock
Incentive Plan. Immediately prior to a change in control of us
(as defined in our 2005 Stock Incentive 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 options will accelerate with
respect to 45% of the shares of our common stock subject to the
performance option.
Immediately upon any change in control (as defined in our
Amended and Restated Voluntary Deferred Compensation Plan)
Mr. Thomas interest in all amounts credited to his
account under the plan shall fully and immediately vest and
become nonforfeitable. There currently are no company
contributions credited to Mr. Thomas account or any
other employees account under this plan. In addition, our
executive officers may receive payments under our Incentive
Compensation Plan following a change in control if the
compensation committee determines the performance criteria have
been met, as described above under Elements of
Compensation Annual and Other Cash Incentive
Awards.
For more information on change in control and severance
benefits, see Other Potential Post-Employment
Benefits below.
Director
Compensation
Directors who are also employees do not receive any additional
compensation for services performed as a member of our board of
directors or committees thereof.
We pay our non-employee directors an annual retainer of $32,000,
payable in equal quarterly installments, and grant annually to
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 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 2005
Stock Incentive Plan) or the director ceasing to serve on the
board due to death or disability (as defined in the 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.
Messrs. Guill, Day, Krablin and Moore each received 2,666
restricted stock units in fiscal 2006 at the time of our
99
IPO, and each of Mr. Press and Mr. Goodrich received
2,658 restricted stock units in connection with their
appointment to our board of directors in fiscal 2006.
In addition to the compensation described above, the chairperson
of our audit committee receives an additional $8,000 annual
retainer, and the chairpersons of our other board committees
receive an additional $4,000 annual retainer, in each case in
equal quarterly installments. Additionally, we 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 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.
Shares of our common stock issued upon settlement of restricted
stock units will count towards the $100,000 requirement.
Anticipated
Changes in Executive Compensation
Our executive compensation programs will continue in their
current form until such time as the compensation committee
determines in its discretion that revisions to our current plans
or replacement plans are advisable. As discussed above, our
compensation committee presently is undertaking a review of our
entire executive compensation program for our executive
officers, with the assistance of an independent outside
compensation consulting firm engaged by the committee. This
review and determinations of our compensation committee may
result in changes in our compensation arrangements and analysis
in the future, including the peers against which our committee
measures executive compensation, changes in equity or other
long-term incentives, and other changes as the committee may
determine.
As mentioned above, following our IPO, the membership of the
compensation committee was altered to include two independent
directors. By July 25, 2007, in accordance with Nasdaq
Global Market rules, our compensation committee will be required
to consist solely of independent directors.
100
2006
SUMMARY COMPENSATION TABLE
The following table and related notes and discussion summarize
compensation earned for our 2006 fiscal year by our four
executive officers who served as executives officers during and
at the end of 2006, who we refer to as our named executive
officers, presented in accordance with SEC rules.
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Change in Pension
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Value and
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Nonqualified
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Option
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Non-Equity
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Deferred
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All Other
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Name and Principal
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Salary
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Bonus
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Awards
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Incentive Plan
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Compensation
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Compensation
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Total
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Position
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Year
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($)
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($)
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($)(1)
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Compensation(2)
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Earnings($)
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($)(3)
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($)
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Samuel F. Thomas
(Chief Executive
Officer and
President)
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2006
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$
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400,000
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$
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384,618
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$
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660,000
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$
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30,404
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$
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1,475,022
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Michael F. Biehl
(Executive Vice
President, Chief
Financial Officer
and Treasurer)
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2006
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$
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235,000
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$
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115,385
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$
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352,500
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$
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33,089
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$
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735,974
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Matthew J. Klaben
(Vice President,
General Counsel
and
Secretary)(4)
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2006
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$
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146,977
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$
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25,000
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(5)
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$
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169,021
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$
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202,650
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$
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10,818
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$
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554,466
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James H. Hoppel, Jr.
(Chief Accounting
Officer, Controller
and Assistant
Treasurer)
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2006
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$
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153,000
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$
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52,178
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$
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138,600
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$
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36,993
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$
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380,771
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(1)
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The option awards and the dollar
values included in the option awards column are set forth in the
table below. These awards were all granted pursuant to the 2005
Stock Incentive Plan and include awards granted in and prior to
2006. The dollar values shown in the table above are the
aggregate dollar amounts recognized for financial statement
reporting purposes for the fiscal year ended December 31,
2006, in accordance with SFAS 123(R), Share-Based
Payment, and SEC rules for executive compensation
disclosure. The following assumptions were used in calculating
the amounts listed:
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The fair value of the options
granted on November 23, 2005 was estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of
4.80 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys common shares of 47.0 percent and a weighted
average expected life of 7.5 years for the options.
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The fair value of the options
granted on March 29, 2006 was estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of
5.0 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys common shares of 47.0 percent and a weighted
average expected life of 7.5 years for the options.
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The fair value of the options
granted on April 27, 2006 was estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of
5.3 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys common shares of 47.0 percent and a weighted
average expected life of 7.5 years for the options.
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Volatility was calculated using an
average of the Predecessor Companys historical closing
stock price on the OTCBB from October 2, 2003 to
October 14, 2005.
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Performance
Options(x)
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Time
Options(y)
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Compensation
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Compensation
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Number of
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Expense
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Number of
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Expense
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Grant Date
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Options
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($)(z)
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Grant Date
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Options
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($)(z)
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Samuel F. Thomas
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11/23/2005
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435,215
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$
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11/23/2005
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237,388
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$
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384,618
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Michael F. Biehl
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11/23/2005
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130,563
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$
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11/23/2005
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71,216
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$
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115,385
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Matthew J. Klaben
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3/29/2006
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64,735
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$
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3/29/2006
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34,857
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$
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169,021
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James H. Hoppel, Jr.
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11/23/2005
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43,525
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$
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11/23/2005
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23,738
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$
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38,462
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4/27/2006
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5,826
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$
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4/27/2006
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3,137
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|
$
|
13,716
|
|
101
|
|
|
|
|
(x) Performance option grants
are described below under Equity and Incentive Plan
Awards Amended and Restated Chart Industries, Inc.
2005 Stock Incentive Plan and generally become exercisable
based on the Fund X Net Return which is based
on the amount received by First Reserve in respect of its
investment in us, as described below under Equity and
Incentive Plan Awards Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan. None of the
performance options have vested and we cannot predict when or if
the Fund X Net Return will reach a minimum threshold amount
or other events will occur that will result in any performance
option grants ever becoming exercisable. Accordingly, under
applicable accounting rules, we did not recognize any expense
with respect to these options for 2006. We may record additional
stock-based compensation expense in future periods related to
the performance options granted under the 2005 Stock Incentive
Plan to the executive officers, if it becomes probable that any
of the future performance criteria will be achieved. The amount
of the expense relating to the performance options cannot be
estimated at this time, but could be significant.
|
|
|
|
(y) Time option grants are
described below under Equity and Incentive Plan
AwardsAmended and Restated Chart Industries, Inc. 2005
Stock Incentive Plan and become exercisable annually and
ratably over five years after the grant date as described below
under Equity and Incentive Plan AwardsAmended and
Restated Chart Industries, Inc. 2005 Stock Incentive Plan.
|
|
|
|
(z) Aggregate dollar amounts
recognized as stock-based compensation expense for financial
statement reporting purposes under SFAS 123(R) for fiscal
2006.
|
|
(2)
|
|
Reflects amounts of incentive
compensation earned under our 2006 Bonus Plan. Our compensation
committee has determined that our financial performance for 2006
has exceeded the maximum target levels for each named executive
officer performance measure under the 2006 Bonus Plan, subject
to our audited 2006 financial results. We expect to pay the 2006
Bonus Plan cash payments to our named executive officers by
March 15, 2007, by which time we expect our 2006 audited
financial results to be complete.
|
|
(3)
|
|
All Other Compensation includes the
following payments made on behalf of our executive officers. All
amounts are calculated based on the aggregate incremental actual
cost, in dollars, to us of the benefit listed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perquisites
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
and Other
|
|
|
Contributions
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
to 401(k)
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
Plan
|
|
|
Total
|
|
|
|
Year
|
|
|
($)(x)
|
|
|
($)(y)
|
|
|
($)
|
|
|
Samuel F. Thomas
|
|
|
2006
|
|
|
$
|
12,000
|
|
|
$
|
18,404
|
|
|
$
|
30,404
|
|
Michael F. Biehl
|
|
|
2006
|
|
|
$
|
12,000
|
|
|
$
|
21,089
|
|
|
$
|
33,089
|
|
Matthew J. Klaben
|
|
|
2006
|
|
|
$
|
7,200
|
|
|
$
|
3,618
|
|
|
$
|
10,818
|
|
James H. Hoppel, Jr.
|
|
|
2006
|
|
|
$
|
16,867
|
|
|
$
|
20,126
|
|
|
$
|
36,993
|
|
|
|
|
|
|
(x) In 2006, each of the named
executive officers received an automobile allowance. In addition
to his automobile allowance in the amount of $9,600,
Mr. Hoppel received a travel allowance in the amount of
$7,267 in connection with his efforts related to our IPO.
|
|
|
|
(y) Includes 401(k) plan
matching contributions made by us and 401(k) plan profit
sharing. Company contributions under our 401(k) plan for 2006
are subject to adjustment downward based on nondiscrimination
testing in the first quarter of 2007.
|
|
(4)
|
|
Mr. Klaben joined our company
on March 29, 2006.
|
|
(5)
|
|
Mr. Klaben received a $25,000
signing bonus in connection with commencement of his employment
with us in March of 2006.
|
102
2006
GRANTS OF PLAN-BASED AWARDS TABLE
The following table and related notes and discussion summarize
grants of equity and non-equity incentive compensation amounts
to our named executive officers for our 2006 fiscal year,
presented in accordance with SEC rules.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
|
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|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Number of
|
|
|
Exercise or
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity
|
|
|
Under Equity
|
|
|
Securities
|
|
|
Base Price
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Incentive Plan Awards
|
|
|
Incentive Plan Awards
|
|
|
Underlying
|
|
|
of Option
|
|
|
Fair Value
|
|
|
|
|
|
|
Approval
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Options
|
|
|
Awards
|
|
|
of Option
|
|
Name
|
|
Grant Date
|
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)(3)
|
|
|
Awards
|
|
|
Samuel F. Thomas
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
440,000
|
|
|
$
|
660,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael F. Biehl
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
235,000
|
|
|
$
|
352,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Klaben
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
135,100
|
|
|
$
|
202,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/2006
|
(2)
|
|
|
3/22/2006
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,857
|
|
|
$
|
12.16
|
(3)
|
|
$
|
487,709
|
|
|
|
|
3/29/2006
|
(4)
|
|
|
3/22/2006
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,889
|
(4)
|
|
$
|
|
|
|
|
64,735
|
(4)
|
|
|
|
|
|
$
|
12.16
|
(3)
|
|
$
|
|
|
James H. Hoppel, Jr.
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
92,400
|
|
|
$
|
138,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2006
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,137
|
|
|
$
|
12.16
|
(3)
|
|
$
|
44,036
|
|
|
|
|
4/27/2006
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,340
|
(4)
|
|
$
|
|
|
|
|
5,826
|
(4)
|
|
|
|
|
|
$
|
12.16
|
(3)
|
|
$
|
|
|
|
|
|
(1)
|
|
Granted pursuant to the Chart
Industries, Inc. 2006 Bonus Plan, described in Equity and
Incentive Plan Awards 2006 Chart Executive Incentive
Compensation Plan below.
|
(2)
|
|
Time options granted pursuant to
the 2005 Stock Incentive Plan, described in Equity and
Incentive Plan Awards Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan below.
|
(3)
|
|
In March 2006, we hired an
independent valuation firm to determine the fair market value of
our common stock as of March 31, 2006. All stock options
granted to our employees, including our executive officers,
during fiscal 2006 and prior to our IPO were granted at fair
market value on the grant date in accordance with the valuation
determined by our independent, outside valuation firm. The value
of these options is reflected in our consolidated financial
statements, based upon the applicable accounting guidance, using
a fair market value formulation derived from the price at which
we initially proposed to offer our stock to the public in our
IPO, which was significantly higher than the price at which we
actually offered our stock to the public.
|
(4)
|
|
Performance options granted
pursuant to the 2005 Stock Incentive Plan, as described in
Equity and Incentive Plan Awards Amended and
Restated Chart Industries, Inc. 2005 Stock Incentive Plan
below. The performance options 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. In the event the
Fund X Net Return is less than 2.25 times the Fund X
Investment, the performance options will be cancelled. If the
Fund X Net Return is 2.25 times the Fund X Investment,
then 23% of the performance options will vest, which we have
presented in the table above as the threshold
amount. 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 by First Reserve,
the performance options granted prior to completion of our IPO
will vest with respect to 45% of the shares of our common stock
subject to the performance options. In the event the Fund X
Net Return is 4.00 times the Fund X Net Investment or
greater, the performance options granted prior to completion of
our IPO will vest with respect to 100% of the shares of our
common stock subject to performance options which we have
presented in the table above as the maximum amount.
No target amount is presented for the performance
options, as the vesting of the performance options is based
entirely on the Fund X Net Return and there is no target
for that measure.
|
Discussion
of Summary Compensation Table and Grants of Plan-Based Awards
Table
We are party to an employment agreement with each of our named
executive officers. Each employment agreement sets forth the
terms of that officers employment, including among other
things, salary, bonus, certain non-equity incentive plan
benefits and other compensation. Certain material terms of each
executive officers employment agreement are described
below. For more terms, including post-termination and
restrictive covenants, see Other Potential Post-Employment
Payments Restrictive Covenants that Apply During and
After Termination of Employment.
In 2006, we granted time options and performance options to each
of Mr. Klaben and Mr. Hoppel. The material terms of
the grants and the 2005 Stock Incentive Plan under which they
were granted are described below.
103
Samuel
F. Thomas
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 $450,000 for 2007 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 bonus target, which target for calendar year 2006 is
$440,000 and for calendar year 2007 is $495,000 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. Under the employment agreement,
Mr. Thomas is entitled to receive an automobile allowance
in the amount of $1,000 per month.
Michael
F. Biehl
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 $245,000 for 2007 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. Under the employment
agreement, Mr. Biehl is entitled to receive an automobile
allowance in the amount of $1,000 per month.
Matthew
J. Klaben
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 $200,000 for 2007, payable in regular
installments in accordance with our usual payroll practices.
Mr. Klaben received a one-time $25,000 signing bonus in
2006, 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. Under the employment agreement,
Mr. Klaben is entitled to receive an automobile allowance
in the amount of $800 per month.
James
H. Hoppel, Jr.
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 $170,000
for 2007, payable in regular installments in accordance with our
usual payroll practices. Mr. Hoppel is also eligible to
earn an annual bonus award for the 2007 fiscal year and
subsequent years during the term of his employment agreement, of
up to 97.5% 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. Under the employment agreement, Mr. Hoppel is
entitled to receive an automobile allowance in the amount of
$800 per month.
Our compensation committee has determined that our financial
performance for 2006 has exceeded the maximum target levels for
each named executive officer performance measure under our 2006
Bonus Plan, subject to our audited 2006 financial results.
Accordingly, we expect to pay the following cash incentive
bonuses to our named executive officers under the 2006 Bonus
Plan by March 15, 2007, by which time we expect our 2006
audited financial results to be complete: Mr. Thomas,
$660,000, Mr. Biehl, $352,500; Mr. Klaben, $202,650;
and
104
Mr. Hoppel, $138,000. Based on these amounts, each
executive officers salary paid for 2006 and incentive
bonus under the 2006 Bonus Plan accounts for the following
percentage of his total 2006 compensation, respectively, based
on the total amount shown in the 2006 Summary Compensation
Table: Mr. Thomas, 27% and 45%; Mr. Biehl, 32% and
48%; Mr. Klaben, 27% and 37%; and Mr. Hoppel, 40% and
36%.
Equity
and Incentive Plan Awards
2006
Chart Executive Incentive Compensation Plan
Cash bonuses payable to the executive officers are payable
pursuant to and in accordance with the 2006 Bonus Plan. We
adopted the 2006 Bonus Plan effective March 1, 2006. The
2006 Bonus Plan was approved by our stockholders on
July 18, 2006. The material performance targets under the
2006 Bonus Plan, as established by the compensation committee of
the board, include working capital and EBITDA targets.
Management believes that EBITDA is a typical performance measure
among private equity portfolio companies, and EBITDA and working
capital also reflect key performance measures used to track our
companys value, operational performance and cash flow
externally and internally. 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. Our compensation committee
has determined that our financial performance for 2006 has
exceeded the maximum target levels for each named executive
officer performance measure under the 2006 Bonus Plan, subject
to our audited 2006 financial results. We expect to pay the cash
payments to our named executive officers set forth in the 2006
Summary Compensation Table under the caption Non-Equity
Incentive Plan Compensation by March 15, 2007, by
which time we expect our 2006 audited financial results to be
complete.
Amended
and Restated Chart Industries, Inc. 2005 Stock Incentive
Plan
We initially adopted the 2005 Stock Incentive Plan effective
November 23, 2005. We adopted the amended and restated 2005
Stock Incentive Plan on July 17, 2006 and the 2005 Stock
Incentive Plan was approved by our stockholders on July 18,
2006.
The 2005 Stock Incentive Plan provides for the grant of
(i) options that are not incentive stock options,
(ii) stock appreciation rights, which we refer to as SARs,
(iii) restricted stock, (iv) restricted stock units,
and (v) other stock-based grants, including the shares of
our common stock sold to our non-employee directors, executive
officers, other key employees and consultants. There are
3,421,030 shares of common stock reserved for issuance
under the 2005 Stock Incentive Plan.
The 2005 Stock Incentive Plan is administered by our board of
directors, which has delegated its duties and powers in whole or
in part to our compensation committee. The committee has the
full power and authority to establish the terms and conditions
of any award consistent with the provisions of the 2005 Stock
Incentive Plan and to waive any such terms and conditions at any
time. The committee also has the authority to grant awards under
the 2005 Stock Incentive Plan. The committee is authorized to
interpret the 2005 Stock Incentive Plan, to establish, amend and
rescind any rules and regulations relating to the 2005 Stock
Incentive Plan and to make any other determinations that it
deems necessary or desirable for the administration of the 2005
Stock Incentive Plan. The committee is authorized to correct any
defect or supply any omission or reconcile any inconsistency in
the 2005 Stock Incentive Plan in the manner and to the extent
the committee deems necessary or desirable.
The exercise price per share for options is equal to the fair
market value on the applicable date of grant, subject to any
adjustments to outstanding options permitted in connection with
significant transactions, such as our IPO. 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
105
shares 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.
Prior to completion of our IPO, we granted under the 2005 Stock
Incentive Plan options to acquire an aggregate of
2,441,190 shares of common stock as non-qualified stock
options. In fiscal 2006, Mr. Klaben was awarded 99,592
options, consisting of 34,857 time options and 64,735
performance options, in connection with the commencement of his
employment as Vice President, General Counsel and Secretary of
the company on March 29, 2006, and Mr. Hoppel was
awarded 8,963 options, consisting of 3,137 time options and
5,826 performance options, in connection with grants to a number
of employees prior to our initial public offering to incentivize
their future service to us, on April 27, 2006. Each of the
options granted prior to the IPO, including those granted on
March 29 and April 27, 2006, have similar terms, which are
as follows: approximately 35% vest and become exercisable over
the passage 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.
The time options become exercisable by the holder of the option
in installments of 20% on each of the first five anniversaries
of the grant date. The performance options 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.
Each of the options granted on March 29 and April 27, 2006,
as listed in the table above, have a
10-year term
unless they are earlier terminated.
Immediately prior to a change in control of us (as defined in
the 2005 Stock Incentive Plan), the exercisability of the time
options granted prior to completion of our initial public
offering will automatically accelerate with respect to 100% of
the shares of our common stock subject to the unvested 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 by First
Reserve, the performance options granted prior to completion of
our initial public offering will vest with respect to 45% of the
shares of our common stock subject to the performance option. As
of the date of this prospectus, we have not made additional
stock option grants to employees since completion of our initial
public offering. We have, however, made grants of restricted
stock units to non-employee directors, as described below. See
Director Compensation.
106
2006
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The following table and related notes and discussion present
information about equity awards held by our named executive
officers at December 31, 2006.
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Stock Awards
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Option Awards
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Equity
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Equity
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Incentive
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Equity
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Incentive
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Plan
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Incentive
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Plan
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Awards:
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Plan Awards:
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Awards:
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Number of
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Market or
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Number
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Number of
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Market
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Unearned
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Payout Value
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of
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Number of
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Securities
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Number of
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Value of
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Shares,
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of Unearned
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Securities
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Securities
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Underlying
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Shares or
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Shares or
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Units or
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Shares, Units
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Underlying
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Underlying
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Unexercised
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Units of
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Units of
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Other
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or Other
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Unexercised
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Unexercised
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Unearned
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Option
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Option
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Stock That
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Stock That
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Rights That
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Rights That
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Options(#)
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Options(#)
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Options
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Exercise
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Expiration
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Have Not
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Have Not
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Have Not
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Have Not
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Name
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Exercisable
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Unexercisable(1)
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(#)
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Price($)
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Date
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Vested(#)
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Vested($)
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Vested(#)
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Vested($)
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Samuel F. Thomas
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100,099
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(3)
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$
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6.50
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11/23/2015
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47,478
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189,910
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(2)
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$
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6.50
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11/23/2015
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Michael F. Biehl
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30,029
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(3)
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$
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6.50
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11/23/2015
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14,243
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56,973
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(2)
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$
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6.50
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11/23/2015
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Matthew J. Klaben
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14,889
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(3)(7)
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$
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12.16
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3/29/2016
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34,857
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(4)(6)
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$
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12.16
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3/29/2016
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James H. Hoppel, Jr.
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10,011
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(3)
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$
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6.50
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11/23/2015
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4,748
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18,990
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(2)
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$
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6.50
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11/23/2015
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1,340
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(3)(7)
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$
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12.16
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4/27/2016
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3,137
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(5)(6)
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$
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12.16
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4/27/2016
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(1)
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The securities underlying
unexercised options which are unexercisable are also included in
the aggregate dollar amount recognized for financial statement
reporting purposes, in accordance with SFAS 123(R) and SEC
rules for executive compensation disclosure, in the Option
Awards column of the 2006 Summary Compensation Table.
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(2)
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These securities underlying
unexercised options represent time options granted under the
2005 Stock Incentive Plan on November 23, 2005, which will
vest ratably on each of November 23, 2007, 2008, 2009 and
2010.
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(3)
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These securities underlying
unexercised options represent performance options granted under
the 2005 Stock Incentive Plan. The performance options 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.
The performance options are reported in the table above based on
our achieving threshold performance levels, or a Fund X Net
Return of 2.25 times the Fund X Investment, at which
level 23% of the performance options would vest. At a
Fund X Net Return below that level, no performance options
would become exercisable, except that, 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 by First Reserve, the performance options granted
prior to completion of our IPO will vest with respect to 45% of
the shares of our common stock subject to the performance
option. This measure has not been used for purposes of
presenting the table above, as it is not possible to estimate
when First Reserve may sell 100% of its investment in us. See
Equity and Incentive Plan Awards Amended and
Restated Chart Industries, Inc. 2005 Stock Incentive Plan
for more information about these options and the 2005 Stock
Incentive Plan.
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(4)
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These securities underlying
unexercised options represent time options granted under the
2005 Stock Incentive Plan, which will vest ratably on each of
March 29, 2007, 2008, 2009, 2010 and 2011.
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(5)
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These securities underlying
unexercised options represent time options granted under the
2005 Stock Incentive Plan, which will vest ratably on each of
April 27, 2007, 2008, 2009, 2010 and 2011.
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(6)
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These stock options are also
included in the All Other Option Awards column of
the 2006 Grants of Plan-Based Awards Table.
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(7)
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These stock options are also
included in the Estimated Future Payouts Under Equity
Incentive Plan Awards column of the 2006 Grants of
Plan-Based Awards Table.
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107
2006
OPTION EXERCISES AND STOCK VESTED TABLE
The following table and related notes and discussion present
information about the number of shares issued upon option
exercises, and the value realized on exercise, by our named
executive officers in 2006.
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Option Awards
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Stock Awards
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Number of
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Number of
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Shares
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Value
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Shares
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Value
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Acquired
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Realized
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Acquired
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Realized
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on Exercise
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on Exercise
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on Vesting
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on Vesting
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Name
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(#)
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($)
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(#)
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($)
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Samuel F. Thomas
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437,645
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(1)(2)
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$
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9,924,381
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(3)
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Michael F. Biehl
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24,505
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(1)(2)
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$
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555,708
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(3)
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(1) |
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These stock options, which were granted under our 2004 Stock
Plan, were exercised on May 19, 2006, prior to our IPO. The
options became exercisable on multiple dates, on or before
October 17, 2005. |
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(2) |
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The number of shares acquired on exercise has been adjusted to
give effect to a 4.6263-for-one stock split of our common stock
that occurred on July 20, 2006. |
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(3) |
|
In March 2006, we hired an independent valuation firm to
determine the fair market value of our common stock as of
March 31, 2006. The value realized upon exercise is based
on the difference between that fair market value, as determined
by the independent valuation firm (which we consider to be the
fair market value of our stock on May 19, 2006), and the
pre-IPO exercise price of the options. The fair market value of
our stock on May 19, 2006, the date of option exercise,
before our IPO, is not comparable to the fair market value of
our stock after our IPO as a result of the significant changes
to our equity capital structure that took place immediately
before and as part of our IPO. The value realized upon exercise
has not been adjusted to reflect the income and other taxes paid
or owed by Mr. Thomas and Mr. Biehl upon exercise of
the options, which were substantial and all of which have been
borne personally by Messrs. Thomas and Biehl. |
2006
NONQUALIFIED DEFERRED COMPENSATION TABLE
The following table and related notes and discussion present
information about the amount of compensation deferred, and the
earnings accrued thereon, by our named executive officers in
2006.
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|
Aggregate
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Balance
|
|
|
|
Contributions in
|
|
|
Contributions in
|
|
|
Earnings
|
|
|
Withdrawals/
|
|
|
at Last
|
|
|
|
Last FY
|
|
|
Last FY
|
|
|
in Last FY
|
|
|
Distributions
|
|
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FYE
|
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Name
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($)
|
|
|
($)
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|
|
($)
|
|
|
($)
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|
|
($)
|
|
|
Samuel F. Thomas
|
|
$
|
99,600
|
(1)
|
|
$
|
|
|
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$
|
10,354
|
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|
$
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$
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109,954
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(1) |
|
The amount of executive contributions listed in the table was
included in the aggregate amount of bonus earned by
Mr. Thomas in the bonus column of our 2005 Summary
Compensation Table. |
Pursuant to the Companys Amended and Restated Chart
Industries, Inc. Voluntary Deferred Income Plan (the
Deferred Income Plan), eligible employees are
entitled to elect to defer up to 100% of their compensation,
consisting of total salary, bonuses and commissions payable in a
calendar year. Regardless of the circumstances under which a
participants relationship with the Company terminates, all
deferrals made pursuant to the plan will be fully vested.
Contributions made by the Company, and any gains or losses on
such contributions, vest as follows: 33% upon completion of one
year of participation; 67% upon completion of two years of
participation; and 100% upon completion of three years of
participation in the plan. Elections are made by participants in
the taxable year immediately prior to the taxable year to which
the deferral pertains, and are effective as of the first day of
such taxable year. The Deferred Income Plan is unfunded and all
benefits under the plan are payable solely from the general
assets of the Company.
108
Benefits under the Deferred Income Plan are payable upon the
participants reaching his or her normal or early
retirement date or termination of employment. Payments are made
either in a lump sum, or in equal annual installments for a
period of years, as designated by the participant at the time of
deferral. Payments may be accelerated under the Deferred Income
Plan in the event that (i) a participants interest
upon termination does not exceed $10,000; (ii) a plan
interest is awarded to a former spouse of a participant under
court order; (iii) a change in control occurs;
(iv) a participant has an unforeseeable emergency;
(v) a participant becomes disabled; or (vi) death
occurs prior or subsequent to commencement or completion of
payment of benefits, respectively. In no event may a participant
receive more than one distribution as a result of an
unforeseeable emergency in any calendar year. A participant may
also elect to receive an in-service distribution at the time of
completing an election of deferral, and such payment is payable
in a lump sum on the in-service withdrawal date. For information
regarding post-termination payments under the plan, see
Other Potential Post-Employment Payments.
Participants in the Deferred Income Plan may direct the
investment of their balance held within the plan among a number
of alternative investment fund options, and earnings and losses
on participants investments are determined based on the
individual performance of the underlying investment options. A
participant may regularly change their investment allocation
within the plan. A rabbi trust has been established under the
plan to hold assets separate from our other assets for the
purpose of paying future participant benefit obligations. Assets
held in the rabbi trust are available to our general creditors
in the event of our insolvency.
Notwithstanding anything in the Deferred Income Plan to the
contrary, the Deferred Income Plan is administered in accordance
with the requirements of, or to meet the requirements for
exemption from, Section 409A of the Internal Revenue Code.
OTHER
POTENTIAL POST-EMPLOYMENT PAYMENTS
The table below reflects the amount of compensation payable to
each of the named executive officers of our company in the event
of termination of the executives employment. The amount of
compensation payable to each named executive officer upon
termination by us without Cause (as defined below) or
resignation by the executive with Good Reason (as defined
below), termination by us with Cause or resignation by the
executive without Good Reason, in the event of Disability (as
defined below) or death and termination following a Change in
Control (as defined below) are set forth below. All of the
compensation arrangements described below were put in place
prior to our IPO, which occurred on July 25, 2006. Although
our board of directors and compensation committee were
responsible for the implementation of all of the payment
arrangements described below, the terms of all of the
post-employment payment arrangements were subject to the review
of First Reserve directly or through its representatives on our
board of directors.
The amounts shown assume that such termination was effective as
of December 29, 2006, the last business day of 2006, and
thus include amounts earned through such time and are estimates
of the amounts which would be paid out to the executives upon
their termination. The actual amounts to be paid out can only be
determined at the time of an executives separation from
our company.
Payments
made upon Involuntary Termination for Cause or
Resignation without Good Reason
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that a named executive officer is
terminated for (i) the executives willful failure to
perform duties, commission of, or plea of guilty or no contest
to a felony or crime involving moral turpitude, willful
malfeasance or misconduct which is demonstrably injurious to us
or our subsidiaries, material breach of the material terms of
the agreement, commission of an act of gross negligence,
corporate waste, disloyalty or unfaithfulness to us which
adversely affects the business or that of our subsidiaries or
affiliates, or any other act or course of conduct which will
demonstrably have a material adverse effect on us
(Cause) or resigns for (ii) a reason other than
any of the following events occurring without Executives
consent: a substantial diminution in the executives
position or duties, or any reduction in base salary or material
reduction in employee benefits not affecting all other senior
executives (Good Reason), he will be entitled to
receive his base salary, annual bonus and benefits, including
accrued but unpaid vacation, that are earned but unpaid as of
the date of termination.
109
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the named executive
officers, in the event that a named executive officer is
terminated for Cause or resigns without Good Reason, the
unvested portion of all time options and all performance options
will be cancelled.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated for
(i) conviction of certain crimes enumerated in the Deferred
Income Plan; or (ii) any breach of the duty of loyalty to
us, any acts of omission in the performance of his company
duties not in good faith or which involve intentional misconduct
or a knowing violation of law, or any transaction in the
performance of his company duties from which he derived an
improper personal benefit (Cause Under Deferred Income
Plan), Mr. Thomas will not be entitled to receive any
benefits or payments under the terms of the plan, other than his
deferrals.
Payments
made upon Involuntary Termination Without Cause or Resignation
for Good Reason
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that a named executive officer is
terminated without Cause or resigns for Good Reason, he will be
entitled to receive his base salary, annual bonus and benefits,
including accrued but unpaid vacation, 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 and
compliance with the restrictive covenants described below
underRestrictive Covenants that Apply During and
After Termination of Employment, (i) the greater of
the executives current base salary or highest base salary
paid within the employment term, payable in installments as
follows: Mr. Thomas, for three years; Mr. Biehl, for
two years; Mr. Klaben and Mr. Hoppel, for one year;
and (ii) continued coverage under group health plans on the
same basis as active employees as follows: Mr. Thomas, for
three years; Mr. Biehl, for two years; Mr. Klaben and
Mr. Hoppel, for one year. To the extent that continued
coverage is not permissible under the terms of such plans beyond
eighteen months, we may instead pay an amount equal to the
premium subsidy we would have otherwise paid on the executive
officers behalf for such coverage.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the named executive
officers, in the event that a named executive officer is
terminated by us without Cause or resigns for Good Reason,
including retirement at age 60, provided the executive has
completed ten years of service with us (Retirement),
any unvested time options will be cancelled. No named executive
officer was eligible for Retirement on December 29, 2006,
and accordingly, the table below does not present any option
benefits associated with Retirement. With respect to performance
options, we will determine whether and to what extent the
performance options would have vested as of the date of such
termination, based upon the Fund X Net Return net of all
expenses, taxes incurred by us or one of our subsidiaries, and
payment of management options and based upon the fair market
value of us, as determined in good faith by the board, in its
sole discretion, assuming a hypothetical liquidation of us or
the sale of us to a third party, subject to certain appraisal
rights. Any portion of the performance options that we, or an
independent investment banker, as applicable, determines would
have vested, will be deemed vested, and the remainder of the
unvested options will be forfeited.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated by us without
Cause Under Deferred Income Plan or by resignation for Good
Reason, Mr. Thomas will be entitled to receive an amount
equal to his vested account, payable as a lump sum. The payment
will be made on or about the first day of the third month
following termination.
Payments
made upon Termination by Reason of Death or Disability
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that a named executive officer is
terminated by reason of death or becomes physically or mentally
incapacitated and therefore unable to for a period of six
consecutive months or an aggregate of nine months in any
twenty-four consecutive month period to perform his duties
(Disability) he will be entitled to receive his base
salary, annual bonus and benefits, including accrued but unpaid
vacation, that are earned but unpaid as of the date of
termination and, a pro rata portion of the annual bonus, if any,
that the executive would have been entitled to receive
110
for the year in which the termination occurs, based on our
actual results for the year and the percentage of the fiscal
year that has elapsed through the date of the executives
termination of employment.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the executive
officers, in the event that a named executive officer is
terminated due to death or disability, any time options that
would have vested in the calendar year in which such termination
occurs, will become fully vested. With respect to performance
options, we will determine whether and to what extent the
performance option would have vested as of the date of such
termination, based upon the Fund X Net Return net of all
expenses, taxes incurred by us or one of our subsidiaries, and
payment of management options and based upon the fair market
value of us, as determined in good faith by the board, in its
sole discretion, assuming a hypothetical liquidation of us or
the sale of us to a third party, subject to certain appraisal
rights. Any portion of the performance option that we, or an
independent investment banker, as applicable, determines would
have vested, will be deemed vested, and the remainder of the
unvested options will be forfeited.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated due to
disability, the benefit payable to him under the Deferred Income
Plan will vest, as of the date of the disability determination.
In the event that Mr. Thomas employment is terminated
due to death, we will distribute Mr. Thomas account
as soon as practicable following the date of death. In the event
that either occurs prior to commencement of the payment of
benefits, payments will be made as a lump sum. In the event that
Mr. Thomas employment is terminated due to death
following the commencement of the payment of benefits, but prior
to the completion of all such benefits, we will continue to make
installment payments over the remainder of the period, as though
he had survived.
Payments
made upon Expiration of Employment Term
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that the employment of a named executive
officer is terminated upon expiration of the employment term
without renewal, he will be entitled to receive his base salary,
annual bonus and benefits, including accrued but unpaid
vacation, that are earned but unpaid as of the date of
termination. No named executive officers employment
agreement could have terminated on December 29, 2006 as a result
of the rolling term of the agreement, since we could not have
provided the required notice one, two or three years before
expiration under the terms of the applicable agreement.
Accordingly, no benefits are shown in the table below related to
expiration of the employment agreement term on December 29, 2006.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the executive
officers, in the event that the employment of a named executive
officer is terminated upon expiration of the employment term
without renewal, the unvested portion of all time options and
all performance options will be cancelled.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated upon expiration
of the employment term without renewal, Mr. Thomas will be
entitled to receive an amount equal to his vested account,
payable as a lump sum. The payment will be made on or about the
first day of the seventh month following termination.
Payments
made upon Change in Control
Salary, Bonus and Benefits. The named
executive officers employment agreements do not address
termination of employment upon a change in control. Accordingly,
any benefits or payments in such a case would be determined by
the nature of the termination of employment, such as resignation
without Good Reason, termination for Cause, termination without
Cause, or otherwise.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the named executive
officers, in the event of the occurrence of any of the following
events: (i) the sale or disposition, in one or a series of
related transactions, of all or substantially all, of our assets
to any person or group, other than First Reserve Fund X,
L.P., its affiliates and certain other persons, as specified in
the 2005 Stock Incentive Plan; (ii) any person or group,
other than First Reserve Fund X, L.P., it
111
affiliates and certain other persons, as specified in the 2005
Stock Incentive Plan, is or becomes the beneficial owner of more
than 50% of the total voting power of the our total stock,
including by way of merger, consolidation, tender or exchange
offer or otherwise; or (iii) during any period of two
consecutive years, individuals who at the beginning of such
period constituted the board (together with any new directors
whose election by such board or whose nomination for election by
our stockholders was approved by a vote of a majority of our
directors, then still in office, who were either directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the board then in office (each, a
Change in Control), the time options will
immediately become fully vested and exercisable.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that (i) a
person other than our employee stock ownership trust, becomes
the beneficial owner, directly or indirectly, of our outstanding
common stock having 51% or more of the total number of votes
which may be cast for directors; or (ii) during any period
of two consecutive years, individuals who at the beginning of
such period constituted the board of directors (together with
any new directors whose election by such board or whose
nomination for election by the our stockholders was approved by
a vote of two-thirds of the our directors, then still in office,
who were either directors at the beginning of such period) cease
for any reason to constitute a majority of the board, then in
office, Mr. Thomas interest in all amounts credited
to his account under the plan will fully and immediately vest
and become nonforfeitable.
Restrictive
Covenants that Apply During and After Termination of
Employment
Each of Messrs. Thomas, Biehl, Klaben and Hoppel is also
subject under the terms of his employment agreement to a
customary covenant not to disclose confidential information
during the term of his employment and at all times thereafter
and to customary covenants not to compete and not to solicit
employees or customers during the employment term and for
(a) three years following termination of employment for any
reason, in the case of Mr. Thomas, (b) two years
following termination of employment for any reason, in the case
of Mr. Biehl, and (c) one year following termination
of employment for any reason, in the case of Messrs. Klaben
and Hoppel.
Assuming that the employment of each named executive officer was
terminated under each of the following circumstances on
December 29, 2006, the last business day of 2006, and based
on the terms of the applicable
112
agreements and plans described above, payments made and benefits
provided would have the following estimated values:
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Involuntary
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Involuntary
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Termination for
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Termination without
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Cause /
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Cause /
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Resignation by
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Resignation by
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Executive without
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Executive for Good
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Change in
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Good Reason
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Reason
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Disability / Death
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Control(7)
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Base
Salary(1)
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Samuel F. Thomas
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$
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$
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1,200,000
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$
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$
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Michael F. Biehl
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$
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$
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470,000
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$
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|
|
$
|
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|
|
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|
|
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Matthew J. Klaben
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$
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$
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193,000
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$
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$
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James H. Hoppel, Jr.
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$
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$
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154,000
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|
$
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|
$
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Annual
Bonus(2)
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Samuel F. Thomas
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$
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|
|
$
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$
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656,384
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$
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|
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Michael F. Biehl
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$
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$
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$
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350,568
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$
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|
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|
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Matthew J. Klaben
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$
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|
|
$
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$
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201,540
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$
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|
|
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|
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James H. Hoppel, Jr.
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$
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|
|
$
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|
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$
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137,841
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|
$
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|
|
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|
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Health and Welfare
Benefits(3)
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|
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Samuel F. Thomas
|
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$
|
|
|
|
$
|
40,373
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|
$
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|
|
|
$
|
|
|
|
|
|
|
|
|
|
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Michael F. Biehl
|
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$
|
|
|
|
$
|
24,805
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|
$
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|
|
|
$
|
|
|
|
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|
|
|
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Matthew J. Klaben
|
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$
|
|
|
|
$
|
11,829
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|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
11,829
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of time
options(4)
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|
|
|
|
|
|
|
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Samuel F. Thomas
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,844,030
|
|
|
|
|
|
|
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
553,206
|
|
|
|
|
|
|
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
141,171
|
|
|
|
|
|
|
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
197,101
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of performance
options(5)
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|
|
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|
|
|
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|
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|
|
|
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Samuel F. Thomas
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|
$
|
|
|
|
$
|
971,966
|
|
|
$
|
971,966
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
291,586
|
|
|
$
|
291,586
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
60,301
|
|
|
$
|
60,301
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
102,631
|
|
|
$
|
102,631
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Deferred
Compensation(6)
|
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|
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|
|
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|
Samuel F. Thomas
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|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
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|
$
|
|
|
|
$
|
2,212,339
|
|
|
$
|
1,628,350
|
|
|
$
|
1,844,030
|
|
|
|
|
|
|
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
786,391
|
|
|
$
|
642,154
|
|
|
$
|
553,206
|
|
|
|
|
|
|
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
265,130
|
|
|
$
|
261,841
|
|
|
$
|
141,171
|
|
|
|
|
|
|
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
268,460
|
|
|
$
|
240,472
|
|
|
$
|
197,101
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The base salary levels of the
executive officers under their employment agreements at
December 31, 2006 were as follows: Mr. Thomas,
$400,000; Mr. Biehl, $235,000; Mr. Klaben, $193,000;
and Mr. Hoppel, $154,000. These 2006 amounts were used in
calculating the hypothetical payment shown. The base salary
levels of the executive officers have been adjusted, effective
January 1, 2007, as follows: Mr. Thomas, $450,000;
Mr. Biehl, $245,000; Mr. Klaben, $200,000; and
Mr. Hoppel, $170,000. The amounts in the table do not
include accrued but unused vacation, since the policy governing
vacation for the executive officers mandates the forfeiture of
all accrued vacation for the current year not used by the end of
the year, and each scenario assumed termination of employment
with no business days remaining in the year.
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|
|
|
(2)
|
|
Our 2006 Bonus Plan, under which
incentive bonuses would be paid for 2006, generally requires a
participant to be employed on the last day of the fiscal year in
order to receive a bonus. Since each executive officer is
assumed to be terminated before the end of the year in the table
above, no bonus amounts are shown for the year in question
unless otherwise required under the terms of the executive
officers employment agreement. The bonus amounts payable
upon termination due to death or disability as set forth above
assumes realization of our maximum performance goals under the
2006 Bonus Plan, as set forth under the Estimated Future
Payouts Under Non-Equity Incentive Plan Awards portion of
the 2006 Grants of Plan-Base Awards Table above and in the 2006
Summary Compensation Table above, and have been prorated based
on the number of days in the year through December 29 relative
to a full 365-day year.
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|
|
|
(3)
|
|
Heath and welfare benefits consist
of health care and dental. These benefits after termination of
employment for 2007 have been calculated based on actual cost to
us for 2007. Health and welfare benefits for 2008, in the case
of Messrs. Thomas and Biehl, and 2009, in the case of
Mr. Thomas, have been calculated on the basis of actual
cost for 2007 plus an assumed 10% annual increase in medical
benefits cost and an assumed 3% annual increase in dental
benefit cost.
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|
|
|
(4)
|
|
The value of the time options that
vest upon a Change in Control represents the difference between
the aggregate market value of the shares underlying the unvested
portion of these options on the last business day of 2006, at
$16.21 per share, the closing price of our common stock on
that day, and the aggregate exercise price of the options. The
calculation for each named executive officer is as follows:
Mr. Thomas,
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113
|
|
|
|
|
189,910 shares, at a market
price of $16.21 per share, for an aggregate market value of
$3,078,448, minus $1,234,418, the aggregate exercise price for
the shares; Mr. Biehl, 56,973 shares, at a market
price of $16.21 per share, for an aggregate market value of
$923,529, minus $370,323, the aggregate exercise price for the
shares; Mr. Klaben, 34,857 shares, at a market price
of $16.21 per share, for an aggregate market value of
$565,032, minus $423,861, the aggregate exercise price for the
shares; and Mr. Hoppel, 22,127 shares, at a market
price of $16.21 per share, for an aggregate market value of
$358,685, minus $161,584, the aggregate exercise price for the
shares.
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|
|
|
(5)
|
|
The performance options that were
granted under the 2005 Stock Incentive Plan could partially vest
under the option agreements as of the date of termination of
employment as a result of involuntary termination without Cause,
resignation for Good Reason, Disability or death based upon
calculation of a hypothetical Fund X Net Return at the date
of termination, net of certain deductions. The Fund X Net
Return is calculated assuming a hypothetical liquidation of us
or a sale of us to a third party implying a fair market value at
such date, net of expenses, taxes incurred by us and payment of
management options. The Fund X Net Return net of the
applicable deductions was calculated, solely for purposes of the
presentation above, to exceed the minimum performance option
vesting threshold under our option agreements at
December 29, 2006 using a fair market value based on a
stock price of $16.21 per share, which represented the
closing price of our common stock on December 29, 2006, and
publicly available information concerning the amounts invested
in us by First Reserve and the cash returned to First Reserve
before December 29, 2006. Expenses, taxes and payment of
management options could not be reasonably estimated with
specificity, and actual amounts may have resulted in different
payouts than those shown in the table above. Therefore, 23% of
the performance options were assumed to vest at the termination
date based on the foregoing. Because of the uncertainty in
calculating the components of the applicable formula, actual
vesting may have been higher or lower than this amount, had an
actual calculation been performed in connection with an actual
employment termination. The calculation of the value shown in
the table for each named executive officer is as follows:
Mr. Thomas, 100,099 shares, at a market price of
$16.21 per share, for an aggregate market value of
$1,622,605, minus $650,639, the aggregate exercise price for the
shares; Mr. Biehl, 30,029 shares, at a market price of
$16.21 per share, for an aggregate market value of
$486,770, minus $195,184, the aggregate exercise price for the
shares; Mr. Klaben, 14,889 shares, at a market price
of $16.21 per share, for an aggregate market value of
$241,351, minus $181,050, the aggregate exercise price for the
shares; and Mr. Hoppel, 11,351 shares, at a market
price of $16.21 per share, for an aggregate market value of
$183,400, minus $80,769, the aggregate exercise price for the
shares. We do not believe any named executive officer would have
had the right at December 29, 2006 to terminate his
employment under the circumstances described above, nor can we
predict at this time whether any performance options might ever
vest based on future events.
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(6)
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No benefit is shown for deferred
compensation because there are no contributions by us or any
above-market returns on any participant moneys in the Deferred
Income Plan for any named executive officer. All balances in the
Deferred Income Plan represent solely the named executive
officers contributions or market earnings on those
contributions. For more information, see 2006 Nonqualified
Deferred Compensation Table.
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|
|
(7)
|
|
Assumes termination of employment
results from resignation without Good Reason. If resignation
were for Good Reason, or if termination resulted from
involuntary termination without Cause or for Cause, see the
applicable columns in the table for the salary continuation,
acceleration of performance options, or other applicable
benefits that could apply in such case.
|
2006
DIRECTOR COMPENSATION TABLE
The following table and related notes and discussion summarize
compensation paid to our non-employee directors for our 2006
fiscal year, presented in accordance with SEC rules.
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|
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|
|
|
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|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in
|
|
|
Stock
|
|
|
All Other
|
|
|
|
|
|
|
Cash
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
Timothy H. Day
|
|
$
|
24,000
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
64,000
|
|
Richard E. Goodrich
|
|
$
|
28,500
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
68,500
|
|
Ben A. Guill
|
|
$
|
22,000
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
62,000
|
|
Steven W. Krablin
|
|
$
|
30,500
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
70,500
|
|
Kenneth W. Moore
|
|
$
|
22,000
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
62,000
|
|
Michael W. Press
|
|
$
|
26,000
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
66,000
|
|
|
|
|
(1) |
|
As of December 31, 2006, the directors held restricted
stock units in the following amounts: Timothy H. Day, 2,666
restricted stock units; Ben A. Guill, 2,666 restricted stock
units; Richard E. Goodrich, 2,658 restricted stock units; Steven
W. Krablin, 2,666 restricted stock units; Kenneth W. Moore,
2,666 restricted stock units; and |
114
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Michael W. Press, 2,658 restricted stock units. The grant date
fair value of each restricted stock unit grant reported in this
column, calculated in accordance with SFAS 123R, is $40,000. |
Director
Compensation
Directors who are also employees do not receive any additional
compensation for services performed as a member of our board of
directors or committees thereof. We pay our non-employee
directors an annual retainer of $32,000, payable in equal
quarterly installments, and grant annually to 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 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 2005 Stock Plan) or the
director ceasing to serve on the board due to death or
disability (as defined in the 2005 Stock 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.
In addition to the compensation described above, the chairperson
of our audit committee receives an additional $8,000 annual
retainer, and the chairpersons of our other board committees
receive an additional $4,000 annual retainer, in each case in
equal quarterly installments. Additionally, we 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 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.
Shares of our common stock issued upon settlement of restricted
stock units will count towards the $100,000 requirement.
Management
Equity
In connection with the Acquisition, the compensation committee
elected to adjust, in accordance with the terms of our 2004
Stock 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.
115
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and accompanying footnotes show information
regarding the beneficial ownership of our common stock as of
January 15, 2007 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.
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Number of Shares of
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Percentage of
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Common Stock
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Shares of
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Name of Beneficial
Holder
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Beneficially Owned
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Common
Stock(1)
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First Reserve Fund X,
L.P(2)
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12,384,212
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48.4
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%
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Capital Research and Management
Company(3)
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2,266,400
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8.9
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%
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Samuel F.
Thomas(4)
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558,304
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2.2
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%
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Michael F.
Biehl(5)
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42,845
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*
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Matthew J. Klaben
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2,500
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*
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James H.
Hoppel, Jr.(6)
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7,248
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*
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Ben A.
Guill(7)(8)
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2,666
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*
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Kenneth W.
Moore(7)(9)
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2,666
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*
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Timothy H.
Day(7)(10)
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2,666
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*
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Steven W.
Krablin(11)
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2,666
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*
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Michael W.
Press(12)
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4,658
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*
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Richard E.
Goodrich(13)
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4,658
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*
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All directors and officers as a
group (10 persons)
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630,877
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2.5
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%
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(1)
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In accordance with Commission
rules, each beneficial owners holdings have been
calculated assuming full exercise of outstanding options
covering Common Stock, if any, exercisable by such owner within
60 days after January 15, 2007, but no exercise of
outstanding options covering Common Stock held by any other
person.
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(2)
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48.4% of our common stock is owned
by FR X Chart Holdings LLC, or Chart Holdings, 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. (In this footnote we refer to
Fund X, GP X and GPX, Inc. collectively as, the
Fund Entities.) The officers of GP X Inc. are
William E. Macaulay, John A. Hill, Ben A. Guill, Alan G.
Schwartz, Cathleen M. Ellsworth, J.W.G. (Will) Honeybourne, Alex
T. Krueger, Mark A. McComiskey, Kenneth W. Moore, Thomas J.
Sikorski, Jennifer C. Zarrilli, Timothy H. Day, Joseph Robert
Edwards, J. Hardy Murchison, 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, Damien T.J. Harris, Francesco Giuliani,
Neil J. Hartley, Joshua R. Weiner, Avik Dey, Dod E. Wales, Joel
C. Lambert and Matthew S. Raben 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 most closely on a given investment, which includes
Messrs. Macaulay, Guill, Moore and Day in the case of Chart
Industries, Inc. The 12,384,212 shares consist of
12,376,214 shares directly owned by Chart Holdings, and
7,998 aggregate shares of Common Stock underlying the 2,666
restricted stock units of the company issued to each of
Messrs. Day, Guill and Moore under the 2005 Stock Incentive
Plan. The Fund Entities (but not Chart Holdings) are
entitled to a portion of the profits from the sale of such
restricted stock units and any underlying shares of Common
Stock, and may therefore be deemed to share beneficial ownership
over such securities. 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)
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According to a Schedule 13G
filed with the SEC on February 12, 2007, Capital Research
and Management Company, as of December 29, 2006, has sole
voting power and sole dispositive voting power over
2,266,400 shares. Capital Research and Management Company
is located at 333 South Hope Street, Los Angeles, California
90071.
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(4)
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Shares beneficially owned by
Mr. Thomas include 134,998 shares that were
transferred to a trust of which Mr. Thomas is the grantor
and the current beneficiary and 47,478 shares which he has
the right to acquire within 60 days of January 15,
2007 through the exercise of stock options.
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(5)
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Shares beneficially owned by
Mr. Biehl include 14,243 shares which he has the right
to acquire within 60 days of January 15, 2007 through
the exercise of stock options.
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116
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(6)
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Shares beneficially owned by
Mr. Hoppel include 4,748 shares which he has the right
to acquire within 60 days of January 15, 2007 through
the exercise of stock options.
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(7)
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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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(8)
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Shares beneficially owned by
Mr. Guill consist of 2,666 restricted stock units. See
footnote 2.
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(9)
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Shares beneficially owned by
Mr. Moore consist of 2,666 restricted stock units. See
footnote 2.
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(10)
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Shares beneficially owned by
Mr. Day consist of 2,666 restricted stock units. See
footnote 2.
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(11)
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Shares beneficially owned by
Mr. Krablin consist of 2,666 restricted stock units.
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(12)
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Shares beneficially owned by
Mr. Press include 2,658 restricted stock units.
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(13)
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Shares beneficially owned by
Mr. Goodrich include 2,658 restricted stock units.
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*
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Less than 1%.
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117
CERTAIN
RELATED PARTY TRANSACTIONS
Management
Stockholders Agreements
In connection with our IPO, we entered into amended and restated
management stockholders agreements, effective as of
April 1, 2006, with certain members of our management,
including Messrs. Thomas, Biehl, Klaben and Hoppel, 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 the IPO, we and First Reserve or one of its
affiliates entered into a stockholders agreement pursuant to
which First Reserve or its affiliates has the right to request
us to register the sale of securities held by First Reserve, on
their behalf and may require us to make available shelf
registration statements permitting sales of securities 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.
In addition, pursuant to the terms of the stockholders
agreement, 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 of directors or a committee thereof.
118
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.
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 the three months
ended March 31, 2006, we paid $41,765 in legal fees and
expenses to the law firm of Calfee, Halter & Griswold
LLP for legal services rendered.
119
DESCRIPTION
OF NOTES
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. In this description, the term
Issuer refers only to Chart Industries, Inc. and its
successors under the indenture and not to any of its
Subsidiaries.
The outstanding notes were issued and the exchange notes will be
issued under an indenture among the Issuer, the Guarantors and
The Bank of New York. The terms of the notes include those
stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material
provisions of the indenture. It does not restate those
agreements in their entirety. We urge you to read the indenture
because it, and not this description, defines your rights as
holders of the notes. Copies of the indenture is available as
set forth below under Additional Information.
Certain defined terms used in this description but not defined
below under Certain Definitions have the
meanings assigned to them in the indenture.
The Holder of a note will be treated as the owner of it for all
purposes. Only Holders will have rights under the indenture.
Brief
Description of the Notes and the Note Guarantees
The
Notes
The notes:
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are general unsecured senior subordinated obligations of the
Issuer;
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are subordinated in right of payment to all existing and future
Senior Indebtedness of the Issuer, including borrowings under
the Credit Agreement;
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are effectively subordinated in right of payment to any existing
and future Indebtedness and other liabilities, including trade
payables, of the Issuers Foreign Subsidiaries, certain
Domestic Subsidiaries that are not Guarantors and any future
Unrestricted Subsidiaries;
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are pari passu in right of payment with all future senior
subordinated Indebtedness of the Issuer;
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are senior in right of payment to any future Indebtedness of the
Issuer that expressly provides for its subordination to the
notes; and
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are unconditionally guaranteed on a senior subordinated basis,
jointly and severally, by the Guarantors.
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A substantial portion of the personal property and all other
material assets of the Issuer and its Subsidiaries, including
the Guarantors (subject to certain limited exceptions agreed
upon with respect to immaterial Subsidiaries and with respect to
any guarantee that could create materially adverse tax
consequences), have been pledged to secure our obligations to
our secured creditors, including our obligations under the
Credit Agreement. In the event our secured creditors exercise
their rights with respect to their pledged assets, our secured
lenders would be entitled to be repaid in full from the
liquidation of those assets before those assets would be
available for distribution to our other creditors, including
holders of the Notes. See Risk FactorsRisks Related
to the Exchange NotesYour right to receive payments on the
notes is effectively junior to those lenders who have a security
interest in our assets. In addition, the assets of the
Subsidiaries of the Issuer that are not Guarantors will be
subject to the prior claims of all creditors, including trade
creditors, of those Subsidiaries. See Risk
FactorsRisks Related to the Exchange NotesClaims of
noteholders are structurally subordinate to claims of creditors
of all of our
non-U.S. subsidiaries
and some of our U.S. subsidiaries because they do not
guarantee the notes.
As of September 30, 2006:
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the Issuer and its Subsidiaries had $290.0 million
principal amount of Indebtedness on a consolidated basis
(including the notes), of which $120.0 million was secured
Senior Indebtedness, comprised solely of borrowings under the
senior secured credit facility (excluding $27.3 million in
letters of credit);
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120
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an additional $87.7 million was available for borrowing
under the senior secured credit facility, which Indebtedness
when incurred would be Senior Indebtedness and would be secured;
and
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subsidiaries of the issuer that are not Guarantors had
$29.0 million of Indebtedness and other liabilities,
including trade payables but excluding intercompany liabilities.
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The
Note Guarantees
The notes were initially guaranteed, on a senior subordinated,
unsecured basis, by each of the Issuers direct and
indirect Restricted Subsidiaries that are Domestic Subsidiaries
on the Issue Date and that guarantee Indebtedness under the
Credit Agreement.
Each Note Guarantee is:
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a general senior subordinated, unsecured obligation of that
Guarantor;
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subordinated in right of payment to all existing and future
Senior Indebtedness of that Guarantor, including any borrowings
and guarantees by that Guarantor of Indebtedness under the
Credit Agreement;
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pari passu in right of payment with all future senior
subordinated Indebtedness of that Guarantor; and
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senior in right of payment to any future Indebtedness of that
Guarantor that expressly provides for its subordination to the
Guarantors Note Guarantee.
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Each Note Guarantee is subordinated to the prior payment in full
of all Senior Indebtedness of that Guarantor. The obligations of
each Guarantor under its Note Guarantee is limited as necessary
to prevent that guarantee from constituting a fraudulent
conveyance under applicable law. See Risk
FactorsRisks Related to the Exchange NotesFederal
and state fraudulent transfer laws may permit a court to void
the notes and if that occurs, you may not receive any payments
on the notes. As of September 30, 2006, the Issuer
and the Guarantors had $120.0 million of Senior
Indebtedness (excluding approximately $27.3 million of
letters of credit under the Credit Agreement), all of which were
guarantees of Indebtedness under the Credit Agreement.
A Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge
with or into (whether or not such Guarantor is the surviving
Person), another Person, other than the Issuer or another
Guarantor, unless:
(1) immediately after giving effect to that transaction, no
Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that
Guarantor under the indenture, its Note Guarantee and the
registration rights agreement pursuant to a supplemental
indenture in the form attached as an exhibit to the
indenture; or
(b) in the case of any such sale or disposition (including
by way of any such consolidation or merger), the Net Proceeds of
such sale or other disposition are applied in accordance with
the applicable provisions of the indenture.
The Note Guarantee of a Guarantor will be released:
(1) in connection with any sale, disposition or transfer of
all or substantially all of the assets of that Guarantor
(including by way of merger or consolidation) to a Person that
is not (either before or after giving effect to such
transaction) the Issuer or a Restricted Subsidiary of the
Issuer, if the sale, disposition or transfer does not violate
the first paragraph of the Asset Sale provisions of
the indenture;
(2) in connection with any sale, disposition or transfer of
Capital Stock of that Guarantor to a Person that is not (either
before or after giving effect to such transaction) the Issuer or
a Restricted Subsidiary of the Issuer, if (x) after giving
effect to such sale, disposition or transfer, such Person is no
longer a Subsidiary of the Issuer and (y) the sale,
disposition or transfer does not violate the first paragraph of
the Asset Sale provisions of the indenture;
121
(3) if the Issuer designates any Restricted Subsidiary that
is a Guarantor to be an Unrestricted Subsidiary in accordance
with the applicable provisions of the indenture;
(4) upon legal defeasance or satisfaction and discharge of
the indenture as provided below under the captions
Legal Defeasance and Covenant Defeasance and
Satisfaction and Discharge; or
(5) upon the release of such Guarantors guarantee
under the Credit Agreement or under such other Indebtedness
requiring such Guarantor to provide a Note Guarantee as provided
below under the caption Certain
CovenantsAdditional Note Guarantees.
As of the date of the indenture, all of our Subsidiaries will be
Restricted Subsidiaries. However, under the circumstances
described below under the caption Certain
CovenantsDesignation of Restricted and Unrestricted
Subsidiaries, the Issuer will be permitted to designate
certain of its Subsidiaries as Unrestricted Subsidiaries. The
Issuers Unrestricted Subsidiaries will not be subject to
the restrictive covenants in the indenture. The Issuers
Unrestricted Subsidiaries will not guarantee the notes, and if
the Issuer designates any Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with the indenture, the
Note Guarantee of such Subsidiary will be released.
Principal,
Maturity and Interest
The Issuer issued $170.0 million in aggregate principal
amount of notes in the September 2005 offering. The Issuer may
issue an unlimited amount of additional notes under the
indenture from time to time after this offering. Any issuance of
additional notes is subject to all of the covenants in the
indenture, including the covenant described below under the
caption Certain CovenantsIncurrence of
Indebtedness and Issuance of Preferred Equity. The notes
issued in this offering and any additional notes subsequently
issued under the indenture will be treated as a single class for
all purposes under the indenture, including, without limitation,
waivers, amendments, redemptions and offers to purchase.
The Issuer issued notes in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on October 15,
2015. Interest on the notes will accrue at the rate of
91/8% per
annum and will be payable semi-annually in arrears on April 15
and October 15 of each year, commencing on April 15, 2006.
The Issuer will make each interest payment to the holders of
record on the immediately preceding April 1 and
October 1.
Interest on the notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it
was most recently paid. Interest will be computed on the basis
of a 360-day
year comprised of twelve
30-day
months.
Methods
of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Issuer,
the paying agent will remit on behalf of the Issuer all
principal, interest and premium and Additional Interest, if any,
on that Holders notes in accordance with those
instructions. All other payments on the notes will be made by
check mailed to the Holders at their addresses set forth in the
register of Holders.
Paying
Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar.
The issuer may change the paying agent or registrar without
prior notice to the Holders, and the Issuer or any of its
Subsidiaries may act as paying agent or registrar.
Transfer
and Exchange
A Holder may transfer or exchange notes in accordance with the
provisions of the indenture. The Issuer, the registrar and the
trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents in connection
with a transfer of notes. Holders will be required to pay all
taxes due on transfer. Neither the Issuer nor the registrar will
be required to transfer or exchange any note selected for
redemption. Also, neither the Issuer nor the registrar will be
required to transfer or exchange any note for a period of
15 days before a selection of notes to be redeemed.
122
Ranking
The notes will be senior subordinated Indebtedness of the
Issuer. The payment of the Senior Subordinated Obligations will,
to the extent set forth in the indenture, be subordinated in
right of payment to the prior payment in full, in cash or Cash
Equivalents, of all Obligations due in respect of existing and
future Senior Indebtedness. Payments under the Note Guarantee of
each Guarantor will be subordinated to the prior payment in
full, in cash or Cash Equivalents, of all Senior Indebtedness of
such Guarantor, including Senior Indebtedness of such Guarantor
incurred after the date of the indenture, on the same basis as
provided below with respect to the subordination of payments on
the Notes by the Issuer to the prior payment in full of Senior
Indebtedness of the Issuer. See Risk FactorsRisks
Related to the Exchange NotesYour right to receive
payments on the notes is junior to all of our existing and
future senior indebtedness, and the guarantees of the notes are
junior to all the guarantors existing and future senior
indebtedness. Notwithstanding the foregoing, payment from
the money or the proceeds of Government Securities held in any
trust described under Legal Defeasance and Covenant
Defeasance or Satisfaction and
Discharge, below, will not be contractually subordinated
in right of payment to any Senior Indebtedness or subject to the
restrictions described herein.
The holders of Senior Indebtedness will be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations
due in respect of Senior Indebtedness (including, with respect
to Designated Senior Indebtedness, any interest accruing after
the commencement of any proceeding described below at the rate
specified in the applicable Designated Senior Indebtedness
whether or not interest is an allowed claim enforceable against
the Issuer or any Guarantor in such proceeding) before the
Holders will be entitled to receive any payment on account of
Senior Subordinated Obligations or any payment to acquire any of
the notes for cash, property or securities, or any distribution
with respect to the notes of any cash, property or securities
(except that Holders may receive and retain Permitted Junior
Securities and payments made from any trust described under
Legal Defeasance and Covenant Defeasance or
Satisfaction and Discharge), in the event of
any distribution to creditors of the Issuer:
(1) in a liquidation or dissolution of the Issuer;
(2) in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or its
property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Issuers assets and
liabilities.
In addition, until all Obligations due with respect to Senior
Indebtedness are paid in full in cash or Cash Equivalents
(including, with respect to Senior Indebtedness, any interest
accruing after the commencement of any proceeding described
above at the rate specified in the applicable Designated Senior
Indebtedness whether or not interest is an allowed claim
enforceable against the Issuer or any Guarantor in such
proceeding), any such distribution to which Holders would be
entitled shall be made to the holders of Senior Indebtedness
(except that Holders may receive and retain Permitted Junior
Securities and payments made from any trust described under
Legal Defeasance and Covenant Defeasance or
Satisfaction and Discharge).
The Issuer also may not make any payment in respect of any
Senior Subordinated Obligations (except in Permitted Junior
Securities or from any trust described under Legal
Defeasance and Covenant Defeasance or
Satisfaction and Discharge) if:
(1) a payment default on Designated Senior Indebtedness
occurs and is continuing; or
(2) any other default occurs and is continuing on any
series of Designated Senior Indebtedness that permits holders of
that series of Designated Senior Indebtedness to accelerate its
maturity and a responsible officer of the trustee receives
actual notice of such default (a Payment Blockage
Notice) from the trustee or other representative for the
holders of any Designated Senior Indebtedness, or the holders of
at least a majority of the outstanding principal amount of such
Designated Senior Indebtedness.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default in respect of
Designated Senior Indebtedness, upon the date on which such
default is cured or waived; and
123
(2) in the case of a nonpayment default in respect of
Designated Senior Indebtedness, upon the earlier of the date on
which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment
Blockage Notice is received.
No new Payment Blockage Notice may be delivered unless and
until: (1) 360 days have elapsed since the delivery of
the immediately prior Payment Blockage Notice and (2) all
scheduled payments of principal, interest and premium and
Additional Interest, if any, on the notes that have come due
have been paid in full in cash.
No nonpayment default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the trustee shall
be, or be made, the basis for a subsequent Payment Blockage
Notice.
If the trustee or any Holder receives a payment in respect of
the notes (except in Permitted Junior Securities or from any
trust described under Legal Defeasance and Covenant
Defeasance or Satisfaction and
Discharge) when:
(1) the payment is prohibited by these subordination
provisions; and
(2) the trustee or such Holder has actual knowledge that
the payment is prohibited,
the trustee or the Holder, as the case may be, will hold the
payment in trust for the benefit of holders of Senior
Indebtedness. Upon the proper written request of the holders of
Senior Indebtedness, the trustee or the Holder, as the case may
be, will deliver the amounts in trust to the holders of Senior
Indebtedness or their proper representative.
The Issuer must promptly notify holders of Senior Indebtedness
if payment of the notes is accelerated because of an Event of
Default. Whenever a distribution is to be made or a notice given
to holders of Senior Indebtedness, the distribution may be made
and the notice may be given to the indenture trustee or other
trustee, agent or representative for such Senior Indebtedness.
Payments under the Note Guarantee of each Guarantor will be
subordinated to the prior payment in full of all Senior
Indebtedness of such Guarantor, including Senior Indebtedness of
such Guarantor incurred after the date of the indenture, on the
same basis as provided above with respect to the subordination
of payments on the notes by the issuer to the prior payment in
full of Senior Indebtedness of the Issuer. See Risk
Factors Risks Related to the Exchange NotesYour
right to receive payments on the notes is junior to all of our
existing and future senior indebtedness, and the guarantees of
the notes are junior to all of the guarantors existing and
future senior indebtedness.
By reason of the subordination provisions described above, in
the event of a bankruptcy, liquidation or reorganization of the
Issuer or the Guarantors, Holders may recover less, ratably,
than creditors of the Issuer and the Guarantors who are holders
of Senior Indebtedness. As a result of the obligation to deliver
amounts received in trust to holders of Senior Indebtedness,
Holders may recover less, ratably, than trade creditors of the
Issuer and the Guarantors. See Risk FactorsRisks
Related to the Exchange NotesYour right to receive payment
on the notes is junior to all of our existing and future senior
indebtedness, and the guarantees of the notes are junior to all
the guarantors existing and future senior
indebtedness.
Optional
Redemption
At any time prior to October 15, 2008, the Issuer 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; provided that:
(1) at least 65% of the aggregate principal amount of notes
issued under the indenture (excluding notes held by the Issuer
and its Subsidiaries) remains outstanding immediately after the
occurrence of such redemption; and
(2) the redemption occurs within 180 days of the date
of the closing of such Equity Offering.
124
Notice of any redemption upon any Equity Offering may be given
prior to the redemption thereof, and any such redemption or
notice may, at the Issuers discretion, be subject to one
or more conditions precedent, including, but not limited to,
completion of the related Equity Offering.
Except pursuant to the preceding paragraphs or as otherwise set
forth below, the notes will not be redeemable at the
Issuers 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 the Issuer 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:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2010
|
|
|
104.563
|
%
|
2011
|
|
|
103.042
|
%
|
2012
|
|
|
101.521
|
%
|
2013 and thereafter
|
|
|
100.000
|
%
|
In addition, at any time prior to October 15, 2010, the
Issuer 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 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.
All redemptions of the notes will be made upon not less than
30 days nor more than 60 days prior notice
mailed by first class mail to each Holders registered
address. Unless the Issuer defaults in the payment of the
redemption price, interest will cease to accrue on the notes or
portions thereof called for redemption on the applicable
redemption date.
Mandatory
Redemption
The Issuer is not required to make mandatory redemption or
sinking fund payments with respect to the notes.
Repurchase
at the Option of Holders
Change
of Control
If a Change of Control occurs, each Holder will have the right
to require the Issuer to repurchase all or any part (equal to
$1,000 or an integral multiple of $1,000) of that Holders
notes pursuant to a Change of Control Offer on the terms set
forth in the indenture. In the Change of Control Offer, the
Issuer will offer a Change of Control Payment in cash equal to
101% of the aggregate principal amount of notes repurchased plus
accrued and unpaid interest and Additional Interest, if any, on
the notes repurchased to, but not including, the date of
purchase, subject to the rights of Holders on the relevant
record date to receive interest due on the relevant interest
payment date. Within 30 days following any Change of
Control, the Issuer will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the Change of
Control Payment Date specified in the notice, which date shall
be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, pursuant to the procedures
required by the indenture and described in such notice. The
Issuer will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with the repurchase of the notes as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, the Issuer
will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under
the Change of Control provisions of the indenture by virtue of
such compliance.
125
On the Change of Control Payment Date, the Issuer will, to the
extent lawful:
(1) accept for payment all notes or portions of notes
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or portions of
notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the
notes properly accepted together with an Officers
Certificate stating the aggregate principal amount of notes or
portions of notes being purchased by the Issuer.
The paying agent will promptly mail or wire transfer to each
Holder of notes properly tendered and so accepted the Change of
Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry)
to each Holder a new note equal in principal amount to any
unpurchased portion of the notes surrendered, if any;
provided that each new note will be in a principal amount
of $1,000 or an integral multiple of $1,000. Any note so
accepted for payment will cease to accrue interest on and after
the Change of Control Payment Date. The Issuer will publicly
announce the results of the Change of Control Offer on or as
soon as reasonably practicable after the Change of Control
Payment Date.
The Credit Agreement will limit the ability of the Issuer to
purchase notes, and will also provide that certain change of
control events with respect to the Issuer would constitute a
default under the Credit Agreement. Any future credit agreements
or other agreements relating to Senior Indebtedness to which the
Issuer becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time
when the Issuer is prohibited from purchasing notes, the Issuer
could seek the consent of its senior lenders to the purchase of
notes or could attempt to refinance the borrowings that contain
such prohibition. If the Issuer does not obtain such a consent
or repay such borrowings, the Issuer will remain prohibited from
purchasing notes. In such case, the Issuers failure to
purchase tendered notes would constitute an Event of Default
under the indenture, which would, in turn, likely constitute a
default under such Senior Indebtedness. In such circumstances,
the subordination provisions in the indenture would likely
restrict payments to the Holders.
The provisions described above that require the Issuer to make a
Change of Control Offer following a Change of Control will be
applicable whether or not any other provisions of the indenture
are applicable. Except as described above with respect to a
Change of Control, the indenture does not contain provisions
that permit the Holders to require that the Issuer repurchase or
redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The Issuer will not be required to make a Change of Control
Offer upon a Change of Control if (1) a third party makes
the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by the
Issuer and purchases all notes properly tendered and not
withdrawn under the Change of Control Offer, or (2) notice
of redemption has been given pursuant to the indenture as
described above under the caption Optional
Redemption, unless and until there is a default in payment
of the applicable redemption price.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, lease, transfer, conveyance or
other disposition of all or substantially all of the
properties or assets of the Issuer and its Subsidiaries taken as
a whole. Although there is a limited body of case law
interpreting the phrase substantially all, there is
no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder to require the Issuer
to repurchase its notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets
of the Issuer and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
Asset
Sales
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Issuer (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of the Asset Sale at
least equal to the Fair Market Value of the assets or Equity
Interests issued or sold or otherwise disposed of; and
126
(2) at least 75% of the consideration received in the Asset
Sale by the Issuer or such Restricted Subsidiary is in the form
of cash, Cash Equivalents or Marketable Securities. For purposes
of this provision, each of the following will be deemed to be
cash:
(a) any liabilities of the Issuer or any Restricted
Subsidiary of the Issuer (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or
any Note Guarantee) that are assumed by the transferee of any
such assets and as a result of which the Issuer and such
Restricted Subsidiary of the Issuer are released from any
further liability in connection therewith;
(b) any securities, notes, other obligations or assets
received by the Issuer or any such Restricted Subsidiary from
such transferee that are converted by the Issuer or such
Restricted Subsidiary into cash or Cash Equivalents within
180 days of the receipt thereof, to the extent of the cash
or Cash Equivalents received in that conversion;
(c) any Designated Non-cash Consideration received by the
Issuer or any of its Restricted Subsidiaries in such Asset Sale;
provided that the aggregate Fair Market Value of such Designated
Non-cash Consideration, taken together with the Fair Market
Value at the time of receipt of all other Designated Non-cash
Consideration received pursuant to this clause (c), less
the amount of Net Proceeds previously realized in cash from
prior Designated Non-cash Consideration, is less than the
greater of (x) 2.5% of Total Assets at the time of the
receipt of such Designated Non-cash Consideration (with the Fair
Market Value of each item of Designated Non-cash Consideration
being measured at the time received and without giving effect to
subsequent changes in value), and
(y) $17.5 million; and
(d) any Capital Stock or assets of the kind referred to in
clause (2) or (4) of the next paragraph of this
covenant.
Within 365 days after the receipt of any Net Proceeds from
an Asset Sale, the Issuer (or the applicable Restricted
Subsidiary, as the case may be) may:
(a) apply such Net Proceeds, at its option:
(1) to repay (w) Indebtedness and other Obligations
constituting Senior Indebtedness, (x) any Indebtedness that
was secured by the assets sold in such Asset Sale,
(y) other pari passu Indebtedness (provided that the Issuer
shall also equally and ratably reduce Indebtedness under the
notes by making an offer (in accordance with the procedures set
forth below for an Asset Sale) to all Holders to purchase at a
purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Additional Interest, if
any, and the pro rata principal amount of notes) or
(z) Indebtedness of a Restricted Subsidiary that is not a
Guarantor, in each case other than Indebtedness owed to any
Parent, the Issuer or any of their respective Affiliates;
(2) to acquire all or substantially all of the assets of,
or any Capital Stock of, another Permitted Business; provided
that in the case of any such acquisition of Capital Stock, the
Permitted Business is or becomes a Restricted Subsidiary of the
Issuer;
(3) to make a capital expenditure; or
(4) to acquire other assets that are not classified as
current assets under GAAP and that are used or useful in a
Permitted Business; or
(b) enter into a binding commitment to apply the Net
Proceeds pursuant to clause (a)(2), (3) or
(4) above, provided that such binding commitment shall be
treated as a permitted application of the Net Proceeds from the
date of such commitment until the earlier of (x) the date
on which such acquisition or expenditure is consummated, and
(y) the 180th day following the expiration of the
aforementioned 365 day period.
Pending the final application of any Net Proceeds, the Issuer
may temporarily reduce revolving credit borrowings or otherwise
invest the Net Proceeds in any manner that is not prohibited by
the indenture.
Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the second paragraph of this covenant
will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $15.0 million,
127
within ten Business Days thereof, the Issuer will make an Asset
Sale Offer to all Holders and all holders of other Indebtedness
that is pari passu with the notes containing provisions similar
to those set forth in the indenture with respect to offers to
purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of notes and such other
pari passu Indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal
to 100% of the principal amount of the notes and such other pari
passu Indebtedness plus accrued and unpaid interest and
Additional Interest, if any, on the notes and such other pari
passu Indebtedness to, but excluding, the date of purchase and
will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Issuer may use those
Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of notes and other
pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the notes and such other
pari passu Indebtedness to be purchased shall be purchased on a
pro rata basis based on the principal amount of notes and such
other pari passu Indebtedness tendered. In such event, the
trustee shall select the notes to be purchased as provided under
the caption Selection and Notice. Upon
completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
The Issuer will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the indenture, the Issuer will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such
compliance.
The Credit Agreement will prohibit the Issuer from purchasing
any notes with the proceeds of Asset Sales. Any future credit
agreements or other agreements relating to Senior Indebtedness
to which the Issuer becomes a party may contain similar
restrictions and provisions. In the event an Asset Sale occurs
at a time when the Issuer is prohibited from purchasing notes,
the Issuer could seek the consent of its senior lenders to the
purchase of notes or could attempt to refinance, repay or
replace the borrowings that contain such prohibition with new
Indebtedness without such prohibition. If the Issuer does not
obtain such a consent or refinance, repay or replace such
borrowings, the Issuer will remain prohibited from purchasing
notes. In such case, the Issuers failure to purchase
tendered notes would constitute an Event of Default under the
indenture which would, in turn, constitute a default under such
Senior Indebtedness. In such circumstances, the subordination
provisions in the indenture would likely restrict payments to
the Holders. Finally, the Issuers ability to pay cash to
Holders upon an Asset Sale may be limited by the Issuers
financial resources.
Selection
and Notice
If less than all of the notes are to be redeemed at any time,
the trustee will select notes for redemption as follows:
(1) if the notes are listed on any national securities
exchange, in compliance with the requirements of the principal
national securities exchange on which the notes are
listed; or
(2) if the notes are not listed on any national securities
exchange, on a pro rata basis.
No notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least
30 days but not more than 60 days before the
redemption date to each Holder of notes to be redeemed at its
registered address, except that redemption notices may be mailed
more than 60 days prior to a redemption date if the notice
is issued in connection with a defeasance of the notes or a
satisfaction and discharge of the indenture. Notices of
redemption may not be conditional, except as set forth above
under the caption Optional Redemption.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount of that note that is to be redeemed. A new
note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the Holder upon
cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions
of notes called for redemption.
128
Certain
Covenants
Changes
in Covenants When Notes Rated Investment
Grade
If on any date following the Issue Date:
(1) the notes are assigned an Investment Grade Rating from
both of the Rating Agencies; and
(2) no Default or Event of Default shall have occurred and
be continuing,
then, beginning on that day, the covenants specifically listed
under the following captions in this prospectus will be
terminated:
(1) Repurchase at the Option of
HoldersChange of Control;
(2) Repurchase at the Option of
HoldersAsset Sales;
(3) Restricted Payments;
(4) Incurrence of Indebtedness and Issuance of
Preferred Equity;
(5) Dividend and Other Payment Restrictions
Affecting Subsidiaries;
(6) Designation of Restricted and Unrestricted
Subsidiaries;
(7) Transactions with Affiliates;
(8) clause (4) of the covenant described below under
the caption Merger, Consolidation or Sale of
Assets; and
(9) Business Activities.
Restricted
Payments
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of the Issuers or any of its
Restricted Subsidiaries Equity Interests or to the direct
or indirect holders of the Issuers or any of its
Restricted Subsidiaries Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Issuer and
other than dividends or distributions payable to the Issuer or a
Restricted Subsidiary of the Issuer);
(2) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Issuer or any Parent;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any
Indebtedness of the Issuer or any Guarantor that is
contractually subordinated to the notes or to any Note Guarantee
(excluding (x) any intercompany Indebtedness between or
among the Issuer and any of its Restricted Subsidiaries or
(y) the purchase, repurchase or other acquisition of
Indebtedness that is contractually subordinated to the notes or
to any Note Guarantee, as the case may be, purchased in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year
of the date of purchase, repurchase or acquisition), except a
payment of interest or principal at the Stated Maturity
thereof; or
(4) make any Restricted Investment;
(all such payments and other actions set forth in these
clauses (1) through (4) above being collectively
referred to as Restricted Payments), unless, at the
time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted
Payment;
(2) the Issuer would, after giving pro forma effect to such
Restricted Payment as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have
been permitted to incur at
129
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption
Incurrence of Indebtedness and Issuance of Preferred
Equity; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Issuer and
its Restricted Subsidiaries since the date of the indenture
(excluding Restricted Payments permitted by clauses (2),
(3), (4), (5) (only to the extent of one-half of the amounts
paid pursuant to such clause), (6), (8), (9), (10), (11), (12),
(14), (15), (16) and (17) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Issuer for
the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing prior to the date of the
indenture to the end of the Issuers most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100%
of such deficit); plus
(b) 100% of the aggregate net proceeds, including cash and
the Fair Market Value of property other than cash, received by
the Issuer since the date of the indenture (x) as a
contribution to its common equity capital or (y) from the
issue or sale of Equity Interests of the Issuer or any Parent
(other than Disqualified Stock, Designated Preferred Stock,
Excluded Contributions or Cash Contributions) or from the issue
or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities that have been
converted into or exchanged for such Equity Interests (other
than Equity Interests (or Disqualified Stock or debt securities)
sold to a Subsidiary of the Issuer); plus
(c) to the extent that any Restricted Investment that was
made after the date of the indenture is sold for cash or
otherwise liquidated or repaid for cash, 100% of the aggregate
amount received in cash and the Fair Market Value of property
other than cash received; plus
(d) to the extent that any Unrestricted Subsidiary of the
Issuer designated as such after the date of the indenture is
redesignated as a Restricted Subsidiary after the date of the
indenture or has been merged into, consolidated or amalgamated
with or into, or transfers or conveys its assets to, the Issuer
or a Restricted Subsidiary of the Issuer, 100% of the Fair
Market Value of the Issuers Investment in such Subsidiary
as of the date of such redesignation, combination or transfer
(or of the assets transferred or conveyed, as applicable) after
deducting any Indebtedness associated with the Unrestricted
Subsidiary so designated or combined or any Indebtedness
associated with the assets so transferred or conveyed; plus
(e) 100% of any dividends or distributions received by the
Issuer or a Restricted Subsidiary of the Issuer after the date
of the indenture from an Unrestricted Subsidiary of the Issuer,
to the extent that such dividends or distributions were not
otherwise included in the Consolidated Net Income of the Issuer
for such period.
The preceding provisions will not prohibit:
(1) the payment of any dividend or distribution or the
consummation of any redemption within 60 days after the
date of declaration of the dividend or distribution or giving of
the redemption notice, as the case may be, if, at the date of
declaration or notice, the dividend, distribution or redemption
payment would have complied with the provisions of the indenture;
(2) the making of any Restricted Payment in exchange for,
or out of the net cash proceeds received by the Issuer of the
substantially concurrent sale (other than to a Subsidiary of the
Issuer) of, Equity Interests of the Issuer or any Parent (other
than Disqualified Stock) or from the substantially concurrent
contribution of such proceeds to the capital of the Issuer in
any form other than Disqualified Stock or Indebtedness; provided
that the amount of any such net cash proceeds that are utilized
for any such Restricted Payment will be excluded from
clause (3)(b) of the preceding paragraph;
(3) the repurchase, redemption, defeasance or other
acquisition or retirement for value of Indebtedness of the
Issuer or any Restricted Subsidiary of the Issuer that is
contractually subordinated to the notes or to any
130
Note Guarantee with the net cash proceeds from a substantially
concurrent incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend (or, in the case of any
partnership or limited liability company, any similar
distribution) by a Restricted Subsidiary of the Issuer to the
holders of its Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or
retirement (or dividends or distributions to any Parent to
finance any such repurchase, redemption or other acquisition or
retirement) for value of any Equity Interests of the Issuer, any
Parent or any Restricted Subsidiary of the Issuer held by any
current or former officer, director, consultant or employee of
the Issuer, any Parent or any Restricted Subsidiary of the
Issuer pursuant to any equity subscription agreement, stock
option agreement, shareholders or members agreement
or similar agreement, plan or arrangement; provided that the
aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests may not exceed
$4.0 million in any calendar year (with unused amounts in
any calendar year being permitted to be carried over into
succeeding calendar years); provided further, that the amount in
any calendar year may be increased by an amount not to exceed:
(a) the cash proceeds received by the Issuer or any of its
Restricted Subsidiaries from the sale of Equity Interests (other
than Disqualified Stock) of the Issuer or any Parent (to the
extent contributed to the capital of the Issuer or any
Restricted Subsidiary in any form other than Disqualified Stock
or Indebtedness) to members of management, directors or
consultants of the Issuer and its Restricted Subsidiaries or any
Parent that occurs after the date of the indenture (provided
that the amount of such cash proceeds utilized for any such
repurchase, retirement, other acquisition, or dividend or
distribution will not increase the amount available for
Restricted Payments under clause (3) of the immediately
preceding paragraph and to the extent such cash proceeds have
not otherwise been applied to the payment of Restricted
Payments); plus
(b) the cash proceeds of key man life insurance policies
received by the Issuer or any Parent (to the extent such cash
proceeds are contributed to the capital of the Issuer in any
form other than Disqualified Stock or Indebtedness) and its
Restricted Subsidiaries after the date of the indenture, less
any amounts previously applied to the payment of Restricted
Payments pursuant to this clause (5);
(provided that the Issuer may elect to apply all or any portion
of the aggregate increase contemplated by clauses (a) and
(b) above in any single calendar year; provided further,
however, notwithstanding the foregoing, to the extent such
repurchase, redemption or other acquisition or retirement is
effected through the issuance of Indebtedness to such officer,
director, consultant or employee the payment under this
provision will be deemed to have been made on the date of
repayment of such Indebtedness);
(6) the repurchase of Equity Interests deemed to occur upon
the exercise of stock options to the extent such Equity
Interests represent a portion of the exercise price of those
stock options;
(7) the declaration and payment of regularly scheduled or
accrued dividends or distributions to holders of any class or
series of Disqualified Stock of the Issuer or any Restricted
Subsidiary of the Issuer issued on or after the date of the
indenture in accordance with the Fixed Charge Coverage Ratio
test described below under the caption Incurrence of
Indebtedness and Issuance of Preferred Equity;
(8) Permitted Payments to Parent;
(9) purchases of receivables pursuant to a Receivables
Repurchase Obligation in connection with a Qualified Receivables
Financing;
(10) the declaration and payment of dividends or
distributions to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) issued after the
date of the indenture and the declaration and payment of
dividends to any Parent, the proceeds of which will be used to
fund the payment of dividends or distributions to holders of any
class or series of Designated Preferred Stock (other than
Disqualified Stock) of any Parent issued after the date of the
indenture; provided, however, that (A) for the most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date of issuance of such Designated Preferred Stock, after
giving effect to such
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issuance (and the payment of dividends or distributions) on a
pro forma basis, the Issuer could incur an additional $1.00 of
Indebtedness pursuant to the Fixed Charge Coverage Ratio, and
(B) the aggregate amount of dividends declared and paid
pursuant to this clause (10) does not exceed the net
cash proceeds actually received by the Issuer (including any
such proceeds contributed to the capital of the Issuer in any
form other than Disqualified Stock or Indebtedness by any
Parent) from any such sale of Designated Preferred Stock (other
than Disqualified Stock) issued after the date of the indenture;
(11) any payments made in connection with the consummation
of the Transactions (as described in this prospectus);
(12) Restricted Payments that are made with Excluded
Contributions;
(13) other Restricted Payments in an aggregate amount not
to exceed $15.0 million since the date of the indenture;
(14) the satisfaction of change of control obligations once
the Issuer has fulfilled its obligations under the indenture
with respect to a Change of Control;
(15) the repayment of intercompany debt that was permitted
to be incurred under the indenture;
(16) cash dividends or other distributions on the
Issuers Capital Stock used to, or the making of loans to
any Parent to, fund the payment of fees and expenses owed by the
Issuer or its Restricted Subsidiaries to Affiliates, to the
extent permitted by the covenant described under
Transactions with Affiliates;
(17) the payment of dividends or distributions on the
Issuers common equity (or the payment of dividends or
distributions to any Parent to fund the payment by such Parent
of dividends or distributions on its common equity) of up to
5.0% per calendar year of the net cash proceeds received by
the Issuer from any public Equity Offering or contributed to the
capital of the Issuer in any form other than Disqualified Stock
or Indebtedness by any Parent from any public Equity Offering;
provided that the amount of any such net cash proceeds that are
utilized for any such Restricted Payment will be excluded from
clause (3)(b) of the preceding paragraph;
(18) any payments in connection with any merger or
consolidation involving the Issuer or any of its Restricted
Subsidiaries that does not violate the provisions of the
indenture described below under the caption Merger,
Consolidation or Sale of Assets;
(19) payments of principal of, and interest on, any
Management Notes; and
(20) the distribution, as a dividend or otherwise, of
shares of Capital Stock of, or Indebtedness owed to, the Issuer
or a Restricted Subsidiary of the Issuer by, Unrestricted
Subsidiaries;
provided, however, that at the time of, and after giving effect
to, any Restricted Payment permitted under
clause (10) or (17), no Default or Event of Default
shall have occurred and be continuing or would occur as a
consequence thereof.
The amount of all Restricted Payments (other than cash) will be
the Fair Market Value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
by the Issuer or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment.
Incurrence
of Indebtedness and Issuance of Preferred Equity
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to
(collectively, incur) any Indebtedness (including
Acquired Debt), and the Issuer will not issue any Disqualified
Stock and the Issuer will not permit any of its Restricted
Subsidiaries to issue any Disqualified Stock or preferred
equity; provided, however, that the Issuer may incur
Indebtedness (including Acquired Debt) or issue Disqualified
Stock, and the Issuer or any Restricted Subsidiary of the Issuer
may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock or preferred equity, if the Fixed Charge
Coverage Ratio for the Issuers most recently ended four
full fiscal quarters for which internal financial statements are
available immediately preceding the date
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on which such additional Indebtedness is incurred or such
Disqualified Stock or such preferred equity is issued, as the
case may be, would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the Disqualified Stock or the
preferred equity had been issued, as the case may be, at the
beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness
(collectively, Permitted Debt):
(1) the incurrence by the Issuer, the Guarantors or any of
the Issuers Restricted Subsidiaries of additional
Indebtedness and letters of credit and bankers acceptances
thereunder under Credit Facilities in an aggregate principal
amount at any one time outstanding under this clause (1)
(with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Issuer and any
Guarantors and any Restricted Subsidiaries thereunder) not to
exceed $340.0 million;
(2) the incurrence by the Issuer and its Restricted
Subsidiaries of Indebtedness to the extent outstanding on the
date of the indenture;
(3) the incurrence by the Issuer and the Guarantors
(including any future Guarantor) of Indebtedness represented by
the notes and the related Note Guarantees to be issued on the
date of the indenture and the exchange notes and the related
Note Guarantees to be issued pursuant to the registration rights
agreement;
(4) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings, industrial revenue bonds,
purchase money obligations or other Indebtedness or preferred
stock, or synthetic lease obligations, in each case, incurred
for the purpose of financing all or any part of the purchase
price or cost of design, development, construction, installation
or improvement of property (real or personal and including
Capital Stock), plant or equipment used in the business of the
Issuer or any of its Restricted Subsidiaries (in each case,
whether through the direct purchase of such assets or the Equity
Interests of any Person owning such assets), in an aggregate
principal amount not to exceed, immediately after giving effect
to any such incurrence, the greater of
(x) $35.0 million or (y) 5% of Total Assets;
(5) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to renew, refund,
refinance, replace, defease or discharge any Indebtedness (other
than intercompany Indebtedness) that was permitted by the
indenture to be incurred under the first paragraph of this
covenant or clause (2), (3), (4), (5), (12), (15) or
(16) of this paragraph;
(6) the incurrence by the Issuer or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the
Issuer and any of its Restricted Subsidiaries; provided,
however, that:
(a) if the Issuer or any Guarantor is the obligor on such
Indebtedness and the payee is not the Issuer or a Guarantor,
such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations then due with respect
to the notes, in the case of the Issuer, or the Note Guarantee,
in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a
Person other than the Issuer or a Restricted Subsidiary of the
Issuer and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Issuer or a
Restricted Subsidiary of the Issuer, shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the
Issuer or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);
(7) the issuance by any of the Issuers Restricted
Subsidiaries to the Issuer or to another Restricted Subsidiary
of shares of preferred equity or Disqualified Stock; provided,
however, that:
(a) any subsequent issuance or transfer of Equity Interests
that results in any such preferred equity or Disqualified Stock
being held by a Person other than the Issuer or a Restricted
Subsidiary of the Issuer, and
(b) any sale or other transfer of any such preferred equity
or Disqualified Stock to a Person that is not either the Issuer
or a Restricted Subsidiary of the Issuer,
133
will be deemed, in each case, to constitute an issuance of such
preferred equity or Disqualified Stock by such Restricted
Subsidiary that was not permitted by this clause (7);
(8) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Hedging Obligations other than for speculative
purposes;
(9) the guarantee by any Restricted Subsidiary of the
Issuer of Indebtedness of the Issuer or a Restricted Subsidiary
of the Issuer that was permitted to be incurred by another
provision of this covenant (including the first paragraph
hereof); provided that if the Indebtedness being guaranteed is
subordinated to or pari passu with the notes, then the guarantee
thereof shall be subordinated or pari passu, as applicable, to
the same extent as the Indebtedness so guaranteed;
(10) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness in respect of workers
compensation claims, payment obligations in connection with
health or other types of social security benefits, unemployment
or other insurance or self-insurance obligations, reclamation,
statutory obligations, bankers acceptances, performance,
surety or similar bonds and letters of credit or completion or
performance guarantees or equipment leases (including, without
limitation, performance guarantees and reimbursement obligations
arising under or in accordance with the terms of the Merger
Agreement), or other similar obligations in the ordinary course
of business or consistent with past practice;
(11) the incurrence by the issuer or any of its Restricted
Subsidiaries of Indebtedness arising from the honoring by a bank
or other financial institution of a check, draft or similar
instrument inadvertently drawn against insufficient funds;
(12) Indebtedness, Disqualified Stock or preferred equity
of Persons that are acquired by the Issuer or any of its
Restricted Subsidiaries or merged into a Restricted Subsidiary
in accordance with the terms of the indenture; provided,
however, that such Indebtedness, Disqualified Stock or preferred
equity is not incurred or issued in contemplation of such
acquisition or merger or to provide all or a portion of the
funds or credit support required to consummate such acquisition
or merger; provided further, however, that for any such
Indebtedness, Disqualified Stock or preferred equity outstanding
under this clause (12) in excess of $10.0 million on
the date such Person is acquired by the Issuer or a Restricted
Subsidiary, after giving effect to such acquisition and the
incurrence or issuance of such Indebtedness, Disqualified Stock
or preferred equity either:
(a) the Issuer would be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first sentence of this
covenant; or
(b) the Fixed Charge Coverage Ratio, on the date of and
after giving pro forma effect to such acquisition and such
incurrence or issuance, would not be reduced as a result of such
acquisition;
(13) Indebtedness incurred by a Receivables Subsidiary in a
Qualified Receivables Financing that is Non-Recourse Debt to the
Issuer or any Restricted Subsidiary of the issuer other than
such Receivables Subsidiary (except for Standard Securitization
Undertakings);
(14) the incurrence of Indebtedness arising from agreements
of the Issuer or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price, earn outs, or
similar obligations, in each case, incurred or assumed in
connection with the disposition or acquisition of any business,
assets or a Subsidiary in accordance with the terms of the
indenture, other than guarantees of Indebtedness incurred or
assumed by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition;
(15) the incurrence by the Issuer or any of its Restricted
Subsidiaries of additional Indebtedness or the issuance of
Disqualified Stock or preferred equity in an aggregate principal
amount (or accreted value, as applicable) or having an aggregate
liquidation preference at any time outstanding not to exceed
$45.0 million (it being understood that any Indebtedness,
Disqualified Stock or preferred equity incurred pursuant to this
clause (15) shall cease to be deemed incurred or
outstanding for purposes of this covenant from and after the
date on which the Issuer could have incurred such Indebtedness
or Disqualified Stock or preferred equity under the first
paragraph of this covenant without reliance upon this
clause (15));
134
(16) the incurrence by the Issuer or any of its Restricted
Subsidiaries of additional Indebtedness arising out of advances
on exports, advances on imports, advances on trade receivables,
factoring of receivables, customer prepayments and similar
transactions in the ordinary course of business and consistent
with past practice;
(17) the incurrence of additional Indebtedness by a Foreign
Subsidiary in an aggregate principal amount which does not
exceed the greater of (a) $30.0 million or
(b) 3.5% of the Total Assets at any one time outstanding
(which amount may, but need not, be incurred in whole or in part
under a Credit Facility);
(18) Indebtedness of the Issuer or any of its Restricted
Subsidiaries in respect of the Management Notes; and
(19) Contribution Indebtedness.
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Equity covenant, in the event that an item of proposed
Indebtedness, Disqualified Stock or preferred equity meets the
criteria of more than one of the categories of Permitted Debt
described in clauses (1) through (19) above, or is
entitled to be incurred pursuant to the first paragraph of this
covenant, the Issuer will be permitted to classify such item of
Indebtedness, Disqualified Stock or preferred equity on the date
of its incurrence and will only be required to include the
amount and type of such Indebtedness, Disqualified Stock or
preferred equity in one of the above clauses, although the
Issuer may divide and classify an item of Indebtedness,
Disqualified Stock or preferred equity in one or more of the
types of Indebtedness, Disqualified Stock or preferred equity
and may later reclassify all or a portion of such item of
Indebtedness, Disqualified Stock or preferred equity, in any
manner that complies with this covenant. The accrual of interest
or dividends, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, the
reclassification of preferred equity as Indebtedness due to a
change in accounting principles, and the payment of dividends on
Disqualified Stock or preferred equity in the form of additional
shares of the same class of Disqualified Stock or preferred
equity will not be deemed to be an incurrence of Indebtedness or
an issuance of Disqualified Stock or preferred equity for
purposes of this covenant; provided, in each such case (other
than preferred stock that is not Disqualified Stock), that the
amount of any such accrual, accretion or payment is included in
Fixed Charges of the Issuer as accrued. Notwithstanding any
other provision of this covenant, the maximum amount of
Indebtedness that the Issuer or any Restricted Subsidiary may
incur pursuant to this covenant shall not be deemed to be
exceeded solely as a result of fluctuations in exchange rates or
currency values.
The amount of any Indebtedness outstanding as of any date will
be:
(1) the accreted value of the Indebtedness, in the case of
any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case
of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by
a Lien on the assets of the specified Person, the lesser of:
(a) the Fair Market Value of such assets at the date of
determination; and
(b) the amount of the Indebtedness of the other Person.
Limitation
on Senior Subordinated Indebtedness
The Issuer will not, and will not permit any Guarantor to, incur
any Indebtedness that is subordinated in right of payment to any
Senior Indebtedness unless such Indebtedness is pari passu with,
or subordinated in right of payment to, the notes or any Note
Guarantee, as applicable; provided that the foregoing limitation
shall not apply to distinctions between categories of Senior
Indebtedness that exist by reason of any Liens or guarantees
arising or created in respect of some but not all such Senior
Indebtedness.
135
Liens
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind
securing Indebtedness (other than Permitted Liens) which ranks
pari passu with or is subordinated to the notes or the Note
Guarantees upon any of their property or assets, now owned or
hereafter acquired, unless all payments due under the indenture
and the notes are secured on an equal and ratable basis with the
obligations so secured (or, in the case of subordinated
Indebtedness, contractually prior or senior thereto, with the
same relative priority as the notes shall have with respect to
such subordinated Indebtedness) until such time as such
obligations are no longer secured by a Lien.
Dividend
and Other Payment Restrictions Affecting
Subsidiaries
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to
exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on its
Capital Stock to the Issuer or any of its Restricted
Subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any
Indebtedness owed to the Issuer or any of its Restricted
Subsidiaries;
(b) make loans or advances to the Issuer or any of its
Restricted Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets
to the Issuer or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of:
(1) agreements governing Indebtedness outstanding on the
Issue Date, the Credit Agreement and Credit Facilities as in
effect on the date of the indenture and any amendments,
restatements, modifications, renewals, supplements, refundings,
replacements or refinancings of those agreements; provided that
such amendments, restatements, modifications, renewals,
supplements, refundings, replacements or refinancings are not,
in the good faith judgment of the Issuers Board of
Directors, materially more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than
those contained in those agreements on the date of the indenture;
(2) the indenture, the notes and the Note Guarantees;
(3) applicable law, rule, regulation, order, approval,
license, permit or similar restriction;
(4) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Issuer or any of its Restricted
Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness or Capital Stock was
incurred or issued in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired; provided that, in the case of Indebtedness,
such Indebtedness was permitted by the terms of the indenture to
be incurred;
(5) non-assignment provisions or subletting restrictions in
contracts, leases and licenses entered into in the ordinary
course of business;
(6) purchase money obligations for property (including
Capital Stock) acquired in the ordinary course of business and
Capital Lease Obligations that impose restrictions on the
property purchased or leased of the nature described in
clause (c) of the preceding paragraph;
(7) any agreement for the sale or other disposition of the
Capital Stock or assets of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending
closing of the sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are not, in the good faith
judgment of the Issuers Board of
136
Directors, materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness
being refinanced;
(9) Liens permitted to be incurred under the provisions of
the covenant described above under the caption
Liens that limits the right of the debtor to
dispose of the assets securing such Indebtedness;
(10) provisions limiting the disposition or distribution of
assets or property or transfer of Capital Stock in joint venture
agreements, asset sale agreements, sale-leaseback agreements,
stock sale agreements, limited liability company organizational
documents, and other similar agreements entered into (a) in
the ordinary course of business, consistent with past practice
or (b) with the approval of the Issuers Board of
Directors, which limitation is applicable only to the assets,
property or Capital Stock that are the subject of such
agreements;
(11) any encumbrance or restriction of a Receivables
Subsidiary effected in connection with a Qualified Receivables
Financing; provided, however, that such restrictions apply only
to such Receivables Subsidiary;
(12) restrictions on cash, Cash Equivalents, Marketable
Securities or other deposits or net worth imposed by customers
or lessors under contracts or leases entered into in the
ordinary course of business;
(13) other Indebtedness of Restricted Subsidiaries
(i) that are Guarantors that is incurred subsequent to the
date of the indenture pursuant to the covenant described under
Incurrence of Indebtedness and Issuance of Preferred
Equity or (ii) that is incurred subsequent to the
date of the indenture pursuant to clauses (4),
(15) and (17) of the second paragraph of the covenant
described under Incurrence of Indebtedness and
Issuance of Preferred Equity;
(14) encumbrances on property that exist at the time the
property was acquired by the Issuer or a Restricted Subsidiary;
(15) contractual encumbrances or restrictions in effect on
the Issue Date, and any amendments, restatements, modifications,
renewals, supplements, refundings, replacements or refinancings
of those agreements; provided that the amendments, restatements,
modifications, renewals, supplements, refundings, replacements
or refinancings are not, in the good faith judgment of the
Issuers Board of Directors, materially more restrictive,
taken as a whole, with respect to such dividend and other
payment restrictions than those contained in those agreements on
the date of the indenture; or
(16) any encumbrances or restrictions imposed by any
amendments or refinancings of the contracts, instruments or
obligations referred to above in clauses (1) through (15);
provided that such amendments or refinancings are not, in the
good faith judgment of the Issuers Board of Directors,
materially more restrictive, taken as a whole, than such
encumbrances and restrictions prior to such amendment or
refinancing.
Merger,
Consolidation or Sale of Assets
The Issuer will not, directly or indirectly, consolidate or
merge with or into another Person or sell, assign, transfer,
convey or otherwise dispose of all or substantially all of its
properties or assets (determined on a consolidated basis for the
Issuer and its Restricted Subsidiaries), in one or more related
transactions to another Person, unless:
(1) either (a) the Issuer is the surviving entity; or
(b) the Person formed by or surviving any such
consolidation or merger (if other than the Issuer) or to which
such sale, assignment, transfer, conveyance or other disposition
has been made is a corporation, partnership or limited liability
company organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
(2) the Person formed by or surviving any such
consolidation or merger (if other than the Issuer) or the Person
to which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of the
Issuer under the notes, the indenture and the registration
rights agreement, in each case pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event
of Default exists; and
137
(4) (a) the Issuer or the Person formed by or
surviving any such consolidation or merger (if other than the
Issuer), or to which such sale, assignment, transfer, conveyance
or other disposition has been made would, on the date of such
transaction after giving pro forma effect thereto and to any
related financing transactions as if the same had occurred at
the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the
caption Incurrence of Indebtedness and Issuance of
Preferred Equity or (b) the Fixed Charge Coverage
Ratio for the successor entity and its Restricted Subsidiaries,
on the date of and after giving pro forma effect to such
acquisition and such incurrence or issuance, would not be less
than such ratio for the Issuer and its Restricted Subsidiaries
immediately prior to such transaction.
In addition, the Issuer may not, directly or indirectly, lease
all or substantially all of the properties and assets
(determined on a consolidated basis for the Issuer and its
Restricted Subsidiaries) in one or more related transactions, to
any other Person.
This Merger, Consolidation or Sale of Assets
covenant will not apply to:
(1) a merger of the Issuer with an Affiliate solely for the
purpose of reincorporating the Issuer in another
jurisdiction; or
(2) any consolidation or merger, or any sale, assignment,
transfer, conveyance, lease or other disposition of assets
between or among the Issuer and any of its Restricted
Subsidiaries.
Transactions
with Affiliates
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate
of the Issuer (each, an Affiliate Transaction),
involving aggregate consideration in excess of
$1.0 million, unless:
(1) the Affiliate Transaction is on terms that are not
materially less favorable to the Issuer or the relevant
Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Issuer or such Restricted
Subsidiary with an unrelated Person; and
(2) the Issuer delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $5.0 million, a resolution of the Board of
Directors of the Issuer certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested
members, if any, of the Board of Directors of the
Issuer; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $25.0 million, an opinion as to the fairness
to the Issuer or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
(1) any employment agreement, employee benefit plan,
officer or director indemnification agreement or any similar
arrangement entered into by the Issuer or any of its Restricted
Subsidiaries in the ordinary course of business or consistent
with past practice and payments pursuant thereto;
(2) transactions (including a merger) between or among the
Issuer
and/or any
of its Restricted Subsidiaries;
138
(3) transactions with a Person (other than an Unrestricted
Subsidiary of the Issuer) that is an Affiliate of the Issuer
solely because the Issuer owns, directly or through a Restricted
Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable fees to, and indemnity provided
on behalf of, officers, directors, employees or consultants of
the Issuer or any of its Restricted Subsidiaries or any Parent;
(5) any issuance of Equity Interests (other than
Disqualified Stock) of the Issuer to Affiliates of the Issuer or
to any director, officer, employee or consultant of the Issuer
or any Parent, and the granting and performance of registration
rights;
(6) Restricted Payments and Investments that do not violate
the provisions of the indenture described above under the
caption Restricted Payments;
(7) the entering into any agreement to pay, and the payment
of, customary annual management, consulting, monitoring and
advisory fees to the Equity Investors in an amount not to exceed
in any four quarter period the greater of
(x) $2.5 million and (y) 2% of Consolidated Cash
Flow of the Issuer and its Restricted Subsidiaries for such
period;
(8) loans or advances to employees or consultants in the
ordinary course of business or consistent with past practice not
to exceed $2.5 million in the aggregate at any one time
outstanding;
(9) any transaction effected as part of a Qualified
Receivables Financing;
(10) any transaction in which the Issuer or any of its
Restricted Subsidiaries, as the case may be, delivers to the
trustee a letter from an accounting, appraisal or investment
banking firm of national standing stating that such transaction
is fair to the Issuer or such Restricted Subsidiary from a
financial point of view or that such transaction meets the
requirements of clause (1) of the preceding paragraph;
(11) the existence of, or the performance by the Issuer or
any of its Restricted Subsidiaries of its obligations under the
terms of, any acquisition agreements or members or
stockholders agreement or related documents to which it is a
party as of the date of the indenture and any amendment thereto
or similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by
the Issuer or any of its Restricted Subsidiaries of its
obligations under, any future amendment to any such existing
agreement or under any similar agreement entered into after the
date of the indenture shall only be permitted by this
clause (11) to the extent that the terms of any such
existing agreement, together with all amendments thereto, taken
as a whole, or such new agreement are not, in the good faith
judgment of the Issuers Board of Directors, otherwise more
disadvantageous to the Holders taken as a whole than the
original agreement as in effect on the date of the indenture;
(12) transactions with Unrestricted Subsidiaries,
customers, clients, suppliers, joint venture partners or
purchasers or sellers of goods or services, or lessors or
lessees of property, in each case in the ordinary course of
business and otherwise in compliance with the terms of the
indenture which are, in the aggregate (taking into account all
the costs and benefits associated with such transactions),
materially no less favorable to the Issuer or its Restricted
Subsidiaries than those that would have been obtained in a
comparable transaction by the Issuer or such Restricted
Subsidiary with an unrelated Person, in the good faith judgment
of the Issuers Board of Directors or senior management
thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated
party;
(13) (x) guarantees of performance by the Issuer and
its Restricted Subsidiaries of Unrestricted Subsidiaries of the
Issuer in the ordinary course of business, except for guarantees
of Indebtedness in respect of borrowed money, and
(y) pledges of Equity Interests of Unrestricted
Subsidiaries of the Issuer for the benefit of lenders of
Unrestricted Subsidiaries of the Issuer;
(14) if such Affiliate Transaction is with a Person in its
capacity as a holder of Indebtedness or Capital Stock of the
Issuer or any Restricted Subsidiary where such Person is treated
no more favorably than the holders of Indebtedness or Capital
Stock of the Issuer or any Restricted Subsidiary;
139
(15) transactions effected pursuant to agreements in effect
on the Issue Date and any amendment, modification or replacement
of such agreement (so long as such amendment or replacement is
not in the good faith judgment of the Issuers Board of
Directors materially more disadvantageous to the Holders, taken
as a whole than the original agreement as in effect on the Issue
Date);
(16) payments to the Equity Investors made for any
financial advisory, financing or other investment banking
activities, including without limitation, in connection with
acquisitions or divestitures, which payments are approved by a
majority of the Issuers Board of Directors; and
(17) the issuance of Management Notes.
Business
Activities
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to
the Issuer and its Restricted Subsidiaries taken as a whole.
Additional
Note Guarantees
If the Issuer or any of its Restricted Subsidiaries acquires or
creates another wholly-owned Domestic Subsidiary on or after the
date of the indenture, then that newly acquired or created
Domestic Subsidiary, if such Subsidiary guarantees any
Indebtedness of the Issuer (unless such Subsidiary is a
Receivables Subsidiary), must become a Guarantor (which Note
Guarantee shall be senior to or pari passu with such Restricted
Subsidiarys guarantee of such other Indebtedness unless
such other Indebtedness is Senior Indebtedness, in which case
the Note Guarantee may be subordinated to the guarantee of such
Senior Indebtedness to the same extent as the notes are
subordinated to such Senior Indebtedness) and execute a
supplemental indenture and deliver an opinion of counsel
satisfactory to the trustee within 30 days of the date on
which it guaranteed such other Indebtedness; provided that any
Domestic Subsidiary that constitutes an Immaterial Subsidiary
need not become a Guarantor until such time as it
(i) ceases to be an Immaterial Subsidiary or
(ii) guarantees the Credit Agreement.
Designation
of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Issuer may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if that
designation would not cause a Default. If a Restricted
Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate Fair Market Value of all outstanding Investments owned
by the Issuer and its Restricted Subsidiaries in the Subsidiary
designated as Unrestricted shall be deemed to be an Investment
made as of the time of the designation and will reduce the
amount available for Restricted Payments under the covenant
described above under the caption Restricted
Payments or under one or more clauses of such definition
of Permitted Investments, as determined by the Issuer. That
designation will only be permitted if such Investment would be
permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The Board of Directors of the Issuer may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary if that
redesignation would not cause a Default.
Any designation of a Subsidiary of the Issuer as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the
trustee a certified copy of a resolution of the Board of
Directors of the Issuer giving effect to such designation and an
Officers Certificate certifying that such designation
complied with the preceding conditions and was permitted by the
covenant described above under the caption
Restricted Payments. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it will thereafter
cease to be an Unrestricted Subsidiary for purposes of the
indenture and any Indebtedness of such Subsidiary will be deemed
to be incurred by a Restricted Subsidiary of the Issuer as of
such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the
caption Incurrence of Indebtedness and Issuance of
Preferred Equity, the Issuer will be in default of such
covenant. The Board of Directors of the Issuer may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Issuer; provided that such designation will be
deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Issuer of any outstanding Indebtedness of such
Unrestricted Subsidiary, and such designation will only be
permitted if (1) (x) the Issuer could incur such
Indebtedness pursuant to the Fixed Charge Coverage Ratio
140
test described under Incurrence of Indebtedness and
Issuance of Preferred Equity, or (y) the Fixed Charge
Coverage Ratio for the Issuer and its Restricted Subsidiaries
would be greater than such ratio for the Issuer and its
Restricted Subsidiaries immediately prior to such designation,
in each case on a pro forma basis taking into account such
designation; and (2) no Default or Event of Default would
be in existence following such designation.
Payments
for Consent
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any Holder for or as
an inducement to any consent, waiver or amendment of any of the
terms or provisions of the indenture or the notes unless such
consideration is offered to be paid and is paid to all Holders
that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
Whether or not required by the rules and regulations of the SEC,
so long as any notes are outstanding, the Issuer will, within
15 days after the date it would have been required to file
with the SEC, provide to the Trustee, if not filed
electronically with the SEC, all quarterly and annual financial
information that would be required to be contained in a filing
with the SEC on
Forms 10-Q
and 10-K if
the Issuer were required to file such Forms, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations that describes the
financial condition and results of operations of the Issuer and
its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the
footnotes thereto and in Managements Discussion and
Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Issuer and
its consolidated Subsidiaries) and, with respect to the annual
information only, a report thereon by the Issuers
certified independent accountants.
In addition, following the consummation of the exchange offer
contemplated by the registration rights agreement, whether or
not required by the rules and regulations of the SEC, the Issuer
will file a copy of all such information and reports with the
SEC for public availability within the time periods specified in
the SECs rules and regulations (unless the SEC will not
accept such a filing).
In addition, the Issuer and the Guarantors agree that, for so
long as any notes remain outstanding, if at any time they are
not required to file with the SEC the reports required by the
preceding paragraphs, they will furnish to the Holders and to
prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act.
Notwithstanding the foregoing, prior to the commencement of the
Exchange Offer (as defined in the registration rights agreement)
or the effectiveness of a Shelf Registration Statement (as
defined in the registration rights agreement), such requirements
shall be deemed satisfied with respect to the relevant period to
which the quarterly or annual financial information relates by
the filing with the SEC of the Exchange Offer Registration
Statement (as defined in the registration rights agreement)
and/or Shelf
Registration Statement, and any amendments thereto, with such
financial information that satisfies
Regulation S-X
of the Securities Act.
Events of
Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of
interest on, or Additional Interest, if any, with respect to,
the notes, whether or not such payment is prohibited by the
provisions described above under Ranking;
(2) default in the payment when due (at maturity, upon
redemption or otherwise) of the principal of, or premium, if
any, on, the notes, whether or not such payment is prohibited by
the provisions described above under Ranking;
(3) failure by the Issuer or any of its Restricted
Subsidiaries to comply with the provisions described under the
captions Repurchase at the Option of
HoldersChange of Control or Certain
CovenantsMerger, Consolidation or Sale of Assets;
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(4) failure by the Issuer or any of its Restricted
Subsidiaries for 60 days after notice to the Issuer by the
trustee or the Holders of at least 25% in aggregate principal
amount of the notes then outstanding voting as a single class to
comply with any of the other agreements in the indenture;
(5) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Issuer
or any of its Significant Subsidiaries or group of Restricted
Subsidiaries that taken as a whole would constitute a
Significant Subsidiary (or the payment of which is guaranteed by
the Issuer or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists, or is created after the
date of the indenture (but excluding Indebtedness owing to the
Issuer or a Restricted Subsidiary), if that default:
(a) is caused by a failure to pay principal on such
Indebtedness after the expiration of the grace period provided
in such Indebtedness upon the Stated Maturity of such
Indebtedness (a Payment Default); or
(b) results in the acceleration of such Indebtedness prior
to its Stated Maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$15.0 million or more;
(6) failure by the Issuer or any of its Significant
Subsidiaries, or group of Restricted Subsidiaries that taken as
a whole would constitute a Significant Subsidiary, to pay final
and nonappealable judgments entered by a court or courts of
competent jurisdiction aggregating in excess of
$15.0 million (net of any amounts which are covered by
insurance or bonded), which judgments are not paid, waived,
satisfied, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any Note
Guarantee of any Significant Subsidiary or group of Restricted
Subsidiaries that taken as a whole would constitute a
Significant Subsidiary is held in any judicial proceeding to be
unenforceable or invalid or ceases for any reason to be in full
force and effect (other than in accordance with the terms of
such Note Guarantee and the indenture), or any Guarantor, or any
Person acting on behalf of any Guarantor, denies or disaffirms
its obligations under its Note Guarantee and such Default
continues for 10 days; and
(8) certain events of bankruptcy or insolvency described in
the indenture with respect to the Issuer or any of its
Restricted Subsidiaries that is a Significant Subsidiary or any
group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events
of bankruptcy or insolvency, with respect to the Issuer, any
Restricted Subsidiary of the Issuer that is a Significant
Subsidiary or any group of Restricted Subsidiaries of the Issuer
that, taken together, would constitute a Significant Subsidiary,
all outstanding notes will become due and payable immediately
without further action or notice. If any other Event of Default
occurs and is continuing, the trustee or the Holders of at least
25% in aggregate principal amount of the then outstanding notes
may declare all the notes to be due and payable immediately;
provided that any such declaration of acceleration shall not
become effective until the earlier of (x) five Business
Days after receipt of the acceleration notice by the Bank Agent
and the Issuer or (y) acceleration of the Indebtedness
under the Credit Agreement; provided further that such
acceleration shall be automatically rescinded and annulled
without any further action required on the part of the trustee
or the Holders in the event that any and all Events of Default
specified in the acceleration notice under the indenture shall
have been cured, waived or otherwise remedied as provided in the
indenture prior to the expiration of the period referred to in
the preceding clauses (x) and (y).
Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding notes may
direct the trustee in its exercise of any trust or power. The
trustee may withhold from Holders notice of any continuing
Default or Event of Default if it determines that withholding
notice is in their interest, except a Default or Event of
Default relating to the payment of principal, interest or
premium or Additional Interest, if any.
In the event of any Event of Default specified in
clause (5) of the first paragraph above, such Event of
Default and all consequences thereof (excluding, however, any
resulting payment default) will be annulled, waived and
142
rescinded, automatically and without any action by the trustee
or the Holders, if within 30 days after such Event of
Default arose the Issuer delivers an Officers Certificate
to the trustee stating that (x) the Indebtedness or
guarantee that is the basis for such Event of Default has been
discharged or (y) the holders thereof have rescinded or
waived the acceleration, notice or action (as the case may he)
giving rise to such Event of Default or (z) the default
that is the basis for such Event of Default has been cured, it
being understood that in no event shall an acceleration of the
principal amount of the notes as described above be annulled,
waived or rescinded upon the happening of any such events.
Subject to the provisions of the indenture relating to the
duties of the trustee, in case an Event of Default occurs and is
continuing, the trustee will be under no obligation to exercise
any of the rights or powers under the indenture at the request
or direction of any Holders unless such Holders have offered to
the trustee indemnity or security satisfactory to the trustee
against any loss, liability or expense. Except to enforce the
right to receive payment of principal, premium, if any, or
interest or Additional Interest, if any, when due, no Holder may
pursue any remedy with respect to the indenture or the notes
unless:
(1) such Holder has previously given the trustee notice
that an Event of Default is continuing;
(2) Holders of at least 25% in aggregate principal amount
of the then outstanding notes have requested the trustee to
pursue the remedy;
(3) such Holders have offered the trustee security or
indemnity satisfactory to the trustee against any loss,
liability or expense;
(4) the trustee has not complied with such request within
60 days after the receipt of the request and the offer of
security or indemnity; and
(5) Holders of a majority in aggregate principal amount of
the then outstanding notes have not given the trustee a
direction inconsistent with such request within such
60-day
period.
The Holders of a majority in aggregate principal amount of the
then outstanding notes by notice to the trustee may, on behalf
of the Holders of all of the notes, rescind an acceleration or
waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or
Event of Default in the payment of interest or premium or
Additional Interest, if any, on, or the principal of, the notes.
The Issuer is required to deliver to the trustee annually a
statement regarding compliance with the indenture. Upon becoming
aware of any Default or Event of Default that has not been
cured, the Issuer is required to deliver to the trustee a
statement specifying such Default or Event of Default.
No
Personal Liability of Directors, Officers, Employees,
Stockholders and Members
No director, manager, officer, employee, incorporator,
stockholder or member of the Issuer, any Parent or any
Subsidiary, as such, will have any liability for any obligations
of the Issuer or the Guarantors under the notes, the indenture,
the Note Guarantees or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder by
accepting a note waives and releases all such liability. The
waiver and release are part of the consideration for the
issuance of the notes. The waiver may not be effective to waive
liabilities under the federal securities laws.
Legal
Defeasance and Covenant Defeasance
The Issuer may at any time, at the option of its Board of
Directors evidenced by a resolution set forth in an
Officers Certificate, elect to have all of its obligations
discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their
Note Guarantees (Legal Defeasance) except for:
(1) the rights of Holders of outstanding notes to receive
payments in respect of the principal of, or interest or premium
and Additional Interest, if any, on, such notes when such
payments are due from the trust referred to below;
143
(2) the Issuers obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance
of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee, and the Issuers and the Guarantors
obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Issuer may, at its option and at any time,
elect to have the obligations of the Issuer and the Guarantors
released with respect to certain covenants (including the
obligation to make Change of Control Offers and Asset Sale
Offers, its obligations under the covenants described in
Certain Covenants, and the cross-acceleration
provision and judgment default provisions described under
Events of Default and Remedies) that are
described in the indenture (Covenant Defeasance) and
thereafter any omission to comply with those covenants will not
constitute a Default or Event of Default with respect to the
notes.
In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under Events of
Default and Remedies will no longer constitute an Event of
Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the Issuer must irrevocably deposit with the trustee,
in trust, for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized investment bank, appraisal
firm or firm of independent public accountants, to pay the
principal of, or interest and premium and Additional Interest,
if any, on, the outstanding notes on the stated date for payment
thereof or on the applicable redemption date, as the case may
be, and the Issuer must specify whether the notes are being
defeased to such stated date for payment or to a particular
redemption date;
(2) in the case of Legal Defeasance, the Issuer must
deliver to the trustee an opinion of counsel reasonably
acceptable to the trustee (subject to customary exceptions and
exclusions) confirming that (a) the Issuer has received
from, or there has been published by, the Internal Revenue
Service a ruling or (b) since the date of the indenture,
there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuer must
deliver to the trustee an opinion of counsel reasonably
acceptable to the trustee (subject to customary exceptions and
exclusions) confirming that the Holders of the outstanding notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default
or Event of Default resulting from, or arising in connection
with, the borrowing of funds to be applied to such deposit and
the grant of any Lien securing such borrowing);
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the
indenture) to which the Issuer or any of its Subsidiaries is a
party or by which the Issuer or any of its Subsidiaries is
bound, including the Credit Agreement;
(6) the Issuer is not prohibited from making payments in
respect of the notes by the provisions described under
Ranking;
144
(7) the Issuer must deliver to the trustee an
Officers Certificate stating that the deposit was not made
by the Issuer with the intent of preferring the Holders over the
other creditors of the Issuer with the intent of defeating,
hindering, delaying or defrauding any creditors of the Issuer or
others; and
(8) the Issuer must deliver to the trustee an
Officers Certificate and an opinion of counsel, each
stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Amendment,
Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
indenture, the notes or the Note Guarantees may be amended or
supplemented with the consent of the Issuer and Holders of at
least a majority in aggregate principal amount of the notes then
outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer
for, notes), and any existing Default or Event of Default or
compliance with any provision of the indenture, the notes or the
Note Guarantee may be waived with the consent of the Holders of
a majority in aggregate principal amount of the then outstanding
notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer
for, notes).
Without the consent of the Issuer and each Holder affected, an
amendment, supplement or waiver may not (with respect to any
notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of
any note or alter the provisions with respect to the redemption
of the notes (other than provisions relating to the covenants
described above under the caption Repurchase at the
Option of Holders);
(3) reduce the rate of or change the time for payment of
interest, including default interest, on any note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium, or Additional Interest, if
any, on, the notes (except a rescission of acceleration of the
notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated
in the notes;
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or impair the rights of
Holders to receive payments of principal of, or interest or
premium or Additional Interest, if any, on, the notes;
(7) waive a redemption payment with respect to any note
(other than a payment required by one of the covenants described
above under the caption Repurchase at the Option of
Holders);
(8) release any Guarantor that is a Significant Subsidiary
from any of its obligations under its Note Guarantee or the
indenture, except in accordance with the terms of the indenture;
(9) impair the right to institute suit for the enforcement
of any payment on or with respect to the notes or any Note
Guarantees;
(10) modify the subordination provisions of the indenture
in any manner adverse to the Holders; or
(11) make any change in the preceding amendment and waiver
provisions.
Notwithstanding the preceding, without the consent of any
Holder, the Issuer, the Guarantors and the trustee may amend or
supplement the indenture, the notes or the Note Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or
in place of certificated notes;
145
(3) to provide for the assumption of the issuers or a
Guarantors obligations to Holders of notes and Note
Guarantees in the case of a merger or consolidation or sale of
all or substantially all of the Issuers or such
Guarantors assets, as applicable;
(4) to make any change that would provide any additional
rights or benefits to the Holders or that does not adversely
affect the legal rights under the indenture of any such Holder;
(5) to comply with requirements of the SEC in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act;
(6) to conform the text of the indenture, the Note
Guarantees or the notes to any provision of this Description of
Notes to the extent that such provision in this Description of
Notes was intended to be a verbatim recitation of a provision of
the indenture, the Note Guarantees or the notes;
(7) to provide for the issuance of additional notes in
accordance with the limitations set forth in the indenture;
(8) to allow any Guarantor to execute a supplemental
indenture
and/or a
Note Guarantee with respect to the notes and to release
Guarantors from the Note Guarantee in accordance with the terms
of the indenture as of the date of the indenture;
(9) to comply with the rules of any applicable securities
depositary; or
(10) to provide for a successor trustee in accordance with
the terms of the indenture or to otherwise comply with any
requirement of the indenture.
The consent of the Holders is not necessary under the indenture
to approve the particular form of any proposed amendment, waiver
or consent. It is sufficient if such consent approves the
substance of the proposed amendment, waiver or consent.
Satisfaction
and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated and, except
lost, stolen or destroyed notes that have been replaced or paid
and notes for whose payment money has been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid
to the Issuer, have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee
for cancellation have become due and payable by reason of the
mailing of a notice of redemption or otherwise or will become
due and payable within one year by the mailing of a notice of
redemption or otherwise, and the Issuer or any Guarantor has
irrevocably deposited or caused to be deposited with the trustee
as trust funds in trust solely for the benefit of the Holders,
cash in U.S. dollars, non- callable Government Securities,
or a combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, without
consideration of any reinvestment of interest, to pay and
discharge the entire Indebtedness (including all principal,
interest, and Additional Interest) on the notes not delivered to
the trustee for cancellation;
(2) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other
instrument to which the Issuer or any Guarantor is a party or by
which the Issuer or any Guarantor is bound (other than due to
the borrowing of funds to effect such deposit);
(3) the Issuer or any Guarantor has paid or caused to be
paid all other sums payable by it under the indenture; and
(4) the Issuer has delivered irrevocable instructions to
the trustee under the indenture to apply the deposited money
toward the payment of the notes at maturity or on the redemption
date, as the case may be.
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In addition, the Issuer must deliver an Officers
Certificate to the trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
Concerning
the Trustee
If the trustee becomes a creditor of the Issuer or any
Guarantor, the indenture limits the right of the trustee to
obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as
security or otherwise. The trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting
interest it must (i) eliminate such conflict within
90 days, (ii) apply to the SEC for permission to
continue as trustee (if the indenture has been qualified under
the Trust Indenture Act) or (iii) resign. The Holders of a
majority in aggregate principal amount of the then outstanding
notes will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available
to the trustee, subject to certain exceptions. The indenture
provides that in case an Event of Default occurs and is
continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will
be under no obligation to exercise any of its rights or powers
under the indenture at the request of any Holder, unless such
Holder has offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
Additional
Information
Anyone who receives this prospectus may obtain a copy of the
indenture and registration rights agreement without charge by
contacting the Issuer in the manner described in this prospectus
under the caption Where You Can Find More
Information.
Book-Entry,
Delivery and Form
Except as set forth below, the exchange notes will be issued in
registered, global form in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
Exchange notes will be represented by one or more Notes in
registered, global form without interest coupons (collectively,
the Global Notes). The Global Notes will be
deposited upon issuance with the trustee as custodian for The
Depository Trust Company (DTC), in New York, New
York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect
participant in DTC as described below. Beneficial interests in
the note may be held only through the Euroclear System
(Euroclear) and Clearstream Banking, S.A.
(Clearstream) (as indirect participants in DTC).
Beneficial interests in the Global Notes may not be exchanged
except in the limited circumstances described below.
Except as set forth below, the Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the
Global Notes may be exchanged for Notes in certificated form.
See Exchange of Global Notes for Certificated
Notes.
Depository
Procedures
The following description of the operations and procedures of
DTC, Euroclear and Clearstream is provided solely as a matter of
convenience. These operations and procedures are solely within
the control of the respective settlement systems and are subject
to changes by them. The Issuer takes no responsibility for these
operations and procedures and urges investors to contact the
system or its participants directly to discuss these matters.
DTC has advised the Issuer that DTC is a limited-purpose trust
company created to hold securities for its participating
organizations (collectively, the Participants) and
to facilitate the clearance and settlement of transactions in
those securities between Participants through electronic
book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers (including
the placement agents), banks, trust companies, clearing
corporations and certain other organizations. Access to
DTCs system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the Indirect
Participants). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only
through the Participants or the
147
Indirect Participants. The ownership interests in, and transfers
of ownership interests in, each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Issuer that, pursuant to procedures
established by it, ownership of these interests in the Global
Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Notes who are Participants in DTCs
system may hold their interests therein directly through DTC.
Investors in the Global Notes who are not Participants may hold
their interests therein indirectly through organizations
(including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream will hold interests in
the Global Notes on behalf of their participants through
customers securities accounts in their respective names on
the books of their respective depositaries, which are JPMorgan
Chase Bank and Citibank, N.A., respectively. All interests in a
Global Note, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements
of DTC. Those interests held through Euroclear or Clearstream
may also be subject to the procedures and requirements of such
systems. The laws of some states require that certain Persons
take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to
that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants, the
ability of a Person having beneficial interests in a Global Note
to pledge such interests to Persons that do not participate in
the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of interest in the Global
Notes will not have notes registered in their names, will not
receive physical delivery of notes in certificated form and will
not be considered the registered owners or Holders
thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and
premium and Additional Interest, if any, on a Global Note
registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered Holder under the
indenture. Under the terms of the indenture, the Issuer, the
paying agent and the trustee will treat the Persons in whose
names the notes, including the Global Notes, are registered as
the owners thereof for the purpose of receiving payments and for
all other purposes. Consequently, none of the Issuer, the
trustee, the paying agent nor any agent of the Issuer, the
trustee or the paying agent has or will have any responsibility
or liability for:
(1) any aspect of DTCs records or any
Participants or Indirect Participants records
relating to or payments made on account of beneficial ownership
interest in the Global Notes or for maintaining, supervising or
reviewing any of DTCs records or any Participants or
Indirect Participants records relating to the beneficial
ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices
of DTC or any of its Participants or Indirect Participants.
DTC has advised the Issuer that its current practice, upon
receipt of any payment in respect of securities such as the
notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not
receive payment on such payment date. Each relevant Participant
is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the
responsibility of DTC, the trustee, the paying agent or the
Issuer. The Issuer, the trustee and the paying agent will not be
liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the notes, and the Issuer,
the paying agent and the trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its
nominee for all purposes.
Subject to the transfer restrictions set forth under
Transfer Restrictions, transfers between
Participants in DTC will be effected in accordance with
DTCs procedures, and will be settled in
same-day
funds, and transfers
148
between participants in Euroclear and Clearstream will be
effected in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable
to the notes described herein, cross-market transfers between
the Participants in DTC, on the one hand, and Euroclear or
Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTCs rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective
depositary; however, such cross-market transactions will require
delivery of instructions to Euroclear or Clearstream, as the
case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or
Clearstream, as the case may be, will, if the transaction meets
its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement
on its behalf by delivering or receiving interests in the
relevant Global Note in DTC, and making or receiving payment in
accordance with normal procedures for
same-day
funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised the Issuer that it will take any action
permitted to be taken by a Holder only at the direction of one
or more Participants to whose account DTC has credited the
interests in the Global Notes and only in respect of such
portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the
notes, DTC reserves the right to exchange the Global Notes for
legended notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such
procedures at any time. None of the Issuer, the paying agent,
the trustee or their respective agents will have any
responsibility for the performance by DTC, Euroclear or
Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and
procedures governing their operations.
Exchange
of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form (Certificated Notes) if:
(1) DTC (a) notifies the Issuer that it is unwilling
or unable to continue as depositary for the Global Notes or
(b) has ceased to be a clearing agency registered under the
Exchange Act, and in each case the Issuer fails to appoint a
successor depositary;
(2) the Issuer, at its option, notifies the trustee in
writing that it elects to cause the issuance of the Certificated
Notes; or
(3) there shall have occurred and be continuing a Default
or Event of Default with respect to the notes.
In addition, beneficial interests in a Global Note may be
exchanged for Certificated Notes upon prior written notice given
to the trustee by or on behalf of DTC in accordance with the
indenture. In all cases, Certificated Notes delivered in
exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures) and
will bear the applicable restrictive legend referred to in
Transfer Restrictions, unless that legend is not
required by applicable law.
Same Day
Settlement and Payment
The Issuer will make payments in respect of the notes
represented by the Global Notes (including principal, premium,
if any, interest and Additional Interest, if any) by wire
transfer of immediately available funds to the accounts
specified by DTC or its nominee. The Issuer will make all
payments of principal, interest and premium, if any, and
Additional Interest, if any, with respect to Certificated Notes
by wire transfer of immediately available funds to the accounts
specified by the Holders of the Certificated Notes or, if no
such account is specified, by mailing a check to each such
Holders registered address. The notes represented by the
Global Notes are expected to be eligible to trade in the PORTAL
market and to trade in DTCs
Same-Day
Funds Settlement System, and any
149
permitted secondary market trading activity in such notes will,
therefore, be required by DTC to be settled in immediately
available funds. The Issuer expects that secondary trading in
any Certificated Notes will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
Global Note from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
DTC has advised the Issuer that cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Note
by or through a Euroclear or Clearstream participant to a
Participant in DTC will be received with value on the settlement
date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTCs settlement date.
Certain
Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all
defined terms used therein, as well as any other capitalized
terms used herein for which no definition is provided.
Acquired Debt means, with respect to any specified
Person:
(1) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Restricted
Subsidiary of such specified Person, whether or not such
Indebtedness is incurred in connection with, or in contemplation
of, such other Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
Additional Interest means all Additional Interest
then owing pursuant to the registration rights agreement.
Affiliate of any specified Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For
purposes of this definition, the terms controlling,
controlled by and under common control
with have correlative meanings.
Applicable Premium means, with respect to any note
on any redemption date, the greater of:
(1) l.0% of the principal amount of the note; or
(2) the excess of:
(a) the present value at such redemption date of
(i) the redemption price of the note at October 15,
2010 (such redemption price being set forth in the table
appearing above under the caption Optional
Redemption), plus (ii) all required interest payments
due on the note through October 15, 2010 (excluding accrued
but unpaid interest to the redemption date), computed using a
discount rate equal to the Treasury Rate as of such redemption
date plus 50 basis points; over
(b) the principal amount of the note.
Asset Acquisition means:
(1) an Investment by the Issuer or any Restricted
Subsidiary of the Issuer in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Issuer
or any Restricted Subsidiary of the Issuer, or shall be merged
with or into or consolidated with the Issuer or any Restricted
Subsidiary of the Issuer; or
(2) the acquisition by the Issuer or any Restricted
Subsidiary of the Issuer of the assets of any Person (other than
a Restricted Subsidiary of the Issuer) which constitute all or
substantially all of the assets of such
150
Person or comprise any division or line of business of such
Person or any other properties or assets of such Person other
than in the ordinary course of business.
Asset Sale means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights; provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of
the Issuer and its Restricted Subsidiaries taken as a whole will
be governed by the provisions of the indenture described above
under the caption Repurchase at the Option of
HoldersChange of Control
and/or the
provisions described above under the caption Certain
CovenantsMerger, Consolidation or Sale of Assets and
not by the provisions described above under the caption
Repurchase at the Option of HoldersAsset
Sales; and
(2) the issuance or sale of Equity Interests in any of the
Issuers Restricted Subsidiaries.
Notwithstanding the preceding, none of the following items will
be deemed to be an Asset Sale:
(1) any single transaction or series of related
transactions that involves assets or Equity Interests of any
Restricted Subsidiary having a Fair Market Value of less than
$5.0 million;
(2) a transfer of assets between or among the Issuer and
any of its Restricted Subsidiaries;
(3) an issuance or sale of Equity Interests by a Restricted
Subsidiary of the Issuer to the Issuer or to another Restricted
Subsidiary of the Issuer;
(4) the sale or lease of inventory, products or services or
the lease, assignment or
sub-lease of
any real or personal property in the ordinary course of business;
(5) the sale or discounting of accounts receivable in the
ordinary course of business;
(6) any sale or other disposition of damaged, worn-out,
obsolete or no longer useful assets or properties in the
ordinary course of business;
(7) any sale of assets received by the Issuer or any of its
Restricted Subsidiaries upon the foreclosure on a Lien;
(8) the sale or other disposition of cash, Cash Equivalents
or Marketable Securities;
(9) a sale of accounts receivable and related assets of the
type specified in the definition of Receivables
Financing to a Receivables Subsidiary in a Qualified
Receivables Financing;
(10) a transfer of accounts receivable and related assets
of the type specified in the definition of Receivables
Financing (or a fractional undivided interest therein) by
a Receivables Subsidiary in a Qualified Receivables Financing;
(11) a Restricted Payment that does not violate the
covenant described above under the caption Certain
CovenantsRestricted Payments or any Permitted
Investment;
(12) any sale of Equity Interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary;
(13) the granting of Liens not otherwise prohibited by the
indenture;
(14) the surrender, or waiver of contract rights or
settlement, release or surrender of contract, tort or other
claims; and
(15) any exchange of assets related to a Permitted Business
of comparable market value, as determined in good faith by the
Issuer.
Asset Sale Offer has the meaning assigned to that
term in the indenture.
Bank Agent means the agent for the lenders under the
Credit Agreement or its successors as agent for the lenders
under the Credit Agreement.
Beneficial Owner has the meaning assigned to such
term in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act, except that in calculating the
beneficial ownership of any particular person (as
that term is used in
151
Section 13(d)(3) of the Exchange Act), such
person shall be deemed to have beneficial ownership
of all securities that such person has the right to
acquire by conversion or exercise of other securities, whether
such right is currently exercisable or is exercisable only after
the passage of time. The terms Beneficially Owns and
Beneficially Owned have a corresponding meaning.
Board of Directors means:
(1) with respect to a corporation, the board of directors
of the corporation or any committee thereof duly authorized to
act on behalf of such board;
(2) with respect to a partnership, the Board of Directors
or other governing body of the general partner of the
partnership;
(3) with respect to a limited liability company, the Board
of Directors or other governing body, and in the absence of
same, the manager or board of managers or the managing member or
members or any controlling committee thereof; and
(4) with respect to any other Person, the board or
committee of such Person serving a similar function.
Business Day means a day other than a Saturday,
Sunday or other day on which banking institutions are authorized
or required by law to close in New York State.
Capital Lease Obligation means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease that would at that time be
required to be capitalized on a balance sheet (excluding the
footnotes thereto) prepared in accordance with GAAP.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity that
is not a corporation, any and all shares, interests,
participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability
company, partnership interests (whether general or limited) or
membership interests; and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person, but
excluding from all of the foregoing any debt securities
convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
Cash Contributions means the aggregate amount of
cash contributions made to the capital of the Issuer or any
Guarantor described in the definition of Contribution
Indebtedness.
Cash Equivalents means:
(1) United States dollars or, in the case of any Foreign
Subsidiary, such local currencies held by it from time to time
in the ordinary course of business;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality of the United States government (provided that
the full faith and credit of the United States is pledged in
support of those securities) having maturities of not more than
one year from the date of acquisition;
(3) certificates of deposit, time deposits and eurodollar
time deposits with maturities of one year or less from the date
of acquisition, bankers acceptances with maturities not
exceeding one year and overnight bank deposits, in each case,
with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of
$500.0 million and a rating at the time of acquisition
thereof of
P-1 or
better from Moodys or
A-1 or
better from S&P;
(4) repurchase obligations for underlying securities of the
types described in clauses (2) and (3) above entered
into with any financial institution meeting the qualifications
specified in clause (3) above;
152
(5) commercial paper having one of the two highest ratings
obtainable from Moodys or S&P and, in each case,
maturing within one year after the date of acquisition;
(6) securities issued or fully guaranteed by any state or
commonwealth of the United States, or by any political
subdivision or taxing authority thereof having one of the two
highest ratings obtainable from Moodys or S&P, and, in
each case, maturing within one year after the date of
acquisition;
(7) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in
clauses (1) through (5) of this definition;
(8) Indebtedness or Preferred Stock issued by Persons with
a rating of A or higher from S&P or
A-2
from Moodys; and
(9) in the case of any Foreign Subsidiary, investments
denominated in the currency of the jurisdiction in which that
Foreign Subsidiary is organized or has its principal place of
business, which are similar to and have similar ratings from
similar rating agencies to the items specified in
clauses (2), (3), (4), (6), (7) and (8).
Change of Control means the occurrence of any of the
following:
(1) the direct or indirect sale, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of the
Issuer and its Restricted Subsidiaries, in each case, taken as a
whole, to any person (as that term is used in
Section 13(d)(3) of the Exchange Act) other than the
Permitted Holders;
(2) the adoption of a plan relating to the liquidation or
dissolution of the Issuer;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person or group (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act),
other than the Permitted Holders, becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the voting power of
the Voting Stock of the Issuer; or
(4) the first day on which a majority of the members of the
Board of Directors of the Issuer are not Continuing Directors.
Change of Control Offer has the meaning assigned to
that term in the indenture.
Change of Control Payment has the meaning assigned
to that term in the indenture.
Change of Control Payment Date has the meaning
assigned to that term in the indenture.
Code means the Internal Revenue Code of 1986, as
amended.
Consolidated Cash Flow means, with respect to any
specified Person for any period, the Consolidated Net Income of
such Person for such period (A) plus, without duplication
to the extent the same was excluded in calculating Consolidated
Net Income:
(1) provision for taxes based on income, profits, losses or
capital of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was deducted
in computing such Consolidated Net Income; plus
(2) the Fixed Charges of such Person and its Restricted
Subsidiaries for such period, to the extent that such Fixed
Charges were deducted in computing such Consolidated Net Income;
plus
(3) depreciation, amortization (including, without
limitation, amortization of intangibles and deferred financing
fees) and other non-cash expenses (including without limitation
write-downs and impairment of property, plant, equipment and
intangibles and other long-lived assets and the impact of
purchase accounting on such Person and its Restricted
Subsidiaries for such period), but excluding any non-cash items
for which a future cash payment will be required and for which
an accrual or reserve is required by GAAP to be made, to the
extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net
Income; plus
153
(4) the amount of any restructuring charges (which, for the
avoidance of doubt, shall include retention, severance, systems
establishment cost or excess pension, other post employment
benefits, curtailment or other excess charges); plus
(5) the minority interest expense consisting of subsidiary
income attributable to minority equity interests of third
parties in any non-wholly-owned subsidiary in such period or any
prior period, except to the extent of dividends declared or paid
on Equity Interests held by third parties; plus
(6) the amount of management, consulting, monitoring and
advisory fees and related expenses paid to the Permitted Holders
or to previous equity holders (or any accruals related to such
fees and related expenses) during such period; provided that
such amount shall not exceed in any four quarter period the
greater of (x) $2.5 million and (y) 2% of
Consolidated Cash Flow of the Issuer and its Restricted
Subsidiaries for each period; plus
(7) equity in earnings or losses in affiliates; plus
(8) other non-operating expenses; plus
(9) accretion of asset retirement obligations in accordance
with SFAS No. 143, Accounting for Asset Retirement
Obligations, and any similar accounting in prior periods; minus
(B) non-cash items increasing such Consolidated Net Income
for such period, other than (i) any items which represent
the reversal in such period of any accrual of, or cash reserve
for anticipated charges in any prior period where such accrual
or reserve is no longer required or (ii) items related to
percentage of completion accounting, in each case, on a
consolidated basis and determined in accordance with GAAP.
Consolidated Net Income means, with respect to any
specified Person for any period, the aggregate of the Net Income
of such Person and its Restricted Subsidiaries for such period,
on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) any net after-tax extraordinary, unusual or
nonrecurring gains or losses (less all fees and expenses
relating thereto) or income or expense or charge (including,
without limitation, pension expense, casualty losses, severance
expenses, relocation expenses, other restructuring expenses and
fees, expenses or charges related to any offering of Equity
Interests of such Person, any Investment, acquisition or
Indebtedness permitted to be incurred hereunder (in each case,
whether or not successful)), including all fees, expenses,
charges and change in control payments related to the
Transactions, in each case shall be excluded;
(2) any net after-tax income or loss from discontinued
operations and any net after-tax gain or loss on disposal of
discontinued operations shall be excluded;
(3) any net after-tax gains or losses (minus all fees and
expenses or charges relating thereto) attributable to business
dispositions or asset dispositions other than in the ordinary
course of business (as determined in good faith by the Board of
Directors of the Issuer) shall be excluded;
(4) any net after-tax income or loss (minus all fees and
expenses or charges relating thereto) attributable to the early
extinguishment of indebtedness and Hedging Obligations shall be
excluded;
(5) (A) the Net income for such period of any Person
that is not a Restricted Subsidiary, or that is accounted for by
the equity method of accounting, shall be included only to the
extent of the amount of dividends or distributions or other
payments in respect of equity that are actually paid in cash (or
to the extent converted into cash) by the referent Person to the
Issuer or a Restricted Subsidiary thereof in respect of such
period and (B) the Net Income for such period shall include
any dividend, distribution or other payments in respect of
equity paid in cash by such Person to the Issuer or a Restricted
Subsidiary thereof in excess of the amount included in
clause (A);
(6) any non-cash charges from the application of the
purchase method of accounting in connection with the
Transactions or any future acquisition, to the extent that any
such charges are deducted in computing such Consolidated Net
Income, shall be excluded;
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(7) accruals and reserves that are established within
twelve months after the Acquisitions Closing Date (as
defined in Merger Agreement) and that are so required to be
established in accordance with GAAP shall be excluded;
(8) any non-cash charges relating to write-downs and
impairments of property, plant, equipment and intangibles and
other long-lived assets;
(9) any long-term incentive plan accruals and any non-cash
compensation expense realized from grants of stock appreciation
or similar rights, stock options or other rights to officers,
directors and employees of such Person or any of its Restricted
Subsidiaries shall be excluded;
(10) solely for the purpose of determining the amount
available for Restricted Payments under clause (3)(a) of
the first paragraph of Certain
CovenantsRestricted Payments, the Net Income of any
Restricted Subsidiary that is not a Guarantor will be excluded
to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders or members, unless such
restriction with respect to the payment of dividends or similar
distributions has been legally waived; provided that
Consolidated Net Income of such Person shall be increased by the
amount of dividends or distributions or other payments that are
actually paid in cash (or to the extent converted into cash) by
such Person to the Issuer or another Restricted Subsidiary
thereof in respect of such period, to the extent not already
included therein; and
(11) the cumulative effect of a change in accounting
principles will be excluded.
Contingent Obligations means, with respect to any
Person, any obligation of such Person guaranteeing any leases,
dividends or other obligations that do not constitute
Indebtedness (primary obligations) of any other
Person in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or
not contingent:
(1) to purchase any such primary obligation or any property
constituting direct or indirect security thereof;
(2) to advance or supply funds (A) for the purchase or
payment of any such primary obligation or (B) to maintain
working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary
obligor; or
(3) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment
of such obligation against loss in respect thereof.
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of the
Issuer or any Parent, as the case may be, who:
(1) was a member of such Board of Directors on the date of
the indenture, or
(2) was nominated for election or elected to such Board of
Directors by one or more of the Equity Investors or with the
approval of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such
nomination or election.
Contribution Indebtedness means Indebtedness of the
Issuer or any Guarantor in an aggregate principal amount not
greater than twice the aggregate amount of cash contributions
(other than Excluded Contributions) made to the equity capital
of the Issuer or such Guarantor after the date of the indenture,
provided that:
(1) if the aggregate principal amount of such Contribution
Indebtedness is greater than one times such cash contributions
to the equity capital of the Issuer or such Guarantor, as
applicable, the amount in excess shall be Indebtedness (other
than secured Indebtedness) with a Stated Maturity later than the
Stated Maturity of the notes, and
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(2) such Contribution Indebtedness (x) is incurred
within 180 days after the making of such cash contributions
and (y) is designated as Contribution Indebtedness pursuant
to an Officers Certificate on the incurrence date thereof.
Credit Agreement means that certain credit
agreement, expected to be dated the Issue Date, by and among FR
X Chart Holdings LLC, CI Acquisition Inc., as borrower, the
guarantors named therein, Citicorp North America, Inc., as
administrative agent, Morgan Stanley Senior Funding, Inc., as
syndication agent, Citigroup Global Markets Inc., Morgan Stanley
Senior Funding, Inc., as joint lead arrangers and book runners
and each lender party thereto, including any related notes,
guarantees, collateral documents, instruments and agreements
executed in connection therewith, and, in each case, as amended,
restated, modified, renewed, refunded, replaced (whether upon or
after termination or otherwise) or refinanced (including by
means of sales of debt securities to institutional investors) in
whole or in part from time to time in one or more agreements or
indentures (in each case with the same or new lenders or
institutional investors), including any agreement or indenture
extending the maturity thereof or otherwise restructuring all or
any portion of the Indebtedness thereunder or increasing the
amount loaned or issued thereunder or altering the maturity
thereof.
Credit Facilities means one or more debt facilities
(including, without limitation, the Credit Agreement) or
commercial paper facilities, in each case, with banks or other
institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or
letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced (whether upon or after termination
or otherwise) or refinanced (including by means of sales of debt
securities to institutional investors) in whole or in part from
time to time in one or more agreements or indentures (in each
case with the same or new lenders or institutional investors),
including any agreement or indenture extending the maturity
thereof or otherwise restructuring all or any portion of the
indebtedness thereunder or increasing the amount loaned or
issued thereunder or altering the maturity thereof.
Default means any event that is, or with the passage
of time or the giving of notice or both would be, an Event of
Default.
Designated Non-cash Consideration means the Fair
Market Value of non-cash consideration received by the Issuer or
one of its Restricted Subsidiaries in connection with an Asset
Sale that is so designated as Designated Non-cash
Consideration pursuant to an Officers Certificate,
setting forth the basis of such valuation, less the amount of
cash or Cash Equivalents received in connection with a
subsequent sale of such Designated Non-cash Consideration.
Designated Preferred Stock means Preferred Stock of
the Issuer or any Parent (other than Disqualified Stock) that is
issued for cash (other than to the Issuer or any of its
Subsidiaries or an employee stock ownership plan or trust
established by the Issuer or any of its Subsidiaries) and is so
designated as Designated Preferred Stock, pursuant to an
Officers Certificate, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set
forth in clause (3)(b) of the covenant described under
Certain CovenantsRestricted Payments.
Designated Senior Indebtedness means (1) any
Indebtedness under the Credit Agreement and (2) any other
Indebtedness constituting Senior Indebtedness that, at the date
of determination, has an aggregate principal amount outstanding
of at least $25.0 million and that is specifically
designated by the Issuer in the instrument creating or
evidencing such Senior Indebtedness as Designated Senior
Indebtedness or, in the alternative, as to which the
trustee is given written notice that such Indebtedness is
Designated Senior Indebtedness.
Disqualified Stock means any Capital Stock that, by
its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, in each case, at
the option of the holder of the Capital Stock), or upon the
happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder of the Capital Stock, in
whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock will not constitute
Disqualified Stock solely because the holders of the Capital
Stock have the right to require the Issuer to repurchase such
Capital Stock upon the occurrence of a change of control or an
asset sale. The amount of Disqualified Stock deemed to be
outstanding at any time for purposes of the indenture will be
the maximum amount that the Issuer and its Restricted
Subsidiaries may become obligated to pay upon the maturity of,
or pursuant to any
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mandatory redemption provisions of, such Disqualified Stock,
exclusive of accrued dividends. The term Disqualified
Stock shall also include any options, warrants or other
rights that are convertible into Disqualified Stock or that are
redeemable at the option of the holder or required to be
redeemed, prior to the date that is 91 days after the date
on which the notes mature.
Domestic Subsidiary means any Restricted Subsidiary
of the Issuer that was formed under the laws of the United
States or any state of the United States or the District of
Columbia.
Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Equity Investors means First Reserve Corporation and
its Affiliates.
Equity Offering means (i) an offer and sale of
Capital Stock (other than Disqualified Stock) of the Issuer or
any Parent (to the extent the net proceeds therefrom are
contributed to the equity capital of the issuer) pursuant to
(x) a registration statement that has been declared
effective by the SEC pursuant to the Securities Act (other than
a registration statement on
Form S-8
or otherwise relating to equity securities issuable under any
employee benefit plan of the Issuer or any Parent), or
(y) a private issuance exempt from registration under the
Securities Act.
Excluded Contributions means the net cash proceeds
received by the Issuer after the date of the indenture from:
(1) contributions to its common equity capital, and
(2) the sale (other than to a Subsidiary of the Issuer) of
Capital Stock (other than Disqualified Stock and Designated
Preferred Stock) of the Issuer,
in each case designated as Excluded Contributions
pursuant to an Officers Certificate of the Issuer, the net
cash proceeds of which are excluded from the calculation set
forth in clause (3)(b) of Certain
CovenantsRestricted Payments.
Fair Market Value means the value that would be paid
by a willing buyer to an unaffiliated willing seller in a
transaction not involving distress or necessity of either party,
determined in good faith by the Directors of the Issuer (unless
otherwise provided in the indenture) for transactions valued at,
or in excess of, $10.0 million; provided that, if the
Issuer or any Restricted Subsidiary is required by any antitrust
authority to sell any asset, the consideration received upon
such Asset Sale shall be deemed to be the Fair Market
Value of such asset.
Fixed Charge Coverage Ratio means with respect to
any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person for such period to the
Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays, repurchases, redeems,
defeases or otherwise discharges any Indebtedness (other than
(i) ordinary working capital borrowings and (ii) in
the case of revolving credit borrowings or revolving advances
under any Qualified Receivables Financing, in which case
interest expense will be computed based upon the average daily
balance of such Indebtedness during the applicable period) or
issues, repurchases or redeems preferred equity subsequent to
the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated and on or prior to the date
on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the Calculation Date), then
the Fixed Charge Coverage Ratio will be calculated giving pro
forma effect to such incurrence, assumption, guarantee,
repayment, repurchase, redemption, defeasance or other discharge
of Indebtedness, or such issuance, repurchase or redemption of
preferred equity, and the use of the proceeds therefrom, as if
the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio, Asset Acquisitions, dispositions, mergers,
consolidations and discontinued operations (as determined in
accordance with GAAP), and any related financing transactions,
that the specified Person or any of its Restricted Subsidiaries
has both determined to make and made after the date of the
indenture and during the four-quarter reference period or
subsequent to such reference period and on or prior to or
simultaneously with the Calculation Date shall be calculated on
a pro forma basis assuming that all such Asset Acquisitions,
dispositions, mergers, consolidations and discontinued
operations (and the change of any associated Fixed Charges and
the change in Consolidated Cash Flow resulting therefrom) had
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occurred on the first day of the four-quarter reference period,
including any pro forma expense and cost reductions and other
operating improvements that have occurred or are reasonably
expected to occur, in the reasonable judgment of the chief
financial officer of the Issuer (regardless of whether these
cost savings or operating improvements could then be reflected
in pro forma financial statements in accordance with
Regulation S-X
promulgated under the Securities Act or any other regulation or
policy of the SEC related thereto). Any Person that is a
Restricted Subsidiary on the Calculation Date will be deemed to
have been a Restricted Subsidiary at all times during such
four-quarter period, and if, since the beginning of the
four-quarter reference period, any Person that subsequently
became a Restricted Subsidiary or was merged with or into the
Issuer or any of its other Restricted Subsidiaries since the
beginning of such period shall have made any acquisition,
Investment, disposition, merger, consolidation or discontinued
operation, in each case with respect to an operating unit of a
business, that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be
adjusted giving pro forma effect thereto for such period as if
such Asset Acquisition, disposition, discontinued operation,
merger or consolidation had occurred at the beginning of the
applicable four-quarter reference period. Any Person that is not
a Restricted Subsidiary on the Calculation Date will be deemed
not to have been a Restricted Subsidiary at any time during such
four-quarter period.
For purposes of this definition, whenever pro forma effect is to
be given to any transaction, the pro forma calculations shall be
made in good faith by a responsible financial or accounting
officer of the Issuer. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, the interest on
such Indebtedness shall be calculated as if the rate in effect
on the Calculation Date had been the applicable rate for the
entire period (taking into account any Hedging Obligations
applicable to such Indebtedness if such Hedging Obligation has a
remaining term in excess of 12 months). Interest on a
Capital Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by a responsible financial
or accounting officer of the Issuer to be the rate of interest
implicit in such Capital Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above,
interest on any Indebtedness under a revolving credit facility
computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable
period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other
rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen
as the Issuer may designate. Any such pro forma calculation may
include adjustments appropriate, in the reasonable determination
of the Issuer as set forth in an Officers Certificate, to
reflect operating expense reductions reasonably expected to
result from any acquisition or merger.
Fixed Charges means, with respect to any specified
Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or
accrued, excluding amortization of debt issuance costs and the
expensing of any bridge or other financing fees, but including
original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations
(classified as Indebtedness under the indenture), the interest
component of all payments associated with Capital Lease
Obligations and net of the effect of all payments made or
received pursuant to Hedging Obligations in respect of interest
rates; plus
(2) the consolidated interest expense of such Person and
its Restricted Subsidiaries that was capitalized during such
period; plus
(3) all cash dividend payments or other cash distributions
on any series of preferred equity of such Person and all other
dividend payments or other distributions on the Disqualified
Stock of such Person; less
(4) interest income,
in each case, on a consolidated basis and in accordance with
GAAP.
Foreign Subsidiary means any Restricted Subsidiary
of the Issuer other than a Domestic Subsidiary.
GAAP means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as
158
have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
Government Securities means securities that are
direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged.
guarantee means a guarantee, other than by
endorsement of negotiable instruments for collection in the
ordinary course of business, direct or indirect, in any manner,
including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness (whether arising
by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to
take or pay or to maintain financial statement conditions or
otherwise).
Guarantors means each of:
(1) the subsidiaries of the Issuer that execute the
indenture on the Issue Date; and
(2) any other Subsidiary of the Issuer that becomes a
Guarantor in accordance with the provisions of the indenture,
and their respective successors and assigns, in each case, until
the Note Guarantee of such Person has been released in
accordance with the provisions of the indenture.
Hedging Obligations means, with respect to any
specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to
floating or from floating to fixed), interest rate cap
agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage
interest rates or interest rate risk; and
(3) other agreements or arrangements designed to protect
such Person against fluctuations in currency exchange rates or
commodity prices.
Holder means a Person in whose name a note is
registered.
Immaterial Subsidiary means any Subsidiary that is
not a Material Subsidiary.
Indebtedness means, with respect to any specified
Person, any indebtedness of such Person, whether or not
contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) in respect of bankers acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the
purchase price of any property or services due more than six
months after such property is acquired or such services are
completed;
(6) representing any Hedging Obligations; or
(7) to the extent not otherwise included, with respect to
the Issuer and its Restricted Subsidiaries, the amount then
outstanding (i.e., advanced, and received by, and available for
use by, the Issuer or any of its Restricted Subsidiaries) under
any Receivables Financing (as set forth in the books and records
of the Issuer or any Restricted Subsidiary and confirmed by the
agent, trustee or other representative of the institution or
group providing such Receivables Financing),
if and to the extent any of the preceding items (other than
letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of the specified Person prepared
in accordance with GAAP. In addition, the term
Indebtedness includes (i) all Indebtedness of
others secured by a Lien on any asset of the specified Person
(whether or not such Indebtedness is assumed by the specified
Person); provided, however, that the amount of such Indebtedness
shall be the lesser of (x) the Fair Market Value of such
asset as of such date of determination and (y) the amount
of such Indebtedness of such other Person; and (ii) to the
extent not otherwise included, the guarantee by the
159
specified Person of any Indebtedness of any other Person.
Notwithstanding the foregoing, Indebtedness shall
not include (a) accrued expenses, royalties and Trade
Payables; (b) Contingent Obligations incurred in the
ordinary course of business; and (c) asset retirement
obligations and obligations in respect of reclamation and
workers compensation (including pensions and retiree
medical care) that are not overdue by more than 90 days.
Investment Grade Rating means a rating equal to or
higher than Baa3 (or the equivalent) by Moodys or BBB- (or
the equivalent) by S&P, or, if either such entity ceases to
rate the notes for reasons outside of the control of the Issuer,
the equivalent investment grade credit rating from any other
Rating Agency.
Investment Grade Securities means:
(1) securities issued or directly and fully guaranteed or
insured by the U.S. government or any agency or
instrumentality thereof (other than Cash Equivalents) and in
each case with maturities not exceeding two years from the date
of acquisition;
(2) investments in any fund that invests exclusively in
investments of the type described in clause (1) which fund
may also hold immaterial amounts of cash pending investment
and/or
distribution; and
(3) corresponding instruments in countries other than the
United States customarily utilized for high quality investments
and in each case with maturities not exceeding two years from
the date of acquisition.
Investments means, with respect to any Person, all
direct or indirect investments by such Person in other Persons
(including Affiliates) in the forms of loans (including
guarantees or other obligations), advances or capital
contributions (excluding accounts receivable, trade credit and
advances to customers and commission, travel and similar
advances to officers, employees and consultants made in the
ordinary course of business), purchases or other acquisitions
for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be
classified as investments on a balance sheet prepared in
accordance with GAAP. If the Issuer or any Subsidiary of the
Issuer sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Issuer such that, after
giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Issuer, the Issuer will be deemed to
have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of the Issuers
Investments in such Subsidiary that were not sold or disposed of
in an amount determined as provided in the final paragraph of
the covenant described above under the caption
Certain CovenantsRestricted Payments.
Issue Date means October 17, 2005.
Lien means, with respect to any asset (except in
connection with a Qualified Receivables Financing), any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
Management Notes means any notes evidencing
Indebtedness which, by their terms, are expressly subordinated
to the notes offered hereunder, that are issued by the Issuer,
any Subsidiary or any Parent to existing or former employees,
officers, consultants, or directors of the Issuer or any
Subsidiary or any Parent in consideration for such persons
Equity Interests of the Issuer, any Subsidiary or any Parent.
Marketable Securities means, with respect to any
Asset Sale, any readily marketable equity securities that are
(i) traded on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market; and
(ii) issued by a corporation having a total equity market
capitalization of not less than $250.0 million; provided
that the excess of (A) the aggregate amount of securities
of any one such corporation held by the Issuer and any
Restricted Subsidiary over (B) ten times the average daily
trading volume of such securities during the 20 immediately
preceding trading days shall be deemed not to be Marketable
Securities, as determined on the date of the contract relating
to such Asset Sale.
Material Subsidiary means any Subsidiary that would
be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date
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of the indenture, provided, however, that all references to
10 percent in such definition shall be replaced
with 5 percent.
Merger Agreement means the Agreement and Plan of
Merger dated as of August 2, 2005 among Chart Industries,
Inc., certain stockholders of Chart Industries, Inc., First
Reserve Fund X L.P. and CI Acquisition, Inc.
Moodys means Moodys Investors Service,
Inc. and its successors and assigns.
Net Income means, with respect to any Person for any
period, the net income (loss) of such Person for such period,
determined in accordance with GAAP and before any reduction in
respect of dividends on preferred interests, excluding, however,
(a) any gain or loss, together with any related provision
for taxes on such gain or loss, realized in connection with
(1) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or
(2) the disposition of any securities by such Person or any
of its Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries and (b) any
extraordinary or nonrecurring gain or loss, together with any
related provision for taxes on such extraordinary or
nonrecurring gain or loss.
Net Proceeds means the aggregate cash proceeds
received by the Issuer or any of its Restricted Subsidiaries in
respect of any Asset Sale (including, without limitation, any
cash received upon the sale or other disposition of any
Designated Non-cash Consideration received in any Asset Sale and
any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding the
assumption by the acquiring Person of Indebtedness relating to
the disposed assets or other consideration received in any
non-cash form), net of the direct costs relating to such Asset
Sale and the sale of such Designated Non-cash Consideration,
including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale or taxes paid or payable
as a result of the Asset Sale, in each case, after taking into
account any available tax credits or deductions and any tax
sharing arrangements, and amounts required to be applied to the
repayment of Indebtedness, other than Indebtedness under a
Credit Facility, secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP, including without
limitation, pension and post-employment benefit liabilities and
liabilities related to environmental matters or against any
indemnification obligations associated with such transaction.
Non-Recourse Debt means Indebtedness:
(1) as to which neither the Issuer nor any of its
Restricted Subsidiaries (a) provides credit support of any
kind (including any undertaking, agreement or instrument that
would constitute Indebtedness) other than a pledge of the Equity
Interest of any Unrestricted Subsidiaries, (b) is directly
or indirectly liable (as a guarantor or otherwise) other than by
virtue of a pledge of the Equity Interests of any Unrestricted
Subsidiaries, or (c) constitutes the lender; and
(2) no default with respect to which (including any rights
that the holders of the Indebtedness may have to take
enforcement action against an Unrestricted Subsidiary) would
permit, upon notice, lapse of time or both, any holder of any
other Indebtedness (other than the notes offered hereby) of the
Issuer or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment of the
Indebtedness to be accelerated or payable prior to its Stated
Maturity.
Note Guarantee means the guarantee by each Guarantor
of the Issuers obligations under the indenture and the
notes, executed pursuant to the provisions of the indenture.
Obligations means any principal, interest,
penalties, fees, indemnifications, reimbursements, damages,
costs, expenses and other liabilities payable under the
documentation governing any Indebtedness.
Officer means, with respect to any Person, the
Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary, any Senior Vice President, any Vice President or
any Assistant Vice President of such Person.
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Officers Certificate means a certificate
signed on behalf of the Issuer by at least two Officers of the
Issuer, one of whom must be the principal executive officer, the
principal financial officer, the treasurer or the principal
accounting officer of the Issuer, that meets the requirements of
the indenture.
Parent means any direct or indirect parent company
of the Issuer.
Permitted Business means the businesses of the
Issuer and its Subsidiaries engaged in on the date of the
indenture and any other activities that are similar, ancillary
or reasonably related to, or a reasonable extension, expansion
or development of, such businesses or ancillary thereto.
Permitted Holders, means the Equity Investors and
Related Parties. Any person or group whose acquisition of
beneficial ownership constitutes a Change of Control in respect
of which a Change of Control Offer is made in accordance with
the requirements of the indenture will thereafter, together with
its Affiliates, constitute an additional Permitted Holder.
Permitted Investments means:
(1) any investment in the Issuer or in a Restricted
Subsidiary of the Issuer;
(2) any Investment in cash, Cash Equivalents, Marketable
Securities or Investment Grade Securities;
(3) any Investment by the Issuer or any Restricted
Subsidiary of the Issuer in a Person, if as a result of such
Investment:
(a) such Person becomes a Restricted Subsidiary of the
Issuer; or
(b) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Issuer or a Restricted Subsidiary
of the Issuer,
and, in each of cases (a) and (b), any Investment then held
by such person; provided that any such Investment was not
made by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary
of the Issuer or such merger, consolidation, amalgamation,
transfer, conveyance or liquidation;
(4) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the Option of
HoldersAsset Sales;
(5) any Investment the payment for which consists of Equity
Interests (other than Disqualified Stock) of the Issuer or any
Parent (which Investment, in the case of any Parent, is
contributed to the common equity capital of the Issuer; provided
that any such contribution shall be excluded from
clause 3(b) of the first paragraph of the covenant
described under the caption Certain
CovenantsRestricted Payments);
(6) any Investments received (i) in compromise or
resolution of (A) obligations of trade creditors or
customers that were incurred in the ordinary course of business
of the Issuer or any of its Restricted Subsidiaries, including
pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of any trade creditor or
customer; or (B) litigation, arbitration or other disputes;
or (ii) as a result of a foreclosure by the Issuer or any
of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any
secured Investment in default;
(7) Investments represented by Hedging Obligations;
(8) loans or advances to officers, directors and employees
made in the ordinary course of business of the Issuer or any
Restricted Subsidiary of the Issuer in an aggregate principal
amount not to exceed $2.5 million at any one time
outstanding;
(9) repurchases of the notes;
(10) Investments in Permitted Businesses, joint ventures or
Unrestricted Subsidiaries having an aggregate Fair Market Value,
taken together with all other Investments made pursuant to this
clause (10) that are at
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that time outstanding, not to exceed the greater of
(x) $35.0 million and (y) 5% of Total Assets at
the time of such Investment (with the Fair Market Value of each
Investment being measured at the time made and without giving
effect to subsequent changes in value);
(11) any Investment in a Receivables Subsidiary or any
Investment by a Receivables Subsidiary in any other Person in
connection with a Qualified Receivables Financing, including
Investments of funds held in accounts permitted or required by
the arrangements governing such Qualified Receivables Financing
or any related Indebtedness; provided, however, that any
Investment in a Receivables Subsidiary is in the form of a
Purchase Money Note, contribution of additional receivables or
an equity interest;
(12) any transaction to the extent it constitutes an
Investment that is permitted by and made in accordance with the
provisions of the second paragraph of the covenant described
under Certain CovenantsTransactions with
Affiliates (except for transactions described in
clauses (6), (8), (10) and (12) of such
paragraph);
(13) guarantees issued in accordance with the covenants
described under Certain CovenantsIncurrence of
Indebtedness and Issuance of Preferred Equity and
Certain CovenantsAdditional Note
Guarantees;
(14) any Investment existing on the date of the indenture
and any Investment that replaces, refinances or refunds an
existing Investment; provided that the new Investment is in an
amount that does not exceed the amount replaced, refinanced or
refunded, and is made in the same Person as the Investment
replaced, refinanced or refunded;
(15) Investments consisting of purchases and acquisitions
of inventory, supplies, materials and equipment or purchases of
contract rights or licenses or leases of intellectual property,
in each case in the ordinary course of business; and
(16) additional Investments by the Issuer or any Restricted
Subsidiary having an aggregate Fair Market Value (measured on
the date each such Investment was made and without giving effect
to subsequent changes in value), taken together with all other
Investments made pursuant to this clause (16) that are
at the time outstanding not to exceed 2% of Total Assets;
provided, however, that if any Investment pursuant to this
clause (16) is made in a Person that is not a
Restricted Subsidiary of the Issuer at the date of the making of
such Investment and such Person becomes a Restricted Subsidiary
of the Issuer after such date, such Investment shall thereafter
be deemed to have been made pursuant to clause (1) above
and shall cease to have been made pursuant to this
clause (16) for so long as such Person continues to be
a Restricted Subsidiary;
provided, however, that with respect to any Investment, the
Issuer may, in its sole discretion, allocate all or any portion
of any Investment to one or more of the above clauses (1)
through (16) so that the entire Investment would be a
Permitted Investment.
Permitted Junior Securities means:
(1) Equity Interests in the Issuer; or
(2) debt securities that are subordinated to all Senior
Indebtedness and any debt securities issued in exchange for
Senior Indebtedness to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior
Indebtedness under the indenture.
Permitted Liens means:
(1) Liens securing Indebtedness and other Obligations under
Credit Facilities incurred pursuant to the covenant
Incurrence of Indebtedness and Issuance of Preferred
Equity
and/or
securing Hedging Obligations related thereto;
(2) Liens in favor of the Issuer or any of its Restricted
Subsidiaries;
(3) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Issuer or
any Restricted Subsidiary of the Issuer; provided that such
Liens were in existence prior to
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the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into
or consolidated with the Issuer or the Restricted Subsidiary;
(4) Liens on property (including Capital Stock) existing at
the time of acquisition of the property by the Issuer or any
Subsidiary of the Issuer; provided that such Liens were in
existence prior to, such acquisition, and not incurred in
contemplation of, such acquisition and do not extend to any
property other than the property so acquired by the Issuer or
such Restricted Subsidiary;
(5) Liens or deposits to secure the performance of
statutory or regulatory obligations, or surety, appeal,
indemnity or performance bonds, warranty and contractual
requirements or other obligations of a like nature incurred in
the ordinary course of business;
(6) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and
other assets relating to such letters of credit and products and
proceeds thereof;
(7) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted to be incurred pursuant to
clause (4) of the definition of Permitted Debt covering
only the assets acquired with or financed by such Indebtedness;
(8) Liens securing Indebtedness permitted to be incurred
pursuant to clauses (15) and (17) of the
definition of Permitted Debt;
(9) Liens existing on the date of the indenture;
(10) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve
or other appropriate provision as is required in conformity with
GAAP has been made therefor;
(11) Liens created for the benefit of (or to secure) the
notes (or the Note Guarantees);
(12) Liens securing Indebtedness or other obligations
incurred in the ordinary course of business of the Issuer or any
Subsidiary of the Issuer with respect to obligations that do not
exceed 5% of Total Assets at any one time outstanding;
(13) Liens on accounts receivable and related assets of the
type specified in the definition of Receivables
Financing incurred in connection with a Qualified
Receivables Financing;
(14) licenses of intellectual property in the ordinary
course of business;
(15) Liens to secure a defeasance trust;
(16) Liens on equipment of the Issuer or any Restricted
Subsidiary granted in the ordinary course of business to clients
of which such equipment is located;
(17) Liens imposed by law (including, without limitation,
Liens in favor of customers for equipment under order or in
respect of advances paid in connection therewith), such as
carriers, warehousemens, landlords,
lessors, suppliers, banks, repairmens and
mechanics Liens, and Liens of landlords securing
obligations to pay lease payments that are not yet due and
payable or in default, in each case, incurred in the ordinary
course of business;
(18) Liens securing the aggregate amount of Indebtedness
(including Acquired Debt) incurred in connection with (or at any
time following the consummation of) an Asset Acquisition made in
accordance with the indenture equal to, at the time of
incurrence, the net increase in inventory, accounts receivable
and net property, reserves, plant and equipment attributable to
such Asset Acquisition from the amounts reflected on the
Issuers historical consolidated balance sheet as of the
end of the full fiscal quarter ending on or prior to the date of
such Asset Acquisition, calculated after giving effect on a pro
forma basis to such Asset Acquisition (which amount may, but
need not, be incurred in whole or in part under the Credit
Agreement) less the amount of Indebtedness incurred in
connection with such Asset Acquisition secured by Liens pursuant
to clause (4) or (7) above;
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(19) Liens incurred or deposits made in the ordinary course
of business to secure payment of workers compensation or
to participate in any fund in connection with workmens
compensation, unemployment insurance, old-age pensions or other
social security programs;
(20) easements, rights of way, zoning and similar
restrictions, reservations (including severances, leases or
reservations of oil, gas, coal, minerals or water rights),
restriction or encumbrances in respect of real property or title
defects that were not incurred in connection with Indebtedness
and that do not in the aggregate materially adversely affect the
value of said properties (as such properties are used by the
Issuer or its Subsidiaries) or materially impair their use in
the operation of the business of the Issuer and its Subsidiaries;
(21) Liens to secure any Permitted Refinancing Indebtedness
permitted to be incurred under the indenture; provided, however,
that:
(a) the new Lien shall be limited to all or part of the
same property and assets that secured or, under the written
agreements pursuant to which the original Lien arose, could
secure the original Lien (plus improvements and accessions to
such property or proceeds or distributions thereof); and
(b) the Indebtedness secured by the new Lien is not
increased to any amount greater than the sum of (x) the
outstanding principal amount, or, if greater, committed amount,
of the Permitted Refinancing Indebtedness and (y) an amount
necessary to pay any fees and expenses, including premiums,
related to such renewal, refunding, refinancing, replacement,
defeasance or discharge;
(22) Liens arising from precautionary Uniform Commercial
Code financing statement filings regarding operating leases
entered into by the Issuer or any of its Restricted Subsidiaries
in the ordinary course of business;
(23) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceedings that may have been
duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such legal
proceedings may be initiated shall not have expired;
(24) Liens on Capital Stock of an Unrestricted Subsidiary
that secure Indebtedness or other obligations of such
Unrestricted Subsidiary;
(25) leases and subleases of real property which do not
materially interfere with the ordinary conduct of the business
of the Issuer and its Restricted Subsidiaries; and
(26) Liens securing insurance premium financing
arrangements, provided that such Lien is limited to the
applicable insurance contracts.
Permitted Payments to Parent means, without
duplication as to amounts:
(1) payments to any Parent in amounts equal to the amounts
required for any direct payment of the Issuer to pay fees and
expenses (including franchise or similar taxes) required to
maintain its corporate existence, customary salary, bonus and
other benefits payable to officers and employees of any direct
parent of the Issuer and general corporate overhead expenses of
any direct parent of the Issuer to the extent such fees and
expenses are attributable to the ownership or operation of the
Issuer and its Subsidiaries;
(2) for so long as the Issuer is a member of a group filing
a consolidated or combined tax return with any Parent, payments
to any Parent in respect of an allocable portion of the tax
liabilities of such group that is attributable to the Issuer and
its Subsidiaries (Tax Payments). The Tax Payments
shall not exceed the lesser of (i) the amount of the
relevant tax (including any penalties and interest) that the
Issuer would owe if the Issuer were filing a separate tax return
(or a separate consolidated or combined return with its
Subsidiaries that are members of the consolidated or combined
group), taking into account any carryovers and carrybacks of tax
attributes (such as net operating losses) of the Issuer and such
Subsidiaries from other taxable years and (ii) the net
amount of the relevant tax that such Parent actually owes to the
appropriate taxing authority. Any Tax Payments received from the
Issuer shall be paid over to the appropriate taxing authority
within 30 days of any Parents receipt of such Tax
Payments or refunded to the Issuer; and
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(3) dividends or distributions paid to any Parent, if
applicable, in amounts equal to amounts required for any Parent,
if applicable, to pay interest
and/or
principal on Indebtedness the proceeds of which have been
contributed to the Issuer or any of its Restricted Subsidiaries
and that has been guaranteed by, or is otherwise considered
Indebtedness of, the Issuer incurred in accordance with the
covenant described under Certain
CovenantsIncurrence of Indebtedness and Issuance of
Preferred Equity.
Permitted Refinancing Indebtedness means any
Indebtedness of the Issuer or any of its Restricted Subsidiaries
(other than Disqualified Stock) issued in exchange for, or the
net proceeds of which are used to extend, renew, refund,
refinance, replace, defease or discharge other Indebtedness of
the Issuer or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the
Indebtedness extended, renewed, refunded, refinanced, replaced,
defeased or discharged (plus any premium required to be paid on
the Indebtedness being so renewed, refunded, replaced, defeased
or discharged, plus the amount of all fees and expenses incurred
in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date equal to or later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater
than the remaining Weighted Average Life to Maturity of, the
Indebtedness being extended, renewed, refunded, refinanced,
replaced, defeased or discharged, provided that this
clause (2) shall not apply to Senior Indebtedness;
(3) if the Indebtedness being extended, renewed, refunded,
refinanced, replaced, defeased or discharged is subordinated in
right of payment to the Notes or the Note Guarantees, such
Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to
the holders of Notes as those contained in the documentation
governing the Indebtedness being extended, renewed, refunded,
refinanced, replaced, defeased or discharged;
(4) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is pari passu in right
of payment with the notes or any Note Guarantees, such Permitted
Refinancing Indebtedness is pari passu in right of payment with,
or subordinated in right of payment to, the notes or such Note
Guarantees; and
(5) such Permitted Refinancing Indebtedness shall not
include Indebtedness of the Issuer or a Restricted Subsidiary
that refinances Indebtedness of an Unrestricted Subsidiary.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
Purchase Money Note means a promissory note of a
Receivables Subsidiary evidencing a line of credit, which may be
irrevocable, from the Issuer or any Subsidiary of the Issuer to
a Receivables Subsidiary in connection with a Qualified
Receivables Financing, which note is intended to finance that
portion of the purchase price that is not paid by cash or a
contribution of equity.
Qualified Receivables Financing means any
Receivables Financing of a Receivables Subsidiary that meets the
following conditions:
(1) the Board of Directors of the Issuer will have
determined in good faith that such Qualified Receivables
Financing (including financing terms, covenants, termination
events and other provisions) is in the aggregate economically
fair and reasonable to the Issuer and the Receivables Subsidiary,
(2) all sales of accounts receivable and related assets to
the Receivables Subsidiary are made at Fair Market Value (as
determined in good faith by the Issuer), and
(3) the financing terms, covenants, termination events and
other provisions thereof will be market terms (as determined in
good faith by the Issuer) and may include Standard
Securitization Undertakings.
The grant of a security interest in any accounts receivable of
the Issuer or any of its Restricted Subsidiaries (other than a
Receivables Subsidiary) to secure a Credit Facility will not be
deemed a Qualified Receivables
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Financing. For purposes of the indenture, a receivables facility
whether now in existence or arising in the future (and any
replacement thereof with substantially similar terms in the
aggregate) will be deemed to be a Qualified Receivables
Financing that is not recourse to the Issuer (except for
Standard Securitization Undertakings).
Rating Agency means each of S&P and
Moodys, or if S&P or Moodys or both shall not
make a rating on the notes publicly available, a nationally
recognized statistical rating organization or organizations,
within the meaning of
Rule 15c3-1(c)(2)(vi)(F)
under the Exchange Act, selected by the Issuer as a replacement
agency or agencies for S&P or Moodys, or both, as the
case may be.
Receivables Financing means any transaction or
series of transactions that may be entered into by the Issuer or
any of its Subsidiaries pursuant to which the Issuer or any of
its Subsidiaries may sell, convey or otherwise transfer to
(a) a Receivables Subsidiary (in the case of a transfer by
the Issuer or any of its Subsidiaries), and (b) any other
Person (in the case of a transfer by a Receivables Subsidiary),
or may grant a security interest in, any accounts receivable
(whether now existing or arising in the future) of the Issuer or
any of its Subsidiaries, and any assets related thereto,
including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other
obligations in respect of such accounts receivable, proceeds of
such accounts receivable and other assets which are customarily
transferred or in respect of which security interests are
customarily granted in connection with asset securitization
transactions involving accounts receivable and any Hedging
Obligations entered into by the Issuer or any such Subsidiary in
connection with such accounts receivable.
Receivables Repurchase Obligation means any
obligation of a seller of receivables in a Qualified Receivables
Financing to repurchase receivables arising as a result of a
breach of a representation, warranty or covenant or otherwise,
including as a result of a receivable or portion thereof
becoming subject to any asserted defense, dispute, off-set or
counterclaim of any kind as a result of any action taken by, any
failure to take action by or any other event relating to the
seller.
Receivables Subsidiary means a Wholly-Owned
Restricted Subsidiary of the Issuer (or another Person formed
for the purposes of engaging in a Qualified Receivables
Financing with the Issuer in which the Issuer or any Subsidiary
of the Issuer makes an Investment and to which the Issuer or any
Subsidiary of the Issuer transfers accounts receivable and
related assets) which engages in no activities other than in
connection with the financing of accounts receivable of the
Issuer and its Subsidiaries, all proceeds thereof and all rights
(contractual or other), collateral and other assets relating
thereto, and any business or activities incidental or related to
such business, and which is designated by the Board of Directors
of the Issuer (as provided below) as a Receivables Subsidiary
and:
(1) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which (i) is guaranteed by the
Issuer or any other Subsidiary of the Issuer (excluding
guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates the Issuer
or any other Subsidiary of the Issuer in any way other than
pursuant to Standard Securitization Undertakings, or
(iii) subjects any property or asset of the Issuer or any
other Subsidiary of the Issuer, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other
than pursuant to Standard Securitization Undertakings,
(2) with which neither the Issuer nor any other Subsidiary
of the Issuer has any material contract, agreement, arrangement
or understanding other than on terms which the Issuer reasonably
believes to be no less favorable to the Issuer or such
Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Issuer, and
(3) to which neither the Issuer nor any other Subsidiary of
the Issuer has any obligation to maintain or preserve such
entitys financial condition or cause such entity to
achieve certain levels of operating results.
Any such designation by the Board of Directors of the Issuer
shall be evidenced to the trustee by filing with the trustee a
certified copy of the resolution of the Board of Directors of
the Issuer giving effect to such designation and an
Officers Certificate certifying that such designation
complied with the foregoing conditions.
Registration rights agreement means the registration
rights agreement to be dated the date of the indenture, among
the Issuer, the Guarantors, Morgan Stanley & Co.
Incorporated, Citigroup Global Markets Inc. and the other
placement agents party thereto.
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Related Party means:
(1) any controlling stockholder, partner, member, 50% (or
more) owned Subsidiary, or immediate family member (in the case
of an individual) of any Equity Investor;
(2) any trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons
beneficially holding a 50% or more controlling interest of which
consists of any one or more Equity Investors
and/or such
other Persons referred to in the immediately preceding
clause; or
(3) any Person with whom an Equity Investor or a Related
Party (under clauses (1) or (2) of the definition of
Related Party) may be deemed as part of a group
within the meaning of Section 13(d)(3) of the Exchange Act.
Restricted Investment means an Investment other than
a Permitted Investment.
Restricted Subsidiary of a Person means any
Subsidiary of the referent Person that is not an Unrestricted
Subsidiary.
S&P means Standard & Poors
Ratings Services and its successors and assigns.
Senior Indebtedness means the following obligations
of the Issuer or any Guarantor, whether outstanding on the Issue
Date or thereafter incurred: (1) all Indebtedness and all
other monetary obligations (including, without limitation,
expenses, fees, principal, interest, reimbursement obligations
under letters of credit and indemnities payable in connection
therewith) under (or in respect of) the Credit Agreement or
Hedging Obligation relating to the Indebtedness under the Credit
Agreement and (2) all other Indebtedness and all other
monetary obligations of the Issuer or any Guarantor (other than
the notes and any Note Guarantee), including principal and
interest on such Indebtedness, unless such Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to
which such Indebtedness is issued, is pari passu with, or
subordinated in right of payment to, the notes or any Note
Guarantee; provided that the term Senior
Indebtedness shall not include (a) any Indebtedness
of the Issuer or any Guarantor that, when incurred, was without
recourse to the Issuer or such Guarantor, (b) any
Indebtedness of the Issuer or any Guarantor to a Subsidiary of
the Issuer, or to a joint venture in which the Issuer or any
Restricted Subsidiary has an interest, (c) any Indebtedness
of the Issuer or any Guarantor, to the extent not permitted by
the Incurrence of Indebtedness and Issuance of Preferred
Equity covenant or the Limitation on Senior
Subordinated Indebtedness covenant; provided that
Indebtedness under the Credit Agreement shall be deemed Senior
Indebtedness if the Issuer or any Guarantor, as the case may be,
believed in good faith at the time of incurrence that it was
permitted to incur such Indebtedness under the indenture and
delivers an officers certificate to the lenders under the
Credit Agreement to such effect, (d) any repurchase,
redemption or other obligation in respect of Disqualified Stock,
(e) any Indebtedness to any employee of the Issuer or any
of its Subsidiaries, (f) any liability for taxes owed or
owing by the Issuer or any Guarantor, or (g) any Trade
Payables.
Senior Subordinated Obligations means any principal
of, premium, if any, or interest on the notes payable pursuant
to the terms of the notes or any Note Guarantee or upon
acceleration, including any amounts received upon the exercise
of rights of rescission or other rights of action (including
claims for damages) or otherwise, to the extent relating to the
purchase price of the notes or amounts corresponding to such
principal, premium, if any, or interest on the notes.
Significant Subsidiary means any Subsidiary that
would be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of the indenture.
Standard Securitization Undertakings means
representations, warranties, covenants, indemnities and
guarantees of performance entered into by the Issuer or any
Subsidiary of the Issuer which the Issuer has determined in good
faith to be customary in a Receivables Financing including,
without limitation, those relating to the servicing of the
assets of a Receivables Subsidiary, it being understood that any
Receivables Repurchase Obligation shall be deemed to be a
Standard Securitization Undertaking.
Stated Maturity means, with respect to any
installment of principal on any series of Indebtedness, the date
on which the final payment of principal was scheduled to be paid
in the documentation governing such Indebtedness as
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of the date of the indenture, and will not include any
contingent obligations to repay, redeem or repurchase any such
principal prior to the date originally scheduled for the payment
thereof.
Subsidiary means, with respect to any specified
Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency and after giving effect to any voting agreement or
stockholders agreement that effectively transfers voting
power) to vote in the election of directors, managers or
trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).
Total Assets means the total consolidated assets of
the Issuer and its Restricted Subsidiaries, as shown on the most
recent balance sheet of the Issuer.
Trade Payables means, with respect to any Person,
any accounts payable or any other indebtedness or monetary
obligation to trade creditors created, assumed or guaranteed by
such Person or any of its Subsidiaries arising in the ordinary
course of business in connection with the acquisition of goods
or services.
Transactions means, collectively, (1) the
acquisition by First Reserve Fund X, L.P. of all of the
equity interests in Chart Industries, Inc. and each of Chart
Industries, Inc.s direct and indirect subsidiaries
pursuant to the Merger Agreement, (2) the completion of and
borrowings under the Credit Agreement as described in this
prospectus and (3) the offering of the notes and, with
respect to each of (1), (2) and (3), the transactions
contemplated thereby.
Treasury Rate means, as of any redemption date, the
yield to maturity as of such redemption date of United States
Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two
business days prior to the redemption date (or, if such
Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to
the period from the redemption date to October 15, 2010,
provided, however, that if the period from the redemption date
to October 15, 2010, is less than one year, the weekly
average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year will be
used.
Unrestricted Subsidiary means:
(1) any Subsidiary of the Issuer that at the time of
determination shall be designated an Unrestricted Subsidiary by
the Board of Directors of the Issuer in the manner provided
below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Issuer may designate any
Subsidiary of the Issuer (including any newly acquired or newly
formed Subsidiary of the Issuer) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Equity Interests or Indebtedness of, or owns or holds
any Lien on any property of, the Issuer or any other Subsidiary
of the Issuer that is not a Subsidiary of the Subsidiary to be
so designated; provided, however, that the Subsidiary to be so
designated and its Subsidiaries do not at the time of
designation have and do not thereafter incur Non-recourse Debt
(other than guarantees of performance of the Unrestricted
Subsidiary in the ordinary course of business, excluding
guarantees of Indebtedness for borrowed money); provided
further, however, that either:
(a) the Subsidiary to be so designated has total
consolidated assets of $1,000 or less; or
(b) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under the
covenant entitled Certain CovenantsRestricted
Payments.
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The Board of Directors of the Issuer may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such
designation:
(x) (1) the Issuer could incur $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
described under Certain CovenantsIncurrence of
Indebtedness and Issuance of Preferred Equity, or
(2) the Fixed Charge Coverage Ratio for the Issuer and its
Restricted Subsidiaries would be greater than such ratio for the
Issuer and its Restricted Subsidiaries immediately prior to such
designation, in each case on a pro forma basis taking into
account such designation, and
(y) no Event of Default shall have occurred and be
continuing.
Any such designation by the Board of Directors of the Issuer
shall be evidenced to the trustee by promptly filing with the
trustee a copy of the resolution of the Board of Directors of
the Issuer giving effect to such designation and an
Officers Certificate certifying that such designation
complied with the foregoing provisions.
Voting Stock of any specified Person as of any date
means the Capital Stock of such Person that is at the time
entitled to vote in the election of the Board of Directors of
such Person.
Weighted Average Life to Maturity means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such
Indebtedness.
Wholly-Owned Restricted Subsidiary of any specified
Person means a Subsidiary of such Person all of the outstanding
Capital Stock or other ownership interests of which (other than
directors qualifying shares) will at the time be owned by
such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.
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DESCRIPTION
OF OUR OTHER INDEBTEDNESS
Senior
Secured Credit Facility
Overview
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. In connection
with our IPO, we 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 the IPO and on the use of proceeds as well as make
certain other amendments. The amendment was effective as of the
date of the consummation of the IPO. 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.
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The term loan portion of our senior secured credit facility was
fully funded on October 17, 2005 and we had approximately
$87.7 million of borrowing capacity under the revolving
portion of our senior secured credit facility at
September 30, 2006, after giving effect to approximately
$27.3 million of letters of credit and bank guarantees
outstanding at that date. Since October 17, 2005, we have
repaid $60.0 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.
Interest
Rate and Fees
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
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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.
Prepayments
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.
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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.
Amortization
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, subject to reduction of these quarterly
amortization payments based on term loan prepayments, 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.
Guarantee
and Security
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.
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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.
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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.
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The senior secured credit facility also contains certain
customary affirmative covenants and events of default.
As of September 30, 2006, we were in compliance in all
material respects with all covenants and provisions contained
under our senior secured credit facility.
Chart
Ferox Credit Facility
Chart Ferox, a.s., our majority-owned subsidiary located in the
Czech Republic, currently maintains a secured revolving credit
facilities 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 September 30, 2006, there
were no borrowings outstanding under, and $2.0 million of
bank guarantees supported by, the Ferox revolving credit
facilities. Ferox is the only borrower under these revolving
credit facilities.
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.
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THE
EXCHANGE OFFER
In a registration rights agreement among Chart Industries, Inc.
and the placement agents of the initial notes, we agreed to file
an exchange offer registration statement and complete the
exchange offer by August 14, 2006. Since the exchange offer
was not completed, additional interest at the rate of
0.25% per annum was paid to the holders of the notes for
the 90-day
period ended November 11, 2006 and an additional
0.25% per annum at the beginning of each subsequent
90-day
period, provided that the additional interest in the aggregate
shall not exceed 1.0% per annum. Accordingly, as of the
date of this prospectus annual interest on the initial notes has
increased by 0.75% per annum. Once we complete this
exchange offer, we will no longer be required to pay additional
interest on the initial notes.
The exchange offer is not being made to, nor will we accept
tenders for exchange from, holders of initial notes in any
jurisdiction in which the exchange offer or acceptance of the
exchange offer would violate the securities or blue sky laws of
that jurisdiction.
Terms of
the Exchange Offer; Period for Tendering Initial Notes
This prospectus and the accompanying letter of transmittal
contain the terms and conditions of the exchange offer. Upon the
terms and subject to the conditions included in this prospectus
and in the accompanying letter of transmittal, which together
are the exchange offer, we will accept for exchange initial
notes that are properly tendered on or prior to the expiration
date, unless you have previously withdrawn them.
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When you tender to us initial notes as provided below, our
acceptance of the initial notes will constitute a binding
agreement between you and us upon the terms and subject to the
conditions in this prospectus and in the accompanying letter of
transmittal.
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For each $1,000 principal amount of initial notes surrendered to
us in the exchange offer, we will give you $1,000 principal
amount of exchange notes.
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We will keep the exchange offer open for not less than 20 full
business days, or longer if required by applicable law, after
the date that we first mail notice of the exchange offer to the
holders of the initial notes. We are sending this prospectus,
together with the letter of transmittal, on or about the date of
this prospectus to all of the registered holders of initial
notes at their addresses listed in the trustees security
register with respect to the initial notes.
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The exchange offer expires at 5:00 p.m., New York City
time, on April 6, 2007; provided, however, that we, in our
sole discretion, may extend the period of time for which the
exchange offer is open. The term expiration date
means April 6, 2007 or, if extended by us, the latest time
and date to which the exchange offer is extended.
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As of the date of this prospectus, $170,000,000 in aggregate
principal amount of initial notes were outstanding. The exchange
offer is not conditioned upon any minimum principal amount of
initial notes being tendered.
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Our obligation to accept initial notes for exchange in the
exchange offer is subject to the conditions that we describe in
the section called Conditions to the Exchange Offer
below.
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We expressly reserve the right, at any time, to extend the
period of time during which the exchange offer is open, and
thereby delay acceptance of any initial notes, by giving oral or
written notice of an extension to the exchange agent and notice
of that extension to the holders as described below. During any
extension, all initial notes previously tendered will remain
subject to the exchange offer unless withdrawal rights are
exercised. Any initial notes not accepted for exchange for any
reason will be returned without expense to the tendering holder
promptly upon the expiration or termination of the exchange
offer, as applicable.
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We expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any initial notes
that we have not yet accepted for exchange, if any of the
conditions of the exchange offer specified below under
Conditions to the Exchange Offer are not satisfied
or waived prior to expiration of the exchange offer. All
conditions of the exchange offer, other than those subject to
government approval,
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will be satisfied or waived prior to expiration of the exchange
offer. In the event of a material change in the exchange offer,
including the waiver of a material condition, we will extend the
exchange offer if necessary so that at least five business days
remain in the exchange offer following notice of the material
change.
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We will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the
initial notes as promptly as practicable. If we extend the
expiration date, we will give notice by means of a press release
or other public announcement no later than 9:00 a.m., New
York City time, on the business day after the previously
scheduled expiration date. Without limiting the manner in which
we may choose to make any public announcement and subject to
applicable law, we will have no obligation to publish, advertise
or otherwise communicate any public announcement other than by
issuing a release to the PR Newswire News Service.
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Holders of initial notes do not have any appraisal or
dissenters rights in connection with the exchange offer.
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Initial notes that are not tendered for exchange or are tendered
but not accepted in connection with the exchange offer will
remain outstanding and be entitled to the benefits of the
indenture but will not be entitled to any further registration
rights under the registration rights agreement.
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We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
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By executing, or otherwise becoming bound by, the letter of
transmittal, you will be making the representations described
below to us. See Resale of the Exchange Notes.
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Important
Rules Concerning The Exchange Offer
You should note that:
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All questions as to the validity, form, eligibility, time of
receipt and acceptance of initial notes tendered for exchange
will be determined by us in our sole reasonable discretion,
which determination shall be final and binding.
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We reserve the absolute right to reject any and all tenders of
any particular initial notes not properly tendered or to not
accept any particular initial notes which acceptance might, in
our judgment or the judgment of our counsel, be unlawful.
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We also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular initial notes before the expiration of the exchange
offer, including the right to waive any defect or irregularity
in connection with the tender of any holder who seeks to tender
initial notes in the exchange offer. All conditions of the
exchange offer, other than those subject to government approval,
will be satisfied or waived prior to expiration of the exchange
offer. Unless we agree to waive any defect or irregularity in
connection with the tender of initial notes for exchange, you
must cure any defect or irregularity within any reasonable
period of time as we shall determine. To the extent we agree to
waive any condition of the exchange offer, we will waive that
condition for all holders of the initial notes.
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Our interpretation of the terms and conditions of the exchange
offer as to any particular initial notes prior to the expiration
date shall be final and binding on all parties.
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Neither Chart Industries, the exchange agent nor any other
person shall be under any duty to give notification of any
defect or irregularity with respect to any tender of initial
notes for exchange, nor shall any of them incur any liability
for failure to give any notification.
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Procedures
for Tendering Initial Notes
What
to submit and how
If you, as the registered holder of initial notes, wish to
tender your initial notes for exchange in the exchange offer,
you must:
(1) transmit a properly completed and duly executed letter
of transmittal to The Bank of New York at the address set forth
below under Exchange Agent on or prior to the
expiration date; or
(2) comply with DTCs Automated Tender Offer Program
procedures described below.
In addition,
(1) certificates for initial notes must be received by the
exchange agent along with the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer of
initial notes, if such procedure is available, into the exchange
agents account at DTC using the procedure for book-entry
transfer described below, must be received by the exchange agent
prior to the expiration date, or
(3) you must comply with the guaranteed delivery procedures
described below.
The method of delivery of initial notes, letters of transmittal
and notices of guaranteed delivery is at your election and risk.
If delivery is by mail, we recommend that registered mail,
properly insured, with return receipt requested, be used. In all
cases, sufficient time should be allowed to assure timely
delivery. No letters of transmittal or initial notes should be
sent to us.
How to
sign your letter of transmittal and other
documents
Signatures on a letter of transmittal or a notice of withdrawal,
as the case may be, must be guaranteed unless the initial notes
being surrendered for exchange are tendered
(1) by a registered holder of the initial notes who has not
completed the box entitled Special Issuance
Instructions or Special Delivery Instructions
on the letter of transmittal, or
(2) for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed,
the guarantees must be guaranteed by an eligible guarantor
institution meeting the requirements of the exchange
agent, which requirements include membership or participation in
the Security Transfer Agent Medallion Program
(STAMP) or such other signature guarantee
program as may be determined by the exchange agent in
addition to, or in substitution for, STAMP, all in accordance
with the Exchange Act.
If the letter of transmittal or any initial notes or powers of
attorney are signed by trustees, executors, administrators,
guardians,
attorneys-in-fact,
officers or corporations or others acting in a fiduciary or
representative capacity, the person should so indicate when
signing and, unless waived by us, proper evidence satisfactory
to us of its authority to so act must be submitted.
How to
tender your notes through DTC
The exchange agent and DTC have confirmed that the exchange
offer is eligible for DTCs Automated Tender Offer Program.
Accordingly, DTC participants may electronically transmit their
acceptance of the exchange offer by causing DTC to transfer
initial notes to the exchange agent in accordance with
DTCs Automated Tender Offer Program procedures for
transfer. DTC will then send an agents message to the
exchange agent.
The term agents message means a message
transmitted by DTC, received by the exchange agent and forming
part of the book-entry confirmation, which states that DTC has
received an express acknowledgment from the participant in DTC
tendering initial notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may
enforce such agreement against such participant. In the case of
an agents message relating to guaranteed delivery, the
term means a message
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transmitted by DTC and received by the exchange agent which
states that DTC has received an express acknowledgment from the
participant in DTC tendering initial notes that they have
received and agree to be bound by the notice of guaranteed
delivery.
Acceptance
of Initial Notes for Exchange; Delivery of Exchange
Notes
Once all of the conditions to the exchange offer are satisfied
or waived, we will accept, promptly upon the expiration date,
all initial notes properly tendered and will issue the exchange
notes promptly after expiration of the exchange offer. See
Conditions to the Exchange Offer below. For purposes
of the exchange offer, our giving of oral or written notice of
our acceptance to the exchange agent will be considered our
acceptance of the exchange offer.
In all cases, we will issue exchange notes in exchange for
initial notes that are accepted for exchange only after timely
receipt by the exchange agent of:
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certificates for initial notes, or
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a timely book-entry confirmation of transfer of initial notes
into the exchange agents account at DTC using the
book-entry transfer procedures described below, and
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a properly completed and duly executed letter of transmittal.
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If we do not accept any tendered initial notes for any reason
included in the terms and conditions of the exchange offer or if
you submit certificates representing initial notes in a greater
principal amount than you wish to exchange, we will return any
unaccepted or non-exchanged initial notes without expense to the
tendering holder or, in the case of initial notes tendered by
book-entry transfer into the exchange agents account at
DTC using the book-entry transfer procedures described below,
non-exchanged initial notes will be credited to an account
maintained with DTC promptly after the expiration or termination
of the exchange offer, as applicable.
Book-Entry
Transfer
The exchange agent will make a request to establish an account
with respect to the initial notes at DTC for purposes of the
exchange offer promptly after the date of this prospectus. Any
financial institution that is a participant in DTCs
systems may make book-entry delivery of initial notes by causing
DTC to transfer initial notes into the exchange agents
account in accordance with DTCs Automated Tender Offer
Program procedures for transfer. However, the exchange for the
initial notes so tendered will only be made after timely
confirmation of book-entry transfer of initial notes into the
exchange agents account, and timely receipt by the
exchange agent of an agents message, transmitted by DTC
and received by the exchange agent and forming a part of a
book-entry confirmation. The agents message must state
that DTC has received an express acknowledgment from the
participant tendering initial notes that are the subject of that
book-entry confirmation that the participant has received and
agrees to be bound by the terms of the letter of transmittal,
and that we may enforce the agreement against that participant.
Although delivery of initial notes may be effected through
book-entry transfer into the exchange agents account at
DTC, the letter of transmittal, or a facsimile copy, properly
completed and duly executed, with any required signature
guarantees, must in any case be delivered to and received by the
exchange agent at its address listed under Exchange
Agent on or prior to the expiration date.
If your initial notes are held through DTC, you must complete a
form called instructions to registered holder
and/or
book-entry participant, which will instruct the DTC
participant through whom you hold your notes of your intention
to tender your initial notes or not tender your initial notes.
Please note that delivery of documents to DTC in accordance with
its procedures does not constitute delivery to the exchange
agent and we will not be able to accept your tender of notes
until the exchange agent receives a letter of transmittal and a
book-entry confirmation from DTC with respect to your notes. A
copy of that form is available from the exchange agent.
177
Guaranteed
Delivery Procedures
If you are a registered holder of initial notes and you want to
tender your initial notes but your initial notes are not
immediately available, or time will not permit your initial
notes to reach the exchange agent before the expiration date, or
you cannot comply with the applicable procedures under
DTCs Automated Tender Offer Program on a timely basis, a
tender may be effected if:
(1) the tender is made through an eligible institution,
(2) prior to the expiration date, the exchange agent
receives, by facsimile transmission, mail or hand delivery, from
that eligible institution a properly completed and duly executed
letter of transmittal and notice of guaranteed delivery,
substantially in the form provided by us, stating:
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the name and address of the holder of initial notes;
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the amount of initial notes tendered; and
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|
the tender is being made by delivering that notice and
guaranteeing that within three New York Stock Exchange trading
days after the date of execution of the notice of guaranteed
delivery, the certificates of all physically tendered initial
notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, will be deposited by that
eligible institution with the exchange agent; and
|
(3) the certificates for all physically tendered initial
notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, are received by the exchange
agent within three New York Stock Exchange trading days after
the date of execution of the Notice of Guaranteed Delivery.
Withdrawal
Rights
You can withdraw your tender of initial notes at any time on or
prior to the expiration date. For a withdrawal to be effective,
a written notice of withdrawal must be received by the exchange
agent at one of the addresses listed below under Exchange
Agent or holders must comply with the appropriate
procedures of DTCs Automated Tender Offer Program system.
Any notice of withdrawal must specify:
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the name of the person having tendered the initial notes to be
withdrawn;
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the initial notes to be withdrawn;
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the principal amount of the initial notes to be withdrawn;
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if certificates for the initial notes have been delivered to the
exchange agent, the name in which the initial notes are
registered, if different from that of the withdrawing holder;
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if certificates for the initial notes have been delivered or
otherwise identified to the exchange agent, then, prior to the
release of those certificates, you must also submit the serial
numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an
eligible institution unless you are an eligible institution; and
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if initial notes have been tendered using the procedure for
book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be
credited with the withdrawn initial notes and otherwise comply
with the procedures of that facility.
|
Please note that all questions as to the validity, form,
eligibility and time of receipt of notices of withdrawal will be
determined by us, and our determination shall be final and
binding on all parties. Any initial notes so withdrawn will be
considered not to have been validly tendered for exchange for
purposes of the exchange offer. If you have properly withdrawn
initial notes and wish to re-tender them, you may do so by
following one of the procedures described under Procedures
for Tendering Initial Notes above at any time on or prior
to the expiration date.
Conditions
to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, we
will not be required to accept for exchange, or to issue
exchange notes in exchange for, any initial notes and may
terminate or amend the exchange offer, if at any
178
time before the acceptance of initial notes for exchange or the
exchange of the exchange notes for initial notes, that
acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC. We will not accept for
exchange any initial notes tendered, and no exchange notes will
be issued in exchange for any initial notes if there is a
threatened or pending action in any court or before a
governmental agency with respect to the exchange offer that may
impair our ability to proceed with the exchange offer. In
addition, we will not accept for exchange any initial notes
tendered, and no exchange notes will be issued in exchange for
any initial notes, if at that time any stop order shall be
threatened or in effect with respect to the exchange offer to
which this prospectus relates or the qualification of the
indenture under the Trust Indenture Act.
The above condition is for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to that
condition. Our failure at any time to exercise the foregoing
rights shall not be considered a waiver by us of that right. Our
rights described in the prior paragraph are ongoing rights that
we may assert at any time prior to the expiration of the
exchange offer.
Exchange
Agent
The Bank of New York has been appointed as the exchange agent
for the exchange offer. All executed letters of transmittal
should be directed to the exchange agent at the address set
forth below. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of
transmittal and requests for notices of guaranteed delivery
should be directed to the exchange agent, addressed as follows:
Deliver To:
The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7E
New York, New York 10286
Attention: Mr. William Buckley
Delivery to an address other than as listed above or
transmission of instructions via facsimile other than as listed
above does not constitute a valid delivery.
Fees and
Expenses
The principal solicitation is being made by mail; however,
additional solicitation may be made by electronic mail,
telephone or in person by our officers, regular employees and
affiliates. We will not pay any additional compensation to any
of our officers and employees who engage in soliciting tenders.
We will not make any payment to brokers, dealers, or others
soliciting acceptances of the exchange offer. However, we will
pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable
out-of-pocket
expenses in connection with the exchange offer.
Expenses incurred in connection with the exchange offer,
including legal, accounting, SEC filing, printing and exchange
agent expenses, will be paid by us.
Transfer
Taxes
Holders who tender their initial notes for exchange will not be
obligated to pay any transfer taxes in connection therewith,
except that holders who instruct us to register exchange notes
in the name of, or request that initial notes not tendered or
not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible
for the payment of any applicable transfer tax thereon.
Resale of
the Exchange Notes
Under existing interpretations of the staff of the SEC contained
in several no-action letters to third parties, the exchange
notes will in general be freely transferable after the exchange
offer without further registration under the Securities Act. The
relevant no-action letters include the Exxon Capital Holdings
Corporation letter, which was made available by the SEC on
May 13, 1988, and the Morgan Stanley & Co.
Incorporated letter, made available on June 5, 1991.
179
However, any purchaser of initial notes who is an
affiliate of Chart Industries or who intends to
participate in the exchange offer for the purpose of
distributing the exchange notes:
(1) will not be able to rely on the interpretation of the
staff of the SEC,
(2) will not be able to tender its initial notes in the
exchange offer, and
(3) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any sale or transfer of the notes unless that sale or transfer
is made using an exemption from those requirements.
By executing, or otherwise becoming bound by, the letter of
transmittal, each holder of the initial notes will represent
that:
(1) it is not our affiliate as such term is
defined in Rule 405 promulgated under the Securities Act;
(2) any exchange notes to be received by it were acquired
in the ordinary course of its business; and
(3) it has no arrangement or understanding with any person
to participate, and is not engaged in and does not intend to
engage, in the distribution, within the meaning of
the Securities Act, of the exchange notes.
In addition, in connection with any resales of exchange notes,
any broker-dealer participating in the exchange offer who
acquired notes for its own account as a result of market-making
or other trading activities must deliver a prospectus meeting
the requirements of the Securities Act. The SEC has taken the
position in the Shearman & Sterling no-action letter,
which it made available on July 2, 1993, that participating
broker-dealers may fulfill their prospectus delivery
requirements with respect to the exchange notes, other than a
resale of an unsold allotment from the original sale of the
initial notes, with the prospectus contained in the exchange
offer registration statement. Under the registration rights
agreement, we are required to allow participating broker-dealers
and other persons, if any, subject to similar prospectus
delivery requirements to use this prospectus as it may be
amended or supplemented from time to time, in connection with
the resale of exchange notes.
Consequences
of Failing to Exchange Initial Notes
Holders who desire to tender their initial notes in exchange for
exchange notes registered under the Securities Act should allow
sufficient time to ensure timely delivery. Neither we nor the
exchange agent is under any duty to give notification of defects
or irregularities with respect to the tenders of initial notes
for exchange.
Initial notes that are not tendered or are tendered but not
accepted will, following the consummation of the exchange offer,
continue to be subject to the provisions in the indenture
regarding the transfer and exchange of the initial notes and the
existing restrictions on transfer set forth in the legend on the
initial notes and in the offering memorandum, dated
September 30, 2005, relating to the initial notes. Except
in limited circumstances with respect to the specific types of
holders of initial notes, we will have no further obligation to
provide for the registration under the Securities Act of such
initial notes. In general, initial notes, unless registered
under the Securities Act, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. We
do not anticipate that we will take any further action to
register the untendered initial notes under the Securities Act
or under any state securities laws.
Upon completion of the exchange offer, holders of the initial
notes will not be entitled to any further registration rights
under the registration rights agreement, except under limited
circumstances. Initial notes that are not exchanged in the
exchange offer will remain outstanding and continue to accrue
interest and will be entitled to the rights and benefits their
holders have under the indenture relating to the initial notes
and the exchange notes. Holders of the exchange notes and any
initial notes that remain outstanding after consummation of the
exchange offer will vote together as a single class for purposes
of determining whether holders of the requisite percentage of
the class have taken certain actions or exercised certain rights
under the indenture.
180
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material United States federal
income tax consequences of the exchange offer to holders of the
initial notes. The summary does not address all aspects of the
United States federal income taxation that may be relevant to
holders of initial notes or exchange notes in light of their
particular circumstances or to holders subject to special rules,
and it does not address the effects of any state, local or
foreign tax laws. The summary is not intended to be, nor should
it be construed as being, legal or tax advice. Prospective
purchasers should consult their own tax advisors with respect to
their particular circumstances.
The summary does not consider the aspects of the ownership and
disposition of the initial notes or the exchange notes. A
discussion of the U.S. federal income tax consequences of
holding and disposing of the notes is contained in the offering
memorandum with respect to the initial notes.
The following summary deals only with notes held as capital
assets by purchasers at the issue price who are United States
holders and are not within special classes of holders, such as
dealers in securities or currencies, financial institutions,
life insurance companies, tax-exempt entities, persons holding
notes as part of a hedge, conversion, constructive sale
transaction, straddle or other risk reduction strategy, and
persons whose functional currency is not the U.S. dollar.
Persons considering the purchase of notes should consult their
own tax advisors concerning these matters and as to the tax
treatment under foreign, state and local tax laws and
regulations. We cannot provide any assurance that the Internal
Revenue Service will not challenge the conclusions stated below.
We have not sought and will not seek a ruling from the IRS on
any of the matters discussed below.
This summary is based upon the Internal Revenue Code of 1986,
Treasury Regulations, IRS rulings and pronouncements and
judicial decisions now in effect, all of which are subject to
change at any time. Changes in this area of law may be applied
retroactively in a manner that could cause the tax consequences
to vary substantially from the consequences described below,
possibly adversely affecting a United States holder of notes.
The authorities on which this discussion is based are subject to
various interpretations, and it is therefore possible that the
federal income tax treatment of the exchange of initial notes
for the exchange notes may differ from the treatment described
below.
The exchange of initial notes for the exchange notes under the
terms of the exchange offer will not constitute a taxable
exchange. As a result:
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a holder will not recognize taxable gain or loss as a result of
exchanging initial notes for the exchange notes under the terms
of the exchange offer;
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|
the holders holding period of the exchange notes will
include the holding period of the initial notes exchanged for
the exchange notes; and
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a holders adjusted tax basis in the exchange notes will be
the same as the adjusted tax basis, immediately before the
exchange, of the initial notes exchanged for the exchange notes.
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181
PLAN OF
DISTRIBUTION
Each broker-dealer that receives exchange notes for its own
account in the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of exchange
notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for initial
notes where initial notes were acquired as a result of
market-making activities or other trading activities. We have
agreed that, for a period of 180 days after the
consummation of the exchange offer, we will make this
prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale of exchange
notes received by it in exchange for initial notes. In addition,
all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes
by broker-dealers.
Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or
more transactions:
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in the
over-the-counter
market;
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in negotiated transactions;
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through the writing of options on the exchange notes; or
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a combination of those methods of resale at market prices
prevailing at the time of resale, at prices related to
prevailing market prices or negotiated prices.
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Any resale may be made:
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directly to purchasers; or
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to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any broker-dealer
and/or the
purchasers of any exchange notes.
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Any broker-dealer that resells exchange notes that were received
by it for its own account in the exchange offer and any broker
or dealer that participates in a distribution of those exchange
notes may be deemed to be an underwriter within the
meaning of the Securities Act. Any profit on any resale of those
exchange notes and any commission or concessions received by any
of those persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that,
by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
For a period of 180 days after the consummation of the
exchange offer, we will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to
any broker-dealer that requests those documents in the letter of
transmittal. We have agreed to pay all expenses incident to the
exchange offer, other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the notes,
including any broker-dealers, against some liabilities,
including liabilities under the Securities Act.
182
LEGAL
MATTERS
The validity and enforceability of the exchange notes and the
guarantees will be passed upon for us by Simpson
Thacher & Bartlett LLP, New York.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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, which are referred to and made part of
this prospectus and registration statement 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.
183
INDEX TO
FINANCIAL STATEMENTS
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Audited Consolidated Financial
Statements:
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F-2
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F-3
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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
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F-4
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F-5
|
|
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
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F-8
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F-10
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Unaudited Consolidated
Financial Statements:
|
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F-60
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F-61
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F-62
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|
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F-63
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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 July 20, 2006
and Note O, as to which the date is
February 23, 2007
F-2
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollars
in thousands, except per share amounts)
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Successor
|
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Reorganized
|
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Company
|
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Company
|
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|
December 31,
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December 31,
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2005
|
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2004
|
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ASSETS
|
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Current Assets
|
|
|
|
|
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Cash and cash equivalents
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$
|
15,433
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|
|
$
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14,814
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Accounts receivable, net
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62,463
|
|
|
|
|
45,744
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|
Inventories, net
|
|
|
53,132
|
|
|
|
|
47,777
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|
Unbilled contract revenue
|
|
|
21,305
|
|
|
|
|
10,528
|
|
Prepaid expenses
|
|
|
3,037
|
|
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|
2,119
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|
Other current assets
|
|
|
12,552
|
|
|
|
|
14,840
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|
Assets held for sale
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|
3,084
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|
3,567
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|
|
|
|
|
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|
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|
Total Current Assets
|
|
|
171,006
|
|
|
|
|
139,389
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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
|
|
$
|
639,748
|
|
|
|
$
|
307,080
|
|
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|
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|
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|
|
|
|
|
|
|
|
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|
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|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
34,435
|
|
|
|
$
|
26,789
|
|
Customer advances and billings in
excess of contract revenue
|
|
|
24,683
|
|
|
|
|
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
|
|
|
102,423
|
|
|
|
|
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
share9,500,000 shares authorized, 7,952,180 and
5,358,183 shares issued and outstanding at
December 31, 2005 and 2004, respectivelySee
Note A
|
|
|
80
|
|
|
|
|
54
|
|
Additional paid-in capitalSee
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
|
|
$
|
639,748
|
|
|
|
$
|
307,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
See accompanying notes to these consolidated financial
statements, including Note ANature 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-3
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
sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
sharebasic
|
|
$
|
(0.06
|
)
|
|
|
$
|
1.65
|
|
|
$
|
4.22
|
|
|
$
|
0.01
|
|
|
|
$
|
(0.27
|
)
|
Net (loss) income per common
sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
sharediluted
|
|
$
|
(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
|
|
|
|
|
5,649
|
|
|
|
5,516
|
|
|
|
5,325
|
|
|
|
|
26,336
|
|
|
|
|
* |
|
See accompanying notes to these consolidated financial
statements, including Note ANature 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 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 ANature 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 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 ANature 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
(Dollars
and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
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
|
|
|
7,952
|
|
|
|
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)
|
|
|
|
|
|
|
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 ANature 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 CASH FLOWS
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Reorganized Company
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
Company
|
|
|
|
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
|
|
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Reorganized Company
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
Company
|
|
|
|
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
|
|
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 ANature 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 ANature
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 that occurred on
July 20, 2006, 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 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
F-10
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
31,469
|
|
Customer advances and billings in
excess of contract revenue
|
|
|
23,546
|
|
Accrued salaries, wages and
benefits
|
|
|
16,069
|
|
F-11
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
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
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
F-12
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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.
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
F-13
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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
F-15
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
units goodwill with the carrying amount of that goodwill.
The following table displays the gross carrying amount and
accumulated amortization for finite-lived intangible assets and
indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
|
|
|
Reorganized Company
|
|
|
|
Weighted
|
|
|
December 31, 2005
|
|
|
|
Weighted
|
|
|
December 31, 2004
|
|
|
|
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
F-16
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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
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
|
|
|
|
|
|
|
|
|
|
|
|
F-17
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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,
|
|
|
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
|
|
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 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
F-18
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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.
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
sharebasic (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 outstandingbasic
|
|
|
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 sharesdiluted
|
|
|
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, for
the three months ended December 31, 2003 and for the nine
months ended September 30, 2003. For the purposes of
computing diluted earnings per share, weighted average common
share equivalents do not include 1,041 stock options and 1,360
warrants for the period from October 17, 2005 to
December 31, 2005, 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
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
F-21
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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 BBalance
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
|
|
|
5,684
|
|
|
|
|
7,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,552
|
|
|
|
$
|
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 CDebt
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
F-23
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
of the Company, including the Senior Credit Facility, pari passu
in right of payment with all future senior subordinated
indebtedness of the Company, senior in right of payment with any
future indebtedness of the Company that expressly provided for
its subordination to the Subordinated Notes, and unconditionally
guaranteed jointly and severally by substantially all of the
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 and
indenture governing the Senior Subordinated Notes also include
covenants relating to leverage, interest coverage and fixed
charge coverage ratios. 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 meet certain financial tests and
to maintain on a quarterly basis certain consolidated financial
ratios, including leverage,
F-24
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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 DEmployee
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,
2005Successor 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2003Predecessor
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 EAcquisitions
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
F-27
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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 FLoss
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.
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
|
|
|
|
|
|
|
F-28
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
NOTE GIncome
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
|
|
Othernet
|
|
|
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.
(Loss) income from continuing operations before income taxes and
minority interest consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Reorganized Company
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
Company
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
Significant components of the provision for income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Company
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
Three 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-30
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
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Company
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
Three 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)
itemsgoodwill 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 HDiscontinued
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.
F-31
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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.
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 IEmployee
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.
F-32
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
The following table 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
|
Reorganized Company
|
|
|
|
Company
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
Three 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-33
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-34
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
|
|
|
|
October 17,
|
|
|
|
January 1,
|
|
|
|
|
|
Three 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 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-35
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 JStock
Option Plans
In November 2005, 2,175 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 $6.50 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. 768 of the New Options are
time-based (Time-based Options) and vest annually in
equal installments over a five year period, and 1,407 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, 567
of the Rollover Options were vested on the Closing Date of the
Acquisition and 43 unvested Rollover Options vest upon the
performance criteria of the Companys 2004 Plan. As of
March 22, 2006, 595 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
2,785 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 47.0 percent; and a
F-36
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
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 43 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-37
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
|
|
|
2,175
|
|
|
|
6.50
|
|
|
|
|
508
|
|
|
|
18.04
|
|
Expired or canceled
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
13.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,785
|
|
|
$
|
5.84
|
|
|
|
|
480
|
|
|
$
|
18.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year*
|
|
|
567
|
|
|
$
|
3.50
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of
options granted during the year
|
|
$
|
3.72
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participants at end of year
|
|
|
32
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future grant at end
of year
|
|
|
67
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Remaining contractual term of
8 years and 3 months.
|
NOTE KLease
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 LContingencies
Environmental
The Company is subject to federal, state and local environmental
laws and regulations concerning, among other matters, waste
water effluents, air emissions and handling and disposal of
hazardous materials such as cleaning fluids. The Company is
involved with environmental compliance, investigation,
monitoring and remediation activities at certain of its owned
manufacturing facilities and at one owned facility that is
leased to a third party, and, except for these continuing
remediation efforts, believes it is currently in substantial
compliance with all known environmental regulations. At
December 31, 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
F-38
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
been developed and for which costs can be reasonably estimated.
These estimates are determined based upon currently available
facts and circumstances regarding each facility. Actual costs
incurred may vary from these estimates due to the inherent
uncertainties involved. Future expenditures relating to these
environmental remediation efforts are expected to be made over
the next 8 to 14 years as ongoing costs of remediation
programs.
Although the Company believes it has adequately provided for the
cost of all known environmental conditions, the applicable
regulatory agencies could insist upon different and more costly
remediation than those the Company believes are adequate or
required by existing law. The Company believes that any
additional liability in excess of amounts accrued which may
result from the resolution of such matters will not have a
material adverse effect on the Companys financial
position, liquidity, cash flows or results of operations.
Appraisal
Rights
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.
CHEL
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-39
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.
Legal
Proceedings
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 MReporting
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-40
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
|
|
F-41
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
F-42
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-43
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,
|
|
|
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
|
|
|
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-44
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 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
|
|
|
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
|
|
|
Predecessor Company
|
|
|
Reorganized Company
|
|
|
|
October 17,
|
|
|
January 1,
|
|
|
|
|
|
Three 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
|
|
|
|
|
|
|
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-45
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
Note NQuarterly
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 OSupplemental
Guarantor Financial Information
In connection with the Acquisition, the Company issued $170,000
of senior subordinated notes. The following subsidiaries, all of
which are wholly owned, guaranteed the notes on a full,
unconditional and joint and several basis: Chart Inc., CAIRE
Inc., Chart Energy and Chemicals, Inc., Chart Cooler Service
Company, Inc., Chart International
F-46
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
Holdings, Inc., Chart Asia, Inc. and Chart International, Inc.
The following subsidiaries are not guarantors of the notes:
|
|
|
Non-Guarantor
Subsidiaries
|
|
Jurisdiction
|
|
Chart Australia Pty. Ltd.
|
|
Australia
|
Changzhou CEM Cryo Equipment Co.,
Ltd.
|
|
China
|
Chart Biomedical Limited
|
|
United Kingdom
|
Chart Cryogenic Engineering
Systems (Changzhou) Co., Ltd.
|
|
China
|
Chart Cryogenic Equipment
(Changzhou) Co., Ltd.
|
|
China
|
Chart Ferox a.s. (95.7% owned)
|
|
Czech Republic
|
Chart Ferox GmbH
|
|
Germany
|
Chart Heat Exchangers Limited
|
|
United Kingdom
|
GTC of Clarksville, LLC
|
|
Delaware
|
Lox Taiwan (16% owned)
|
|
Taiwan
|
Zhangjigang Chart Hailu Cryogenic
Equipment Co., Ltd.
|
|
China
|
The following supplemental condensed consolidating and combining
financial information of the Issuer, Subsidiary Guarantors and
Subsidiary Non-Guarantors presents the balance sheets as of
December 31, 2005 (Successor Company) and 2004 (Reorganized
Company) and statement of operations and cash flows for the
period from October 17, 2005 to December 31, 2005,
(Successor Company) and the period from January 1, 2005 to
October 16, 2005 and the year ended December 31, 2004
and the period from October 1, 2003 to December 31,
2003 (Reorganized Company) and the period from January 1,
2003 to September 30, 2003 (Predecessor Company). The
condensed consolidating and combining financial information
presents investments in consolidated subsidiaries using the
equity method of accounting.
F-47
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)
As of December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
7,191
|
|
|
$
|
4,379
|
|
|
$
|
3,863
|
|
|
$
|
|
|
|
$
|
15,433
|
|
Accounts receivable, net
|
|
|
|
|
|
|
48,979
|
|
|
|
13,484
|
|
|
|
|
|
|
|
62,463
|
|
Inventory, net
|
|
|
|
|
|
|
33,603
|
|
|
|
19,714
|
|
|
|
(185
|
)
|
|
|
53,132
|
|
Other current assets
|
|
|
6,201
|
|
|
|
26,967
|
|
|
|
6,810
|
|
|
|
|
|
|
|
39,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,392
|
|
|
|
113,928
|
|
|
|
43,871
|
|
|
|
(185
|
)
|
|
|
171,006
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
40,429
|
|
|
|
23,836
|
|
|
|
|
|
|
|
64,265
|
|
Goodwill
|
|
|
|
|
|
|
213,493
|
|
|
|
23,249
|
|
|
|
|
|
|
|
236,742
|
|
Intangible assets, net
|
|
|
|
|
|
|
150,577
|
|
|
|
3,486
|
|
|
|
|
|
|
|
154,063
|
|
Investments in affiliates
|
|
|
56,863
|
|
|
|
5,496
|
|
|
|
|
|
|
|
(62,359
|
)
|
|
|
|
|
Other assets
|
|
|
447,380
|
|
|
|
1,328
|
|
|
|
435
|
|
|
|
(435,471
|
)
|
|
|
13,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
517,635
|
|
|
$
|
525,251
|
|
|
$
|
94,877
|
|
|
$
|
(498,015
|
)
|
|
$
|
639,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Accounts payable and accruals
|
|
$
|
1,840
|
|
|
$
|
82,556
|
|
|
$
|
14,866
|
|
|
$
|
857
|
|
|
$
|
100,119
|
|
Short term debt
|
|
|
|
|
|
|
|
|
|
|
2,304
|
|
|
|
|
|
|
|
2,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,840
|
|
|
|
82,556
|
|
|
|
17,170
|
|
|
|
857
|
|
|
|
102,423
|
|
Long-term debt
|
|
|
345,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,000
|
|
Intercompany accounts
|
|
|
|
|
|
|
373,063
|
|
|
|
63,450
|
|
|
|
(436,513
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
54,465
|
|
|
|
12,769
|
|
|
|
8,761
|
|
|
|
|
|
|
|
75,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
401,305
|
|
|
|
468,388
|
|
|
|
89,381
|
|
|
|
(435,656
|
)
|
|
|
523,418
|
|
Common stock
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Other stockholders equity
|
|
|
116,250
|
|
|
|
56,863
|
|
|
|
5,496
|
|
|
|
(62,359
|
)
|
|
|
116,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
116,330
|
|
|
|
56,863
|
|
|
|
5,496
|
|
|
|
(62,359
|
)
|
|
|
116,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
517,635
|
|
|
$
|
525,251
|
|
|
$
|
94,877
|
|
|
$
|
(498,015
|
)
|
|
$
|
639,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR
COMPANY)
For the Period from
October 17, 2005 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
77,591
|
|
|
$
|
20,655
|
|
|
$
|
(594
|
)
|
|
$
|
97,652
|
|
Cost of sales
|
|
|
|
|
|
|
56,495
|
|
|
|
19,883
|
|
|
|
(645
|
)
|
|
|
75,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
21,096
|
|
|
|
772
|
|
|
|
51
|
|
|
|
21,919
|
|
Selling, general and
administrative expenses
|
|
|
423
|
|
|
|
14,300
|
|
|
|
2,126
|
|
|
|
|
|
|
|
16,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(423
|
)
|
|
|
6,796
|
|
|
|
(1,354
|
)
|
|
|
51
|
|
|
|
5,070
|
|
Interest expense, net
|
|
|
(4,473
|
)
|
|
|
(1,084
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(5,565
|
)
|
Other income (expense), net
|
|
|
(300
|
)
|
|
|
(21
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
(400
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(5,196
|
)
|
|
|
5,691
|
|
|
|
(1,493
|
)
|
|
|
51
|
|
|
|
(947
|
)
|
Income tax (benefit) provision
|
|
|
(2,573
|
)
|
|
|
1,975
|
|
|
|
157
|
|
|
|
|
|
|
|
(441
|
)
|
Equity in net (income) loss of
subsidiaries
|
|
|
(2,117
|
)
|
|
|
1,599
|
|
|
|
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(506
|
)
|
|
$
|
2,117
|
|
|
$
|
(1,650
|
)
|
|
$
|
(467
|
)
|
|
$
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR
COMPANY)
For the Period from
October 17, 2005 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
5,811
|
|
|
$
|
(7,840
|
)
|
|
$
|
1,534
|
|
|
$
|
19,237
|
|
|
$
|
18,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(2,569
|
)
|
|
|
(3,032
|
)
|
|
|
|
|
|
|
(5,601
|
)
|
Payments to Reorganized Company
shareholders for transaction
|
|
|
(356,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(356,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
(356,649
|
)
|
|
|
(2,569
|
)
|
|
|
(3,032
|
)
|
|
|
|
|
|
|
(362,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
268,542
|
|
|
|
|
|
|
|
(2,185
|
)
|
|
|
|
|
|
|
266,357
|
|
Intercompany account changes
|
|
|
1,421
|
|
|
|
15,758
|
|
|
|
2,058
|
|
|
|
(19,237
|
)
|
|
|
|
|
Proceeds from equity contribution
|
|
|
111,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,299
|
|
Payment of financing costs
|
|
|
(11,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,558
|
)
|
Payment of exercised stock options
|
|
|
(15,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,756
|
)
|
Payment of Acquisition costs
|
|
|
(1,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
352,095
|
|
|
|
15,758
|
|
|
|
(127
|
)
|
|
|
(19,237
|
)
|
|
|
348,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
1,257
|
|
|
|
5,349
|
|
|
|
(1,625
|
)
|
|
|
|
|
|
|
4,981
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
102
|
|
|
|
|
|
|
|
(1,018
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
5,934
|
|
|
|
150
|
|
|
|
5,386
|
|
|
|
|
|
|
|
11,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
7,191
|
|
|
$
|
4,379
|
|
|
$
|
3,863
|
|
|
$
|
|
|
|
$
|
15,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING OF OPERATIONS (REORGANIZED COMPANY)
For the Period from
January 1, 2005 to October 16, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
238,459
|
|
|
$
|
68,933
|
|
|
$
|
(1,895
|
)
|
|
$
|
305,497
|
|
Cost of sales
|
|
|
|
|
|
|
167,517
|
|
|
|
51,699
|
|
|
|
(1,932
|
)
|
|
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
70,942
|
|
|
|
17,234
|
|
|
|
37
|
|
|
|
88,213
|
|
Selling, general and
administrative expenses
|
|
|
7,372
|
|
|
|
53,485
|
|
|
|
6,497
|
|
|
|
|
|
|
|
67,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7,372
|
)
|
|
|
17,457
|
|
|
|
10,737
|
|
|
|
37
|
|
|
|
20,859
|
|
Interest expense, net
|
|
|
(4,524
|
)
|
|
|
197
|
|
|
|
135
|
|
|
|
|
|
|
|
(4,192
|
)
|
Other income (expense), net
|
|
|
28
|
|
|
|
(123
|
)
|
|
|
(536
|
)
|
|
|
|
|
|
|
(631
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(11,868
|
)
|
|
|
17,531
|
|
|
|
10,317
|
|
|
|
37
|
|
|
|
16,017
|
|
Income tax (benefit) provision
|
|
|
(4,528
|
)
|
|
|
10,603
|
|
|
|
1,084
|
|
|
|
|
|
|
|
7,159
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
(16,198
|
)
|
|
|
(9,270
|
)
|
|
|
|
|
|
|
25,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,858
|
|
|
$
|
16,198
|
|
|
$
|
9,233
|
|
|
$
|
(25,431
|
)
|
|
$
|
8,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR
COMPANY)
For the Period from
January 1, 2005 to October 16, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
$
|
(4,781
|
)
|
|
$
|
24,524
|
|
|
$
|
5,820
|
|
|
$
|
(9,922
|
)
|
|
$
|
15,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(6,681
|
)
|
|
|
(4,357
|
)
|
|
|
|
|
|
|
(11,038
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
520
|
|
|
|
1,700
|
|
|
|
|
|
|
|
2,220
|
|
Acquisitions, net of cash
|
|
|
|
|
|
|
(12,147
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,147
|
)
|
Other investing activities
|
|
|
|
|
|
|
(96
|
)
|
|
|
262
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
|
|
|
|
(18,404
|
)
|
|
|
(2,395
|
)
|
|
|
|
|
|
|
(20,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(1,952
|
)
|
|
|
(1,016
|
)
|
|
|
2,985
|
|
|
|
|
|
|
|
17
|
|
Proceeds from sale of stock
|
|
|
1,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,691
|
|
Intercompany account changes
|
|
|
657
|
|
|
|
(5,301
|
)
|
|
|
(5,278
|
)
|
|
|
9,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
396
|
|
|
|
(6,317
|
)
|
|
|
(2,293
|
)
|
|
|
9,922
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
|
(4,385
|
)
|
|
|
(197
|
)
|
|
|
1,132
|
|
|
|
|
|
|
|
(3,450
|
)
|
Effect of exchange rate changes
|
|
|
|
|
|
|
8
|
|
|
|
98
|
|
|
|
|
|
|
|
106
|
|
Cash and cash equivalents,
beginning of period
|
|
|
10,319
|
|
|
|
339
|
|
|
|
4,156
|
|
|
|
|
|
|
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
5,934
|
|
|
$
|
150
|
|
|
$
|
5,386
|
|
|
$
|
|
|
|
$
|
11,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET (REORGANIZED COMPANY)
As of December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
10,319
|
|
|
$
|
339
|
|
|
$
|
4,156
|
|
|
$
|
|
|
|
$
|
14,814
|
|
Accounts receivable, net
|
|
|
|
|
|
|
34,418
|
|
|
|
11,326
|
|
|
|
|
|
|
|
45,744
|
|
Inventory, net
|
|
|
|
|
|
|
31,464
|
|
|
|
16,418
|
|
|
|
(105
|
)
|
|
|
47,777
|
|
Other current assets
|
|
|
(13
|
)
|
|
|
22,101
|
|
|
|
10,035
|
|
|
|
(1,069
|
)
|
|
|
31,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,306
|
|
|
|
88,322
|
|
|
|
41,935
|
|
|
|
(1,174
|
)
|
|
|
139,389
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
29,804
|
|
|
|
12,189
|
|
|
|
|
|
|
|
41,993
|
|
Intangible assets, net
|
|
|
|
|
|
|
123,582
|
|
|
|
|
|
|
|
|
|
|
|
123,582
|
|
Investments in affiliates
|
|
|
77,789
|
|
|
|
28,178
|
|
|
|
|
|
|
|
(105,967
|
)
|
|
|
|
|
Other assets
|
|
|
117,515
|
|
|
|
11,502
|
|
|
|
953
|
|
|
|
(127,854
|
)
|
|
|
2,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
205,610
|
|
|
$
|
281,388
|
|
|
$
|
55,077
|
|
|
$
|
(234,995
|
)
|
|
$
|
307,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Accounts payable and accruals
|
|
$
|
(4,243
|
)
|
|
$
|
62,284
|
|
|
$
|
16,150
|
|
|
$
|
(908
|
)
|
|
$
|
73,283
|
|
Short term debt
|
|
|
1,989
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
3,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(2,254
|
)
|
|
|
63,300
|
|
|
|
16,150
|
|
|
|
(908
|
)
|
|
|
76,288
|
|
Long-term debt
|
|
|
76,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,406
|
|
Intercompany accounts
|
|
|
|
|
|
|
113,589
|
|
|
|
3,603
|
|
|
|
(117,192
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
15,818
|
|
|
|
26,710
|
|
|
|
7,146
|
|
|
|
(10,928
|
)
|
|
|
38,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
89,970
|
|
|
|
203,599
|
|
|
|
26,899
|
|
|
|
(129,028
|
)
|
|
|
191,440
|
|
Common stock
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Other stockholders equity
|
|
|
115,586
|
|
|
|
77,789
|
|
|
|
28,178
|
|
|
|
(105,967
|
)
|
|
|
115,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
115,640
|
|
|
|
77,789
|
|
|
|
28,178
|
|
|
|
(105,967
|
)
|
|
|
115,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
205,610
|
|
|
$
|
281,388
|
|
|
$
|
55,077
|
|
|
$
|
(234,995
|
)
|
|
$
|
307,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (REORGANIZED
COMPANY)
For the Year Ended
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
238,831
|
|
|
$
|
68,763
|
|
|
$
|
(2,018
|
)
|
|
$
|
305,576
|
|
Cost of sales
|
|
|
|
|
|
|
166,606
|
|
|
|
47,257
|
|
|
|
(2,093
|
)
|
|
|
211,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
72,225
|
|
|
|
21,506
|
|
|
|
75
|
|
|
|
93,806
|
|
Selling, general and
administrative expenses
|
|
|
1,488
|
|
|
|
49,631
|
|
|
|
5,601
|
|
|
|
7
|
|
|
|
56,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,488
|
)
|
|
|
22,594
|
|
|
|
15,905
|
|
|
|
68
|
|
|
|
37,079
|
|
Interest expense, net
|
|
|
(4,754
|
)
|
|
|
(38
|
)
|
|
|
32
|
|
|
|
|
|
|
|
(4,760
|
)
|
Other income (expense), net
|
|
|
48
|
|
|
|
596
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
513
|
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(6,194
|
)
|
|
|
23,152
|
|
|
|
15,708
|
|
|
|
68
|
|
|
|
32,734
|
|
Income tax (benefit) provision
|
|
|
(2,175
|
)
|
|
|
10,185
|
|
|
|
2,124
|
|
|
|
|
|
|
|
10,134
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
(26,619
|
)
|
|
|
(13,652
|
)
|
|
|
|
|
|
|
40,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
22,600
|
|
|
$
|
26,619
|
|
|
$
|
13,584
|
|
|
$
|
(40,203
|
)
|
|
$
|
22,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (REORGANIZED
COMPANY)
For the Year Ended
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
$
|
(14,763
|
)
|
|
$
|
34,925
|
|
|
$
|
12,214
|
|
|
$
|
2,683
|
|
|
$
|
35,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(5,834
|
)
|
|
|
(3,545
|
)
|
|
|
|
|
|
|
(9,379
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
6,057
|
|
|
|
|
|
|
|
|
|
|
|
6,057
|
|
Other investing activities
|
|
|
|
|
|
|
(354
|
)
|
|
|
359
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
|
|
|
|
(131
|
)
|
|
|
(3,186
|
)
|
|
|
|
|
|
|
(3,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(31,352
|
)
|
|
|
(1,692
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
(33,148
|
)
|
Proceeds from sale of stock
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Intercompany account changes
|
|
|
42,420
|
|
|
|
(29,029
|
)
|
|
|
(10,708
|
)
|
|
|
(2,683
|
)
|
|
|
|
|
Other financing activities
|
|
|
(2,679
|
)
|
|
|
(1,179
|
)
|
|
|
862
|
|
|
|
|
|
|
|
(2,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
8,789
|
|
|
|
(31,900
|
)
|
|
|
(9,950
|
)
|
|
|
(2,683
|
)
|
|
|
(35,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
|
(5,974
|
)
|
|
|
2,894
|
|
|
|
(922
|
)
|
|
|
|
|
|
|
(4,002
|
)
|
Effect of exchange rate changes
|
|
|
|
|
|
|
27
|
|
|
|
189
|
|
|
|
|
|
|
|
216
|
|
Cash and cash equivalents,
beginning of period
|
|
|
16,293
|
|
|
|
(2,582
|
)
|
|
|
4,889
|
|
|
|
|
|
|
|
18,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
10,319
|
|
|
$
|
339
|
|
|
$
|
4,156
|
|
|
$
|
|
|
|
$
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (REORGANIZED
COMPANY)
For the Three Months Ended
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
54,262
|
|
|
$
|
14,748
|
|
|
$
|
(440
|
)
|
|
$
|
68,570
|
|
Cost of sales
|
|
|
|
|
|
|
41,124
|
|
|
|
12,287
|
|
|
|
(902
|
)
|
|
|
52,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
13,138
|
|
|
|
2,461
|
|
|
|
462
|
|
|
|
16,061
|
|
Selling, general and
administrative expenses
|
|
|
172
|
|
|
|
13,543
|
|
|
|
1,426
|
|
|
|
|
|
|
|
15,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(172
|
)
|
|
|
(405
|
)
|
|
|
1,035
|
|
|
|
462
|
|
|
|
920
|
|
Interest expense, net
|
|
|
(1,402
|
)
|
|
|
20
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(1,390
|
)
|
Other income (expense), net
|
|
|
45
|
|
|
|
648
|
|
|
|
(297
|
)
|
|
|
|
|
|
|
396
|
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(1,529
|
)
|
|
|
263
|
|
|
|
710
|
|
|
|
462
|
|
|
|
(94
|
)
|
Income tax (benefit) provision
|
|
|
(102
|
)
|
|
|
210
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
(125
|
)
|
Equity in net (income) loss of
subsidiaries
|
|
|
(1,458
|
)
|
|
|
(1,405
|
)
|
|
|
|
|
|
|
2,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
31
|
|
|
$
|
1,458
|
|
|
$
|
943
|
|
|
$
|
(2,401
|
)
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (REORGANIZED
COMPANY)
For the Three Months Ended
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
7,788
|
|
|
$
|
(12,774
|
)
|
|
$
|
5,670
|
|
|
$
|
4,304
|
|
|
$
|
4,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(244
|
)
|
|
|
(274
|
)
|
|
|
|
|
|
|
(518
|
)
|
Other investing activities
|
|
|
420
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
420
|
|
|
|
(244
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(10,250
|
)
|
|
|
(587
|
)
|
|
|
(2,627
|
)
|
|
|
|
|
|
|
(13,464
|
)
|
Payment on interest collars
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(512
|
)
|
Intercompany account changes
|
|
|
(5,584
|
)
|
|
|
12,959
|
|
|
|
(3,071
|
)
|
|
|
(4,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(16,346
|
)
|
|
|
12,372
|
|
|
|
(5,698
|
)
|
|
|
(4,304
|
)
|
|
|
(13,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash
equivalents
|
|
|
(8,138
|
)
|
|
|
(646
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
(8,834
|
)
|
Effect of exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
(381
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
24,431
|
|
|
|
(1,936
|
)
|
|
|
5,320
|
|
|
|
|
|
|
|
27,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
16,293
|
|
|
$
|
(2,582
|
)
|
|
$
|
4,889
|
|
|
$
|
|
|
|
$
|
18,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR
COMPANY)
For the Nine Months Ended
September 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
159,700
|
|
|
$
|
38,824
|
|
|
$
|
(1,507
|
)
|
|
$
|
197,017
|
|
Cost of sales
|
|
|
|
|
|
|
115,023
|
|
|
|
27,540
|
|
|
|
(1,323
|
)
|
|
|
141,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
44,677
|
|
|
|
11,284
|
|
|
|
(184
|
)
|
|
|
55,777
|
|
Selling, general and
administrative expenses
|
|
|
629
|
|
|
|
52,135
|
|
|
|
4,950
|
|
|
|
|
|
|
|
57,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(629
|
)
|
|
|
(7,458
|
)
|
|
|
6,334
|
|
|
|
(184
|
)
|
|
|
(1,937
|
)
|
Interest expense, net
|
|
|
(9,783
|
)
|
|
|
(50
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
(9,911
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
5,677
|
|
|
|
|
|
|
|
|
|
|
|
5,677
|
|
Other income (expense), net
|
|
|
(2,150
|
)
|
|
|
839
|
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
(2,329
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations before income taxes and equity in net (income) loss
of subsidiaries
|
|
|
(12,562
|
)
|
|
|
(992
|
)
|
|
|
5,175
|
|
|
|
(184
|
)
|
|
|
(8,563
|
)
|
Income tax (benefit) provision
|
|
|
(3,676
|
)
|
|
|
5,579
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
1,755
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
1,432
|
|
|
|
(7,540
|
)
|
|
|
|
|
|
|
6,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
(10,318
|
)
|
|
|
969
|
|
|
|
5,323
|
|
|
|
(6,292
|
)
|
|
|
(10,318
|
)
|
Income from discontinued
operation, net of taxes
|
|
|
833
|
|
|
|
833
|
|
|
|
833
|
|
|
|
(1,666
|
)
|
|
|
833
|
|
Gain on sale of discontinued
operation, net of taxes
|
|
|
2,400
|
|
|
|
2,400
|
|
|
|
2,400
|
|
|
|
(4,800
|
)
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(7,085
|
)
|
|
$
|
4,202
|
|
|
$
|
8,556
|
|
|
$
|
(12,758
|
)
|
|
$
|
(7,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (PREDECESSOR
COMPANY)
For the Nine Months Ended
September 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
9,255
|
|
|
$
|
17,850
|
|
|
$
|
14,287
|
|
|
$
|
(21,926
|
)
|
|
$
|
19,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(591
|
)
|
|
|
(1,316
|
)
|
|
|
|
|
|
|
(1,907
|
)
|
Dividends received from joint
venture
|
|
|
|
|
|
|
790
|
|
|
|
|
|
|
|
|
|
|
|
790
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
2,300
|
|
|
|
13,775
|
|
|
|
|
|
|
|
16,075
|
|
Other investing activities
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities
|
|
|
|
|
|
|
2,642
|
|
|
|
12,459
|
|
|
|
|
|
|
|
15,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(1,129
|
)
|
|
|
(1,120
|
)
|
|
|
(205
|
)
|
|
|
|
|
|
|
(2,454
|
)
|
Debt restructuring-related fees
paid
|
|
|
(12,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,583
|
)
|
Intercompany account changes
|
|
|
26,976
|
|
|
|
(21,490
|
)
|
|
|
(27,412
|
)
|
|
|
21,926
|
|
|
|
|
|
Other financing activities
|
|
|
(870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
12,394
|
|
|
|
(22,610
|
)
|
|
|
(27,617
|
)
|
|
|
21,926
|
|
|
|
(15,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in)
continuing operations
|
|
|
21,649
|
|
|
|
(2,118
|
)
|
|
|
(871
|
)
|
|
|
|
|
|
|
18,660
|
|
Cash flow provided by discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
1,592
|
|
|
|
|
|
|
|
1,592
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
338
|
|
Cash and cash equivalents,
beginning of period
|
|
|
2,782
|
|
|
|
182
|
|
|
|
4,261
|
|
|
|
|
|
|
|
7,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
24,431
|
|
|
$
|
(1,936
|
)
|
|
$
|
5,320
|
|
|
$
|
|
|
|
$
|
27,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE PSubsequent
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 the first quarter of 2007, subject to Czech Republic
court approval.
F-59
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,958
|
|
|
$
|
15,433
|
|
Accounts receivable, net
|
|
|
66,642
|
|
|
|
62,463
|
|
Inventories, net
|
|
|
60,888
|
|
|
|
53,132
|
|
Unbilled contract revenue
|
|
|
37,233
|
|
|
|
21,305
|
|
Other current assets
|
|
|
20,173
|
|
|
|
15,589
|
|
Assets held for sale
|
|
|
3,084
|
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
210,978
|
|
|
|
171,006
|
|
Property, plant and equipment, net
|
|
|
77,777
|
|
|
|
64,265
|
|
Goodwill
|
|
|
245,706
|
|
|
|
236,742
|
|
Identifiable intangible assets, net
|
|
|
150,723
|
|
|
|
154,063
|
|
Other assets, net
|
|
|
13,588
|
|
|
|
13,672
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
698,772
|
|
|
$
|
639,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
50,289
|
|
|
$
|
34,435
|
|
Customer advances and billings in
excess of contract revenue
|
|
|
36,181
|
|
|
|
24,683
|
|
Accrued expenses and other current
liabilities
|
|
|
45,499
|
|
|
|
41,001
|
|
Short-term debt
|
|
|
|
|
|
|
2,304
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
131,969
|
|
|
|
102,423
|
|
Long-term debt
|
|
|
290,000
|
|
|
|
345,000
|
|
Other long-term liabilities
|
|
|
76,142
|
|
|
|
75,995
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Common stock, par value
$.01 per share150,000,000 shares authorized, and
25,588,043 and 7,952,180 shares issued and outstanding at
September 30, 2006 and December 31, 2005, respectively
|
|
|
256
|
|
|
|
80
|
|
Additional paid-in capital
|
|
|
179,829
|
|
|
|
117,304
|
|
Retained earnings
|
|
|
17,780
|
|
|
|
(506
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
2,796
|
|
|
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
200,661
|
|
|
|
116,330
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
$
|
698,772
|
|
|
$
|
639,748
|
|
|
|
|
|
|
|
|
|
|
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-60
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Reorganized Company
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
2005
|
|
|
2005
|
|
Sales
|
|
$
|
142,825
|
|
|
$
|
393,032
|
|
|
|
$
|
105,787
|
|
|
$
|
290,678
|
|
Cost of sales
|
|
|
103,385
|
|
|
|
280,492
|
|
|
|
|
75,686
|
|
|
|
205,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
39,440
|
|
|
|
112,540
|
|
|
|
|
30,101
|
|
|
|
84,931
|
|
Selling, general and administrative
expenses
|
|
|
18,208
|
|
|
|
53,372
|
|
|
|
|
15,507
|
|
|
|
44,005
|
|
Amortization expense
|
|
|
4,290
|
|
|
|
11,385
|
|
|
|
|
978
|
|
|
|
2,520
|
|
Transaction expenses
|
|
|
|
|
|
|
|
|
|
|
|
1,018
|
|
|
|
1,018
|
|
Employee separation and plant
closure costs
|
|
|
73
|
|
|
|
304
|
|
|
|
|
200
|
|
|
|
1,005
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
1,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,571
|
|
|
|
65,061
|
|
|
|
|
17,595
|
|
|
|
47,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
16,869
|
|
|
|
47,479
|
|
|
|
|
12,506
|
|
|
|
37,730
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(6,125
|
)
|
|
|
(19,256
|
)
|
|
|
|
(1,313
|
)
|
|
|
(3,934
|
)
|
Financing costs amortization
|
|
|
(393
|
)
|
|
|
(1,132
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency (expense) income
|
|
|
26
|
|
|
|
177
|
|
|
|
|
(402
|
)
|
|
|
(550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,492
|
)
|
|
|
(20,211
|
)
|
|
|
|
(1,715
|
)
|
|
|
(4,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before
income taxes and minority interest
|
|
|
10,377
|
|
|
|
27,268
|
|
|
|
|
10,791
|
|
|
|
33,246
|
|
Income tax expense
|
|
|
3,372
|
|
|
|
8,862
|
|
|
|
|
3,534
|
|
|
|
11,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before
minority interest
|
|
|
7,005
|
|
|
|
18,406
|
|
|
|
|
7,257
|
|
|
|
21,766
|
|
Minority interest, net of taxes
|
|
|
73
|
|
|
|
120
|
|
|
|
|
29
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,932
|
|
|
$
|
18,286
|
|
|
|
$
|
7,228
|
|
|
$
|
21,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
sharebasic
|
|
$
|
0.34
|
|
|
$
|
1.45
|
|
|
|
$
|
1.35
|
|
|
$
|
4.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
sharediluted
|
|
$
|
0.34
|
|
|
$
|
1.40
|
|
|
|
$
|
1.28
|
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstandingbasic
|
|
|
20,245
|
|
|
|
12,579
|
|
|
|
|
5,372
|
|
|
|
5,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstandingdiluted
|
|
|
20,398
|
|
|
|
13,107
|
|
|
|
|
5,626
|
|
|
|
5,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-61
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Reorganized Company
|
|
|
|
Nine Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
2005
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,286
|
|
|
|
$
|
21,681
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
(Gain) on settlement or sale of
assets
|
|
|
|
|
|
|
|
(1,347
|
)
|
Depreciation and amortization
|
|
|
16,383
|
|
|
|
|
5,970
|
|
Employee stock and stock option
related compensation expense
|
|
|
1,428
|
|
|
|
|
1,799
|
|
Other non-cash operating activities
|
|
|
15
|
|
|
|
|
1,779
|
|
Increase (decrease) in cash
resulting from changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(421
|
)
|
|
|
|
(11,731
|
)
|
Inventory
|
|
|
(4,541
|
)
|
|
|
|
(5,182
|
)
|
Unbilled contract revenues and
other current assets
|
|
|
(21,608
|
)
|
|
|
|
(5,990
|
)
|
Accounts payable and other current
liabilities
|
|
|
13,683
|
|
|
|
|
7,337
|
|
Customer advances and billings in
excess of contract revenue
|
|
|
10,338
|
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating
Activities
|
|
|
33,563
|
|
|
|
|
19,115
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(13,497
|
)
|
|
|
|
(10,208
|
)
|
Proceeds from settlement or sale of
assets
|
|
|
|
|
|
|
|
1,819
|
|
Acquisition of business, net of
cash acquired
|
|
|
(15,840
|
)
|
|
|
|
(12,085
|
)
|
Other investing activities
|
|
|
(31
|
)
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used In) Investing
Activities
|
|
|
(29,368
|
)
|
|
|
|
(20,595
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit
facilities
|
|
|
|
|
|
|
|
18,880
|
|
Payments on revolving credit
facilities or short-term debt
|
|
|
(2,354
|
)
|
|
|
|
(11,916
|
)
|
Principal payments on long-term debt
|
|
|
(55,000
|
)
|
|
|
|
(2,353
|
)
|
Proceeds from initial public
offeringnet
|
|
|
172,512
|
|
|
|
|
|
|
Cash dividend paid
|
|
|
(150,313
|
)
|
|
|
|
|
|
Proceeds from sale of stock
|
|
|
39,237
|
|
|
|
|
873
|
|
Payment of deferred financing costs
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing
Activities
|
|
|
3,228
|
|
|
|
|
5,484
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
7,423
|
|
|
|
|
4,004
|
|
Effect of exchange rate changes on
cash
|
|
|
102
|
|
|
|
|
(140
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
15,433
|
|
|
|
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
$
|
22,958
|
|
|
|
$
|
18,678
|
|
|
|
|
|
|
|
|
|
|
|
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-62
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006
(Dollars
and shares in thousands, except per share amounts)
NOTE ABasis
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 and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by 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. Operating results for the three and nine months ended
September 30, 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 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 eight states, including its
principal executive offices located in Cleveland, 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 September 30,
2006 and December 31, 2005 and for the three and nine
months ended September 30, 2006 to give effect to the
4.6263-for-one
stock split of the Companys common stock that occurred on
July 20, 2006, and related adjustments to its capital
structure and stock options that were effected upon the
completion of the Companys initial public offering
(IPO) on July 31, 2006. In May 2006, FR X Chart
Holdings LLC, controlling shareholder of the Company and an
affiliate of First Reserve Fund X, L.P., 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. 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 (Closing Date), the merger and
the Stock Purchase (the Acquisition) took place
under the terms of the Merger Agreement. The Acquisition was
accounted for at October 17, 2005 in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations.
On July 31, 2006, the Company completed its IPO of
12,500 shares of its common stock for net proceeds of
$175,313. As a result of the IPO, First Reserve is no longer the
majority shareholder of the Company. On August 1, 2006, the
Company used $25,000 of the net proceeds to repay a portion of
the term loan portion of the senior secured credit facility. The
remaining $150,313 of net proceeds was used to pay a dividend to
the
F-63
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
stockholders existing immediately prior to the completion of the
IPO, consisting of affiliates of First Reserve and certain
members of management. On August 25, 2006, following
expiration of the underwriters over-allotment option
without its being exercised, a stock dividend of
1,875 shares was issued to the stockholders existing
immediately prior to the completion of the IPO.
Reclassifications: Certain prior year amounts
have been reclassified to conform to the current year
presentation.
These financial statements and accompanying notes for the three
and nine months ended September 30, 2006 are for the
Successor Company and the three and nine months ended
September 30, 2005 are for the Reorganized Company, as
defined in the notes to the December 31, 2005 audited
financial statements contained in our Registration Statement on
Form S-1
(File
No. 333-133254).
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 inventory
are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Raw materials and supplies
|
|
$
|
28,023
|
|
|
$
|
26,385
|
|
Work in process
|
|
|
18,514
|
|
|
|
13,003
|
|
Finished goods
|
|
|
14,351
|
|
|
|
13,744
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,888
|
|
|
$
|
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 a significant variation in
working capital requirements.
F-64
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
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 and nine months ended
September 30, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Reorganized
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
Three Months
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
2005
|
|
Balance as of July 1
|
|
$
|
4,206
|
|
|
|
$
|
2,954
|
|
Warranty expense
|
|
|
929
|
|
|
|
|
933
|
|
Warranty usage
|
|
|
(868
|
)
|
|
|
|
(402
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30
|
|
$
|
4,267
|
|
|
|
$
|
3,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Reorganized
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
Nine Months
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
2005
|
|
Balance as of January 1
|
|
$
|
3,598
|
|
|
|
$
|
2,812
|
|
Warranty expense
|
|
|
2,640
|
|
|
|
|
2,197
|
|
Warranty usage
|
|
|
(1,971
|
)
|
|
|
|
(1,524
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30
|
|
$
|
4,267
|
|
|
|
$
|
3,485
|
|
|
|
|
|
|
|
|
|
|
|
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.
SFAS No. 142 requires that goodwill and other
indefinite lived intangible assets 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
reporting unit goodwill with the carrying amount of that
goodwill.
F-65
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
The following table displays the gross carrying amount and
accumulated amortization for all intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
December 31, 2005
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Estimated
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Useful Life
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Finite-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpatented technology
|
|
9 years
|
|
$
|
9,400
|
|
|
$
|
(1,082
|
)
|
|
$
|
9,400
|
|
|
$
|
(235
|
)
|
Patents
|
|
7 years
|
|
|
8,138
|
|
|
|
(1,038
|
)
|
|
|
8,138
|
|
|
|
(298
|
)
|
Product names
|
|
20 years
|
|
|
940
|
|
|
|
(45
|
)
|
|
|
940
|
|
|
|
(10
|
)
|
Backlog
|
|
12 months
|
|
|
6,720
|
|
|
|
(5,036
|
)
|
|
|
5,440
|
|
|
|
(1,110
|
)
|
Non-compete agreements
|
|
4 years
|
|
|
3,474
|
|
|
|
(758
|
)
|
|
|
1,344
|
|
|
|
(280
|
)
|
Licenses and certificates
|
|
18 months
|
|
|
103
|
|
|
|
(47
|
)
|
|
|
48
|
|
|
|
(20
|
)
|
Customer relations
|
|
13 years
|
|
|
101,066
|
|
|
|
(6,812
|
)
|
|
|
96,906
|
|
|
|
(1,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,841
|
|
|
$
|
(14,818
|
)
|
|
$
|
122,216
|
|
|
$
|
(3,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
$
|
245,706
|
|
|
|
|
|
|
|
236,742
|
|
|
|
|
|
Trademarks and trade names
|
|
|
|
|
35,700
|
|
|
|
|
|
|
|
35,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
281,406
|
|
|
|
|
|
|
$
|
272,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for finite-lived intangible assets was
$4,290 and $978 for the three months ended September 30,
2006 and 2005, respectively, and $11,385 and $2,520 for the nine
months ended September 30, 2006 and 2005, respectively, and
is estimated to be approximately $15,300 for 2006 and $10,300
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
No. 25, Accounting for Stock Issued to
Employees and related interpretations in accounting for
its employee stock options.
In November 2005, March 2006, April 2006 and May 2006, the
Company granted 2,175, 100, 67 and 100 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
over a period of ten years and have two different vesting
schedules. The time-based options (Time-based
Options) vest in equal installments over a five-year
period and the performance-based options
(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 performance
criteria as outlined in the 2004 Plan and related options
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. In May 2006, the Rollover Options were exercised at an
exercise price of $3.50 per share resulting in the issuance
of 610 shares of common stock, and in cash proceeds of
$2,134. In
F-66
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
addition, all of the 2004 stock options (2004
Options) of the Reorganized Company, except the Rollover
Options described above, were deemed to be exercised in
conjunction with the Acquisition on October 17, 2005.
On September 30, 2006, there were 861 Time-based Options
and 1,581 Performance-based Options outstanding under the Stock
Incentive Plan. As of September 30, 2005, there were 345
time-based options and 130 performance-based options outstanding
under the 2004 Plan. For the three and nine months ended
September 30, 2006, the Company recorded $477 and $1,229,
respectively, in compensation expense related to the Time-based
Options. For the three and nine months ended September 30,
2005, the Company recorded $270 and $809, respectively, in
compensation expense related to the time-based options and $159
and $990, respectively, in compensation expense related to the
performance-based options. As of September 30, 2006, the
total share-based compensation expected to be recognized over
the weighted average period of approximately 4.3 years is
$2,796. Further, the Company may also record additional
stock-based compensation expense in future periods related to
the 1,581 Performance-based Options, granted under the Amended
and Restated 2005 Stock Incentive Plan to certain members of
management, if it becomes probable that any of the future
performance criteria will be achieved. The amount of the expense
relating to the Performance-based Options cannot be estimated at
this time.
The Companys 2005 pro forma disclosures showing the
estimated fair value of employee stock options, amortized to
expense over their vesting periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
Reported net income
|
|
$
|
7,228
|
|
|
$
|
21,681
|
|
Add: Share-based employee
compensation expense included in reported net income, net of
related tax effect
|
|
|
279
|
|
|
|
1,170
|
|
Deduct: Total share-based employee
compensation expense determined under the fair value method for
all awards, net of related tax effect
|
|
|
(651
|
)
|
|
|
(1,955
|
)
|
|
|
|
|
|
|
|
|
|
Pro-forma net income
|
|
$
|
6,856
|
|
|
$
|
20,896
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
1.35
|
|
|
$
|
4.04
|
|
Add: Share-based employee
compensation expense included in reported net income, net of
related tax effect
|
|
|
0.05
|
|
|
|
0.22
|
|
Deduct: Total share-based employee
compensation expense determined under the fair value for all
awards, net of related tax effect
|
|
|
(0.12
|
)
|
|
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
Pro-forma net income
|
|
$
|
1.28
|
|
|
$
|
3.89
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
1.28
|
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
|
Add: Share-based employee
compensation expense included in reported net income, net of
related tax expense
|
|
|
0.05
|
|
|
|
0.21
|
|
Deduct: Total share-based employee
compensation expense determined under the fair value method for
all awards, net of related tax effect
|
|
|
(0.12
|
)
|
|
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
Pro-forma net income
|
|
$
|
1.21
|
|
|
$
|
3.74
|
|
|
|
|
|
|
|
|
|
|
Weighted average sharesbasic
|
|
|
5,372
|
|
|
|
5,363
|
|
Weighted average
sharesdiluted
|
|
|
5,626
|
|
|
|
5,593
|
|
F-67
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
In July and August 2006, the Company granted restricted stock
units covering 11 and 5 shares of common stock,
respectively, to the non-employee directors. Each of the six
grants of restricted stock units had a fair market value of $40
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. For the three
and nine months ended September 30, 2006, the Company
recorded $40 in director compensation expense related to the
restricted stock units.
Recently Issued Accounting Pronouncements. In
June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48. Accounting for
Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes by
prescribing thresholds and attributes for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The interpretation also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, and disclosure.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the
impact of adopting FIN 48 on its financial position and
results of operations.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS No. 157) which is
effective for fiscal years beginning after November 15,
2007. SFAS No. 157 defines fair value to be applied to
U.S. GAAP guidance requiring use of fair value, establishes
a framework for measuring fair value and expands the disclosure
requirements for fair value measurements. The Company is
currently evaluating the impact of SFAS No. 157 on its
financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Pension Benefit
Plans and Other Postretirement Plans. This statement
requires recognition on the balance sheet of the underfunded or
overfunded status of pension and postretirement benefit plans.
SFAS No. 158 also requires the recognition of changes
in the funded status through other comprehensive income in the
year that the changes occur. The amount of net periodic benefit
cost recognized in an entitys results of operation will
not change. SFAS No. 158 is effective for fiscal years
ending after December 15, 2006. The Company is currently
evaluating the impact of this statement on its consolidated
financial statements. Application of SFAS No. 158 at
December 31, 2005 would have resulted in an increase of
approximately $400 to the Companys pension liability.
Other. During the three months ended
September 30, 2006, the Company recorded in selling,
general and administrative (SG&A) expenses $2,500 of
insurance proceeds related to claims filed for Hurricane Rita
losses offset by storm costs of $176 incurred at an
Energy & Chemicals segment project site. During the
nine months ended September 30, 2006, the Company recorded
in SG&A expenses $2,500 of insurance proceeds related to
claims filed for Hurricane Rita losses offset by storm costs
incurred of $951 related to Hurricane Rita at its New Iberia, LA
facility and an Energy & Chemicals segment project
site. During the three months ended September 30, 2005, the
Company recorded in selling, general and administrative expenses
a $1,049 charge for losses related to damage caused by Hurricane
Rita at its New Iberia, Louisiana facility and also $1,018 of
transaction expenses related to the acquisition by First Reserve
as described in Note A. During the nine months ended
September 30, 2005, the Company recorded a $1,100
settlement of a finders fee claim asserted by a former
shareholder of the Company. During the same period, the Company
also recorded a $1,700 gain on the settlement of a promissory
note receivable related to the 2003 sale of its former
Greenville Tube, LLC stainless tubing business.
NOTE BDebt
and Credit Arrangements
In connection with the Acquisition, the Company entered into a
senior secured credit facility (the Senior Credit
Facility) and completed a $170,000 offering of
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 the
Closing Date of the Acquisition. The Senior Credit Facility
consists of a $180,000 term loan facility (the Term
Loan) and a $115,000 revolving credit facility (the
Revolver), of which $55,000 may be used for letters
of
F-68
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
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 four voluntary principal repayments totaling $60,000 made in
December 2005, and March, June and August 2006, the Term Loan
does not require any principal payments prior to the maturity
date. 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 Senior 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. The
registration rights agreement required the Company to file an
Exchange Offer Registration Statement and complete the exchange
offer for the Subordinated Notes by August 14, 2006. Since
the exchange offer was not completed, additional interest at a
rate of 0.25% per annum will be paid to holders of the
notes for the
90-day
period ending November 11, 2006. Additional interest will
accrue in further increments of 0.25% per annum, up to a
maximum of 1.0% per annum, each subsequent
90-day
period until the exchange offer is completed. The interest rate
increased to an additional 0.50% per annum on
November 12, 2006 and to an additional 0.75% per annum on
February 10, 2007. 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 the 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, and senior in
right of payment with any future indebtedness of the Company
that expressly provides for its subordination to the
Subordinated Notes. The Subordinated Notes are 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, engage in
mergers or consolidations, pay dividends or distributions, and
make capital expenditures. The Senior Credit Facility also
includes financial covenants relating to leverage and interest
coverage. As of September 30, 2006, there was $120,000
outstanding under the Term Loan, $170,000 outstanding under the
Subordinated Notes and letters of credit and bank guarantees
totaling $27,297 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
F-69
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
facilities. As of September 30, 2006, there were no
borrowings outstanding under the Ferox revolving credit
facilities. However, there were $2,015 of bank guarantees
supported by the Ferox revolving credit facilities.
NOTE C
Earnings per Share
The following table presents calculations of net income per
share of common stock for the three and nine months ended
September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Reorganized Company
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
2005
|
|
|
2005
|
|
Net income
|
|
$
|
6,932
|
|
|
$
|
18,286
|
|
|
|
$
|
7,228
|
|
|
$
|
21,681
|
|
Net income per common
sharebasic
|
|
$
|
0.34
|
|
|
$
|
1.45
|
|
|
|
$
|
1.35
|
|
|
$
|
4.04
|
|
Net income per common
sharediluted
|
|
$
|
0.34
|
|
|
$
|
1.40
|
|
|
|
$
|
1.28
|
|
|
$
|
3.88
|
|
Weighted average number of common
shares outstandingbasic
|
|
|
20,245
|
|
|
|
12,579
|
|
|
|
|
5,372
|
|
|
|
5,363
|
|
Incremental shares issuable upon
assumed exercise of stock warrant
|
|
|
|
|
|
|
237
|
|
|
|
|
66
|
|
|
|
60
|
|
Incremental shares issuable upon
assumed conversion and exercise of stock options
|
|
|
153
|
|
|
|
291
|
|
|
|
|
188
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sharesdiluted
|
|
|
20,398
|
|
|
|
13,107
|
|
|
|
|
5,626
|
|
|
|
5,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE DComprehensive
Income (Loss)
The components of accumulated other comprehensive income (loss)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Foreign currency translation
adjustments
|
|
$
|
3,058
|
|
|
$
|
(286
|
)
|
Minimum pension liability
adjustments, net of taxes
|
|
|
(262
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,796
|
|
|
$
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the three months ended
September 30, 2006 and 2005 was $7,054 and $7,794,
respectively. Comprehensive income for the nine months period
ended September 30, 2006 and 2005 was $21,630 and $19,356,
respectively.
NOTE EEmployee
Separation and Plant Closure Costs
For the three and nine months ended September 30, 2006, the
Company recorded employee separation and plant closure costs of
$73 and $304, respectively, primarily related to the closure of
the Distribution and Storage segments idle Plaistow, New
Hampshire facility. For the three and nine months ended
September 30, 2005, the Company recorded employee
separation and plant closure costs of $200 and $1,005,
respectively, 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. For the
three and nine months ended September 30, 2005,
F-70
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
the Company also recorded non-cash inventory valuation charges
of $378 and $579, respectively, included in cost of sales, for
the impairment of inventory at the BioMedical facility in
Burnsville, Minnesota.
The following table summarizes the Companys employee
separation and plant closure costs activity for the three and
nine months ended September 30, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Three Months Ended September 30, 2006
|
|
|
|
Energy &
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
& Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
One-time employee termination costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other associated costs
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant
closure costs
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Reserve usage
|
|
|
|
|
|
|
(73
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
Reserves as of July 1, 2006
|
|
|
1,557
|
|
|
|
190
|
|
|
|
137
|
|
|
|
|
|
|
|
1,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of September 30,
2006
|
|
$
|
1,557
|
|
|
$
|
190
|
|
|
$
|
132
|
|
|
$
|
|
|
|
$
|
1,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company
|
|
|
|
Three Months Ended September 30, 2005
|
|
|
|
Energy &
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
& Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
One-time employee termination costs
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
Other associated costs
|
|
|
5
|
|
|
|
159
|
|
|
|
28
|
|
|
|
1
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant
closure costs
|
|
|
5
|
|
|
|
166
|
|
|
|
28
|
|
|
|
1
|
|
|
|
200
|
|
Inventory valuation in cost of
sales
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
166
|
|
|
|
406
|
|
|
|
1
|
|
|
|
578
|
|
Reserve usage
|
|
|
(5
|
)
|
|
|
(166
|
)
|
|
|
(438
|
)
|
|
|
(86
|
)
|
|
|
(695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(85
|
)
|
|
|
(117
|
)
|
Reserves as of July 1, 2005
|
|
|
1,557
|
|
|
|
305
|
|
|
|
140
|
|
|
|
103
|
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of September 30,
2005
|
|
$
|
1,557
|
|
|
$
|
305
|
|
|
$
|
108
|
|
|
$
|
18
|
|
|
$
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
Energy &
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
& Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
One-time employee termination costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other associated costs
|
|
|
9
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant
closure costs
|
|
|
9
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
Reserve usage
|
|
|
(9
|
)
|
|
|
(295
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
(107
|
)
|
Reserves as of January 1, 2006
|
|
|
1,557
|
|
|
|
190
|
|
|
|
239
|
|
|
|
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of September 30,
2006
|
|
$
|
1,557
|
|
|
$
|
190
|
|
|
$
|
132
|
|
|
$
|
|
|
|
$
|
1,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company
|
|
|
|
Nine Months Ended September 30, 2005
|
|
|
|
Energy &
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
& Storage
|
|
|
BioMedical
|
|
|
Corporate
|
|
|
Total
|
|
|
One-time employee termination costs
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40
|
|
Other associated costs
|
|
|
83
|
|
|
|
459
|
|
|
|
541
|
|
|
|
(118
|
)
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation and plant
closure costs
|
|
|
83
|
|
|
|
499
|
|
|
|
541
|
|
|
|
(118
|
)
|
|
|
1,005
|
|
Inventory valuation in cost of
sales
|
|
|
|
|
|
|
|
|
|
|
579
|
|
|
|
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
499
|
|
|
|
1,120
|
|
|
|
(118
|
)
|
|
|
1,584
|
|
Reserve usage
|
|
|
(83
|
)
|
|
|
(535
|
)
|
|
|
(1,384
|
)
|
|
|
(357
|
)
|
|
|
(2,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve
|
|
|
|
|
|
|
(36
|
)
|
|
|
(264
|
)
|
|
|
(475
|
)
|
|
|
(775
|
)
|
Reserves as of January 1, 2005
|
|
|
1,557
|
|
|
|
341
|
|
|
|
372
|
|
|
|
493
|
|
|
|
2,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of September 30,
2005
|
|
$
|
1,557
|
|
|
$
|
305
|
|
|
$
|
108
|
|
|
$
|
18
|
|
|
$
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The employee separation and plant closure costs reserve of
$1,879 at September 30, 2006 was for one-time employee
termination costs. The employee separation and plant closure
costs reserve of $1,988 at September 30, 2005 consisted of
$18 for contract termination and facility-related closure costs
and $1,970 for one-time termination and other associated costs.
NOTE FAcquisitions
On May 26, 2006, the Company acquired the common stock of
Cooler Service Company, Inc. (Cooler Service) based
in Tulsa, Oklahoma. The consideration paid was $15,840, net of
cash acquired, including transaction costs. The acquisition was
funded with cash on hand. The estimated fair value of the net
assets acquired and goodwill at the date of acquisition was
$8,050 and $8,567, respectively. The purchase price allocation
is preliminary, and subject to adjustment following the
completion of the tangible and intangible asset valuations.
Cooler Service designs and manufactures air cooled heat
exchangers for multiple markets, including hydrocarbon,
F-72
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
petrochemical and industrial gas processing. Cooler Service has
been included in the Companys Energy and Chemical segment
and contributed $11,650 of sales to the 2006 operating results
from the date of acquisition through September 30, 2006.
On May 16, 2005, the Company acquired 100% 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 $13,644,
including cash of $12,198 and a promissory note of $1,466
payable to the seller, which was paid in the second quarter of
2006. The acquisition was funded with debt borrowed under the
revolving credit line portion of the 2003 Credit Facility and
cash on hand. The estimated fair value of the net assets
acquired and goodwill at the date of acquisition was $8,894 and
$4,770, respectively. CEM has been included in the
Companys Distribution and Storage segment.
NOTE GAssets
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.
The Plaistow facility is classified as assets held for sale on
the Companys unaudited condensed consolidated balance
sheet as of September 30, 2006 and the audited consolidated
balance sheet as of December 31, 2005 based on the
estimated value of $3,084.
NOTE HEmployee
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 and nine months ended
September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Reorganized Company
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
2005
|
|
|
2005
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
65
|
|
|
$
|
195
|
|
Interest cost
|
|
|
510
|
|
|
|
1,530
|
|
|
|
|
492
|
|
|
|
1,476
|
|
Expected return on plan assets
|
|
|
(618
|
)
|
|
|
(1,854
|
)
|
|
|
|
(570
|
)
|
|
|
(1,710
|
)
|
Recognized actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension (benefit) cost
|
|
$
|
(108
|
)
|
|
$
|
(324
|
)
|
|
|
$
|
(60
|
)
|
|
$
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE IReporting
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
F-73
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
industrial and natural gases. The BioMedical segment sells
medical respiratory products, biological storage systems, liquid
oxygen tanks and magnetic resonance imaging cryostat components.
Due to the nature of the products that each segment sells, there
are no intersegment sales. Corporate headquarters includes
operating expenses for executive management, accounting, tax,
treasury, human resources, information technology, legal,
internal audit, risk management and stock-based compensation
expenses that are not allocated to the reporting 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 September 30, 2006
|
|
|
Energy
|
|
Distribution and
|
|
|
|
|
|
|
|
|
and Chemicals
|
|
Storage
|
|
BioMedical
|
|
Corporate
|
|
Total
|
|
Sales
|
|
$
|
54,411
|
|
|
$
|
67,953
|
|
|
$
|
20,461
|
|
|
$
|
|
|
|
$
|
142,825
|
|
Operating income (loss)
|
|
|
5,462
|
|
|
|
13,491
|
|
|
|
4,365
|
|
|
|
(6,449
|
)
|
|
|
16,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company
|
|
|
Three Months Ended September 30, 2005
|
|
|
Energy
|
|
Distribution and
|
|
|
|
|
|
|
|
|
and Chemicals
|
|
Storage
|
|
BioMedical
|
|
Corporate
|
|
Total
|
|
Sales
|
|
$
|
31,832
|
|
|
$
|
55,068
|
|
|
$
|
18,887
|
|
|
$
|
|
|
|
$
|
105,787
|
|
Operating income (loss)
|
|
|
5,204
|
|
|
|
9,630
|
|
|
|
3,537
|
|
|
|
(5,865
|
)
|
|
|
12,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Nine Months Ended September 30, 2006
|
|
|
Energy
|
|
Distribution and
|
|
|
|
|
|
|
|
|
and Chemicals
|
|
Storage
|
|
BioMedical
|
|
Corporate
|
|
Total
|
|
Sales
|
|
$
|
138,075
|
|
|
$
|
194,783
|
|
|
$
|
60,174
|
|
|
$
|
|
|
|
$
|
393,032
|
|
Operating income (loss)
|
|
|
11,738
|
|
|
|
39,605
|
|
|
|
12,855
|
|
|
|
(16,719
|
)
|
|
|
47,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized Company
|
|
|
Nine Months Ended September 30, 2005
|
|
|
Energy
|
|
Distribution and
|
|
|
|
|
|
|
|
|
and Chemicals
|
|
Storage
|
|
BioMedical
|
|
Corporate
|
|
Total
|
|
Sales
|
|
$
|
80,562
|
|
|
$
|
155,047
|
|
|
$
|
55,069
|
|
|
$
|
|
|
|
$
|
290,678
|
|
Operating income (loss)
|
|
|
13,228
|
|
|
|
30,012
|
|
|
|
9,068
|
|
|
|
(14,578
|
)
|
|
|
37,730
|
|
F-74
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
Note JSupplemental
Guarantor Financial Information
In connection with the Acquisition, the Company issued $170,000
of senior subordinated notes. The following subsidiaries, all of
which are wholly owned, guaranteed the notes on a full,
unconditional and joint and several basis: Chart Inc., CAIRE
Inc., Chart Energy and Chemicals, Inc., Chart Cooler Service
Company, Inc., Chart International Holdings, Inc., Chart Asia,
Inc. and Chart International, Inc. The following subsidiaries
are not guarantors of the notes:
|
|
|
Non-Guarantor
Subsidiaries
|
|
Jurisdiction
|
|
Chart Australia Pty. Ltd.
|
|
Australia
|
Changzhou CEM Cryo Equipment Co.,
Ltd.
|
|
China
|
Chart Biomedical Limited
|
|
United Kingdom
|
Chart Cryogenic Engineering
Systems (Changzhou) Co., Ltd.
|
|
China
|
Chart Cryogenic Equipment
(Changzhou) Co., Ltd.
|
|
China
|
Chart Ferox a.s. (95.7% owned)
|
|
Czech Republic
|
Chart Ferox GmbH
|
|
Germany
|
GTC of Clarksville, LLC
|
|
Delaware
|
Lox Taiwan (16% owned)
|
|
Taiwan
|
Zhangjigang Chart Hailu Cryogenic
Equipment Co., Ltd.
|
|
China
|
The following supplemental condensed consolidating and combining
financial information of the Issuer, Subsidiary Guarantors and
Subsidiary Non-Guarantors presents statements of operations for
the three and nine months ended September 30, 2006 and
2005, balance sheets as of September 30, 2006 and
December 31, 2005, and statements of cash flows for the
nine months ended September 30, 2006 and 2005.
F-75
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
6,094
|
|
|
$
|
4,699
|
|
|
$
|
12,165
|
|
|
$
|
|
|
|
$
|
22,958
|
|
Accounts receivable, net
|
|
|
|
|
|
|
48,642
|
|
|
|
18,000
|
|
|
|
|
|
|
|
66,642
|
|
Inventory, net
|
|
|
|
|
|
|
37,734
|
|
|
|
23,453
|
|
|
|
(299
|
)
|
|
|
60,888
|
|
Other current assets
|
|
|
6,913
|
|
|
|
43,871
|
|
|
|
9,706
|
|
|
|
|
|
|
|
60,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,007
|
|
|
|
134,946
|
|
|
|
63,324
|
|
|
|
(299
|
)
|
|
|
210,978
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
51,666
|
|
|
|
26,111
|
|
|
|
|
|
|
|
77,777
|
|
Goodwill
|
|
|
|
|
|
|
207,581
|
|
|
|
38,125
|
|
|
|
|
|
|
|
245,706
|
|
Intangible assets, net
|
|
|
|
|
|
|
147,899
|
|
|
|
2,824
|
|
|
|
|
|
|
|
150,723
|
|
Investments in affiliates
|
|
|
89,646
|
|
|
|
29,346
|
|
|
|
|
|
|
|
(118,992
|
)
|
|
|
|
|
Intercompany receivables
|
|
|
425,717
|
|
|
|
|
|
|
|
|
|
|
|
(425,717
|
)
|
|
|
|
|
Other assets
|
|
|
11,609
|
|
|
|
1,511
|
|
|
|
468
|
|
|
|
|
|
|
|
13,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
539,979
|
|
|
$
|
572,949
|
|
|
$
|
130,852
|
|
|
$
|
(545,008
|
)
|
|
$
|
698,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Accounts payable and accruals
|
|
$
|
(2,281
|
)
|
|
$
|
114,317
|
|
|
$
|
20,391
|
|
|
$
|
(458
|
)
|
|
$
|
131,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(2,281
|
)
|
|
|
114,317
|
|
|
|
20,391
|
|
|
|
(458
|
)
|
|
|
131,969
|
|
Long-term debt
|
|
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290,000
|
|
Intercompany payables
|
|
|
|
|
|
|
353,046
|
|
|
|
72,512
|
|
|
|
(425,558
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
51,599
|
|
|
|
15,940
|
|
|
|
8,603
|
|
|
|
|
|
|
|
76,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
339,318
|
|
|
|
483,303
|
|
|
|
101,506
|
|
|
|
(426,016
|
)
|
|
|
498,111
|
|
Common stock
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
Other stockholders equity
|
|
|
200,405
|
|
|
|
89,646
|
|
|
|
29,346
|
|
|
|
(118,992
|
)
|
|
|
200,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
200,661
|
|
|
|
89,646
|
|
|
|
29,346
|
|
|
|
(118,992
|
)
|
|
|
200,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
539,979
|
|
|
$
|
572,949
|
|
|
$
|
130,852
|
|
|
$
|
(545,008
|
)
|
|
$
|
698,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-76
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,191
|
|
|
$
|
4,379
|
|
|
$
|
3,863
|
|
|
$
|
|
|
|
$
|
15,433
|
|
Accounts receivable, net
|
|
|
|
|
|
|
48,979
|
|
|
|
13,484
|
|
|
|
|
|
|
|
62,463
|
|
Inventory, net
|
|
|
|
|
|
|
33,603
|
|
|
|
19,714
|
|
|
|
(185
|
)
|
|
|
53,132
|
|
Other current assets
|
|
|
6,201
|
|
|
|
26,967
|
|
|
|
6,810
|
|
|
|
|
|
|
|
39,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,392
|
|
|
|
113,928
|
|
|
|
43,871
|
|
|
|
(185
|
)
|
|
|
171,006
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
40,429
|
|
|
|
23,836
|
|
|
|
|
|
|
|
64,265
|
|
Goodwill
|
|
|
|
|
|
|
213,493
|
|
|
|
23,249
|
|
|
|
|
|
|
|
236,742
|
|
Intangible assets, net
|
|
|
|
|
|
|
150,577
|
|
|
|
3,486
|
|
|
|
|
|
|
|
154,063
|
|
Investments in affiliates
|
|
|
56,863
|
|
|
|
5,496
|
|
|
|
|
|
|
|
(62,359
|
)
|
|
|
|
|
Other assets
|
|
|
447,380
|
|
|
|
1,328
|
|
|
|
435
|
|
|
|
(435,471
|
)
|
|
|
13,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
517,635
|
|
|
$
|
525,251
|
|
|
$
|
94,877
|
|
|
$
|
(498,015
|
)
|
|
$
|
639,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS
EQUITY
|
Accounts payable and accruals
|
|
$
|
1,840
|
|
|
$
|
82,556
|
|
|
$
|
14,866
|
|
|
$
|
857
|
|
|
$
|
100,119
|
|
Short term debt
|
|
|
|
|
|
|
|
|
|
|
2,304
|
|
|
|
|
|
|
|
2,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,840
|
|
|
|
82,556
|
|
|
|
17,170
|
|
|
|
857
|
|
|
|
102,423
|
|
Long-term debt
|
|
|
345,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,000
|
|
Intercompany payables
|
|
|
|
|
|
|
373,063
|
|
|
|
63,450
|
|
|
|
(436,513
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
54,465
|
|
|
|
12,769
|
|
|
|
8,761
|
|
|
|
|
|
|
|
75,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
401,305
|
|
|
|
468,388
|
|
|
|
89,381
|
|
|
|
(435,656
|
)
|
|
|
523,418
|
|
Common stock
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Other stockholders equity
|
|
|
116,250
|
|
|
|
56,863
|
|
|
|
5,496
|
|
|
|
(62,359
|
)
|
|
|
116,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
116,330
|
|
|
|
56,863
|
|
|
|
5,496
|
|
|
|
(62,359
|
)
|
|
|
116,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
517,635
|
|
|
$
|
525,251
|
|
|
$
|
94,877
|
|
|
$
|
(498,015
|
)
|
|
$
|
639,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)
For the Three Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
110,973
|
|
|
$
|
32,923
|
|
|
$
|
(1,071
|
)
|
|
$
|
142,825
|
|
Cost of sales
|
|
|
|
|
|
|
81,241
|
|
|
|
23,220
|
|
|
|
(1,076
|
)
|
|
|
103,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
29,732
|
|
|
|
9,703
|
|
|
|
5
|
|
|
|
39,440
|
|
Selling, general and
administrative expenses
|
|
|
424
|
|
|
|
19,189
|
|
|
|
2,958
|
|
|
|
|
|
|
|
22,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(424
|
)
|
|
|
10,543
|
|
|
|
6,745
|
|
|
|
5
|
|
|
|
16,869
|
|
Interest expense, net
|
|
|
(6,169
|
)
|
|
|
23
|
|
|
|
21
|
|
|
|
|
|
|
|
(6,125
|
)
|
Other income (expense), net
|
|
|
(393
|
)
|
|
|
(59
|
)
|
|
|
85
|
|
|
|
|
|
|
|
(367
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(6,986
|
)
|
|
|
10,507
|
|
|
|
6,778
|
|
|
|
5
|
|
|
|
10,304
|
|
Income tax (benefit) provision
|
|
|
(2,284
|
)
|
|
|
4,968
|
|
|
|
688
|
|
|
|
|
|
|
|
3,372
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
(11,634
|
)
|
|
|
(6,095
|
)
|
|
|
|
|
|
|
17,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
6,932
|
|
|
$
|
11,634
|
|
|
$
|
6,090
|
|
|
$
|
(17,724
|
)
|
|
$
|
6,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (REORGANIZED COMPANY)
For the Three Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
83,410
|
|
|
$
|
22,850
|
|
|
$
|
(473
|
)
|
|
$
|
105,787
|
|
Cost of sales
|
|
|
|
|
|
|
59,561
|
|
|
|
16,600
|
|
|
|
(475
|
)
|
|
|
75,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
23,849
|
|
|
|
6,250
|
|
|
|
2
|
|
|
|
30,101
|
|
Selling, general and
administrative expenses
|
|
|
1,461
|
|
|
|
13,748
|
|
|
|
2,386
|
|
|
|
|
|
|
|
17,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,461
|
)
|
|
|
10,101
|
|
|
|
3,864
|
|
|
|
2
|
|
|
|
12,506
|
|
Interest expense, net
|
|
|
(1,466
|
)
|
|
|
15
|
|
|
|
138
|
|
|
|
|
|
|
|
(1,313
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
(126
|
)
|
|
|
(276
|
)
|
|
|
|
|
|
|
(402
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(2,927
|
)
|
|
|
9,990
|
|
|
|
3,697
|
|
|
|
2
|
|
|
|
10,762
|
|
Income tax (benefit) provision
|
|
|
(635
|
)
|
|
|
4,064
|
|
|
|
105
|
|
|
|
|
|
|
|
3,534
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
(9,520
|
)
|
|
|
(3,594
|
)
|
|
|
|
|
|
|
13,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
7,228
|
|
|
$
|
9,520
|
|
|
$
|
3,592
|
|
|
$
|
(13,112
|
)
|
|
$
|
7,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR
COMPANY)
For the Nine Months Ended
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
302,539
|
|
|
$
|
93,386
|
|
|
$
|
(2,893
|
)
|
|
$
|
393,032
|
|
Cost of sales
|
|
|
|
|
|
|
217,500
|
|
|
|
65,771
|
|
|
|
(2,779
|
)
|
|
|
280,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
85,039
|
|
|
|
27,615
|
|
|
|
(114
|
)
|
|
|
112,540
|
|
Selling, general and
administrative expenses
|
|
|
1,023
|
|
|
|
56,917
|
|
|
|
7,112
|
|
|
|
9
|
|
|
|
65,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,023
|
)
|
|
|
28,122
|
|
|
|
20,503
|
|
|
|
(123
|
)
|
|
|
47,479
|
|
Interest expense, net
|
|
|
(19,403
|
)
|
|
|
53
|
|
|
|
94
|
|
|
|
|
|
|
|
(19,256
|
)
|
Other income (expense), net
|
|
|
(1,132
|
)
|
|
|
(160
|
)
|
|
|
337
|
|
|
|
|
|
|
|
(955
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(21,558
|
)
|
|
|
28,015
|
|
|
|
20,814
|
|
|
|
(123
|
)
|
|
|
27,148
|
|
Income tax (benefit) provision
|
|
|
(7,020
|
)
|
|
|
13,150
|
|
|
|
2,732
|
|
|
|
|
|
|
|
8,862
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
(32,824
|
)
|
|
|
(17,959
|
)
|
|
|
|
|
|
|
50,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
18,286
|
|
|
$
|
32,824
|
|
|
$
|
18,082
|
|
|
$
|
(50,906
|
)
|
|
$
|
18,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-80
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (REORGANIZED
COMPANY)
For the Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
225,811
|
|
|
$
|
66,736
|
|
|
$
|
(1,869
|
)
|
|
$
|
290,678
|
|
Cost of sales
|
|
|
|
|
|
|
158,401
|
|
|
|
49,252
|
|
|
|
(1,906
|
)
|
|
|
205,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
67,410
|
|
|
|
17,484
|
|
|
|
37
|
|
|
|
84,931
|
|
Selling, general and
administrative expenses
|
|
|
2,194
|
|
|
|
41,604
|
|
|
|
3,403
|
|
|
|
|
|
|
|
47,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(2,194
|
)
|
|
|
25,806
|
|
|
|
14,081
|
|
|
|
37
|
|
|
|
37,730
|
|
Interest expense, net
|
|
|
(4,064
|
)
|
|
|
9
|
|
|
|
121
|
|
|
|
|
|
|
|
(3,934
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
(70
|
)
|
|
|
(480
|
)
|
|
|
|
|
|
|
(550
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in net (income) loss of subsidiaries
|
|
|
(6,258
|
)
|
|
|
25,745
|
|
|
|
13,637
|
|
|
|
37
|
|
|
|
33,161
|
|
Income tax (benefit) provision
|
|
|
(1,613
|
)
|
|
|
12,300
|
|
|
|
793
|
|
|
|
|
|
|
|
11,480
|
|
Equity in net (income) loss of
subsidiaries
|
|
|
(26,326
|
)
|
|
|
(12,881
|
)
|
|
|
|
|
|
|
39,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
21,681
|
|
|
$
|
26,326
|
|
|
$
|
12,844
|
|
|
$
|
(39,170
|
)
|
|
$
|
21,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-81
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
Condensed
Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2006 (Successor
Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
$
|
(21,405
|
)
|
|
$
|
38,362
|
|
|
$
|
13,882
|
|
|
$
|
2,724
|
|
|
$
|
33,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(10,634
|
)
|
|
|
(2,863
|
)
|
|
|
|
|
|
|
(13,497
|
)
|
Acquisitions, net of cash
|
|
|
|
|
|
|
(15,840
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,840
|
)
|
Other investing activities
|
|
|
(138
|
)
|
|
|
716
|
|
|
|
(609
|
)
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
(138
|
)
|
|
|
(25,758
|
)
|
|
|
(3,472
|
)
|
|
|
|
|
|
|
(29,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(55,000
|
)
|
|
|
|
|
|
|
(2,354
|
)
|
|
|
|
|
|
|
(57,354
|
)
|
Proceeds from sale of stock
|
|
|
172,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,512
|
|
Cash dividend
|
|
|
(150,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,313
|
)
|
Proceeds from warrant and option
exercises
|
|
|
39,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,237
|
|
Payment of deferred financing costs
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(854
|
)
|
Intercompany account changes
|
|
|
14,864
|
|
|
|
(12,294
|
)
|
|
|
154
|
|
|
|
(2,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
20,446
|
|
|
|
(12,294
|
)
|
|
|
(2,200
|
)
|
|
|
(2,724
|
)
|
|
|
3,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
|
(1,097
|
)
|
|
|
310
|
|
|
|
8,210
|
|
|
|
|
|
|
|
7,423
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
10
|
|
|
|
92
|
|
|
|
|
|
|
|
102
|
|
Cash and cash equivalents,
beginning of period
|
|
|
7,191
|
|
|
|
4,379
|
|
|
|
3,863
|
|
|
|
|
|
|
|
15,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
6,094
|
|
|
$
|
4,699
|
|
|
$
|
12,165
|
|
|
$
|
|
|
|
$
|
22,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-82
CHART
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Condensed Financial StatementsSeptember 30,
2006(Continued)
(Dollars
and shares in thousands, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (REORGANIZED
COMPANY)
For the Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
(7,065
|
)
|
|
$
|
22,255
|
|
|
$
|
5,873
|
|
|
$
|
(1,948
|
)
|
|
$
|
19,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(6,501
|
)
|
|
|
(3,707
|
)
|
|
|
|
|
|
|
(10,208
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
119
|
|
|
|
1,700
|
|
|
|
|
|
|
|
1,819
|
|
Acquisition of business
|
|
|
|
|
|
|
(12,085
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,085
|
)
|
Other investing activities
|
|
|
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
|
|
|
|
(18,588
|
)
|
|
|
(2,007
|
)
|
|
|
|
|
|
|
(20,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
2,048
|
|
|
|
(401
|
)
|
|
|
2,964
|
|
|
|
|
|
|
|
4,611
|
|
Proceeds from sale of stock
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873
|
|
Intercompany account changes
|
|
|
4,770
|
|
|
|
107
|
|
|
|
(6,825
|
)
|
|
|
1,948
|
|
|
|
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing activities
|
|
|
7,691
|
|
|
|
(294
|
)
|
|
|
(3,861
|
)
|
|
|
1,948
|
|
|
|
5,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
626
|
|
|
|
3,373
|
|
|
|
5
|
|
|
|
|
|
|
|
4,004
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
(10
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
(140
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
10,319
|
|
|
|
339
|
|
|
|
4,156
|
|
|
|
|
|
|
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
10,945
|
|
|
$
|
3,702
|
|
|
$
|
4,031
|
|
|
$
|
|
|
|
$
|
18,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-83
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 20.
|
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.
The Company has entered into indemnification agreements with
each of its directors and officers providing for additional
indemnification protection beyond that provided by the Directors
and Officers Liability Insurance Policy. In the indemnification
agreements, the Company has 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 21.
|
Exhibits
and Financial Statement Schedules
|
See Exhibit Index.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
II-1
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act,
each filing of the registrants annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plans
annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or
13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the
request.
(d) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
(e) 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,
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.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART INDUSTRIES, INC.
Michael F. Biehl
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
President, Chief Executive Officer
and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer and Treasurer (Principal Financial Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Chief Accounting
Officer
(Principal Accounting Officer)
|
|
|
|
*
Ben
A. Guill
|
|
Chairman of the Board of Directors
|
|
|
|
*
Timothy
H. Day
|
|
Director
|
|
|
|
*
Richard
E. Goodrich
|
|
Director
|
|
|
|
*
Steven
W. Krablin
|
|
Director
|
II-3
|
|
|
|
|
Signature
|
|
Title
|
|
*
Kenneth
W. Moore
|
|
Director
|
|
|
|
*
Michael
W. Press
|
|
Director
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and directors of Chart Industries, Inc.
indicated above by asterisks, pursuant to powers of attorney
duly executed by such officer and directors, which are filed
with the Securities and Exchange Commission on behalf of such
officer and directors. |
Michael F. Biehl
Attorney-in-fact
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
President, Chairman, Chief
Executive Officer and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and director of Chart Inc. indicated above
by asterisk, pursuant to power of attorney duly executed by such
officer and director, which is filed with the Securities and
Exchange Commission on behalf of such officer and director. |
Michael F. Biehl
Attorney-in-fact
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CAIRE INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
Chairman, Chief Executive Officer
and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and director of CAIRE Inc. indicated above
by asterisk, pursuant to power of attorney duly executed by such
officer and director, which is filed with the Securities and
Exchange Commission on behalf of such officer and director. |
Michael F. Biehl
Attorney-in-fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART ENERGY & CHEMICALS, INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
Chairman, Chief Executive Officer
and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and director of Chart Energy &
Chemicals, Inc. indicated above by asterisk, pursuant to power
of attorney duly executed by such officer and director, which is
filed with the Securities and Exchange Commission on behalf of
such officer and director. |
Michael F. Biehl
Attorney-in-fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART COOLER SERVICE COMPANY, INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
Chairman, Chief Executive Officer
and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
*
Lawrence
W. Pyle
|
|
Director
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and directors of Chart Cooler Service
Company, Inc. indicated above by asterisks, pursuant to powers
of attorney duly executed by such director, which is filed with
the Securities and Exchange Commission on behalf of such officer
and directors. |
Michael F. Biehl
Attorney-in-fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART INTERNATIONAL HOLDINGS, INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
President, Chairman, Chief
Executive Officer and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and director of Chart International
Holdings, Inc. indicated above by asterisk, pursuant to power of
attorney duly executed by such officer and director, which is
filed with the Securities and Exchange Commission on behalf of
such officer and director. |
Michael F. Biehl
Attorney-in-fact
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART ASIA, INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
Vice President, Chairman, Chief
Executive Officer and a Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
*
Eric
M. Rottier
|
|
Director
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and directors of Chart Asia, Inc.
indicated above by asterisks, pursuant to powers of attorney
duly executed by such officer and directors, which are filed
with the Securities and Exchange Commission on behalf of such
officer and directors. |
Michael F. Biehl
Attorney-in-fact
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 this 6th day of March, 2007.
CHART INTERNATIONAL, INC.
Michael F. Biehl
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on
this 6th day of March, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Samuel
F. Thomas
|
|
Chief Executive Officer and a
Director (Principal Executive Officer)
|
|
|
|
/s/ Michael
F. Biehl
Michael
F. Biehl
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and a Director (Principal Financial
Officer)
|
|
|
|
/s/ James
H.
Hoppel, Jr.
James
H. Hoppel, Jr.
|
|
Controller and Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
* |
|
Michael F. Biehl by signing his name hereto, does hereby execute
this Amendment No. 1 to the Registration Statement on
behalf of the officer and director of Chart International, Inc.
indicated above by asterisk, pursuant to power of attorney duly
executed by such officer and director, which is filed with the
Securities and Exchange Commission on behalf of such officer and
director. |
Michael F. Biehl
Attorney-in-fact
II-11
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger,
dated as of August 2, 2005 by and among Chart Industries,
Inc., certain of its stockholders, First Reserve Fund X,
L.P. and CI Acquisition, Inc. (incorporated by reference to
Exhibit 2.1 to the Registrants Registration Statement
on
Form S-1
(File
No. 333-133254))
|
|
2
|
.2
|
|
Asset Purchase Agreement among GT
Acquisition Company and Greenville Tube, LLC, dated July 1,
2003 (incorporated by reference to Exhibit 2.2 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation (incorporated by reference to Exhibit 3.1
to Amendment No. 5 to the Registrants Registration
Statement on
Form S-1
(File
No. 333-133254))
|
|
3
|
.2
|
|
Amended and Restated By-Laws
(incorporated by reference to Exhibit 3.2 to Amendment
No. 5 to the Registrants Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
3
|
.3
|
|
Certificate of Incorporation of
Chart Inc.**
|
|
3
|
.4
|
|
Bylaws of Chart Inc.**
|
|
3
|
.5
|
|
Certificate of Incorporation of
CAIRE Inc.**
|
|
3
|
.6
|
|
Bylaws of CAIRE Inc.**
|
|
3
|
.7
|
|
Certificate of Incorporation of
Chart Energy & Chemicals, Inc.**
|
|
3
|
.8
|
|
Bylaws of Chart Energy &
Chemicals, Inc.**
|
|
3
|
.9
|
|
Certificate of Incorporation of
Chart Cooler Service Company, Inc.**
|
|
3
|
.10
|
|
Bylaws of Chart Cooler Service
Company, Inc.**
|
|
3
|
.11
|
|
Certificate of Incorporation of
Chart International Holdings, Inc.**
|
|
3
|
.12
|
|
Bylaws of Chart International
Holdings, Inc.**
|
|
3
|
.13
|
|
Certificate of Incorporation of
Chart Asia, Inc.**
|
|
3
|
.14
|
|
Bylaws of Chart Asia, Inc.**
|
|
3
|
.15
|
|
Certificate of Incorporation of
Chart International, Inc.**
|
|
3
|
.16
|
|
Bylaws of Chart
International, Inc.**
|
|
4
|
.1
|
|
Form of Certificate (incorporated
by reference to Exhibit 4.1 to Amendment No. 4 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
4
|
.2
|
|
Indenture, dated as of
October 17, 2005, between Chart Industries, Inc. and The
Bank of New York as trustee (incorporated by reference to
Exhibit 4.2 to the Registrants Registration Statement
on
Form S-1
(File
No. 333-133254))
|
|
4
|
.3
|
|
Registration Rights Agreement,
dated October 17, 2005 among Chart Industries, Inc., the
subsidiary guarantors party thereto and Morgan
Stanley & Co., as representative of the initial
purchasers (incorporated by reference to Exhibit 4.3 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).
|
|
4
|
.4
|
|
Form of Senior Subordinated Note
(included in Exhibit 4.2)
|
|
5
|
.1
|
|
Opinion of Simpson
Thacher & Bartlett LLP**
|
|
10
|
.1
|
|
Underwriting Agreement, dated
July 25, 2006, among Chart Industries, Inc. and the several
underwriters named therein (incorporated by reference to
Exhibit 10.1 to Registrants quarterly report on
Form 10-Q
for the period ended September 30, 2006 (File
No. 001-11442))
|
|
10
|
.2
|
|
Form of Amended and Restated
Management Stockholders Agreement (incorporated by reference to
Exhibit 10.10 to Amendment No 3 to the Registrants
Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
10
|
.3
|
|
Stockholder Agreement, dated
July 25, 2006, by and between Chart Industries, Inc. and FR
X Chart Holdings, LLC (incorporated by reference to
Exhibit 10.1 to Registrants quarterly report on
Form 10-Q
for the period ended September 30, 2006 (File
No. 001-11442))
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.4
|
|
Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan (incorporated by
reference to Exhibit 10.16 to Amendment No. 4 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.4.1
|
|
Form of Stock Option Agreement
under the 2005 Stock Incentive Plan (incorporated by reference
to Exhibit 10.17 to the Registrants Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.4.2
|
|
Form of Restricted Stock Unit
Agreement (for non-employee directors) under the Amended and
Restated Chart Industries, Inc. 2005 Stock Incentive Plan
(incorporated by reference to Exhibit 10.22 to Amendment
No. 4 to the Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.5
|
|
Chart Industries, Inc. 2004 Stock
Option and Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registrants Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.5.1
|
|
Amendment No. 1 to the 2004
Stock Option and Incentive Plan (incorporated by reference to
Exhibit 10.13 to Amendment No. 2 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.5.2
|
|
Form of Stock Option Agreement
under the 2004 Stock Option and Incentive Plan (for Samuel F.
Thomas) (incorporated by reference to Exhibit 10.13 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.5.3
|
|
Form of Stock Option Agreement
under the 2004 Stock Option and Incentive Plan (for those other
than Samuel F. Thomas) (incorporated by reference to
Exhibit 10.14 to the Registrants Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.6
|
|
Amended and Restated Chart
Industries, Inc. Voluntary Deferred Income Plan (incorporated by
reference to Exhibit 10.9 to Amendment No. 2 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.7
|
|
2006 Chart Executive Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.19 to Amendment No. 2 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.8
|
|
Incentive Compensation Plan
(incorporated by reference to Exhibit 10.19 to Amendment
No. 3 to the Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.9
|
|
Credit Agreement, dated
October 17, 2005, by and among FR X Chart Holdings LLC, CI
Acquisition, Inc. and the Lenders thereto (incorporated by
reference to Exhibit 10.1 to the Registrants
Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
10
|
.9.1
|
|
Amendment No. 1 to the Credit
Agreement dated July 31, 2006 (incorporated by reference to
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006)
|
|
10
|
.10
|
|
Guarantee and Collateral
Agreement, dated as of October 17, 2005 among FR X Chart
Holdings LLC, as guarantor and pledgor, CI Acquisition, Inc., as
borrower, each subsidiary loan party named therein and Citicorp
North America, Inc., as collateral agent (incorporated by
reference to Exhibit 10.2 to the Registrants
Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
10
|
.11
|
|
Employment Agreement, dated
November 23, 2005, by and between Registrant and Samuel F.
Thomas (incorporated by reference to Exhibit 10.3 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.12
|
|
Employment Agreement, dated
December 1, 2005, by and between Registrant and Michael F.
Biehl (incorporated by reference to Exhibit 10.4 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.13
|
|
Employment Agreement, dated
March 29, 2006, by and between Registrant and Matthew J.
Klaben (incorporated by reference to Exhibit 10.6 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.14
|
|
Employment Agreement, dated
May 5, 2006, by and between Registrant and James H.
Hoppel, Jr. (incorporated by reference to Exhibit 10.7
to Amendment No. 1 to the Registrants Registration
Statement on
Form S-1
(File
No. 333-133254)).*
|
|
10
|
.15
|
|
Form of Indemnification Agreement
(incorporated by reference to Exhibit 10.20 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-133254))
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.16
|
|
Term Sheet for IAM Agreement
2007-2010,
effective February 4, 2007, by and between Chart
Energy & Chemicals, Inc. and Local Lodge 2191 of
District Lodge 66 of the International Association of Machinists
and Aerospace Workers, AFL-CIO.**
|
|
12
|
.1
|
|
Statement regarding computation of
ratio of earnings to fixed charges.**
|
|
21
|
.1
|
|
List of Subsidiaries(x)
|
|
23
|
.1
|
|
Consent of Ernst & Young
LLP.(x)
|
|
23
|
.2
|
|
Consent related to Simpson
Thacher & Bartlett LLP (included as part of its opinion
filed as Exhibit 5.1 hereto)**
|
|
24
|
.1
|
|
Power of Attorney**
|
|
25
|
.1
|
|
Statement of Eligibility of The
Bank of New York, as Trustee, on
Form T-1.**
|
|
99
|
.1
|
|
Form of Letter of Transmittal.**
|
|
99
|
.2
|
|
Form of Notice of Guaranteed
Delivery.**
|
|
99
|
.3
|
|
Form of Letter to Clients.**
|
|
99
|
.4
|
|
Form of Letter to Nominees.**
|
|
99
|
.5
|
|
Form of Instructions to Registered
Holder and / or Book-Entry Transfer Participant from Owner.**
|
|
|
|
(x)
|
|
Filed herewith.
|
*
|
|
Management contract or compensatory
plan or arrangement.
|