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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31, 2000
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number 1-11442
Chart Industries, Inc.
(Exact name of registrant as specified in its charter)
| Delaware
(State or other jurisdiction of
incorporation or organization)
5885 Landerbrook Dr. Suite 150, Cleveland, Ohio
(Address of principal executive offices)
|
|
34-1712937
(I.R.S. Employer
Identification No.)
44124
(Zip Code)
|
|
Registrant’s telephone number, including area code: (440) 753-1490
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
|
|
Name of each exchange
on which registered
|
| Common Stock, |
|
New York Stock Exchange |
| par value $.01 per share |
|
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
As of February 15, 2001, the registrant had 24,392,099 shares of Common Stock outstanding. As of that date, the
aggregate market value of the Common Stock of the registrant held by non-affiliates was $76,028,611 (based upon the closing price of $4.65 per share of Common Stock on the New York Stock Exchange on February 15, 2001). For purposes of this
calculation, the registrant deems the 8,041,860 shares of Common Stock held by all of its Directors and executive officers to be the shares of Common Stock held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be used in connection with its Annual Meeting of
Stockholders to be held on May 3, 2001 are incorporated by reference into Part III of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K is as of December 31, 2000.
PART I
Item 1. Business; and Item 2. Properties
THE COMPANY
Chart Industries, Inc. (the “Company” or “Chart”) was organized in June 1992 as a Delaware
corporation to serve as a holding company for the operations described herein. As used herein, the terms “Company” or “Chart” mean Chart Industries, Inc., its subsidiaries and its predecessors, unless the context otherwise
indicates. The Company’s executive offices are located at 5885 Landerbrook Drive, Suite 150, Cleveland, Ohio 44124, and its telephone number is (440) 753-1490.
The Company’s sales for the year ended December 31, 2000 reached $325.7 million, an increase of 11.2 percent over
sales of $292.9 million in 1999. The Company’s net income in 2000 was $2.2 million compared with a net loss of $36.3 million in 1999. The 1999 net loss includes the effects of a reorganization of the Company which resulted from the April 12,
1999 acquisition of MVE Holdings, Inc. (“MVE”). Excluding non-recurring items resulting from this acquisition and reorganization, the Company had net income of $4.2 million in 1999.
Management anticipates that demand for the Company’s products will increase over the next several years. The
Company has initiatives to pursue multiple new products focused on the end-user equipment markets for cryogenic (low-temperature) liquids. The use of liquid natural gas (“LNG”) as a vehicle fuel and power generating feedstock, liquid
carbon dioxide (
“CO
2
”) as a cleaning solvent and telemetry to improve distribution logistics each in their own right offer
significant market potential. In addition, the Company plans to continue to focus on its worldwide presence as global industrialization and heightened environmental standards result in higher demand for high purity industrial gases, which are
generally produced, stored and distributed in a cryogenic form. The recent mergers of several industrial gas producers have temporarily reduced the demand for new process equipment that the Company offers to industrial markets. The pressures for
increased efficiency in the industry, however, are expected to result in renewed demand for newer equipment and increased service of existing equipment. The Company is well positioned to benefit from both of these developments. In the hydrocarbon
processing market, management expects strong domestic and international growth, stemming in part from increased global natural gas production. Oil producing countries are newly committed to capturing and marketing flared methane that previously was
a waste product of the production process. This increased availability of economically priced hydrocarbons is expected to result in greater demand for equipment to liquefy, process and transport these gases.
BUSINESS
General
The Company is a leading supplier of standard and custom-built equipment primarily used for cryogenic (low-temperature)
applications. The Company has developed a particular expertise in cryogenic systems and equipment, which operate at low temperatures sometimes approaching absolute zero (0° Kelvin; -273° Centigrade; -459° Fahrenheit). The majority of the
Company’s products, including vacuum-insulated containment vessels, heat exchangers, cold boxes and other cryogenic components, are used throughout the liquid-gas supply chain for the purification, liquefaction, distribution, storage and
application of industrial gases and hydrocarbons.
Segments and Products
The Company’s operations are organized within three segments: Applied Technologies, Distribution & Storage
Equipment and Process Systems & Equipment. Further information about these segments is found at Note L to the Company’s financial statements included at Item 8 of this Annual Report on Form 10-K.
Applied Technologies Segment
The Applied Technologies segment, which accounted for 42.1 percent of the Company’s sales in 2000, consists of
various product lines built around the Company’s core competencies in cryogenics but with a focus on the end users of the liquids and gases instead of the large producers and distributors. The Company’s products in the Applied Technologies
segment include the following:
LNG Alternative Fuel Systems
This product line consists of vacuum-insulated containers for LNG storage, cryogenic pumps and liquid dispensers for
vehicle fueling systems and LNG and liquid compressed natural gas refueling systems for centrally fueled fleets of vehicles powered by LNG, 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. Although there are alternatives to LNG fuel, the Company is not aware of any viable alternatives to
vacuum-insulated containers for LNG fueling and storage systems. The Company has formed a new subsidiary, NexGen Fueling®, Inc. (“NexGen”), to pursue this opportunity. The Company has engaged an investment banking firm to assist the
Company in obtaining outside financing to help fund the development of the NexGen business, but the Company plans to retain a majority ownership interest in NexGen.
Telemetry Products
The Company is developing a new business which focuses primarily on providing routing data to distributors of home
health care oxygen and beverage CO
2
. The Company expects that this business will expand into other areas of liquid distribution, such as
micro-bulk industrial gases, as the product gains acceptance. This routing data is expected to lower distribution costs and make liquid oxygen and liquid CO
2
more competitive than the existing modes of supply to each of these markets. The Company has formed a new
subsidiary, CoolTel®, Inc. (“CoolTel”), to pursue this opportunity. The Company has engaged an investment banking firm to assist the Company in obtaining outside financing to help fund the development of the CoolTel business, but the
Company plans to retain a majority ownership interest in CoolTel.
DryWash® CO
2
Cleaning Systems
The Company offers a patented CO
2
cleaning system to the drycleaning market which allows the drycleaner to replace the highly regulated
perchlorethylene solvent with environmentally friendly CO
2
. The system consists of a drycleaning machine, custom storage tanks, CO
2
bulk storage tanks, mixing equipment and delivery equipment. While the Company has completed most of the
development of this product, commercialization of the product is dependent on cost reduction and customer acceptance of the new process.
Magnetic Resonance Imaging (“MRI”) Cryostat Components
The basis of the MRI technique is the magnetic properties of certain nuclei of the human body which 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 magnet immersed in a liquid helium vessel (a “cryostat”) that maintains a constant, extremely low temperature ( 4° Kelvin; -452° Fahrenheit) to achieve superconductivity. The Company
manufactures 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.
The Company currently sells all of its MRI cryostats to General Electric Company (“GE”) and is the exclusive
supplier of GE’s cryostats. GE is the leading worldwide manufacturer of MRI equipment.
Bulk Liquid CO
2
Containers
This product line consists primarily of vacuum-insulated, bulk liquid CO
2
containers used for beverage carbonation in restaurants, convenience stores and cinemas. The Company also
manufactures and markets non-insulated bulk flavored syrup containers for side-by-side installation with its CO
2
systems. The Company’s beverage systems are sold to food franchisers, soft drink companies and
CO
2
distributors.
The Company’s primary competitors for its bulk liquid CO
2
beverage delivery systems are producers of high pressure gaseous CO
2
systems and sellers of bulk liquid CO
2
beverage systems. The Company believes that competition for bulk liquid CO
2
beverage systems is based primarily on service and price.
Medical Products
The medical oxygen product lines include a limited range of medical respiratory products, including liquid oxygen
systems, ambulatory oxygen systems and oxygen concentrators, all of which are used for the in-home supplemental oxygen treatment of patients with chronic obstructive pulmonary diseases, such as bronchitis, emphysema and asthma. The Company also
manufactures and markets patient information systems, consisting of both electronic hardware and software, which allow its customers to monitor system performance and patient compliance.
Individuals for whom supplemental oxygen is prescribed generally purchase or rent an oxygen system from a home
healthcare provider or medical equipment dealer. The provider/dealer or physician usually selects which type of oxygen system to recommend to its customers: liquid oxygen systems, oxygen concentrators or high pressure oxygen cylinders. Liquid
systems are currently believed to have more therapeutic value.
The Company believes that competition for liquid oxygen systems is based primarily upon product performance,
reliability, ease-of-service and price and focuses its marketing strategies on these considerations.
Biological Storage Systems
This product line consists of vacuum-insulated vessels used by the beef and dairy cattle breeding industry to transport
frozen semen and embryos and vacuum-insulated vessels used by hospitals, medical laboratories and research facilities to transport and store human organs, tissue samples and other temperature-sensitive biological matter.
These products are sold through laboratory product original equipment manufacturers (“OEMs”), laboratory
product distributors, industrial gas distributors and breeding service providers. Many of these distributors provide a single source for many different types of products to hospitals, medical laboratories and research facilities.
The Company’s competitors for biological storage systems include only a few companies inside and outside the United
States, including Harsco. Competition for biological storage systems is based primarily on product design, reliability and price. Alternatives to vacuum-insulated vessels include mechanical, electrically powered refrigeration for storage of
biological matter.
Thermal Vacuum Test Chambers
The Company designs and manufactures thermal vacuum systems marketed to a customer base that includes the aerospace
industry, government agencies, universities and national research facilities. The Company is a leading domestic supplier of space simulation systems and other types of test chambers used to test satellites and electronic components. The Company also
manufactures large vacuum chambers for telescope mirror aluminizing, a process in which aluminum is vaporized to coat the surface of a large telescope mirror to restore its reflectivity. Management believes that the Company, as a pioneer in the
development of this technology, has supplied the majority of these systems worldwide. The Company’s major competitors in the market for thermal vacuum products and systems for aerospace and research applications include XL/CBI, Dynavac and
Bemco.
The Company’s experience and technological advancements in the high-vacuum area resulted in its involvement,
beginning in 1995 and concluding in December 1998, in equipping the Laser Interferometer Gravitational-Wave Observatory (“LIGO”) project, a scientific research project sponsored by the National Science Foundation and jointly managed by the
Massachusetts Institute of Technology and the California Institute of Technology. The observatories are dedicated to the detection and measurement of cosmic gravitational waves and the harnessing of these waves for scientific research. The Company
supplied all of the required LIGO vacuum equipment, including vacuum chambers, large pipe spools, valves, vacuum pumps, controllers and modular clean rooms. Management believes that expertise in the field of high-vacuum technology developed by the
Company through its involvement in the LIGO project may have a number of new commercial applications.
Vacuum-Insulated Pipe
This product line specializes in the design and fabrication of custom cryogenic piping (“VIP”) for liquid
nitrogen, oxygen, argon, helium and hydrogen in pipe sizes ranging from 1
/4" to 48". The configuration of
VIP is built to order and is restricted only by shipping and installation constraints. Approximately 50 percent of VIP is supplied as fuel transfer piping to space launch facilities. Launch pad construction is at an all time high to service
increased launch demand for satellites driven by growth in telecommunications, global positioning, scientific observation and defense applications. The Company provides unique design, production and installation capabilities. The Company’s
equipment is employed on every launch facility in North America. Competition for VIP is based on technology (foam vs. vacuum insulation), price and delivery lead times.
The Company is developing new technologies for insulated piping that will expand applications for the Company’s
VIP. Python™ piping is sold as an alternative to modular foam insulated piping for thermally sensitive liquids, process fluids and beverage production. Large bore vacuum insulated piping is now being employed for LNG transmission in production
and receiving terminals.
Nitrogen Injection Systems
This product line consists of injectors used by the bottling industry to give enhanced storage characteristics to
non-carbonated beverages such as iced tea, water and juices.
Environmental Test Chambers
This product line provides the most thermally efficient test chambers, capable of providing 60° celsius-per-minute
temperature change. State-of-the-art vibration systems can also be combined with the thermal test chamber.
Cryogenic and Non-Cryogenic Components
The Company’s line of cryogenic components, including high-pressure cryogenic pumps, valves and specialty
components, are recognized in the market for their reliability, quality and performance. These products are sold to the Company’s heat exchanger and cold box customers in the industrial gas and hydrocarbon processing industries, as well as to a
diverse group of customers in those and other industries. The Company competes with a number of suppliers of cryogenic components, including Cryogenic Industries, CCI and Acme Cryogenics.
The Company also produces small diameter stainless steel tubing for sale to distributors to satisfy their
customers’ requirements for quick delivery. The Company’s manufacturing strategy is to focus on custom sizes and smaller production runs, which management believes gives the Company a competitive advantage in providing a superior quality
product while meeting customer demands for dependable, fast delivery. With its production and marketing efforts directed principally to customers relying on prompt delivery, the Company is able to compete primarily on the basis of service rather
than price. Numerous manufacturers of stainless steel tubing are able to compete with the Company in this market.
Distribution & Storage Equipment Segment (“Distribution and Storage”)
Representing 42.3 percent of the Company’s sales in 2000, the products supplied by the Distribution and Storage
segment are driven primarily by the large and growing installed base of users of cryogenic liquids as well as new applications and distribution technologies for cryogenic liquids. The Company’s 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 and include the following:
Cryogenic Bulk Storage Systems
The Company is a leading supplier of cryogenic bulk storage systems of various sizes ranging up to 100,000 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 nearing absolute zero. The Company has
experienced growth in its bulk storage systems sales as the demand for liquefied industrial gases and liquefied hydrocarbon gases has increased. Customers for the Company’s cryogenic storage tanks include industrial gas producers, chemical
producers, manufacturers of electrical components and businesses in the oil and natural gas industries. Prices for the Company’s cryogenic bulk storage systems range from $20,000 to $500,000. Principal customers for the Company’s cryogenic
bulk storage systems are AGA, Air Liquide, Air Products, BOC and Praxair. The Company competes chiefly with Harsco in this area.
Cryogenic Packaged Gas Systems
The Company is a leading supplier of cryogenic packaged gas systems of various sizes ranging from 50 gallons to 1,000
gallons. 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 basis. Principal customers for
the Company’s liquid cylinders are AGA, Air Liquide, Air Products, BOC and Praxair. The Company competes chiefly with Harsco in this area. The Company has recently developed two new technologies in the packaged gas product area: ORCA®
Micro-Bulk systems and Tri-fecta® Laser Gas assist systems. ORCA® Micro-Bulk systems bring the ease of use and distribution economics of bulk gas supply to customers formerly supplied by high pressure or cryogenic liquid cylinders. The
ORCA® Micro-Bulk system growth has exceeded Company expectations and is the substantial market leader in this growing segment. The Tri-fecta® Laser Gas assist system was developed to meet the performance requirements for new high powered
lasers being used in the metal fabrication industry. Growth of this product has also exceeded Company expectations, and the Company has no knowledge of a similar competitive product.
Distribution Equipment
The Company supplies numerous products used for transporting cryogenic liquids including railcars, intermodal containers
and small truck-mounted units used in the ORCA® Micro-Bulk delivery system. The market for specialized distribution equipment for use in the nitrogen oil field service industry, one market served by this business, is growing
substantially.
Cryogenic Services
The Company operates four locations providing installation, service and maintenance of cryogenic products including
storage tanks, liquid cylinders, cryogenic trailers, cryogenic pumps and vacuum-insulated pipe. The Company’s national service network is unique in the industry, and the Company believes this network provides a significant competitive edge. The
Company anticipates the demand for full service, national, qualified maintenance of cryogenic products and installations will increase. The Company’s cryogenic services business results primarily from its March 1999 acquisition of a group of
privately held companies, collectively known as Northcoast Cryogenics (“Northcoast”), and its December 1999 acquisition of the operational assets and personnel of Air Liquide America’s cryogenic repair center located in Houston,
Texas.
Process Systems & Equipment Segment (“Process Systems”)
The Company’s principal products within the Process Systems segment, which accounted for 15.6 percent of sales in
2000, are focused on the process equipment, primarily heat exchangers and coldboxes, used by the major industrial gas, natural gas and petrochemical companies in the production of their products.
Heat Exchangers
The Company is the leading designer and manufacturer of cryogenic heat exchangers. Using technology pioneered by the
Company, heat exchangers are incorporated into systems such as cold boxes to facilitate the progressive cooling and liquefaction of air or hydrocarbon mixtures for the subsequent recovery or purification of component gases. In the industrial gas
market, heat exchangers are used to obtain high purity atmospheric gases, such as oxygen, nitrogen and argon, which have numerous diverse industrial applications. In hydrocarbon processing industries, heat exchangers allow producers to obtain
purified hydrocarbon by-products, such as methane, ethane, propane and ethylene, which are commercially marketable for various industrial or residential uses. Heat exchangers are customized to the customer’s order and range in price from
approximately $30,000 for a relatively simple unit to as high as $10 million for a major project.
Management anticipates the return of strong demand for its heat exchangers, resulting substantially from increased
activity in the petrochemical and liquid natural gas segments of the hydrocarbon processing market. In particular, management believes that continuing efforts by petroleum producing countries to make better use of previously flared methane and to
broaden their industrial base present a promising source of demand for the Company’s heat exchangers. Demand for heat exchangers in developed countries is expected to continue as firms upgrade their facilities for greater efficiency and
regulatory compliance. Historic demand for heat exchangers has cycled to very low levels and typically recovered to new peak requirements. To ensure adequate capacity for anticipated growth in demand for heat exchangers, the Company operates two
facilities, the larger being in the United States with a smaller capacity facility in the United Kingdom.
The Company’s principal competitors for heat exchangers are Linde, Sumitomo, Kobe and Nordon. Management believes
that the Company is the only producer of large brazed aluminum heat exchangers in the United States and, with the second facility in the United Kingdom, has the leading market share in the global heat exchanger market. Major customers for the
Company’s heat exchangers in the industrial gas market include Air Liquide, Air Products, BOC, MG Industries and Praxair. In the hydrocarbon processing market, major customers include BP AMOCO, ARCO, EXXON and contractors such as ABB Lummus,
Bechtel and M.W. Kellogg.
Cold Boxes
The Company is a leading designer and fabricator of cold boxes. Cold boxes are highly engineered systems used to
significantly reduce the temperature of gas mixtures to the point where component gases liquefy and can be separated and purified for further use in multiple industrial, scientific and commercial applications. In the industrial gas market, cold
boxes are used to separate air into its major atmospheric components, including nitrogen, oxygen and argon, where the gases are used in a diverse range of applications such as the quick-freezing of food, wastewater treatment and industrial welding.
In the hydrocarbon processing market, the Company’s cold box systems are used in natural gas processing and in the petrochemical industry. The construction of a cold box generally consists of one or more heat exchangers and other equipment
packaged in a “box” consisting of metal framing and a complex system of piping and valves. Cold boxes, which are designed and fabricated to order, sell in the price range of $500,000 to $10 million, with the majority of cold boxes priced
between $1 million and $2 million.
The Company has a number of competitors for fabrication of cold boxes, including E.S. Fox and Ivor J. Lee. Principal
customers for the Company’s cold boxes include Air Liquide, ABB Lummus, BP AMOCO, Bechtel, Stone & Webster, M.W. Kellogg, and Lurgi.
Market Overview
The Company serves a wide variety of markets through its emphasis on the equipment for end-users of cryogenic liquids.
These markets include beverage bottling and dispensing, alternative transportation fuels, environmentally friendly dry cleaning, biomedical research, medical test equipment, home-healthcare and electronics testing, to name just a few. With such a
wide variety of markets, the Company has reduced the effect that fluctuations in the overall industrial gas and hydrocarbon markets have on its profitability.
Despite its cyclicality, management believes that the global expansion of the industrial gas and hydrocarbon processing
markets presents attractive opportunities for growth. To date, the sources of the Company’s international business principally have been its large domestic-based customers, who are aggressively expanding into international markets, and large
foreign-based companies with significant U.S. operations. In 2000, approximately 33 percent of the Company’s sales were destined for use at job sites outside the United States compared to 34 percent in 1999 and 30 percent in 1998. During 1999,
to position the Company to take advantage of anticipated growth opportunities in the Company’s markets abroad, management concentrated its efforts on forming the Chart Europe Division. The mission of this division is to integrate the
Company’s European manufacturing ability with its marketing arm. Sales in this division grew 35.9 percent to $36.2 million in 2000.
The industrial gas market is the largest market served by the Company. The top world producers of industrial gases have
been among the Company’s largest customers for each of the last three years. Producers of industrial gases separate atmospheric air into its component gases using cryogenic processes. The resultant liquid gases are then stored and transported
for ultimate use by a wide variety of customers in the petrochemical, electronics, glass, paper, metals, food, fertilizer, welding, enhanced oil recovery and medical industries. Industrial gas producers use heat exchangers and cold boxes to produce
liquid gases. Cryogenic tanks and components, including pumps, valves and piping, are also used to store, transport and distribute liquid gases to end users.
The hydrocarbon processing market consists of petrochemical and natural gas processors. Natural gas processing involves
the separation and purification of natural gas for the production of liquid gas end products such as methane, ethane, propane and butane, and by-products such as helium, which have numerous commercial and industrial applications. In the
petrochemical industry, cryogenic separation and purification processes are required to produce ethylene (the basic building block of plastics), propylene and numerous other primary hydrocarbons having industrial uses. Like the industrial gas
market, the hydrocarbon processing market uses all of the categories of the Company’s cryogenic products in the gas separation and purification processes and the subsequent storage and distribution of liquid gases. Major customers for the
Company’s products in the hydrocarbon processing markets are large multinational firms in the oil and gas industry, and large engineering and construction concerns.
Engineering and Product Development
The Company’s engineering and product development activities are focused on developing new and improved solutions
and equipment for the users of cryogenic liquids. The Company’s engineering, technical and marketing employees actively assist customers in specifying their needs and in determining appropriate products to meet those needs. Portions of the
Company’s engineering expenditures typically are charged to customers, either as separate items or as components of product cost.
Competition
Management believes the Company can compete effectively around the world and that it is a leading competitor in its
markets. Competition is based primarily on performance and the ability to provide the design, engineering 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 reliable market share data is not available, it is difficult
to estimate the Company’s exact position in its markets, although the Company believes it ranks among the leaders in each of the markets it serves.
Marketing
The Company’s principal operating units currently market products and services in North America primarily through
166 direct sales personnel, and supplement these direct sales through independent sales representatives and distributors. The technical and custom design nature of the Company’s products requires a professional, highly trained sales force.
While each salesperson is expected to develop a highly specialized knowledge of one product or group of products within a segment of the Company, each salesperson is now able to sell many products from different segments to a single
market.
The Company uses independent sales representatives to conduct its sales in certain foreign countries that the Company
serves. These independent sales representatives supplement the Company’s direct sales force in dealing with language and cultural matters. The Company’s domestic and foreign independent sales representatives earn commissions on sales,
which vary by product type.
Orders and Backlog
The Company considers orders to be those for which the Company has received a signed purchase order or other written
contract from the customer. Such orders are included in backlog until recognized as revenue or cancelled. The table below sets forth orders and backlog by segment for the periods presented.
| |
|
Years Ended December 31,
|
| |
|
2000
|
|
1999
|
|
1998
|
| |
|
(Dollars in thousands) |
| Orders |
|
|
|
|
|
|
| Applied Technologies |
|
$148,259 |
|
$112,528 |
|
$ 53,004 |
| Distribution and Storage Equipment |
|
154,756 |
|
96,722 |
|
36,727 |
| Process Systems & Equipment |
|
78,149 |
|
32,087 |
|
82,404 |
| |
|
|
|
|
|
|
| Total |
|
$381,164 |
|
$241,337 |
|
$172,135 |
| |
|
|
|
|
|
|
| Backlog |
|
|
|
|
|
|
| Applied Technologies |
|
$ 35,205 |
|
$ 25,891 |
|
$ 17,615 |
| Distribution and Storage Equipment |
|
39,227 |
|
26,372 |
|
14,820 |
| Process Systems & Equipment |
|
33,686 |
|
8,165 |
|
63,688 |
| |
|
|
|
|
|
|
| Total |
|
$108,118 |
|
$ 60,428 |
|
$ 96,123 |
| |
|
|
|
|
|
|
The Company experienced a significant increase in orders in the Process Systems segment in 2000. This increase was due
to a recovery in the natural gas processing market. In the Applied Technologies segment the increase was largely driven by the inclusion of certain MVE products for the full year, while 1999 only included orders for these products subsequent to
April 12. Additionally, MRI cryostat, LNG systems and medical oxygen products all showed significant order improvements over 1999. Like Applied Technologies, the Distribution and Storage segment benefited significantly in 2000 by the inclusion of
MVE for the full year. In addition, the packaged gas and ORCA® Micro-Bulk delivery systems demonstrated significantly improved orders due to several new long term supply agreements with large industrial gas suppliers. The Company’s Czech
Republic operations also continued to increase market share in Europe as they demonstrated improved quality.
Approximately 98 percent of the December 31, 2000 backlog is scheduled to be recognized as sales during 2001. The
Company’s backlog fluctuates from time to time, and the amounts set forth above are not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. The increased focus within the Company on the
Distribution and Applications segments will generally reduce backlog, as products within these segments tend to have shorter lead times.
Customers
Ten customers accounted for 42 percent of consolidated sales in 2000. The Company’s sales to particular customers
fluctuate from period to period. In 2000, approximately 33 percent of sales were destined to be used in foreign countries. To reduce credit risk for both foreign and domestic sales, the Company requires customer advances, letters of credit and other
similar guarantees of payment. For certain foreign customers the Company also purchases credit and political risk insurance. The Company believes its relationships with customers are good.
Patents and Trademarks
Although the Company has a number of patents, trademarks and licenses related to its business, no one of them or related
group of them is considered by the Company to be of such importance that its expiration or termination would have a material adverse effect on the Company’s business. In general, the Company depends upon technological capabilities,
manufacturing quality control and application of know-how, rather than patents or other proprietary rights, in the conduct of its business.
Raw Materials and Suppliers
The Company manufactures most of the products it sells. The raw materials used in manufacturing include aluminum sheets,
bars, plate and piping, stainless steel strip, heads, plate and piping, palladium oxide, carbon steel heads and plate and 9 percent nickel steel heads and plate. Most raw materials are available from multiple sources of supply.
Commodity metals used by the Company have experienced fluctuations in price. The Company has generally been able to
recover the costs of price increases through its contracts with customers. The Company foresees no acute shortages of any raw materials which would have a material adverse effect on its operations.
Employees
As of December 31, 2000, the Company had 1,735 domestic employees and 642 international employees, including 689
salaried, 372 union hourly and 1,316 non-union hourly employees. The salaried employees included 126 engineers and draft-persons and 563 other professional, technical and clerical personnel.
The Company is a party to three collective bargaining agreements through its operating subsidiaries, one of which is
being renegotiated. The agreement with the International Association of Machinists and Aerospace Workers covering 176 employees at the Company’s La Crosse, Wisconsin, heat exchanger facility expired February 3, 2001. The Company expects that
this agreement will be replaced by a new agreement expiring February 3, 2004. The agreement with the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers covering 71 employees at the Company’s
Plaistow, New Hampshire, facility expires August 30, 2002. The agreement with the United Steel Workers covering 125 employees at the Company’s New Prague, Minnesota, facility expires January 15, 2002. Since the acquisition of each of its
operating units, the Company has not had any work stoppages or strikes. The Company believes its employee relations are good.
Facilities
The Company occupies 22 principal locations totaling approximately 1.8 million square feet, with the majority devoted to
manufacturing, assembly and storage. Of these manufacturing facilities, approximately 1.3 million square feet are owned and 500,000 square feet are occupied under operating leases. The Company considers its manufacturing facilities sufficient to
meet its current and planned operational needs. The Company leases approximately 11,400 square feet for its executive offices in Cleveland, Ohio. The Company’s owned facilities in the United States are subject to mortgages securing the
Company’s consolidated credit and revolving loan facility.
The following table sets forth certain information about the Company’s facilities:
Location
|
|
Segment
|
|
Sq. Ft.
|
|
Ownership
|
|
Use
|
| Columbus, Ohio |
|
Applied Technologies |
|
46,200
5,000 |
|
Leased
Leased |
|
Manufacturing/Office
Warehouse |
| Costa Mesa, California |
|
Applied Technologies |
|
42,000 |
|
Leased |
|
Manufacturing/Office |
| Burnsville, Minnesota |
|
Applied Technologies |
|
91,000 |
|
Owned |
|
Manufacturing/Office |
| Canton, Georgia |
|
Applied Technologies |
|
138,000 |
|
Owned |
|
Manufacturing/Office |
| Lonsdale, Minnesota |
|
Applied Technologies |
|
13,500 |
|
Leased |
|
Manufacturing |
| Clarksville, Arkansas |
|
Applied Technologies |
|
85,300 |
|
Owned |
|
Manufacturing/Office |
| Greenville, Pennsylvania |
|
Applied Technologies |
|
2,100 |
|
Leased |
|
Office |
| Solingen, Germany |
|
Applied Technologies |
|
2,600 |
|
Leased |
|
Office/Warehouse |
| Plaistow, New Hampshire |
|
Distribution & Storage |
|
164,400 |
|
Owned |
|
Manufacturing/Office |
| Denver, Colorado |
|
Distribution & Storage |
|
124,300
103,800 |
|
Leased
Owned |
|
Manufacturing/Office
Manufacturing/Office |
| Ottawa Lake, Michigan |
|
Distribution & Storage |
|
25,200 |
|
Leased |
|
Manufacturing |
| Houston, Texas |
|
Distribution & Storage |
|
22,000 |
|
Leased |
|
Manufacturing |
| Holly Springs, Georgia |
|
Distribution & Storage |
|
6,000 |
|
Leased |
|
Manufacturing |
| New Prague, Minnesota |
|
Distribution & Storage |
|
200,000
15,000
6,000
16,000
8,000 |
|
Owned
Leased
Owned
Leased
Owned |
|
Manufacturing
Manufacturing
Manufacturing
Office
Manufacturing |
| Decin, Czech Republic |
|
Distribution & Storage |
|
194,000 |
|
Owned |
|
Manufacturing |
| Yennora, Australia |
|
Distribution & Storage |
|
80,000 |
|
Leased |
|
Manufacturing |
| Zhangiajang, China |
|
Distribution & Storage |
|
30,000 |
|
Leased |
|
Manufacturing |
| La Crosse, Wisconsin |
|
Process Systems |
|
149,000 |
|
Owned |
|
Manufacturing/Office |
| Westborough, Massachusetts |
|
Process Systems |
|
18,500 |
|
Leased |
|
Office |
| New Iberia, Louisiana* |
|
Process Systems |
|
62,400 |
|
Leased |
|
Manufacturing |
| Wolverhampton, England |
|
Process Systems |
|
138,400 |
|
Owned |
|
Manufacturing/Office |
| Cleveland, Ohio |
|
Corporate Headquarters |
|
11,400 |
|
Leased |
|
Office |
* Leased by a joint venture in which the Company has a 50 percent interest.
Environmental Matters
The Company’s operations involve and have involved the handling and use of substances, such as various cleaning
fluids used to remove grease from metal, that are subject to federal, state and local environmental laws and regulations. These regulations impose limitations on the discharge of pollutants into the soil, air and water, and establish standards for
their storage and disposal. The Company monitors and reviews its procedures and policies for compliance with environmental laws and regulations. The Company’s management is familiar with these regulations, and supports an ongoing capital
investment program to maintain the Company’s adherence to required standards.
As part of its ongoing environmental compliance and monitoring programs, the Company is voluntarily developing and
executing work plans for remediation of environmental conditions involving certain of its operating facilities. Based upon the Company’s study of the known conditions and its prior experience in investigating and correcting environmental
conditions, the Company estimates that the potential costs of these site remediation efforts will not have a material adverse effect on the Company’s financial position, liquidity, cash flows or results of operations. Expected future
expenditures relating to these remediation efforts are expected to be made over the next 10 years as ongoing operating 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 remediative measures than those the Company believes are adequate or required by existing law. Except for its continuing remediative efforts described above,
the Company believes that it is currently in substantial compliance with all known material and applicable environmental regulations.
Item 3. Legal Proceedings
The Company’s Applied Technologies business (“Applied Technologies”) has been named as a defendant in
three similar cases pending in the Court of Common Pleas, Montgomery County, Ohio, related to the same incident. On December 7, 2000, an accident occurred at the IHS at Carriage by the Lake nursing home outside Dayton, Ohio. A nitrogen tank was
connected to the nursing home’s oxygen system resulting in the death of five elderly patients and injuries to five additional patients from inhaling nitrogen. Mr. Harold Tomlin filed a complaint on December 13, 2000, individually and as
Executor of the Estate of Helen Tomlin, Deceased, in Tomlin, et al. v. IHS at Carriage by the Lake, et al., naming as defendants BOC Gases of Dayton and its parent company, The BOC Group, Inc., the nursing home and its parent company, Applied
Technologies, and a “John Doe” manufacturer and supplier. The claims against the Company in this case are for negligence, strict product liability, failure to warn, negligence per se, breach of warranty and punitive damages. The
allegations underlying the claims involve defective or deficient manufacture, construction, design, labeling, formulation and warnings with regard to a cylinder. Tomlin is seeking $5 million in compensatory damages, $5 million in punitive damages,
prejudgment and post-judgment interest and costs and fees. Gayleen Waldspurger filed a complaint on December 20, 2000, individually and as Executor of the Estate of Pauline Tays, in Waldspurger v. BOC Gases, et al., naming as defendants The
BOC Group, Inc., the nursing home and its parent company, a “John Doe” employee and Applied Technologies. The claims against the Company in this case are for negligence based on wrongful death and survivorship, strict liability, negligence
per se, product liability and breach of warranty. The underlying allegations are general as to the Company, and are similar to those in the Tomlin lawsuit. Ms. Waldspurger is seeking $2.5 million in compensatory damages for wrongful death, $1
million in compensatory damages for personal injury and survivorship claims and $5 million in punitive damages. On January 12, 2001, Ronald and Ruthanna Leslie filed a complaint in Leslie v. IHS at Carriage by the Lake, et al., claiming that
Mr. Leslie, a patient at the nursing home, inhaled nitrogen and, as a result, suffered severe and permanent personal injuries, including brain damage and the aggravation of other medical conditions from which he suffered on the day of the accident.
The defendants and the claims against the Company are identical to those asserted in the Tomlin lawsuit. The damages sought by the Leslies include $10 million in compensatory damages, $10 million in punitive damages, $2 million for loss of
consortium damages, prejudgment and post-judgment interest and costs and fees. The Company is vigorously defending all three cases and has filed its answer, denied all liability and cross-claimed for contribution from The BOC Group, Inc. and IHS in
each case. All three cases are in the discovery phase and none are set for trial at this time.
The Company is a party to other routine legal proceedings incidental to the normal course of its business. Management
believes that the final resolution of these matters will not have a material adverse affect on the Company’s operating results, cash flows or financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
Certain information as of December 31, 2000, regarding each of the Company’s executive officers is set forth
below:
Name
|
|
Age
|
|
Position
|
| Arthur S. Holmes |
|
59 |
|
Chairman, Chief Executive Officer and a Director |
| James R. Sadowski |
|
59 |
|
President and Chief Operating Officer |
| Don A. Baines |
|
57 |
|
Chief Financial Officer, Treasurer and a Director |
| John T. Romain |
|
36 |
|
Controller and Chief Accounting Officer |
Arthur S. Holmes has been Chairman and Chief Executive Officer of the Company since its formation in June 1992,
and was President until December 1993. He also has been President and the principal owner of Holmes Investment Services, Inc. (“HIS”), a management consulting firm, since 1989. Mr. Holmes served as President of ALTEC International, Inc.
(“ALTEC”) from 1985 through 1989. From 1978 through 1985, he served in a variety of managerial capacities for Koch Process Systems, Inc., the predecessor of Process Systems International, Inc. (“PSI”), an operating unit of the
Company, most recently as Vice President-Manager of the Gas Processing Division. Mr. Holmes is the co-inventor of the Company’s patented Ryan/Holmes technology. Mr. Holmes holds a BS and an MS in Chemical Engineering from the Pennsylvania State
University and an MBA from Northeastern University.
James R. Sadowski has been President and Chief Operating Officer of the Company since December 1993. Prior to
joining the Company, Mr. Sadowski served as Group Vice President of Parker Hannifin Corporation’s Bertea Aerospace Group (“Bertea”) from 1991 to 1993. Prior to his service at Bertea he served in various managerial capacities at Parker
Hannifin Corporation and TRW Inc. Mr. Sadowski holds a BS in Engineering/Science from Case Institute of Technology and an MS degree from the same institution in Mechanical Engineering.
Don A. Baines has been the Chief Financial Officer and Treasurer of the Company since its formation in June 1992.
He also has served as Chief Financial Officer for HIS since 1989. From 1986 through 1992, Mr. Baines served as Chief Financial Officer for ALTEC. From 1976 through 1985, Mr. Baines served in a variety of managerial capacities, most recently
Controller, in the Process/Transport Division of the Trane Company, which included the predecessor of ALTEC. Mr. Baines is a Certified Public Accountant and holds a BBA in Accounting from St. Edward’s University, Austin, Texas.
John T. Romain has been the Chief Accounting Officer since May 1999 and has served as the Company’s
Controller since July 1993. Prior to joining the Company, Mr. Romain worked for Ernst & Young LLP in its Audit and Assurance practice. Mr. Romain is a Certified Public Accountant and holds a BA in Accounting and Computer Systems from Grove City
College, Grove City, Pennsylvania.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
Quarterly Stock Prices and Dividends
Quarter
2000
|
|
High
|
|
Low
|
|
Dividend
|
| 1st |
|
$ 4.750 |
|
$2.938 |
|
— |
| 2nd |
|
5.125 |
|
2.625 |
|
— |
| 3rd |
|
6.375 |
|
4.250 |
|
— |
| 4th |
|
6.000 |
|
4.000 |
|
— |
| |
Quarter
1999
|
|
High
|
|
Low
|
|
Dividend
|
| 1st |
|
$ 9.000 |
|
$6.375 |
|
$.050 |
| 2nd |
|
10.750 |
|
6.438 |
|
.050 |
| 3rd |
|
7.875 |
|
4.125 |
|
— |
| 4th |
|
5.250 |
|
3.375 |
|
— |
Limitations on the Payment of Dividends
Under the terms of the Company’s amended Credit Facility, the Company was prohibited from paying any cash dividends
with respect to its capital stock until January 1, 2001. The Company is permitted to pay cash dividends not exceeding $7.2 million in any fiscal year after January 1, 2001, but only if at both the time of the payment of the dividend and immediately
thereafter there is no event of default under the Credit Facility.
Related Stockholder Matters
Chart Industries Common Stock is traded on the New York Stock Exchange under the symbol “CTI.”
Shareholders of record on January 31, 2001 numbered 2,066. The Company estimates that an additional 5,000 shareholders
own stock held for their accounts at brokerage firms and financial institutions.
Item 6. Selected Financial Data
The following table sets forth selected financial data of the Company for each of the five years during the period ended
December 31, 2000. The data was derived from the annual audited consolidated financial statements of the Company for the relevant years and includes the operations of acquired businesses after their date of acquisition, including for periods after
April 12, 1999, the operations of MVE. Further information about the Company’s acquisitions is found at Note E to the Company’s consolidated financial statements included at Item 8 of this Annual Report on Form 10-K.
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
| |
|
Years Ended December 31,
|
| |
|
2000
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
| Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
$325,700 |
|
|
$292,937 |
|
|
$229,423 |
|
$192,249 |
|
$148,400 |
| Gross profit |
|
96,029 |
|
|
77,381 |
|
|
77,657 |
|
61,240 |
|
45,002 |
| Selling, general and administrative expense |
|
60,803 |
|
|
51,455 |
|
|
32,189 |
|
25,901 |
|
21,457 |
| Goodwill amortization expense |
|
4,921 |
|
|
3,670 |
|
|
1,313 |
|
305 |
|
288 |
| Restructuring (income) expense |
|
(614 |
|