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Chart Industries Reports 2014 Third Quarter Results

CLEVELAND, Oct. 30, 2014 (GLOBE NEWSWIRE) -- Chart Industries, Inc. (Nasdaq:GTLS), a leading independent global manufacturer of highly engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases, today reported results for the third quarter ended September 30, 2014. Highlights include:

  • Strong Energy & Chemicals LNG liquefaction orders
  • Announces expanded $450 million senior secured credit facility

Net income for the third quarter of 2014 was $22.9 million, or $0.74 per diluted share. Third quarter 2014 earnings would have been $0.77 per diluted share excluding $1.4 million, or $0.03 per diluted share, of severance and acquisition-related costs. This compares with net income of $24.4 million, or $0.74 per diluted share, for the third quarter of 2013. Third quarter 2013 earnings would have been $0.82 per share excluding $1.0 million, or $0.02 per diluted share, of acquisition-related costs, as well as a $0.06 per diluted share impact associated with the Convertible Notes.

Net sales for the third quarter of 2014 decreased 3% to $293.8 million from $301.8 million in the comparable period a year ago. Gross profit for the third quarter of 2014 was $91.2 million, or 31.0% of sales, versus $88.6 million, or 29.4% of sales, in the comparable quarter of 2013.

"Strength in North American industrial gas demand improved results in both packaged and bulk applications during the quarter. The ethane cracker award we announced today, which is included in third quarter orders and backlog, is an indicator of rising interest in gas processing and petrochemical applications as U.S. oil production delivers more natural gas liquids into the market. In addition, as evidenced by the LNG liquefaction orders previously announced, there is growing interest in LNG as a fuel for high-horsepower applications in such industries as rail, mining, marine, and oil & gas. This supports the long-term positive outlook for natural gas as a diesel replacement," said Sam Thomas, Chart's Chairman, President and Chief Executive Officer.

Mr. Thomas continued, "At the same time, our most recent results speak to the current challenges we are managing in our BioMedical respiratory and China LNG businesses. Customer consolidation and related inventory rationalization as well as Medicare provider audits impacted U.S. BioMedical respiratory demand, while Chinese regulatory and customer delays impacted our China LNG business. As we face these near-term headwinds, we remain focused on lean initiatives and cost reductions while we continue to pursue future growth opportunities."

Backlog at September 30, 2014 was $751.8 million, up 8% from the June 30, 2014 level of $695.0 million. Orders for the third quarter of 2014 were $354.4 million, up 26% compared with $280.6 million for the second quarter of 2014.

Selling, general and administrative ("SG&A") expenses for the third quarter of 2014 decreased $1.6 million compared with the same period in 2013 to $46.4 million, or 15.8% of sales. SG&A expenses in the third quarter of 2013 were 15.9% of sales. The decrease was largely due to lower employee-related costs as we reduced variable short-term incentive compensation estimates based on year-to-date performance and lower sales commissions.

Net interest expense was $4.2 million for the third quarter of 2014, which included $2.7 million of non-cash accretion expense associated with the Company's Convertible Notes. Net cash interest was $1.5 million.

Income tax expense was $12.1 million for the third quarter and represented an effective tax rate of 34.4% compared with $7.0 million for the prior year quarter, or an effective tax rate of 21.9%. The rate was higher in the current quarter due to an increased mix of U.S. earnings, which are taxed at a higher rate. In addition, the prior year quarter was favorably impacted by utilization of research and development tax credits and such credits are currently not available in 2014.

An amended Senior Credit Facility was announced today, which combines the Company's prior term loan and revolving credit facility into a single revolving credit facility and increases it by $150 million, up to $450 million. In addition to lowering interest costs and providing enhanced capital structure flexibility, the maturity of the amended facility was extended out two years to the fourth quarter of 2019. The facility provides additional liquidity for potential growth opportunities and other corporate purposes.

Cash and short-term investments were $140.4 million at September 30, 2014, compared with $142.7 million at June 30, 2014.

SEGMENT HIGHLIGHTS

Energy and Chemicals ("E&C") segment sales increased 23% to $98.8 million for third quarter 2014 compared with $80.0 million for the same quarter in the prior year. Additional project volume associated with small to mid-scale LNG liquefaction and petrochemical applications as well as project change orders led the improvement. E&C gross profit margins were 31.7% in the 2014 quarter compared with 27.1% in the prior year quarter. Favorable project change orders received during the quarter improved margins by approximately 5%.

Distribution and Storage ("D&S") segment sales declined 8% to $140.2 million for the third quarter of 2014 compared with $152.9 million for the same quarter in the prior year. Sales growth in North America and Europe were offset by lower LNG sales in China due to continued regulatory and customer delays. D&S gross profit margin improved to 29.0% in the quarter compared with 28.1% a year ago on improved volume and product mix in North America and Europe.

BioMedical segment sales declined 20% to $54.9 million for the third quarter of 2014 compared with $68.9 million for the same quarter in the prior year. The respiratory therapy business accounted for a majority of the shortfall, as continued customer consolidation and inventory rationalization in addition to reduced prescriptions of oxygen therapy to patients resulting from Medicare audits of providers and physicians in the U.S. impacted equipment orders. BioMedical gross profit margin improved to 35.1% in the quarter compared with 34.8% for the same period in 2013, primarily on improved product mix in our cryobiological storage and commercial oxygen therapy segments and lower warranty costs in respiratory therapy.

OUTLOOK

Based on third quarter results, current order backlog, and business expectations for the remainder of 2014, the Company is adjusting its previously announced sales and earnings guidance. With the continued uncertainty in China and BioMedical demand, in addition to global macro-economic concerns and the recent drop in oil prices, annual sales and earnings are no longer expected to reach the Company's previous estimates. Overall, we remain positive on the long-term outlook for the use of natural gas as a diesel replacement for a variety of applications.

Sales for 2014 are now expected to be in a range of $1.15 to $1.18 billion, and diluted earnings per share are now expected to be in a range of $2.40 to $2.55 per diluted share, on approximately 30.7 million weighted average shares outstanding. This excludes any dilution impact resulting from the Convertible Notes, acquisition-related and facility start-up costs. This compares with previous sales guidance of $1.22 to $1.27 billion and earnings guidance of $2.85 to $3.15 per diluted share, on approximately 30.7 million weighted average shares outstanding. This also excluded any dilution impact resulting from the Convertible Notes, acquisition-related and facility start-up costs.

FORWARD-LOOKING STATEMENTS

Certain statements made in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning the Company's plans, objectives, future orders, revenues, earnings or performance, liquidity and cash flow, capital expenditures, business trends, and other information that is not historical in nature. Forward-looking statements may be identified by terminology such as "may," "will," "should," "expects," "anticipates," "believes," "projects," "forecasts," "outlook," "guidance," "continue," or the negative of such terms or comparable terminology.

Forward-looking statements contained in this news release or in other statements made by the Company are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control, that could cause the Company's actual results to differ materially from those matters expressed or implied by forward-looking statements. These factors and uncertainties include, among others, the following: the cyclicality of the markets that the Company serves and the vulnerability of those markets to economic downturns; a delay, significant reduction in or loss of purchases by large customers; a delay in the anticipated timing of LNG infrastructure build out or respiratory therapy demand recovery; fluctuations in energy prices; the potential for negative developments in the natural gas industry related to hydraulic fracturing; competition; changes in government energy policy or the failure of expected changes in policy to materialize; our ability to successfully manage our planned operational expansions; economic downturns and deteriorating financial conditions; our ability to manage our fixed-price contract exposure; our reliance on key suppliers and potential supplier failures or defects; the modification or cancellation of orders in our backlog; challenges and uncertainties associated with efforts to acquire and integrate product lines or businesses; changes in government healthcare regulations and reimbursement policies; general economic, political, business and market risks associated with the Company's international operations and transactions; changes in regulations governing the export of our products; litigation and disputes involving the Company, including product liability, contract, warranty, intellectual property, employment and environmental claims; variability in operating results associated with unanticipated increases in warranty returns of Company products; loss of key employees and deterioration of employee or labor relations; fluctuations in foreign currency exchange and interest rates; financial distress of third parties; the regulation of our products by the U.S. Food & Drug Administration and other governmental authorities; the pricing and availability of raw materials; potential future impairment of the Company's significant goodwill and other intangibles; the cost of compliance with environmental, health and safety laws; additional liabilities related to taxes; the impact of severe weather; and volatility and fluctuations in the price of the Company's stock.

For a discussion of these and additional factors that could cause actual results to differ from those described in the forward-looking statements, see the Company's filings with the Securities and Exchange Commission, including Item 1A (Risk Factors) in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which should be reviewed carefully. The Company undertakes no obligation to update or revise any forward-looking statement.

Chart is a leading independent global manufacturer of highly engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases. The majority of Chart's products are used throughout the liquid gas supply chain for purification, liquefaction, distribution, storage and end-use applications, the largest portion of which are energy-related. Chart has domestic operations located across the United States and an international presence in Asia, Australia and Europe. For more information, visit: http://www.chartindustries.com.

Use of Non-GAAP Financial Information:

To supplement the unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP in this news release, certain non-GAAP financial measures as defined by SEC rules are used. The non-GAAP measures included in this news release have been reconciled to the comparable GAAP measures within an accompanying table, shown on the last page of this news release.

As previously announced, the Company will discuss its third quarter 2014 results on a conference call on Thursday, October 30, 2014 at 10:30 a.m. ET. Participants may join the conference call by dialing (877) 312-9395 in the U.S. or (970) 315-0456 from outside the U.S. A live webcast presentation will also be accessible at 10:30 a.m. ET at http://www.chartindustries.com. Please log-in or dial-in at least five minutes prior to the start time.

A taped replay of the conference call will be archived on the Company's website, www.chartindustries.com, approximately one hour after the call concludes. You may also listen to a taped replay of the conference call by dialing (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S. and entering Conference Number 15293890. The telephone replay will be available beginning 1:30 p.m. ET, Thursday October 30, 2014 until 11:59 p.m. ET, Thursday, November 6, 2014.

For more information, click here:

http://ir.chartindustries.com/

CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Sales $ 293,841 $ 301,757 $ 866,891 $ 873,671
Cost of sales 202,608 213,112 605,931 615,770
Gross profit 91,233 88,645 260,960 257,901
Selling, general and administrative expenses 46,377 47,934 150,950 147,043
Amortization expense 4,501 4,825 13,465 14,642
Operating expenses 50,878 52,759 164,415 161,685
Operating income (1) 40,355 35,886 96,545 96,216
Other expenses:
Interest expense, net 4,234 4,143 12,520 12,111
Financing costs amortization 326 326 979 979
Foreign currency loss (gain) 507 (393) 1,016 44
Other expenses, net 5,067 4,076 14,515 13,134
Income before income taxes 35,288 31,810 82,030 83,082
Income tax expense 12,136 6,963 26,168 21,524
Net income 23,152 24,847 55,862 61,558
Noncontrolling interests, net of taxes 301 402 945 1,578
Net income attributable to Chart Industries, Inc. $ 22,851 $ 24,445 $ 54,917 $ 59,980
Net income attributable to Chart Industries, Inc. per common share:
Basic $ 0.75 $ 0.81 $ 1.81 $ 1.99
Diluted $ 0.74 $ 0.74 $ 1.77 $ 1.90
Weighted average number of common shares outstanding:
Basic 30,396 30,275 30,377 30,181
Diluted (2) 30,771 32,851 31,056 31,614

_______________

(1) Includes depreciation expense of $6,735 and $5,456 for the three months ended September 30, 2014 and 2013, respectively, and $18,131 and $15,602 for the nine months ended September 30, 2014 and 2013, respectively.

(2) Includes an additional 103 and 396 shares related to the Convertible Notes in the Company's diluted earnings per share calculation for the three and nine months ended September 30, 2014, respectively. The associated hedge, which helps offset this dilution, cannot be taken into account under GAAP. If the hedge could have been considered, it would have reduced the additional shares by 103 and 396 for the three and nine months ended September 30, 2014, respectively.

CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Net Cash Provided By Operating Activities $ 23,762 $ 9,051 $ 66,105 $ 19,433
Investing Activities
Capital expenditures (17,221) (21,583) (42,886) (50,809)
Proceeds from sale of assets 1 64 1,692 64
Acquisition of business, net of cash acquired 67 (11,943) (2,965)
Net Cash Used In Investing Activities (17,220) (21,452) (53,137) (53,710)
Financing Activities
Borrowings on revolving credit facilities 73,319 7,884 173,550
Repayments on revolving credit facilities (39,771) (3,252) (136,782)
Principal payments on long-term debt (938) (937) (2,813) (2,813)
Proceeds from exercise of stock options 82 823 706 5,285
Excess tax benefit from share-based compensation 26 1,023 1,753 5,495
Payment of contingent consideration (741)
Common stock repurchases (35) (76) (3,326) (1,979)
Distribution to noncontrolling interest (1,206) (1,369)
Net Cash (Used In) Provided By Financing Activities (865) 34,381 (995) 41,387
Effect of exchange rate changes on cash (7,929) 4,066 (8,896) 3,220
Net (decrease) increase in cash and cash equivalents (2,252) 26,046 3,077 10,330
Cash and cash equivalents at beginning of period 142,674 125,782 137,345 141,498
Cash and Cash Equivalents At End of Period $ 140,422 $ 151,828 $ 140,422 $ 151,828
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2014 2013
(Unaudited)
ASSETS
Cash and cash equivalents $ 140,422 $ 137,345
Other current assets 512,818 512,098
Property, plant and equipment, net 246,840 224,205
Goodwill 406,345 398,905
Identifiable intangible assets, net 158,385 172,142
Other assets, net 30,795 16,935
TOTAL ASSETS $ 1,495,605 $ 1,461,630
LIABILITIES AND EQUITY
Current liabilities (1) $ 281,128 $ 499,304
Long-term debt 266,979 64,688
Other long-term liabilities 77,961 79,055
Convertible notes conversion feature (1) 56,563
Equity 869,537 762,020
TOTAL LIABILITIES AND EQUITY $ 1,495,605 $ 1,461,630

_______________

(1) As a result of meeting one of the events for early conversion as defined in the Indenture for our $250,000 convertible notes, the liability component was classified as a current liability, and a portion of the equity component was classified as temporary equity representing the convertible notes debt conversion feature in our Condensed Consolidated Balance Sheet as of December 31, 2013. Since the events for early conversion were not met at the end of the third quarter of 2014, the liability component of the Notes was classified as long-term debt, and the temporary equity was classified as permanent equity in our Condensed Consolidated Balance Sheet as of September 30, 2014.

CHART INDUSTRIES, INC. AND SUBSIDIARIES
OPERATING SEGMENTS (UNAUDITED)
(Dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Sales
Energy & Chemicals $ 98,759 $ 79,986 $ 277,859 $ 239,563
Distribution & Storage 140,203 152,895 418,830 428,784
BioMedical 54,879 68,876 170,202 205,324
Total $ 293,841 $ 301,757 $ 866,891 $ 873,671
Gross Profit
Energy & Chemicals $ 31,343 $ 21,698 $ 80,679 $ 65,479
Distribution & Storage 40,641 42,984 122,667 121,341
BioMedical 19,249 23,963 57,614 71,081
Total $ 91,233 $ 88,645 $ 260,960 $ 257,901
Gross Profit Margin
Energy & Chemicals 31.7% 27.1% 29.0% 27.3%
Distribution & Storage 29.0% 28.1% 29.3% 28.3%
BioMedical 35.1% 34.8% 33.9% 34.6%
Total 31.0% 29.4% 30.1% 29.5%
Operating Income (Loss) (1)
Energy & Chemicals $ 22,993 $ 14,493 $ 55,642 $ 42,226
Distribution & Storage 22,005 22,337 64,314 65,019
BioMedical 5,960 9,970 15,779 25,475
Corporate (10,603) (10,914) (39,190) (36,504)
Total $ 40,355 $ 35,886 $ 96,545 $ 96,216

_______________

(1) Includes acquisition-related costs, retention and severance costs, facility start up costs and flood damages of $1,369 and $974 for the three months ended September 30, 2014 and 2013, respectively, and $4,156 and $7,014 for the nine months ended September 30, 2014 and 2013, respectively.

CHART INDUSTRIES, INC. AND SUBSIDIARIES
ORDERS AND BACKLOG (UNAUDITED)
(Dollars in thousands)
Three Months Ended
September 30, June 30,
2014 2014
Orders
Energy & Chemicals (1) $ 146,839 $ 56,580
Distribution & Storage 156,687 163,338
BioMedical 50,826 60,656
Total $ 354,352 $ 280,574
Backlog
Energy & Chemicals $ 333,372 $ 285,181
Distribution & Storage 397,333 385,207
BioMedical 21,076 24,601
Total $ 751,781 $ 694,989

_______________

(1) Third quarter E&C segment orders included a previously announced floating LNG equipment order in excess of $20,000 and a small to mid-scale LNG liquefaction plant order in excess of $40,000.

CHART INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF DILUTED EARNINGS PER SHARE TO ADJUSTED EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended September 30,
2014 2013
Earnings per diluted share $ 0.74 $ 0.74
Acquisition-related costs, retention and severance 0.03 0.02
Dilution impact of convertible notes 0.06
Adjusted earnings per diluted share $ 0.77 $ 0.82

CONTACT: Ken Webster Vice President, Chief Accounting Officer and Controller 216-626-1216 ken.webster@chartindustries.com or Jim Fischman Director of Investor Relations and Financial Planning 216-626-1216 jim.fischman@chartindustries.comSource:Chart Industries, Inc.

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