Overview

Chart Industries, Inc. (the "Company," "Chart," or "we") is a leading independent global manufacturer of highly engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases. We supply engineered equipment used throughout the global liquid 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; -273° Centigrade; - 459° Fahrenheit). The majority of our products, including vacuum-insulated containment vessels, heat exchangers, cold boxes and other cryogenic components are used throughout the liquid gas supply chain for the purification, liquefaction, distribution, storage and end-use of hydrocarbon and industrial gases.

For the six months ended June 30, 2009, orders were $160.7 million and backlog has decreased to $224.6 million compared to $398.8 million at December 31, 2008. For the six months ended June 30, 2009, we experienced a decline in sales due to the continued global recession, while gross profit and operating income increased compared to the same period in 2008, largely as a result of improved project mix and cost performance in our E&C business segment. Sales for the six months ended June 30, 2009 were $335.5 million compared to sales of $368.1 million for the six months ended June 30, 2008, reflecting a decrease of $32.6 million, or 8.9%. Our gross profit for the six months ended June 30, 2009 was $118.6 million, or 35.3% of sales, as compared to $115.9 million, or 31.5% of sales, for the same period in 2008. In addition, our operating income for the six months ended June 30, 2009 was $63.4 million compared to $61.0 million for the same period in 2008. Our gross profit margin improvement was primarily due to the performance of our E&C segment.

The continuing global economic recession has impacted order volume and project timing due to a lack of financing and reduced energy and industrial production forecasted growth rates. Although our backlog provided strong first half 2009 earnings, the recent decline in order rates, backlog and continuing economic conditions will impact second half 2009 earnings. Nonetheless, based on current expectations, we believe that our cash flow from operations, existing cash and available borrowings under our senior secured credit facility ("Senior Credit Facility") should be adequate to meet our working capital, capital expenditure, debt service and other operational funding requirements for the remainder of 2009 and into the foreseeable future.

Results of Operations for the Three Months Ended June 30, 2009 and 2008

The following table sets forth sales, gross profit, gross profit margin and
operating income or loss for our three operating segments for the three and six
months ended June 30, 2009 and 2008:



                                   Three Months Ended             Six Months Ended
                                        June 30,                      June 30,
                                  2009           2008           2009           2008
       Sales

       Energy & Chemicals       $  70,792      $  78,197      $ 161,172      $ 152,065
       Distribution & Storage      63,316         93,164        132,745        167,508
       BioMedical                  21,193         26,391         41,576         48,508

       Total                    $ 155,301      $ 197,752      $ 335,493      $ 368,081


       Gross Profit

       Energy & Chemicals       $  29,367      $  25,139      $  64,020      $  46,541
       Distribution & Storage      19,354         28,720         39,339         50,678
       BioMedical                   7,202         10,141         15,230         18,722

       Total                    $  55,923      $  64,000      $ 118,589      $ 115,941


       Gross Profit Margin

       Energy & Chemicals            41.5 %         32.1 %         39.7 %         30.6 %
       Distribution & Storage        30.6 %         30.8 %         29.6 %         30.3 %
       BioMedical                    34.0 %         38.4 %         36.6 %         38.6 %
       Total                         36.0 %         32.4 %         35.3 %         31.5 %

       Operating Income

       Energy & Chemicals       $  21,562      $  18,304      $  46,605      $  33,475
       Distribution & Storage      10,464         17,628         21,486         30,960
       BioMedical                   3,355          5,932          7,736         10,466
       Corporate                   (6,052 )       (7,031 )      (12,417 )      (13,860 )

       Total                    $  29,329      $  34,833      $  63,410      $  61,041

Sales

Sales for the three months ended June 30, 2009 were $155.3 million compared to $197.8 million for the three months ended June 30, 2008, reflecting a decrease of $42.5 million, or 21.5%. E&C segment sales were $70.8 million for the three months ended June 30, 2009 compared with sales of $78.2 million for three months ended June 30, 2008, which reflected a decrease of $7.4 million or 9.5%. The decline in sales occurred in the systems product line due to the lack of new orders and the fact that a number of large projects are nearing completion. This decline was partially offset by increased sales in air cooled and brazed aluminum heat exchangers. D&S segment sales decreased $29.9 million, or 32.1%, to $63.3 million for the three months ended June 30, 2009 from $93.2 million for the three months ended June 30, 2008. The decrease was primarily due to lower prices and volume resulting from decreased demand in package gas systems throughout the global industrial gas market as a result of the current economic recession. In addition, D&S segment sales were negatively affected in the second quarter of 2009 by the weakening of the Euro and the Czech Koruna against the U.S. dollar as compared to exchange rates experienced during the same period in 2008. BioMedical segment sales for the three months ended June 30, 2009 were $21.2 million compared to $26.4 million for the same period in 2008, which reflected a decrease of $5.2 million, or 19.7%. Sales decreased $3.2 million in biological storage systems largely due to global economic factors in addition to slow infusion of cash from government stimulus plans. Medical respiratory product sales decreased $0.8 million reflecting lower volume in European markets. In April 2009, the Company made the decision to shut down its Denver, Colorado BioMedical facility and exit the MRI component product line, but the Company plans to transfer other Denver production to other Chart facilities. A charge of approximately $0.5 million is expected to be recognized during the remaining six months of 2009 as a result of the closure of the Denver facility.

Gross Profit and Margin

Gross profit for the three months ended June 30, 2009 was $55.9 million, or 36.0% of sales, versus $64.0 million, or 32.4% of sales, for the three months ended June 30, 2008 resulting in an $8.1 million decrease. E&C segment gross profit increased $4.3 million and its margin increased 9.4 percentage points, primarily due to improved project mix and project execution, including the revision of cost estimates as we near completion on a number of projects accounted for under percentage of completion accounting. The impact of these revisions improved E&C margins by approximately 5% during the quarter. In addition, order cancellation fees were also billed in accordance with contract terms providing additional margin improvement of approximately 1% in our brazed aluminum heat exchanger product line. These items were partially offset by a write off due to a customer payment default, which reduced E&C quarterly margins by approximately 2%. Gross profit for the D&S segment decreased $9.3 million, as margin declined 0.2 percentage points, for the three months ended June 30, 2009 as compared to the same period in 2008. Lower volume and restructuring charges related to workforce reductions, partially offset by lower material costs, contributed to the decline in gross profit. BioMedical gross profit decreased $2.9 million as margin declined 4.4 percentage points, for the three months ended June 30, 2009 as compared to the same period in 2008. The decrease was primarily due to lower sales volume for medical respiratory products and biological storage systems and restructuring charges related to workforce reduction initiatives.

Selling, General and Administrative Expenses ("SG&A")

SG&A expenses for the three months ended June 30, 2009 were $23.5 million, or 15.1% of sales, compared to $26.3 million, or 13.3% of sales, for the three months ended June 30, 2008. SG&A expenses for the E&C segment were $6.9 million for the three months ended June 30, 2009 compared to $6.4 million for the three months ended June 30, 2008, an increase of $0.5 million. The increase for the E&C segment was primarily the result of increased sales commissions on higher margin projects during the quarter as compared to the same period in 2008. D&S segment SG&A expenses for the three months ended June 30, 2009 were $7.6 million compared to $9.6 million for the three months ended June 30, 2008, a decrease of $2.0 million. This decrease was primarily attributable to lower variable incentive compensation and travel and entertainment costs partially offset by restructuring charges related to workforce reduction initiatives. SG&A expenses for the BioMedical segment were $2.9 million for the three months ended June 30, 2009 and $3.3 million for the three months ended June 30, 2008. The decline was primarily attributable to lower variable incentive compensation and travel and entertainment costs partially offset by restructuring charges related to workforce reduction initiatives. Corporate SG&A expenses for the three months ended June 30, 2009 were $6.1 million compared to $7.0 million for the three months ended June 30, 2008. This decrease of $0.9 million was attributable to lower stock-based compensation expense, variable incentive compensation, travel and entertainment and outside consulting fees as a result of our cost reduction initiatives. The expense decline was partially offset by restructuring charges related to workforce reduction initiatives.

Asset Impairment Charge

An asset impairment charge of $0.5 million for the three months ended June 30, 2009 was the result of certain equipment at the BioMedical facility in Denver, Colorado being written down to its net realizable value as part of the facility shutdown.

Amortization Expense

Amortization expense for the three months ended June 30, 2009 was $2.6 million, or 1.6% of sales, compared to $2.8 million, or 1.4% of sales for the three months ended June 30, 2008. The decrease of $0.2 million results from certain intangible assets becoming fully amortized since the second quarter of 2008.

Operating Income

As a result of the foregoing, operating income for the three months ended June 30, 2009 was $29.3 million, or 18.9% of sales, a decrease of $5.5 million compared to operating income of $34.8 million, or 17.6% of sales, for the same period in 2008.

Net Interest Expense

Net interest expense for the three months ended June 30, 2009 and 2008 was $4.0 million and $4.5 million, respectively. The decrease in interest expense of $0.5 million for the three months ended June 30, 2009 compared to the same period in 2008 was primarily attributable to lower variable interest rates on the term loan portion of our Senior Credit Facility. Also contributing to the decrease in net interest expense was slightly lower interest expense on the senior subordinated notes (the "Subordinated Notes") as a result of the repurchase of $6.8 million in outstanding Subordinated Notes during the third quarter of 2008.

Other Expense and Income

For the three months ended June 30, 2009, foreign currency gains were $1.0 million as compared to $1.5 million for the same period in 2008. The decrease in the currency gains occurred primarily in our Czech Republic subsidiary as the Czech Koruna was weaker against the Euro and U.S. dollar during the second quarter of 2009 as compared to the same period in the prior year.

Income Tax Expense

Income tax expense of $8.2 million and $9.2 million for the three months ended June 30, 2009 and 2008, respectively, represents taxes on both U.S. and foreign earnings at an effective income tax rate of 31.5% and 29.3%, respectively. The increase in the effective income tax rate was primarily due to an increase in domestic earnings, which are taxed at a higher rate as compared to foreign earnings and a decrease in the amount of foreign investment credits. In addition, during May 2008, the Internal Revenue Service completed an examination of the Company's U.S. income tax returns for 2004 and 2005. As a result, the Company's unrecognized tax benefits decreased resulting in an income tax benefit of $0.2 million which reduced the prior year quarter's effective tax rate.

Net Income

As a result of the foregoing, reported net income for the three months ended June 30, 2009 and 2008 was $17.8 million and $22.2 million, respectively.

Results of Operations for the Six Months Ended June 30, 2009 and 2008

Sales

Sales for the six months ended June 30, 2009 were $335.5 million compared to $368.1 million for the six months ended June 30, 2008, reflecting a decrease of $32.6 million, or 8.9%. E&C segment sales were $161.2 million for the six months ended June 30, 2009 compared with sales of $152.1 million for the same period in 2008, which represented an increase of $9.1 million, or 6.0%. This increase in sales was primarily due to higher volume in air cooled heat exchangers. D&S segment sales decreased $34.8 million, or 20.8%, to $132.7 million for the six months ended June 30, 2009 from $167.5 million for the six months ended June 30, 2008. Bulk storage system sales decreased $9.1 million and package gas system sales decreased $25.7 million for the six months ended June 30, 2009 compared to the same period in 2008 due to lower prices and volume. In addition, D&S segment sales were negatively affected during the six months ended June 30, 2009 from the weakening of the Euro and the Czech Koruna against the U.S. dollar. BioMedical segment sales decreased $6.9 million, or 14.2%, to $41.6 million for the six months ended June 30, 2009 compared to $48.5 million for the six months ended June 30, 2008. Biological storage systems sales decreased $4.1 million as a result of lower volume in domestic and international markets. Medical respiratory product sales increased $0.4 million during the six months ended June 30, 2009. MRI and other product sales decreased $3.2 million largely due to lower MRI component product sales, which are being discontinued as part of the shutdown of the Denver, Colorado BioMedical facility which was announced during the second quarter of 2009.

Gross Profit and Margin

Gross profit for the six months ended June 30, 2009 was $118.6 million, or 35.3% of sales, versus $115.9 million, or 31.5% of sales, for the six months ended June 30, 2008 resulting in a $2.7 million increase. E&C segment gross profit increased $17.5 million, or 9.1 percentage points in the 2009 period compared to the 2008 period, primarily due to improved project mix and cost performance, including the revision of cost estimates as we near completion on a number of projects accounted for under percentage of completion accounting. The impact of these revisions improved E&C margins by approximately 2% during the six months ended June 30, 2009. In addition, order cancellation fees were also billed in accordance with contract terms providing additional margin improvement of approximately 1% in our brazed aluminum heat exchanger product line. These improvements were partially offset by a write off due to a customer payment default, which reduced margin by approximately 1% for the six months ended June 30, 2009. Gross profit for the D&S segment decreased $11.3 million, or 0.7 percentage points, for the six months ended June 30, 2009 compared to the same period in 2008 primarily due to lower volume and restructuring charges related to workforce reductions, partially offset by lower material costs. BioMedical gross profit decreased $3.5 million, or 2.0 percentage points, for the six months ended June 30, 2009 compared to the same period in 2008. The BioMedical gross profit margin decreased in 2009 primarily due to lower sales volume for biological storage systems and restructuring charges related to workforce reductions.

SG&A

SG&A expenses for the six months ended June 30, 2009 were $49.4 million, or 14.7% of sales, versus $49.4 million, or 13.4% of sales, for the six months ended June 30, 2008. SG&A expenses for the E&C segment were $15.6 million for the six months ended June 30, 2009 compared to $12.2 million for the six months ended June 30, 2008, an increase of $3.4 million. The increase for the E&C segment was primarily the result of variable incentive compensation expenses and sales commissions due to higher margin projects during 2009 as compared to the same period in 2008. D&S segment SG&A expenses for the six months ended June 30, 2009 were $15.3 million compared to $17.0 million for the six months ended June 30, 2008, a decrease of $1.7 million. This decrease was primarily attributable to lower outside marketing and consulting services as well as travel and entertainment costs partially offset by restructuring charges related to workforce reductions. SG&A expenses for the BioMedical segment were $6.1 million for the six months ended June 30, 2009, a decrease of $0.3 million compared to the six months ended June 30, 2008. The decline was largely due to lower variable incentive compensation and travel and entertainment costs partially offset by restructuring charges related to workforce reductions. Corporate SG&A expenses for the six months ended June 30, 2009 were $12.4 million compared to $13.8 million for the six months ended June 30, 2008. This decrease of $1.4 million was attributable to lower stock-based compensation costs, variable incentive compensation, travel and entertainment and outside consulting costs as a result of cost reduction initiatives. These were partially offset by restructuring charges related to workforce reductions.

Amortization Expense

Amortization expense for the six months ended June 30, 2009 was $5.3 million, or 1.6% of sales, compared to $5.5 million, or 1.5% of sales, for the six months ended June 30, 2008. The decrease of $0.2 million was due to certain intangible assets being fully amortized.

Asset impairment charge

An asset impairment charge of $0.5 million for the six months ended June 30, 2009 was the result of certain equipment at the BioMedical facility in Denver, Colorado being written down to its net realizable value as part of the facility shutdown.

Operating Income

As a result of the foregoing, operating income for the six months ended June 30, 2009 was $63.4 million, or 18.9% of sales, an increase of $2.4 million compared to operating income of $61.0 million, or 16.6% of sales, for the same period in 2008.

Net Interest Expense

Net interest expense for the six months ended June 30, 2009 and 2008 was $7.8 million and $9.3 million, respectively. This decrease in interest expense of $1.5 million for the six months ended June 30, 2009 compared to the same period in 2008 was primarily attributable to lower variable interest rates on the term loan portion of our Senior Credit Facility. Also contributing to the decrease in net interest expense was slightly lower interest expense on the Subordinated Notes as a result of the repurchase of $6.8 million in outstanding Subordinated Notes during the third quarter of 2008.

Other Expenses and Income

For the six months ended June 30, 2009, foreign currency gains were $0.3 million as compared to $1.6 million for the same period in 2008. The decrease in the currency gains occurred primarily in our Czech Republic subsidiary as the Czech Koruna has weakened against the Euro and U.S. dollar during the past year.

Income Tax Expense

Income tax expense of $17.7 million and $15.8 million for the six months ended June 30, 2009 and 2008, respectively, represents taxes on both domestic and foreign earnings at an annual effective income tax rate of 32.2% and 30.0%, respectively. The increase in the effective income tax rate was primarily due to an increase in domestic earnings, which are taxed at a higher rate as compared to foreign earnings and a decrease in the amount of foreign investment credits.

Net Income

As a result of the foregoing, net income for the six months ended June 30, 2009 and 2008 was $37.2 million and $36.8 million, respectively.

Liquidity and Capital Resources

Debt Instruments and Related Covenants

As of June 30, 2009, the Company had $80.0 million outstanding under the term loan portion of its Senior Credit Facility, $163.2 million outstanding under the Subordinated Notes and $31.7 million of letters of credit and bank guarantees supported by the revolving portion of the Senior Credit Facility. The Company is in compliance with all covenants, including its financial covenants, under the Senior Credit Facility and Subordinated Notes. Availability on the revolving portion of the Senior Credit Facility was $78.3 million at June 30, 2009.

On October 5, 2008, Lehman Commercial Paper Inc. ("LCPI"), a subsidiary of Lehman Brothers Holdings Inc. and a lender under the revolving portion of the Senior Credit Facility ("Revolver"), filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. LCPI had provided $5.0 million in commitments, or approximately 4.3% of total commitments, on the Revolver. A representative of LCPI has orally disclosed to the Company that it will not honor its obligation under the Senior Credit Facility. Accordingly, the total borrowing capacity under the Revolver is effectively limited to $110.0 million. The loss of the $5.0 million in effective capacity does not have a material adverse effect on meeting the liquidity and capital resource needs of the Company.

Sources and Use of Cash

Cash provided by operations for the six months ended June 30, 2009 was $58.9 million compared with cash provided by operations of $27.2 million for the six months ended June 30, 2008. The increase in cash provided by operations in the 2009 period was primarily attributable to higher net income and a reduction in working capital.

Cash used in investing activities for the six months ended June 30, 2009 was $8.3 million compared to $25.8 million for the six months ended June 30, 2008. Capital expenditures for the six months ended June 30, 2009 were $5.0 million compared with $6.4 million for the six months ended June 30, 2008. For the six months ended June 30, 2009, $5.2 million of cash, net of cash acquired was used for two acquisitions: the equity interests of Chengdu Golden Phoenix Liquid Nitrogen Container Company, Ltd. ("Golden Phoenix") and substantially all of the assets of Tri-Thermal, Inc. During the six months ended June 30, 2008, $18.8 million of cash, net of cash acquired, was used to purchase Flow Instruments & Engineering GmbH and $0.6 million was contributed to a joint venture in Saudi Arabia for the manufacture of air cooled heat exchangers. Also, for the six months ended June 30, 2009, certain short-term investments matured and the proceeds totaled $2.0 million.

For the six months ended June 30, 2009 and 2008, cash provided by financing activities was $0.4 million and $2.2 million, respectively, primarily from the exercise of stock options.

Cash Requirements

The Company does not anticipate any unusual cash requirements for working capital needs, but expects to use $10.0 to $12.0 million of cash for capital expenditures for the remaining six months of 2009. A portion of the capital expenditures are expected to be used for the new industrial gas equipment repair center that is being built in Reno, Nevada.

During 2009, the Company has and will continue to consider making acquisitions as part of its strategic growth initiatives and expects to fund these acquisitions with primarily cash or stock.

For the remaining six months of 2009, cash requirements for debt service are forecasted to be approximately $9.0 million for scheduled interest payments under our Senior Credit Facility and the Subordinated Notes. We are not required to make any scheduled principal payments during the remaining six months of 2009 under the Term Loan portion of the Senior Credit Facility or Subordinated Notes, but we may consider making voluntary principal payments on our Senior Credit Facility. We may also from time to time seek to purchase a portion of our Subordinated Notes outstanding through cash purchases on the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and our debt covenants. We are obligated to fund an additional $7.0 million of purchase price as a result of our second quarter 2009 acquisition activity, of which $3.0 million is owed during the remainder of 2009. The remaining amount is required to be funded during 2010. For the remainder of 2009, we expect to use approximately $14.0 million of cash for both U.S. and foreign income taxes and to contribute approximately $0.6 million of cash to our defined benefit pension plan to meet ERISA minimum funding requirements.

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 the Company has 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 projects,

particularly in the E&C segment, and it is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. Orders included in our backlog may include customary cancellation provisions under which the customer could cancel part or all of the order at times subject to the payment of certain costs and/or penalties. Backlog as of June 30, 2009 was $224.6 million compared to $307.5 million as of March 31, 2009.

The following table sets forth orders and backlog by segment for the periods indicated:

                                              Three Months Ended
                                             June 30,    March 31,
                                               2009         2009
                   Orders

. . .