GTLS-2013.31-10Q
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
FORM 10-Q
_____________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR
¨
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
34-1712937
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
One Infinity Corporate Centre Drive, Suite 300, Garfield Heights, Ohio 44125
(Address of Principal Executive Offices) (ZIP Code)
Registrant’s Telephone Number, Including Area Code: (440) 753-1490
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
_____________________________________
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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
¨
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
At April 25, 2013, there were 30,319,082 outstanding shares of the Company’s Common Stock, par value $0.01 per share.

Table of Contents


CHART INDUSTRIES, INC.
INDEX
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 
March 31,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
126,268

 
$
141,498

Accounts receivable, less allowances of $4,468 and $4,080
166,089

 
150,296

Inventories, net
208,844

 
196,501

Unbilled contract revenue
38,054

 
25,302

Prepaid expenses
13,135

 
11,560

Deferred income taxes
15,253

 
15,282

Other current assets
16,184

 
15,985

Total Current Assets
583,827

 
556,424

Property, plant and equipment, net
176,115

 
169,776

Goodwill
398,287

 
398,941

Identifiable intangible assets, net
184,391

 
189,463

Other assets
14,721

 
13,237

TOTAL ASSETS
$
1,357,341

 
$
1,327,841

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
96,871

 
$
100,528

Customer advances and billings in excess of contract revenue
89,820

 
89,081

Accrued salaries, wages and benefits
26,925

 
30,815

Current portion of warranty reserve
19,701

 
19,131

Short-term debt
17,240

 
—

Current portion of long-term debt
3,750

 
3,750

Other current liabilities
25,945

 
30,470

Total Current Liabilities
280,252

 
273,775

Long-term debt
253,474

 
252,021

Long-term deferred tax liabilities
48,908

 
46,285

Long-term portion of warranty reserve
22,482

 
25,355

Accrued pension liabilities
19,179

 
19,327

Other long-term liabilities
9,185

 
11,295

Equity
 
 
 
Common stock, par value $.01 per share – 150,000,000 shares authorized, 30,315,214 and 30,041,584 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
303

 
300

Additional paid-in capital
357,506

 
348,526

Retained earnings
361,546

 
346,011

Accumulated other comprehensive income
609

 
1,641

Total Chart Industries, Inc. Shareholders’ Equity
719,964

 
696,478

Noncontrolling interest
3,897

 
3,305

Total Equity
723,861

 
699,783

TOTAL LIABILITIES AND EQUITY
$
1,357,341

 
$
1,327,841

The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

See accompanying notes to these unaudited condensed consolidated financial statements.

3
Table of Contents


CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2013
 
2012
Sales
$
273,648

 
$
216,106

Cost of sales
194,198

 
148,549

Gross profit
79,450

 
67,557

Selling, general and administrative expenses
47,204

 
40,626

Amortization expense
4,895

 
3,070

Operating expenses
52,099

 
43,696

Operating income
27,351

 
23,861

Other expenses (income):
 
 
 
Interest expense, net
3,991

 
3,962

Financing costs amortization
326

 
321

Foreign currency loss (gain)
346

 
(352
)
Other expense, net
4,663

 
3,931

Income before income taxes
22,688

 
19,930

Income tax expense
6,580

 
5,778

Net income
16,108

 
14,152

Noncontrolling interest, net of taxes
573

 
69

Net income attributable to Chart Industries, Inc.
$
15,535

 
$
14,083

Net income attributable to Chart Industries, Inc. per common share:
 
 
 
Basic
$
0.52

 
$
0.48

Diluted
$
0.51

 
$
0.47

Weighted-average number of common shares outstanding:
 
 
 
Basic
30,035

 
29,593

Diluted
30,426

 
30,061

 
 
 
 
Comprehensive income, net of taxes
$
15,095

 
$
16,439

Less: Comprehensive income attributable to noncontrolling interest, net of taxes
592

 
92

Comprehensive income attributable to Chart Industries, Inc., net of taxes
$
14,503

 
$
16,347


See accompanying notes to these unaudited condensed consolidated financial statements.

4
Table of Contents


CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
 
Three Months Ended March 31,
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net income
$
16,108

 
$
14,152

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
9,914

 
7,223

Interest accretion of convertible notes discount
2,391

 
2,238

Employee share-based compensation expense
2,564

 
2,505

Financing costs amortization
326

 
321

Unrealized foreign currency transaction loss (gain)
346

 
(338
)
Other non-cash operating activities
433

 
243

Changes in asset and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(16,892
)
 
5,084

Inventory
(15,704
)
 
(17,074
)
Unbilled contract revenues and other current assets
(15,224
)
 
(1,012
)
Accounts payable and other current liabilities
(8,764
)
 
(27,976
)
Customer advances and billings in excess of contract revenue
864

 
5,462

Net Cash Used In Operating Activities
(23,638
)
 
(9,172
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(12,078
)
 
(6,345
)
Net Cash Used In Investing Activities
(12,078
)
 
(6,345
)
FINANCING ACTIVITIES
 
 
 
Borrowings on revolving credit facilities
48,978

 
—

Repayments on revolving credit facilities
(31,738
)
 
—

Principal payments on long-term debt
(938
)
 
(1,625
)
Proceeds from exercise of stock options
3,913

 
1,725

Excess tax benefit from share-based compensation
4,383

 
6,355

Common stock repurchases
(1,879
)
 
(4,473
)
Net Cash Provided By Financing Activities
22,719

 
1,982

Effect of exchange rate changes on cash
(2,233
)
 
(806
)
Net decrease in cash and cash equivalents
(15,230
)
 
(14,341
)
Cash and cash equivalents at beginning of period
141,498

 
256,861

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
126,268

 
$
242,520

See accompanying notes to these unaudited condensed consolidated financial statements.

5
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts)


NOTE A — Basis of Preparation
The accompanying unaudited condensed consolidated financial statements of Chart Industries, Inc. and its consolidated subsidiaries (the “Company,” “Chart” or “we”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for annual financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
Nature of Operations: The Company is a leading global manufacturer of standard and custom-engineered products and systems serving a wide variety of low-temperature and cryogenic applications. The Company has developed an expertise in medical respiratory equipment and cryogenic systems and equipment, which operate at low temperatures sometimes approaching absolute zero. 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 end-use of industrial gases and hydrocarbons. The Company has domestic operations located across the United States, including principal executive offices located in Ohio, and an international presence in Asia, Australia and Europe.
Principles of Consolidation: The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Investments in affiliates where the Company’s ownership is between 20 percent and 50 percent, or where the Company does not have control, but has the ability to exercise significant influence over operations or financial policy, are accounted for under the equity method.
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
Reclassifications: Certain reclassifications have been made to the 2012 condensed consolidated statement of income and comprehensive income and 2012 condensed consolidated cash flow statement in order to conform to the 2013 presentation.
Derivative Instruments: The Company utilizes certain derivative financial instruments to enhance its ability to manage foreign currency risk that exists as part of ongoing business operations. Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes, nor is it a party to any leveraged derivative instrument. The Company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The Company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases and certain intercompany transactions in the normal course of business. Contracts typically have maturities of less than one year. Principal currencies include the euro, the British pound, the Czech koruna, the Japanese yen, and the Chinese yuan. The Company’s foreign currency forward contracts do not qualify as hedges as defined by accounting guidance. Foreign currency forward contracts are measured at fair value, which is based on valuations provided by the transaction counterparties, and recorded on the condensed consolidated balance sheets as other current liabilities or assets. Changes in their fair value are recorded in the condensed consolidated statements of income and comprehensive income as foreign currency gains or losses. The Company's foreign currency forward contracts are not exchange traded instruments and, accordingly, are classified as being valued using Level 2 inputs as defined in Note C. The changes in fair value generated a net gain of $1,164 for the three months ended March 31, 2013, and a net loss of $384 for the three months ended March 31, 2012.
Recently Adopted Accounting Pronouncements: In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments require entities to provide additional disclosures about reclassifications out of accumulated other comprehensive income. The adoption of this guidance did not have a material impact on the financial statements of the Company.

6
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

NOTE B — Business Combinations
AirSep Acquisition
On August 30, 2012, the Company acquired 100% of the equity interests of AirSep Corporation (“AirSep”) for an aggregate cash purchase price of $182,450 (including approximately $2,800 in acquisition-related tax benefits acquired and $10,000 of debt which was retired upon completion of the acquisition). AirSep, located in Amherst, New York, designs, manufactures, sells and services stationary, transportable, or portable oxygen concentrators and self-contained generators, standard generators, and packaged systems for industrial and medical oxygen generating systems. AirSep's results are included in the Company’s BioMedical segment.
The fair value of the net assets acquired and goodwill at the date of acquisition were $72,687 and $109,763, respectively. The allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed, and the related income tax impact of the acquisition adjustments. The acquisition was made and goodwill was established due to the benefits that will be derived from the expansion of the Company's BioMedical segment oxygen concentrator business in the U.S., Europe and Asia and growth potential for the commercial oxygen generation systems business.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the AirSep acquisition on August 30, 2012. The Company is in the process of finalizing certain analyses; thus, these provisional measurements are subject to change:
Net assets acquired:
 
Accounts receivable
$
24,280

Inventories
34,553

Prepaid expenses
615

Other current assets
3,837

Property, plant and equipment
5,342

Other assets
976

Accounts payable
(13,728
)
Customer advances and billings in excess of contract revenue
(4,782
)
Accrued salaries, wages and benefits
(1,837
)
Other current liabilities
(254
)
Current portion of warranty reserve
(10,562
)
Long-term portion of warranty reserve
(26,471
)
    Net tangible assets acquired
11,969

Deferred income tax assets
9,262

Goodwill
109,763

Identifiable intangible assets
67,000

Long-term deferred tax liability
(15,544
)
    Net assets acquired
$
182,450

AirSep provides warranties on certain of its products, generally for periods of five years or less. The warranty reserve is calculated considering historical warranty experience (general portion of the reserve) and specifically identified warranty issues (specific portion of the reserve). To calculate the required general reserve, actual warranty claims are used to calculate an average experience rate to be applied against sales. This experience rate is used to record an estimated accrual at the time of the sale. The accrual is reviewed and adjusted periodically to reflect current information including costs to repair or replace the units. The Company reviews other factors to determine if there are any specific factors which could change the reserve. AirSep has experienced a significant number of warranty claims in one of its product lines. To calculate the specific reserve associated with this product line, the Company isolated the specific units which were being returned at significantly higher rates than normal. The entire population of these units was excluded from the general reserve and is considered in a specific reserve. The specific reserve considers the identified population less units already returned to estimate potential units that will be returned. Management then estimated the expected number of additional product returns based on historical returns

7
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

experience for this product line. Expected future returns were multiplied by the estimated cost to replace the unit to establish a specific warranty reserve.
The Company continues to analyze the data as of the acquisition date relative to AirSep's historical warranty experience for this specific warranty issue and, as such, is keeping the measurement period open as the reserve has been revised since our initial estimates and is subject to change.
AirSep's identifiable intangible assets mainly include customer relationships and technology and are also comprised of product names, trademarks and trade names.
For the three months ended March 31, 2013, AirSep added $27,014 to sales. For the same period, the acquisition of AirSep also increased operating income by $1,303 which included $1,714 of intangible asset amortization expense, $833 in management retention expenses and $104 in severance costs.
Pro-forma information related to the AirSep acquisition has not been presented because the impact on the Company’s consolidated results of operations is not material.
Contingent Consideration
The estimated fair value of total contingent consideration relating to acquisitions in prior years was valued using a discounted cash flow approach, which includes assumptions for the probabilities of achieving gross sales or gross profit targets and the discount rate applied to the projected payments. Changes in fair value of contingent consideration are recorded as selling, general and administrative expenses in the condensed consolidated statements of income and comprehensive income.
Effective March 31, 2013, potential payments may be paid over the next three years commencing April 1, 2013 until March 31, 2016 based on the attainment of certain revenue targets. Based on achieving certain revenue targets, the remaining maximum potential payout related to total contingent consideration is $3,000.
 
BioMedical
Balance at December 31, 2012
$
1,990

Increase in contingent consideration liabilities
58

Balance at March 31, 2013
$
2,048

For the three months ended March 31, 2013, total contingent consideration related to the BioMedical segment increased by $58. For the three months ended March 31, 2012, total contingent consideration increased by $517, which included $276 related to a prior Distribution & Storage segment acquisition and $241 related to prior BioMedical segment acquisitions.
NOTE C — Fair Value Measurements
The Company measures its financial assets and liabilities at fair value on a recurring basis in three levels of input. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

8
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

Financial assets and liabilities measured at fair value on a recurring basis and presented in the Company's condensed consolidated balance sheets are as follows:
 
March 31, 2013
 
Total
 
Level 2
 
Level 3
Assets
 
 
 
 
 
Foreign currency forward contracts
$
842

 
$
842

 
$
—

Total financial assets
$
842

 
$
842

 
$
—

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Foreign currency forward contracts
$
80

 
$
80

 
$
—

Contingent consideration liabilities
2,048

 
—

 
2,048

Total financial liabilities
$
2,128

 
$
80

 
$
2,048

 
December 31, 2012
 
Total
 
Level 2
 
Level 3
Assets
 
 
 
 
 
Foreign currency forward contracts
$
31

 
$
31

 
$
—

Total financial assets
$
31

 
$
31

 
$
—

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Foreign currency forward contracts
$
433

 
$
433

 
$
—

Contingent consideration liabilities
1,990

 
—

 
1,990

Total financial liabilities
$
2,423

 
$
433

 
$
1,990

Refer to Note A for further information regarding derivative instruments, and refer to Note B for further information regarding contingent consideration liabilities.
NOTE D — Inventories
Inventories are stated at the lower of cost or market with cost being determined by the first-in, first-out (“FIFO”) method. The components of inventory are as follows:
 
March 31,
2013
 
December 31,
2012
Raw materials and supplies
$
88,675

 
$
85,726

Work in process
41,409

 
40,945

Finished goods
78,760

 
69,830

Total inventories, net
$
208,844

 
$
196,501

The allowance for excess and obsolete inventory balance at March 31, 2013 and December 31, 2012 was $4,350 and $4,078, respectively.

9
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

NOTE E — Goodwill and Intangible Assets
Goodwill
The following table represents the changes in goodwill by segment:
 
Energy and
Chemicals
 
Distribution & Storage
 
BioMedical
 
Total
Balance at December 31, 2012
$
83,215

 
$
158,789

 
$
156,937

 
$
398,941

Foreign currency translation adjustments and other
—

 
(654
)
 
—

 
(654
)
Balance at March 31, 2013
$
83,215

 
$
158,135

 
$
156,937

 
$
398,287

Intangible Assets
The following table displays the gross carrying amount and accumulated amortization for finite-lived intangible assets and indefinite-lived intangible assets (exclusive of goodwill):
 
 
 
March 31, 2013
 
December 31, 2012
 
Estimated
Useful Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Unpatented technology
9.0 years
 
$
42,636

 
$
(9,661
)
 
$
45,078

 
$
(11,286
)
Patents
10.0 years
 
7,912

 
(4,857
)
 
9,880

 
(6,664
)
Product names
14.0 years
 
9,059

 
(3,171
)
 
9,068

 
(2,712
)
Customer relations
13.0 years
 
157,823

 
(63,182
)
 
158,005

 
(59,668
)
Total finite-lived intangible assets
12.0 years
 
$
217,430

 
$
(80,871
)
 
$
222,031

 
$
(80,330
)
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks and trade names
 
 
$
47,832

 
 
 
$
47,762

 
 
Total indefinite-lived intangible assets
 
 
$
47,832

 
 
 
$
47,762

 
 
Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.
Amortization expense for intangible assets subject to amortization was $4,895 and $3,070 for the three months ended March 31, 2013 and 2012, respectively. The Company estimates amortization expense to be recognized during the next five years as follows:
For the Year Ending December 31,
 
2013
$
19,000

2014
17,500

2015
15,900

2016
14,000

2017
13,100

NOTE F — Debt and Credit Arrangements
Convertible Notes
The outstanding aggregate principal amount of the Company's Convertible Notes is $250,000. The Convertible Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on February 1 and August 1 of each year, and will mature on August 1, 2018. The effective interest rate at issuance was 7.9%.
The Convertible Notes are senior subordinated unsecured obligations of the Company and are not guaranteed by any of the Company's subsidiaries. The Convertible Notes are subordinated in right of payment to the Company's existing and future

10
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

senior indebtedness, including indebtedness under the Company's existing credit agreement, and rank equally in right of payment with any future senior subordinated debt. The Convertible Notes rank senior in right of payment to the Company's future subordinated debt.
Prior to May 1, 2018, the Convertible Notes will be convertible at the option of the holders thereof only under the following circumstances: (1) during any fiscal quarter commencing after September 30, 2011 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price (currently approximately $69.03) for the Convertible Notes on each applicable trading day); (2) during the five business day period after any five consecutive trading day period (the “Measurement Period”) in which, as determined following a request by a holder of Convertible Notes as provided in the bond indenture (the “Indenture”), the trading price per $1,000 principal amount of Convertible Notes for each trading day of such Measurement Period was less than 97% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate for the Convertible Notes on each such trading day; or (3) upon the occurrence of specified corporate events pursuant to the terms of the Indenture. On or after May 1, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders of the Convertible Notes may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. It is the Company’s intention to settle any excess conversion value in shares of the Company’s common stock.
The conversion rate on the Convertible Notes will be subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest. In addition, following the occurrence of a make-whole fundamental change, the Company will, in certain circumstances, increase the conversion rate for a holder that converts its Convertible Notes in connection with such make-whole fundamental change. The Company may not redeem the Convertible Notes prior to maturity. If the Company undergoes a fundamental change, subject to certain conditions, holders may require the Company to purchase the Convertible Notes in whole or in part for cash at a fundamental change purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. For purposes of calculating earnings per share, if the Company's market price exceeds the applicable conversion price, shares contingently issuable under the Convertible Notes will have a dilutive effect with respect to the Company’s common stock. At March 31, 2013, the Convertible Notes were not subject to conversion.
In connection with the issuance of the Convertible Notes, the Company entered into privately-negotiated convertible note hedge and capped call transactions with affiliates of certain of the underwriters (the “Option Counterparties”). The convertible note hedge and capped call transactions relate to, collectively, 3,622 shares, which represents the number of shares of the Company’s common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes. These convertible note hedge and capped call transactions are expected to reduce the potential dilution with respect to the Company’s common stock upon conversion of the Convertible Notes and/or reduce the Company’s exposure to potential cash or stock payments that may be required upon conversion of the Convertible Notes, except, in the case of the capped call transactions, to the extent that the market price per share of the Company’s common stock exceeds the cap price of the capped call transactions. The Company also entered into separate warrant transactions with the Option Counterparties initially relating to the number of shares of the Company’s common stock underlying the convertible note hedge transactions, subject to customary anti-dilution adjustments. The warrant transactions will have a dilutive effect with respect to the Company’s common stock to the extent that the price per share of the Company common stock exceeds the strike price of the warrants unless the Company elects, subject to certain conditions, to settle the warrants in cash. These warrants were exercisable as of the issuance date of the Convertible Notes. The cap price of the capped call transactions and the strike price of the warrant transactions was initially $84.96 per share. Proceeds received from the issuance of the warrants totaled approximately $48,848 and were recorded as an addition to additional paid-in-capital. The net cost of the convertible note hedge and capped call transactions, taking into account the proceeds from the issuance of the warrants, was approximately $17,638.
In accordance with ASC 815, contracts are initially classified as equity if (1) the contract requires physical settlement or net-share settlement, or (2) the contract gives the entity a choice of net-cash settlement in its own shares (physical settlement or net-share settlement). The Company concluded that the settlement terms of the convertible note hedge, capped call and warrant

11
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

transactions permit net-share settlement. As such, the convertible note hedge, capped call and warrant transactions were recorded in equity.
At the issuance of the Convertible Notes, the Company bifurcated the $250,000 principal balance of the Convertible Notes into a liability component of $170,885 which was recorded as long-term debt and an equity component of $79,115 which was recorded as additional paid-in-capital. The liability component was recognized at the present value of its associated cash flows using a 7.9% straight-debt rate which represents the Company’s interest rate for similar debt instruments at that time without a conversion feature and is being accreted to interest expense over the term of the Convertible Notes.
For the three months ended March 31, 2013 and 2012, interest expense for the Convertible Notes was $3,641 and $3,488, respectively, which included $2,391 and $2,238 of non-cash interest accretion expense related to the carrying amount of the Convertible Notes, respectively and $1,250 of contractual 2.00% coupon interest for both periods. In accordance with ASC 470-20, which requires issuers to separately account for the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, the Company allocated debt issuance costs to the liability and equity components in proportion to their allocated value. Debt issuance costs were $7,277 with $2,303 recorded as a reduction in additional paid-in-capital. This balance of $4,974 is being amortized over the term of the Convertible Notes. For the three months ended March 31, 2013 and 2012, total expense associated with the amortization of debt issuance costs was $178 for both periods.
The following table represents certain information regarding the Convertible Notes:
 
March 31,
2013
 
December 31,
2012
Principal balance of liability component
$
250,000

 
$
250,000

Unamortized discount
(64,026
)
 
(66,417
)
Carrying amount of liability component
$
185,974

 
$
183,583

Carrying amount of equity component
$
79,115

 
$
79,115

Since the Company's closing common stock price of $80.01 at the end of the period exceeded the conversion price of $69.03, the if-converted value exceeded the principal amount of the Convertible Notes by approximately $39,765 at March 31, 2013.
Senior Credit Facility
The Company entered into an amended and restated Senior Credit Facility on April 25, 2012, which replaced the prior senior secured credit facility (“Prior Credit Facility”) with a five-year $375,000 senior secured credit facility (“Senior Credit Facility”), which consists of a $75,000 term loan (“Term Loan”) and a $300,000 revolving credit facility (“Revolving Credit Facility”), and the maturity date was extended two years until April 25, 2017. The Revolving Credit Facility includes a $25,000 sub-limit for the issuance of swingline loans and a $100,000 sub-limit to be used for letters of credit. There is a foreign currency limit of $50,000 under the Revolving Credit Facility which could be used for foreign currency denominated letters of credit and borrowings in a foreign currency, in each case in currencies agreed upon with the lenders. In addition, the facility permits borrowings up to $50,000 under the Revolving Credit Facility made by the Company's wholly-owned subsidiary, Chart Industries Luxembourg S.à r.l.
The Company recorded $1,445 in deferred financing costs related to the Senior Credit Facility which are being amortized over the five-year term of the loan. The Senior Credit Facility also includes an expansion option permitting the Company to add up to an aggregate of $150,000 in term loans or revolving credit commitments from its existing and potential new lenders.
Loans under the Senior Credit Facility bear interest, at the applicable Borrower's election, at either LIBOR or the greatest of (a) the JPMorgan prime rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% or (c) the Adjusted LIBOR Rate (as defined in the Senior Credit Facility) for a one month interest period on such day (or if such day is not a business day, the immediately preceding business day) plus 1%, plus a margin that varies with the Company's net debt to EBITDA ratio. In addition, the Company is required to pay a commitment fee of between 0.25% and 0.40% of the unused Revolver balance and a letter of credit participation fee equal to the daily aggregate letter of credit exposure at the rate per annum equal to the Applicable Margin for Eurocurrency Revolving Facility Borrowings (ranging from 1.5% to 3.0%, depending on the leverage ratio calculated at each fiscal quarter end). A fronting fee must be paid on each letter of credit that is issued equal to 0.125% per annum of the stated dollar amount of the letter of credit. Under the terms of the Senior Credit Facility, 5% of the $75,000 Term Loan is payable annually in quarterly installments over the first three years, 10% is payable annually in quarterly installments over the final two years, and the remaining balance is due on April 25, 2017.

12
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

The Senior Credit Facility contains a number of customary covenants, including but not limited to restrictions on the Company's ability to incur additional indebtedness, create liens or other encumbrances, sell assets, enter into sale and lease-back transactions, make certain payments, investments, loans, advances or guarantees, make acquisitions and engage in mergers or consolidations, pay dividends or distributions, and make capital expenditures. Significant financial covenants for the Senior Credit Facility include a maximum net debt to EBITDA ratio of 3.25 and a minimum interest coverage to EBITDA ratio of 3.0, which are the same limits that applied under the Prior Credit Facility. At March 31, 2013, the Company was in compliance with all covenants.
At March 31, 2013, there was $71,250 outstanding under the Term Loan, $6,000 of borrowings outstanding under the Revolving Credit Facility (average interest rate of 2.64%), $8,020 in swingline loans outstanding under the Revolving Credit Facility (average interest rate of 4.50%), and $25,442 in letters of credit issued. At March 31, 2013, availability under the Revolving Credit Facility was $260,538. The obligations under the Senior Credit Facility are guaranteed by the Company and substantially all of its U.S. subsidiaries and secured by substantially all of the assets of the Company and its U.S. subsidiaries and 65% of the capital stock of the Company’s material non-U.S. subsidiaries (as defined by the Senior Credit Facility) that are owned by U.S. subsidiaries.
Foreign Facilities – China
Chart Cryogenic Distribution Equipment (Changzhou) Company Limited (“CCDEC”), a joint venture of the Company, maintains a facility with Bank of China with capacity of up to 20.0 million Chinese yuan. At March 31, 2013, there was 20.0 million Chinese yuan outstanding under this facility, bearing interest at 6.6%. The facility matures on March 19, 2014. As of March 31, 2013, CCDEC and Chart Cryogenic Engineering Systems (Changzhou) Co., Ltd. (“CCESC”), a wholly-owned subsidiary of the Company, have $1,294 and $854 in bank guarantees, respectively.
Foreign Facilities – Ferox
Chart Ferox, a.s. (“Ferox”), a wholly-owned subsidiary of the Company, maintains secured credit facilities with capacity of up to 175.0 million Czech koruna. Ferox maintains two separate facilities. Both of the facilities allow Ferox to request issuance of bank guarantees and letters of credit. None of the facilities allow revolving credit borrowings, including overdraft protection. Under the first facility, Ferox must pay letter of credit and guarantee fees equal to: (i) 0.70% p.a. on the face amount of each guarantee or letter of credit for maturities of up to 1 year, (ii) 0.80% p.a. for maturities between 1 and 3 years, and (iii) 1.20% p.a. for maturities between 3 and 5 years. Under the second facility, Ferox must pay letter of credit and guarantee fees equal to 0.70% p.a. on the face amount of each guarantee or letter of credit. Ferox is not required to pay a commitment fee to the lender under the second facility. Ferox’s land, buildings and accounts receivable secure the credit facilities. As of March 31, 2013, there were bank guarantees of $1,598 supported by the Ferox credit facilities.
Fair Value Disclosures
The fair value of the term loan portion of the Company’s Senior Credit Facility was estimated based on the present value of the underlying cash flows discounted using market interest rates. Under this method, the fair value of the Company’s Term Loan approximated its carrying amount as of March 31, 2013 and December 31, 2012. The Company’s Term Loan was valued using observable inputs and, accordingly, is classified as being valued using Level 2 inputs as defined in Note C.
The fair value of the Convertible Notes exceeded its par value by approximately 136% as of March 31, 2013 and approximately 124% as of December 31, 2012. The Convertible Notes are actively quoted instruments and, accordingly, are classified as being valued using Level 1 inputs as defined in Note C.

13
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

NOTE G — Product Warranties
The Company provides product warranties with varying terms and durations for the majority of its products. The Company calculates its warranty reserve by considering historical warranty experience and specifically identified warranty issues. The Company records warranty expense in cost of sales. Product warranty claims not expected to occur within one year are recorded in long-term portion of warranty reserve in the condensed consolidated balance sheets. Actual experience could differ from the amounts estimated requiring adjustments to the liability in future periods. The changes in the Company’s consolidated warranty reserve are as follows:
 
Three Months Ended March 31,
 
2013
 
2012
Beginning balance
$
44,486

 
$
13,181

Warranty expense
4,019

 
989

Warranty usage
(6,322
)
 
(1,973
)
Ending balance
$
42,183

 
$
12,197

The increase between periods mainly represents the warranty reserve acquired during the AirSep acquisition in August 2012.
NOTE H — Equity
Accumulated Other Comprehensive Income
The following tables set forth the changes in accumulated other comprehensive income (loss) by component:
 
Three Months Ended March 31, 2013
 
Foreign currency translation adjustments
 
Pension liability adjustments, net of taxes (1)
 
Accumulated other comprehensive income
Beginning Balance
$
14,207

 
$
(12,566
)
 
$
1,641

Other comprehensive loss
(1,245
)
 
—

 
(1,245
)
Actuarial losses reclassified from accumulated other comprehensive income, net of income taxes of $124
—

 
213

 
213

Net current-period other comprehensive (loss) income, net of taxes
(1,245
)
 
213

 
(1,032
)
Ending Balance
$
12,962

 
$
(12,353
)
 
$
609

 
Three Months Ended March 31, 2012
 
Foreign currency translation adjustments
 
Pension liability adjustments, net of taxes (1)
 
Accumulated other comprehensive income
Beginning Balance
$
12,635

 
$
(9,642
)
 
$
2,993

Other comprehensive income
2,021

 
—

 
2,021

Actuarial losses reclassified from accumulated other comprehensive income
—

 
243

 
243

Net current-period other comprehensive income
2,021

 
243

 
2,264

Ending Balance
$
14,656

 
$
(9,399
)
 
$
5,257

_______________
(1)
Amounts reclassified from accumulated other comprehensive income, net of taxes, were expensed and included in cost of sales ($133 and $102 for the three months ended March 31, 2013 and 2012, respectively) and selling, general and administrative expenses ($204 and $141 for the three months ended March 31, 2013 and 2012, respectively) on the condensed consolidated statements of income and comprehensive income. The components in accumulated other comprehensive income are included in the computation of net period pension expense as reported in Note I.


14
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued


Earnings Per Share
The following table presents calculations of net income per share of common stock:
 
Three Months Ended March 31,
 
2013
 
2012
Net income attributable to Chart Industries, Inc.
$
15,535

 
$
14,083

Net income attributable to Chart Industries, Inc. per common share:
 
 
 
Basic
$
0.52

 
$
0.48

Diluted
$
0.51

 
$
0.47

Weighted average number of common shares outstanding — basic
30,035

 
29,593

Incremental shares issuable upon assumed conversion and exercise of stock options
284

 
468

Incremental shares issuable due to dilutive effect of the Convertible Notes
107

 
—

Weighted average number of common shares outstanding — diluted
30,426

 
30,061

Certain common shares that may be issuable upon the vesting of share-based awards and potential settlements under convertible note hedge and capped call transactions used to offset the dilutive effect of the Convertible Notes were not included in the computation of diluted earnings per share as they were anti-dilutive. There were 311 and 105 anti-dilutive shares for the three months ended March 31, 2013 and 2012, respectively. For both the three months ended March 31, 2013 and 2012, 3,368 shares issuable under warrants associated with the convertible note hedge and capped call transactions were also excluded from the computation of diluted earnings per share as their effect was anti-dilutive. The convertible note hedge and capped call transactions offset any dilution upon actual conversion of the Convertible Notes up to a common stock price of $84.96. See Note F for further information.
NOTE I — Employee Benefit Plans
The Company has a defined benefit pension plan which is frozen, that covers certain U.S. hourly and salary employees. The defined benefit plan provides benefits based primarily on the participants’ years of service and compensation.
The following table sets forth the components of net periodic pension expense as follows:
 
Three Months Ended March 31,
 
2013
 
2012
Interest cost
$
528

 
$
552

Expected return on plan assets
(676
)
 
(662
)
Amortization of net loss
337

 
243

Total net periodic pension expense
$
189

 
$
133

NOTE J — Share-based Compensation
During the three months ended March 31, 2013, the Company granted 82 stock options, 45 shares of restricted stock and restricted stock units, 19 performance units and 22 leveraged restricted share units. Non-employee directors received 1 stock awards with a fair value of $94. During the three months ended March 31, 2013, participants in the Company's stock option plans exercised options to purchase 255 shares of the Company's common stock.
Stock options vest ratably over a four year period. Restricted stock and restricted stock units generally vest ratably over a three year period, and performance units and leveraged restricted share units vest at the end of three years based on the achievement of certain performance and market conditions. During three months ended March 31, 2013, 82 restricted stock and restricted stock units vested.
Share-based compensation expense was $2,564 and $2,505 for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, total share-based compensation of $15,014 is expected to be recognized over the weighted-average period of approximately 2.6 years assuming units are earned at their maximum payout potential.

15
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

NOTE K — Income Taxes
The effective tax rate of 29.0% for both the three months ended March 31, 2013 and 2012 differs from the U.S. federal statutory rate of 35% primarily due to the effect of income earned by certain of the Company's foreign entities being taxed at lower rates than the federal statutory rate and the positive effect of the domestic production activities deduction.
As of March 31, 2013, the Company has recorded a $1,418 liability, in accordance with ASC 740-10-25 “Income Taxes,” for gross unrecognized tax benefits. This amount includes $569 of unrecognized tax benefits which, if ultimately recognized, will reduce the Company's annual effective tax rate. During the first quarter of 2013, gross unrecognized tax benefits decreased $1,921 due to the filing of the amended 2011 federal income tax return. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2013, the Company had accrued approximately $103 for the payment of interest and penalties.
NOTE L — Reportable Segments
The structure of the Company’s internal organization is divided into the following reportable segments, which are also the Company's operating segments: Energy and Chemicals (“E&C”), Distribution and Storage (“D&S”) and BioMedical. Corporate includes operating expenses for executive management, accounting, tax, treasury, human resources, information technology, legal, internal audit, risk management and share-based compensation expenses that are not allocated to the reporting segments.
Information for the Company’s reportable segments and its corporate function is presented below:
 
Three Months Ended March 31, 2013
 
Energy
& Chemicals
 
Distribution
& Storage
 
BioMedical
 
Corporate
 
Total
Sales
$
80,861

 
$
128,733

 
$
64,054

 
$
—

 
$
273,648

Operating income (loss)
12,819

 
19,289

 
6,753

 
(11,510
)
 
27,351

 
Three Months Ended March 31, 2012
 
Energy
& Chemicals
 
Distribution
& Storage
 
BioMedical
 
Corporate
 
Total
Sales
$
68,824

 
$
105,092

 
$
42,190

 
$
—

 
$
216,106

Operating income (loss)
13,192

 
18,732

 
4,592

 
(12,655
)
 
23,861


NOTE M — Contingencies
In November 2012, Chart Energy & Chemicals Inc. (“CEC”), a subsidiary of the Company, filed a declaratory judgment action in the United States District Court for the Western District of Oklahoma (the “Federal Court”) seeking a judgment that certain claims for damages alleged by Enogex Holdings LLC, Enogex Gathering & Processing, LLC and affiliated companies with respect to a December 2010 fire at the Enogex natural gas processing plant in Cox City, Oklahoma were barred based on multiple defenses, including Oklahoma's statute of repose. This action was precipitated by the receipt of a letter from Enogex alleging that CEC was responsible for damages in excess of $75,000 with respect to the fire as result of the alleged failure of CEC's equipment that was a component of the unit involved in the fire. Subsequent to the filing of CEC's declaratory judgment action, in December 2012, Enogex filed suit in the District Court of Tulsa County, State of Oklahoma (the “State Court”) against the Company, CEC and its predecessors, a former employee of a predecessor of CEC, as well as other entities and an individual not affiliated with the Company, formalizing the allegations and claims contained in the November demand letter. Each party has filed one or more motions to dismiss the other's lawsuit and it is likely that one of the existing actions will ultimately be dismissed or stayed given the commonality of facts underlying each lawsuit. Enogex's motion to dismiss was denied by the Federal Court in February 2013, but Enogex has moved for rehearing on the motion to dismiss, and the Company's and CEC's motions to dismiss were denied by the State Court on April 10, 2013. The Company does not believe that the allegations against the Company, CEC or their affiliates in Enogex's complaint have merit. The Company in any event believes that it, CEC and their affiliates have strong factual and legal defenses to Enogex's claims and intends to vigorously assert such defenses. Accordingly, an accrual related to any damages that may result from the lawsuit has not been recorded because a potential loss is not currently probable. Furthermore, the Company believes that its existing product liability

16
Table of Contents
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2013
(Dollars and shares in thousands, except per share amounts) – Continued

insurance is adequate for potential losses associated with these claims. While the Company cannot predict with certainty the ultimate result of these proceedings, the Company does not believe that the final outcome of these proceedings will have a material adverse affect on the Company's financial position, results of operations, or cash flows.



17
Table of Contents


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. 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 medical respiratory equipment and cryogenic systems 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, other cryogenic components, respiratory and therapy products, are used throughout the liquid gas supply chain for the purification, liquefaction, distribution, storage and end-use of hydrocarbon and industrial gases.
Growth in demand for natural gas and LNG-related applications continued to drive performance during the three months ended March 31, 2013. Excluding the $40.0 million PetroChina order from the prior quarter, overall first quarter 2013 orders increased by approximately $5.6 million during the three months ended March 31, 2013 largely due to continued demand for LNG energy equipment. Also, the improvement in our BioMedical segment orders was largely due to the effect of the acquisition of AirSep Corporation (“AirSep”) in August 2012. Backlog as of March 31, 2013 was down to $586.6 million as compared to $617.4 million as of December 31, 2012. Sales for the three months ended March 31, 2013 were $273.6 million compared to sales of $216.1 million for the three months ended March 31, 2012, reflecting an increase of $57.5 million, or 26.6%. The sales increase reflected strong volume for LNG-related applications and the effect of the AirSep acquisition, which added sales of $27.0 million. Gross profit for the three months ended March 31, 2013 was $79.5 million, or 29.0% of sales, as compared to $67.6 million, or 31.3% of sales, for the three months ended March 31, 2012. Higher volume across all of our segments drove the gross profit increase. The decrease in the gross profit percentage was mainly the result of unfavorable project mix in the E&C segment and lower margin oxygen concentrators representing a larger share of product mix following the AirSep acquisition. Operating income for the three months ended March 31, 2013 was $27.4 million compared to $23.9 million for the three months ended March 31, 2012.


18
Table of Contents


The following table sets forth sales, gross profit, gross profit margin and operating income or loss for our operating segments for the three months ended March 31, 2013 and 2012 (dollars in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Sales
 
 
 
Energy & Chemicals
$
80,861

 
$
68,824

Distribution & Storage
128,733

 
105,092

BioMedical
64,054

 
42,190

Consolidated
$
273,648

 
$
216,106

Gross Profit
 
 
 
Energy & Chemicals
$
20,927

 
$
21,689

Distribution & Storage
36,502

 
29,448

BioMedical
22,021

 
16,420

Consolidated
$
79,450

 
$
67,557

Gross Profit Margin
 
 
 
Energy & Chemicals
25.9
%
 
31.5
%
Distribution & Storage
28.4
%
 
28.0
%
BioMedical
34.4
%
 
38.9
%
Consolidated
29.0
%
 
31.3
%
SG&A Expenses
 
 
 
Energy & Chemicals
$
7,286

 
$
7,657

Distribution & Storage
16,003

 
11,471

BioMedical
12,405

 
8,845

Corporate
11,510

 
12,653

Consolidated
$
47,204

 
$
40,626

SG&A Expenses % of Sales
 
 
 
Energy & Chemicals
9.0
%
 
11.1
%
Distribution & Storage
12.4
%
 
10.9
%
BioMedical
19.4
%
 
21.0
%
Consolidated
17.2
%
 
18.8
%
Operating Income
 
 
 
Energy & Chemicals
$
12,819

 
$
13,192

Distribution & Storage
19,289

 
18,732

BioMedical
6,753

 
4,592

Corporate
(11,510
)
 
(12,655
)
Consolidated
$
27,351

 
$
23,861

Operating Margin
 
 
 
Energy & Chemicals
15.9
%
 
19.2
%
Distribution & Storage
15.0
%
 
17.8
%
BioMedical
10.5
%
 
10.9
%
Consolidated
10.0
%
 
11.0
%


19
Table of Contents


Results of Operations for the Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012
Sales
Sales for the three months ended March 31, 2013 were $273.6 million compared to $216.1 million for the three months ended March 31, 2012, reflecting an increase of $57.5 million, or 26.6%. Improved volume in the E&C and D&S business segments as well as the impact from the AirSep acquisition drove the overall sales increase. E&C segment sales increased by $12.0 million, or 17.5%, compared to the prior year quarter. This increase in E&C segment sales for the three months ended March 31, 2013 was primarily due to improved volume in our brazed aluminum heat exchanger and systems businesses. D&S segment sales increased by $23.6 million, or 22.5%, compared to the prior year quarter. The increase was mainly attributable to high volume of sales related to LNG applications, especially in China. BioMedical segment sales increased by $21.9 million, or 51.8%, compared to the prior year quarter mainly due to the AirSep acquisition, which contributed $27.0 million to sales during the quarter. Excluding AirSep, sales finished $5.1 million below prior year quarter performance with lower volume in respiratory sales due to continued weakness in the European market and the delay in the Medicare competitive bidding process in the U.S.
Gross Profit and Margin
Gross profit for the three months ended March 31, 2013 was $79.5 million, or 29.0% of sales, versus $67.6 million, or 31.3% of sales, for the three months ended March 31, 2012, which reflected an increase of $11.9 million while the related margin decreased by 2.3 percentage points. E&C segment gross profit decreased by $0.8 million while the related margin decreased by 5.6 percentage points. The decrease in gross profit and the related margin percentage for the E&C segment was primarily due to large LNG systems being completed at overall lower margins as well as higher costs due to some labor inefficiencies and project scope changes on one project negatively impacting margins by approximately 4% in the current quarter. This project shipped during the second quarter, and certain costs associated with the scope change may possibly be recovered. Gross profit for the D&S segment increased by $7.1 million, and margin increased by 0.4 percentage points. The increase in gross profit and related margin was mainly due to higher volume and improved product mix. BioMedical gross profit increased by $5.6 million as margin decreased by 4.5 percentage points during the three months ended March 31, 2013 as compared to the prior year quarter. The increase in gross profit was primarily due to higher volume contributed by AirSep while the decrease in the related margin percentage was mainly attributable to lower margin oxygen concentrators representing a larger share of product mix following the AirSep acquisition.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for the three months ended March 31, 2013 were $47.2 million, or 17.2% of sales, compared to $40.6 million, or 18.8% of sales, for the three months ended March 31, 2012. SG&A expenses for the E&C segment decreased by $0.4 million compared to the prior year quarter mainly due to lower expenses related to sales commissions and professional services. D&S segment SG&A expenses increased by $4.5 million compared to the prior year quarter which included increases in employee-related costs, sales commissions, travel costs and fees for professional services to support the rapidly growing LNG business, especially in China. SG&A expenses for the BioMedical segment increased by $3.6 million compared to the prior year quarter mainly due to the AirSep acquisition which contributed $4.0 million in SG&A expenses during the quarter offset by a decrease of $0.4 million due to lower employee-related costs and professional services. Corporate SG&A expenses decreased by $1.1 million compared to the prior year quarter primarily due to lower consulting expenses.
Amortization Expense
Amortization expense for the three months ended March 31, 2013 was $4.9 million, or 1.8% of sales, and $3.1 million, or 1.4% of sales, for the three months ended March 31, 2012. The AirSep acquisition added $1.7 million of amortization expense in the quarter.
Operating Income
As a result of the foregoing, operating income for the three months ended March 31, 2013 was $27.4 million, or 10.0% of sales, an increase of $3.5 million compared to operating income of $23.9 million, or 11.0% of sales, for the same period in 2012.
Interest Expense, Net and Financing Costs Amortization
Net interest expense for both the three months ended March 31, 2013 and 2012 was $4.0 million. Interest expense for the three months ended March 31, 2013 included $1.3 million of contractual 2.00% coupon interest and $2.4 million of non-cash

20
Table of Contents


interest accretion expense related to the carrying value of the Convertible Senior Subordinated Notes (the “Convertible Notes”). Financing costs amortization was $0.3 million for both the three months ended March 31, 2013 and 2012.
Foreign Currency Loss (Gain)
For the three months ended March 31, 2013 and 2012, foreign currency losses were $0.3 million, and foreign currency gains were $0.4 million, respectively. Losses increased by $0.7 million during the three months ended March 31, 2013 as a result of increased volatility in foreign exchange rates related to the euro partially offset by mark-to-market gains on foreign currency forward contracts.
Income Tax Expense
Income tax expense of $6.6 million and $5.8 million for the three months ended March 31, 2013 and 2012, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 29.0% for both periods.
Net Income
As a result of the foregoing, reported net income attributable to the Company for the three months ended March 31, 2013 and 2012 was $15.5 million and $14.1 million, respectively.

Liquidity and Capital Resources
Debt Instruments and Related Covenants
Convertible Notes: The outstanding aggregate principal amount of the Company's Convertible Notes is $250.0 million. The Convertible Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on February 1 and August 1 of each year, and will mature on August 1, 2018. The effective interest rate at issuance, under generally accepted accounting principles, was 7.9%. Upon conversion, holders of the Convertible Notes will receive cash up to the principal amount of the Convertible Notes, and it is Chart’s intention to settle any excess conversion value in shares of Chart’s common stock. However, Chart may elect to settle, at its discretion, any such excess value in cash, shares of Chart’s common stock or a combination of cash and shares. The initial conversion price of approximately $69.03 per share represents a conversion premium of 30% over the last reported sale price of Chart’s common stock on July 28, 2011, the date of the Convertible Notes offering, which was $53.10 per share.
Senior Credit Facility: The Company entered into an amended and restated credit facility on April 25, 2012, which replaced the prior senior secured credit facility (“Prior Credit Facility”) with a five-year $375.0 million senior secured credit facility (“Senior Credit Facility”), which consists of a $75.0 million term loan (the “Term Loan”) and a $300.0 million revolving credit facility (the “Revolving Credit Facility”), and the maturity date was extended two years until April 25, 2017. The Senior Credit Facility also includes an expansion option permitting the Company to add up to an aggregate $150.0 million in term loans or revolving credit commitments from its existing and potential new lenders. Under the terms of the Senior Credit Facility, 5% of the $75.0 million Term Loan is payable annually in quarterly installments over the first three years, 10% is payable annually in quarterly installments over the final two years, and the remaining balance is due on April 25, 2017. Significant financial covenants for the Senior Credit Facility include a maximum net debt to EBITDA ratio of 3.25 and a minimum interest coverage to EBITDA ratio of 3.0, which are the same limits that applied under the Prior Credit Facility. At March 31, 2013, there was $71.3 million in borrowing outstanding under the Term Loan and $14.0 million in borrowings outstanding under the Revolving Credit Facility. The Company also had $25.5 million in letters of credit and bank guarantees supported by the Revolving Credit Facility which had availability of $260.5 million at March 31, 2013. The Company was in compliance with all covenants, including its financial covenants, at March 31, 2013.
Foreign Facilities – China: Chart Cryogenic Distribution Equipment (Changzhou) Company Limited (“CCDEC”), a joint venture of the Company, maintains a facility with Bank of China with capacity of up to 20.0 million Chinese yuan. At March 31, 2013, there was 20.0 million Chinese yuan outstanding under this facility, bearing interest at 6.6%. The facility matures on March 19, 2014. As of March 31, 2013, CCDEC and Chart Cryogenic Engineering Systems (Changzhou) Co., Ltd. (“CCESC”), a wholly-owned subsidiary of the Company, had $1.3 million and $0.9 million in bank guarantees, respectively.
Foreign Facilities – Ferox: Chart Ferox, a.s., or Ferox, our wholly-owned subsidiary that operates in the Czech Republic, maintains secured revolving credit facilities with capacity of up to 175.0 million Czech korunas. Both of the facilities allow Ferox to request issuance of bank guarantees and letters of credit. At March 31, 2013, there were $1.6 million of bank guarantees supported by such facilities.

21
Table of Contents


Our debt and related covenants are further described in the Debt and Credit Arrangements note to our condensed consolidated financial statements included elsewhere in this report.
Sources and Use of Cash
Our cash and cash equivalents totaled $126.3 million as of March 31, 2013, a decrease of $15.2 million from the balance as of December 31, 2012. Our foreign subsidiaries held cash of approximately $120.4 million and $115.5 million at March 31, 2013 and December 31, 2012, respectively, to meet their liquidity needs. No material restrictions exist in accessing cash held by our foreign subsidiaries and we expect to meet our U.S. funding needs without repatriating non-U.S. cash and incurring incremental U.S. taxes. Cash equivalents are invested in money market funds that invest in high quality, short-term instruments, such as U.S. government obligations, certificates of deposit, repurchase obligations and commercial paper issued by corporations that have been highly rated by at least one nationally recognized rating organization. We believe that our existing cash and cash equivalents, funds available under our debt facilities and cash provided by operations will be sufficient to finance our normal working capital needs, acquisition obligations, and investments in properties, facilities and equipment for the foreseeable future.
Cash used in operating activities was $23.6 million and $9.2 million for the three months ended March 31, 2013 and 2012, respectively. The increase of $14.4 million in cash used in operations was primarily due to an increase in net unbilled contract revenues due to increased revenue and the timing of progress billings under existing contracts with customers as well as timing between accounts receivable receipts and accounts payable payments.
Cash used in investing activities was $12.1 million and $6.3 million for the three months ended March 31, 2013 and 2012, respectively, representing capital expenditures. Major capital expenditures for the three months ended March 31, 2013 included capacity expansion projects in D&S and E&C in response to continued growth in the energy industry.
Cash provided by financing activities for the three months ended March 31, 2013 and 2012 was $22.7 million and $2.0 million, respectively. During the three months ended March 31, 2013, the Company made $0.9 million in scheduled quarterly principal payments on the term loan portion of the Senior Credit Facility and also borrowed $49.0 million and repaid $31.8 million from its Revolving Credit Facility and foreign facilities. Additionally, the Company had a $4.4 million excess tax benefit from share-based compensation and received $3.9 million in proceeds for stock option exercises which were offset by $1.9 million for common stock repurchases to cover tax withholding elections during the three months ended March 31, 2013.
Cash Requirements
The Company does not anticipate any unusual cash requirements for working capital needs for the year ending December 31, 2013. Management anticipates the Company will be able to satisfy cash requirements for its ongoing business for the foreseeable future with cash generated by operations, existing cash balances and borrowings under our credit facilities. We also expect capital expenditures for the remaining nine months of 2013 to be in the range of $70.0 to $75.0 million, primarily for expansions of the brazed aluminum heat exchanger facility in La Crosse, Wisconsin and the large tank manufacturing facility in New Prague, Minnesota.
For the remaining nine months of 2013, the Company is forecasting to use approximately $1.3 million for scheduled interest payments under the Senior Credit Facility. We are also required to make quarterly principal payments of approximately $0.9 million for the remaining nine months of 2013 under the Senior Credit Facility. In addition, our forecasts for the remaining nine months of 2013 contemplate the use of approximately $21.0 to $25.0 million of cash to pay U.S. and foreign income taxes.
Orders and Backlog
We consider orders to be those for which we have received a firm signed purchase order or other written contractual commitment from the customer. Backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments received from customers that we have not recognized as revenue upon shipment or under the percentage of completion method. Backlog can be significantly affected by the timing of orders for large projects, particularly in the E&C segment, and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. Orders included in our backlog may include customary cancellation provisions under which the customer could cancel part or all of the order, potentially subject to the payment of certain costs and/or penalties. Our backlog as of March 31, 2013 was $586.6 million compared to $617.4 million as of December 31, 2012.

22
Table of Contents


The table below sets forth orders and backlog by segment for the periods indicated (dollar amounts in thousands):
 
Three Months Ended
 
March 31,
2013
 
December 31,
2012
Orders
 
 
 
Energy & Chemicals
$
38,807

 
$
62,173

Distribution & Storage
132,774

 
150,874

BioMedical
72,002

 
64,951

Total
$
243,583

 
$
277,998

Backlog
 
 
 
Energy & Chemicals
$
322,936

 
$
365,470

Distribution & Storage
231,141

 
228,204

BioMedical
32,512

 
23,760

Total
$
586,589

 
$
617,434

E&C orders for the three months ended March 31, 2013 were $38.8 million compared to $62.2 million for the three months ended December 31, 2012. E&C backlog totaled $322.9 million at March 31, 2013, compared to $365.5 million as of December 31, 2012. Order flow in the E&C segment is historically volatile due to project size and it is not unusual to see order intake change significantly quarter to quarter.
D&S orders for the three months ended March 31, 2013 were $132.8 million compared to $150.9 million for the three months ended December 31, 2012. Excluding the $40.0 million PetroChina order from the prior quarter, first quarter 2013 D&S orders increased mainly due to strong demand in China and Europe partially offset by lower order volume in the U.S. D&S backlog totaled $231.1 million at March 31, 2013 compared to $228.2 million as of December 31, 2012.
BioMedical orders for the three months ended March 31, 2013 were $72.0 million compared to $65.0 million for the three months ended December 31, 2012 which included $33.3 million in orders associated with the AirSep acquisition. Excluding AirSep, BioMedical orders were down due to continued weakness in the European market and the impact of Medicare competitive bidding in the U.S. BioMedical backlog at March 31, 2013 totaled $32.5 million compared to $23.8 million as of December 31, 2012.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.

Application of Critical Accounting Policies
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. As such, some accounting policies have a significant impact on amounts reported in these unaudited condensed consolidated financial statements. A summary of those significant accounting policies can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. In particular, judgment is used in areas such as revenue recognition for long-term contracts, determining the allowance for doubtful accounts, inventory valuation reserves, goodwill, indefinite-lived intangibles, contingent liabilities, environmental remediation obligations, product warranty costs, debt covenants, pensions and deferred tax assets. There have been no significant changes in accounting policies since December 31, 2012.
Forward-Looking Statements
The Company is making this statement in order to satisfy the “safe harbor” provisions contained in the Private Securities Litigation Reform Act of 1995. This Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements include statements relating to our business. In some cases, forward-looking statements may be identified by terminology such as “may,” “should,” “expects,” “anticipates,” “believes,” “projects,” “forecasts,” “continue” or the negative of such terms or comparable terminology. Forward-looking statements contained herein (including future cash contractual obligations, liquidity, cash flow, orders, results of operations, projected revenues from new acquisitions, and trends, among other matters) or in other statements made by us are made based on management’s expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by forward-looking statements. We believe that the following factors, among others

23
Table of Contents


(including those described under Item 1A– “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012), could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf:
•
the cyclicality of the markets which we serve and the vulnerability of those markets to economic downturns;
•
the loss of, or a significant reduction or delay in purchases by, our largest customers;
•
the fluctuations in energy prices;
•
the potential for negative developments in the natural gas industry related to hydraulic fracturing;
•
governmental energy policies could change, or expected changes could fail to materialize;
•
competition in our markets;
•
economic downturns and deteriorating financial conditions;
•
our ability to manage our fixed-price contract exposure;
•
our ability to successfully manage our planned operational expansions;
•
our reliance on the availability of key supplies and services;
•
degradation of our backlog as a result of modification or termination of orders;
•
changes in government health care regulations and reimbursement policies;
•
general economic, political, business and market risks associated with our global operations including instability in North Africa and the Middle East;
•
our ability to successfully acquire or integrate companies that provide complementary products or technologies, including the successful integration of the AirSep acquisition;
•
the loss of key employees;
•
litigation and disputes involving us, including the extent of product liability, warranty, contract, employment and environmental claims asserted against us;
•
our warranty reserves may not adequately cover our warranty obligations;
•
fluctuations in foreign currency exchange rates and interest rates;
•
financial distress of third parties;
•
United States Food and Drug Administration and comparable foreign regulation of our products;
•
the pricing and availability of raw materials;
•
our ability to control our costs while maintaining customer relationships and core business resources;
•
the impairment of our goodwill or other intangible assets;
•
the cost of compliance with environmental, health and safety laws and responding to potential liabilities under these laws;
•
our ability to protect our intellectual property and know-how;
•
claims that our products or processes infringe intellectual property rights of others;
•
technological security threats and our reliance on information systems;
•
labor costs and disputes and the deterioration of our relations with our employees;
•
additional liabilities related to taxes;
•
our ability to continue our technical innovation in our product lines;
•
the underfunded status of our pension plans;
•
increased government regulation;
•
disruptions in our operations due to severe weather;
•
potential violations of the Foreign Corrupt Practices Act;
•
regulations governing the export of our products and other regulations applicable to us as a supplier of products to the U.S. government;
•
risks associated with our indebtedness, leverage, debt service and liquidity;
•
potential dilution to existing holders of our common stock as a result of the conversion of our convertible debt;
•
fluctuations in the price of our stock; and
•
other factors described herein.
There may be other factors that may cause our actual results to differ materially from the forward-looking statements.

24
Table of Contents


All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as the same may be updated from time to time. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the filing date of this document or to reflect the occurrence of unanticipated events.

25
Table of Contents


Item 3.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company's operations are exposed to fluctuations in foreign currency values and interest rates that can affect the cost of operating and financing. Accordingly, the Company addresses a portion of these risks through a program of risk management.
Interest Rate Risk: The Company's primary interest rate risk exposure results from the Senior Credit Facility's various floating rate pricing mechanisms. If interest rates were to increase 200 basis points (2 percent) from March 31, 2013 rates, and assuming no changes in debt from the March 31, 2013 levels, our additional annual expense would be approximately $1.4 million on a pre-tax basis.
Foreign Currency Exchange Rate Risk: The Company has assets, liabilities and cash flows in foreign currencies creating exposure to foreign currency exchange fluctuations in the normal course of business. Chart’s primary exchange rate exposures are with the euro, the British pound, the Czech koruna, the Japanese yen and the Chinese yuan. Monthly measurement, evaluation and forward exchange rate contracts are employed as methods to reduce this risk. The Company enters into foreign exchange forward contracts to hedge anticipated and firmly committed foreign currency transactions. Chart does not use derivative financial instruments for speculative or trading purposes. The terms of the contracts are generally one year or less. At March 31, 2013, a hypothetical 10% weakening of the U.S. dollar would not materially affect the Company’s financial statements.
Market Price Sensitive Instruments
In connection with the issuance of the Convertible Notes, the Company entered into privately-negotiated convertible note hedge and capped call transactions with affiliates of certain of the underwriters (the “Option Counterparties”). The convertible note hedge and capped call transactions relate to, collectively, 3.6 million shares, which represents the number of shares of the Company’s common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes. These convertible note hedge and capped call transactions are expected to reduce the potential dilution with respect to the Company’s common stock upon conversion of the Convertible Notes and/or reduce the Company’s exposure to potential cash or stock payments that may be required upon conversion of the Convertible Notes, except, in the case of the capped call transactions, to the extent that the market price per share of the Company’s common stock exceeds the cap price of the capped call transactions.
The Company also entered into separate warrant transactions with the Option Counterparties initially relating to the number of shares of the Company’s common stock underlying the convertible note hedge transactions, subject to customary anti-dilution adjustments. The warrant transactions will have a dilutive effect with respect to the Company’s common stock to the extent that the price per share of the Company's common stock exceeds the strike price of the warrants unless the Company elects, subject to certain conditions, to settle the warrants in cash. The cap price of the capped call transactions and the strike price of the warrant transactions was initially $84.96 per share. Additional information is located in the Debt and Credit Arrangements note to the Company’s condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 4.
Controls and Procedures
As of March 31, 2013, an evaluation was performed, under the supervision and with the participation of the Company’s management including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, such officers concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) is accumulated and communicated to the Company’s management including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
The Company did not include an evaluation of the internal control over financial reporting of AirSep, which was acquired on August 30, 2012. The Company continues to integrate AirSep within the Company's internal control environment.
There were no changes in the Company’s internal control over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


26
Table of Contents


PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
In November 2012, Chart Energy & Chemicals Inc. (“CEC”), a subsidiary of the Company, filed a declaratory judgment action in the United States District Court for the Western District of Oklahoma (the “Federal Court”) seeking a judgment that certain claims for damages alleged by Enogex Holdings LLC, Enogex Gathering & Processing, LLC and affiliated companies with respect to a December 2010 fire at the Enogex natural gas processing plant in Cox City, Oklahoma were barred based on multiple defenses, including Oklahoma's statute of repose. This action was precipitated by the receipt of a letter from Enogex alleging that CEC was responsible for damages in excess of $75 million with respect to the fire as result of the alleged failure of CEC's equipment that was a component of the unit involved in the fire. Subsequent to the filing of CEC's declaratory judgment action, in December 2012, Enogex filed suit in the District Court of Tulsa County, State of Oklahoma (the “State Court”) against the Company, CEC and its predecessors, a former employee of a predecessor of CEC, as well as other entities and an individual not affiliated with the Company, formalizing the allegations and claims contained in the November demand letter. Each party has filed one or more motions to dismiss the other's lawsuit and it is likely that one of the existing actions will ultimately be dismissed or stayed given the commonality of facts underlying each lawsuit. Enogex's motion to dismiss was denied by the Federal Court in February 2013, but Enogex has moved for rehearing on the motion to dismiss, and the Company's and CEC's motions to dismiss were denied by the State Court on April 10, 2013. The Company does not believe that the allegations against the Company, CEC or their affiliates in Enogex's complaint have merit. The Company in any event believes that it, CEC and their affiliates have strong factual and legal defenses to Enogex's claims and intends to vigorously assert such defenses. Accordingly, an accrual related to any damages that may result from the lawsuit has not been recorded because a potential loss is not currently probable. Furthermore, the Company believes that its existing product liability insurance is adequate for potential losses associated with these claims. While the Company cannot predict with certainty the ultimate result of these proceedings, the Company does not believe that the final outcome of these proceedings will have a material adverse affect on the Company's financial position, results of operations, or cash flows.
Item 1A.
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
a.)
None.
b.)
None.
c.)
During the first quarter of 2013, 28,997 shares of common stock were surrendered to us by participants under our share-based compensation plans to satisfy tax withholding obligations relating to the vesting or payment of equity awards for an aggregate purchase price of approximately $1,879,000. The total number of shares repurchased represents the net shares issued to satisfy tax withholding. All such repurchased shares were subsequently retired during the three months ended March 31, 2013.
 
 
Issuer Purchases of Equity Securities
Period
Total
Number
of
Shares
Purchased
 
Average Price
Paid Per
Share
 
Total Number of
Shares Purchased
As Part of Publicly
Announced Plans
or Programs
 
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
January 1 – 31, 2013
8,894

 
$
66.34

 
—

 
$
—

February 1 – 28, 2013
20,077

 
64.77

 
—

 
—

March 1 – 31, 2013
26

 
78.19

 
—

 
—

Total
28,997

 
$
65.28

 
—

 
$
—


Item 4. Mine Safety Disclosures
Not applicable.

27
Table of Contents


Item 6.
Exhibits
The following exhibits are included with this report:

10.1
Amendment No. 4, dated January 1, 2013, to the Employment Agreement dated February 26, 2008 by and between Chart Industries, Inc. and Samuel F. Thomas (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 4, 2013 (File No. 001-11442)).
10.2
Amendment No. 3, dated January 1, 2013, to the Employment Agreement dated February 26, 2008 by and between Chart Industries, Inc. and Michael F. Biehl (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 4, 2013 (File No. 001-11442)).
10.3
Amendment No. 3, dated January 1, 2013, to the Employment Agreement dated February 26, 2008 by and between Chart Industries, Inc. and Matthew J. Klaben (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 4, 2013 (File No. 001-11442)).
10.4
Amendment No. 4, dated January 1, 2013, to the Employment Agreement dated February 26, 2008 by and between Chart Industries, Inc. and Kenneth J. Webster (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 4, 2013 (File No. 001-11442)).
10.5
IAM Agreement 2013-2018, effective February 3, 2013, by and between Chart Energy & Chemicals, Inc. and Local Lodge 2191 of District Lodge 66 of the International Association of Machinists and Aerospace Workers, AFL-CIO (incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-11442)).
10.6
Form of Nonqualified Stock Option Agreement under the Chart Industries, Inc. Amended and Restated 2009 Omnibus Equity Plan (incorporated by reference to Exhibit 10.3.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-11442)).
10.7
Form of Performance Unit Agreement under the Chart Industries, Inc. Amended and Restated 2009 Omnibus Equity Plan (incorporated by reference to Exhibit 10.3.12 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-11442)).
31.1
Rule 13a-14(a) Certification of Chief Executive Officer (x)
31.2
Rule 13a-14(a) Certification of Chief Financial Officer (x)
32.1
Section 1350 Certification of Chief Executive Officer (xx)
32.2
Section 1350 Certification of Chief Financial Officer (xx)
101.INS
XBRL Instance Document *
101.SCH
XBRL Taxonomy Extension Schema Document *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB
XBRL Taxonomy Extension Label Linkbase Document *
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document *

(x) Filed herewith
(xx) Furnished herewith
* In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.

28
Table of Contents


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Chart Industries, Inc.
(Registrant)
 
Date:
April 25, 2013
By:
/s/ Michael F. Biehl
 
 
 
Michael F. Biehl
 
 
 
Executive Vice President, Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer)
 
 
 
(Duly Authorized Officer)


29