GTLS

Chart Industries, Inc. (GTLS)

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Chart Industries, Inc. (GTLS)

Q4 2008 Earnings Call

February 25, 2009 10:30 AM ET

Executives

Michael F. Biehl - Executive Vice President and Chief Financial Officer

Samuel F. Thomas - Chairman, Chief Executive Officer and President

Analysts

Jeff Spittel - Natixis Bleichroeder

Gregory J. McKinley - Dougherty & Company

Keith Rosenbloom - CARE Capital Group

Gregory McKinley

Presentation

Operator

Good morning and welcome to the Chart Industries Inc. 2008 Fourth Quarter and Year-End Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, today's call is being recorded.

You should have already received the company's earnings release that was issued earlier this morning. If you have not received the release, you may retrieve it by visiting Chart's website at www.chart-ind.com. A telephone replay of today's broadcast will be available following the conclusion of the call until February 28th. The replay information is contained in the company's earnings release.

Before we begin, the company would like to remind you that statements made during this call that are not historical in fact are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied in the forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC. These filings are available through the Investor Relations section of the company's website or through the SEC website at www.sec.gov. The company undertakes no obligation to update publicly or revise any forward-looking statement.

I would now like to turn the conference call over to Mr. Michael Biehl, Chart Industries' Executive Vice President and CFO. You may begin your conference.

Michael F. Biehl

Thanks Sarah. Good morning everyone. I would like to thank you all for joining us today. I'll begin by giving you a brief overview and highlights of our fourth quarter and year-end results. Sam Thomas, our Chairman, President and CEO will provide highlights for the operating results for each of our business segments and I will then finish up by commenting on our outlook for 2009.

2008 was a record year for Chart in terms of sales and profits. Sales for the year rose 12% to $744 million from $666 million in 2007 with all segments contributing to the increase. Sales for the fourth quarter were $188 million and represented an increase of 3% compared to net sales of $183 million a year ago.

For the year, net income was $78.9 million or $2.72 per diluted share compared with net income of $44.2 million or $1.61 per diluted share in 2007. Net income from the quarter rose to $21.7 million or $0.75 per diluted share, a 32% increase over the $16.4 million in net income or $0.57 per diluted share reported a year ago.

I would like to point out that the fourth quarter of 2008 included several unusual items that on a net basis favorably impacted net income by $3.1 million or $0.11 per diluted share. That (ph) included a $6.5 million benefit as a result of reversing contingent liabilities that were established in 2003 for potential secondary employee benefit obligations of an insolvent former subsidiary.

These contingent liabilities under law (ph) are considered probable reversed income as a result of events that occurred during 2008. The income resulting from this reversal was reduced by $4.9 million of unusual costs in our Energy & Chemicals business. These costs included settlement of disputed expenditures not covered by the customers insurance on an installation project substantially completed during 2007. This was one of several installation projects that negatively impacted results during 2006 and 2007 as you may recall. We also incurred settlement costs for a customer's disputed repair expenses for another project that was shipped in 2006 where a commercial decision was made to resolve this issue and maintain our relationship with this customer.

The settlement satisfactory concludes all disputes related to these projects. In addition, facility shutdown costs were incurred during the fourth quarter for a leased facility in Louisiana due to reduction in orders or vacuum insulated pipe product line.

Our gross profit for the quarter was $57.3 million compared with $53 million a year ago. The increase was due to an improved project mix and execution in Energy & Chemicals despite the unusual costs we just mentioned.

In addition, Distribution & Storage or D&S, sales volume also contributed to the increase.

SG&A expenses for the quarter were $25 million or 13.1% of sales compared with $24 million or 13% of sales for the same quarter a year ago. Our cost reduction initiatives that began in the fourth quarter have already provided savings, but this was offset by increased bad debt reserves due to customer operating difficulties related to the current market environment. We continue to closely monitor our exposure in this area and we are proactively managing our accounts receivable portfolio.

Overall, our SG&A expenses for the year were $101 million or 13.5% of sales compared to $93 million or 39.9% (ph) of sales for the year ended 2007. The 2007 SG&A expenses included $7.9 million of non-cash stock-based compensation expenses related to our secondary stock offering completed in the second quarter of last year. Excluding these expenses, the 2007 SG&A expenses would have been $85 million or 12.7% of sales. The increase in 2008 SG&A expense was due to higher employee-related and infrastructure spending to support our business growth and variable compensation-related expenses including commissions due to improved operating performance during 2008, particularly at our E&C business.

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