EDGAR 10-K Filing

Company CIK: 892553
Filing Year: 2021
Filename: 892553_10-K_2021_0000892553-21-000032.json

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ITEM 1. BUSINESS
Item 1. Business
THE COMPANY
Overview
Chart Industries, Inc., a Delaware corporation incorporated in 1992 (the “Company,” “Chart,” “we,” “us,” or “our” as used herein refers to Chart Industries, Inc. and our consolidated subsidiaries, unless the context indicates otherwise), is a leading global manufacturer of highly engineered equipment servicing multiple market applications in the energy and industrial gas markets. Our unique product portfolio is used in every phase of the liquid gas supply chain including upfront engineering, service and repair. Being at the forefront of the clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas and CO2 Capture amongst other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With over 25 global locations from the United States to Asia, Australia, India, Europe and South America, we maintain accountability and transparency to our team members, suppliers, customers and communities.
Our primary customers are large, multinational producers and distributors of hydrocarbon and industrial gases and their end-users. We sell our products and services to more than 2,000 customers worldwide. We have developed relationships with leading companies in the gas production, gas distribution, gas processing, liquefied natural gas or LNG, petroleum refining, chemical, industrial gas, spaceflight, over the road trucking manufacturing and hydrogen, CO2 capture and other clean energy industries, including Linde, Air Liquide, IVECO, Air Products, Shell, Chevron, ExxonMobil, New Fortress Energy, Samsung, Plug Power, SpaceX, and Blue Origin, some of whom have been purchasing our products for over 30 years.
We have attained this position by capitalizing on our technical expertise and know-how, broad product offering, reputation for quality, low-cost global manufacturing footprint, and by focusing on attractive, growing markets. We have an established sales and customer support presence across the globe and manufacturing operations in the United States, Europe, China and India. For the years ended December 31, 2020, 2019 and 2018, we generated sales of $1,177.1 million, $1,215.5 million, and $1,003.9 million, respectively.
On October 1, 2020, we closed on the sale of our cryobiological products business to Cryoport, Inc. (NASDAQ: CYRX) (the “Cryobiological Divestiture”). Our disclosure in “Item 1. Business” reflects both the Cryobiological Divestiture and a prior 2018 divestiture and is presented on a continuing operations basis.
Segments, Applications and Products
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019, the structure of our internal organization was divided into the following reportable segments, which were also our operating segments: Distribution and Storage Eastern Hemisphere (“D&S East”), Distribution and Storage Western Hemisphere (“D&S West”), Energy & Chemicals (“E&C”) Cryogenics and E&C FinFans. Effective October 1, 2020, we changed our reportable segments to the following four segments: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing.
Our Cryo Tank Solutions segment, which has principal operations in the United States, Europe and Asia, serves most geographic regions around the globe, supplying bulk, microbulk and mobile equipment used in the storage, distribution, vaporization, and application of industrial gases and certain hydrocarbons. Our Heat Transfer Systems segment, with principal operations in the United States, Europe and India, also serves most geographic regions globally, supplying mission critical engineered equipment and systems used in the separation, liquefaction, and purification of hydrocarbon and industrial gases that span gas-to-liquid applications. Operating globally, our Specialty Products segment supplies products used in specialty end-market applications including hydrogen, LNG, biogas, CO2 Capture, food and beverage, aerospace, lasers, cannabis and water treatment, among others. Our Repair, Service & Leasing segment provides installation, service, repair, maintenance, and refurbishment of cryogenic products globally in addition to providing equipment leasing solutions. All prior period amounts presented have been reclassified based on our current reportable segments.
Further information about these segments is located in Note 4, “Segment and Geographic Information,” of our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
Sales were $738.2 million (63%) for energy applications and $438.9 million (37%) for industrial gas applications for the year ended December 31, 2020.
Cryo Tank Solutions
Cryo Tank Solutions (35% of consolidated sales for the year ended December 31, 2020) designs and manufactures cryogenic solutions for the storage and delivery of cryogenic liquids used in industrial gas and LNG applications. With operations in the United States, Latin America, Europe and Asia, our Cryo Tank Solutions segment serves customers globally. Cryo Tank Solutions principal products include bulk, microbulk and mobile equipment used in the storage, distribution, vaporization, and application of industrial gases and certain hydrocarbons.
Industrial Gas Applications
We design and manufacture bulk and packaged gas cryogenic solutions for the storage, distribution, vaporization, and application of industrial gases. Our products span the entire spectrum of industrial gas demand from small customers requiring cryogenic packaged gases to large users requiring custom engineered cryogenic storage systems in both mobile and stationary applications. Using sophisticated vacuum insulation technology, our cryogenic storage systems are able to store and transport liquefied industrial gases and hydrocarbon gases at temperatures from 0° Fahrenheit to temperatures nearing absolute zero. Industrial gas applications include any end-use of the major elements of air (nitrogen, oxygen, and argon), including manufacturing, welding, electronics and medical. Carbon dioxide, nitrous oxide and helium applications also utilize our equipment. Principal customers for industrial applications are global industrial gas producers and distributors. Other end-users of our equipment include chemical producers, manufacturers of electrical components, health care organizations and companies in the oil and natural gas industries.
Demand for industrial gas applications is driven primarily by the significant installed base of users of cryogenic liquids, as well as new applications and distribution technologies for cryogenic liquids. Our competitors tend to be regionally focused while we supply a broad range of systems on a worldwide basis. We also compete with several suppliers owned by the global industrial gas producers. From a technology perspective, we compete with compressed gas alternatives or on-site generated gas supply.
LNG Applications
We supply cryogenic solutions for the storage, distribution, regasification, and use of LNG. LNG may be utilized as an alternative to other fossil fuels such as diesel, propane, or fuel oil in transportation or off pipeline applications. Examples include heavy duty truck and transit bus transportation, locomotive propulsion, marine, and power generation in remote areas that often occurs in oil and gas drilling. We refer to our LNG distribution products as a “Virtual Pipeline,” as the traditional natural gas pipeline is replaced with cryogenic distribution to deliver the gas to the end-user. We supply cryogenic trailers, ISO containers, bulk storage tanks, loading facilities, and regasification equipment specially configured for delivering LNG into Virtual Pipeline applications. We sell LNG applications around the world from various Eastern and Western Hemisphere facilities to numerous end-users, energy companies, and gas distributors. Additionally, we supply large vacuum insulated storage tanks as equipment for purchasers of standard liquefaction plants sold by our Heat Transfer Systems segment.
Demand for LNG applications is driven by diesel displacement initiatives, environmental and energy security initiatives, and the associated cost of equipment. Our competitors tend to be regionally focused or product-specific, while we supply a broad range of solutions required by LNG applications. We compete with compressed natural gas (CNG) or field gas in several of these applications and LNG is most highly valued where its energy density and purity are beneficial to the end-user.
Heat Transfer Systems
Heat Transfer Systems (31% of consolidated sales for the year ended December 31, 2020) facilitates major natural gas, petrochemical processing, petroleum refining, power generation and industrial gas and other clean energy (including hydrogen and CO2 capture) companies in the production of their products. With primary manufacturing capabilities in the U.S. and Europe, Heat Transfer Systems serves customers globally. This segment supplies mission critical engineered equipment and technology-driven process systems used in the separation, liquefaction, and purification of hydrocarbon and industrial gases that span gas-to-liquid applications including natural gas processing, petrochemical, LNG, and petroleum refining. Heat Transfer Systems principal products include brazed aluminum heat exchangers, Core-in-Kettle® heat exchangers, cold boxes, air cooled heat exchangers, shell & tube heat exchangers, axial cooling fans, high pressure reactors and vessels along with associated process technologies.
Natural Gas Processing (including Petrochemical) Applications
We provide natural gas processing solutions that facilitate the progressive cooling and liquefaction of hydrocarbon mixtures for the subsequent recovery or purification of component gases. Primary products used in these applications include brazed aluminum heat exchangers, cold boxes, pressure vessels, Core-in-Kettle® and air cooled heat exchangers. Our brazed aluminum heat exchangers allow producers to obtain purified hydrocarbon by-products, such as methane, ethane, propane, and ethylene, which are commercially marketable for various industrial or residential uses. Our cold boxes are highly engineered systems that incorporate brazed aluminum heat exchangers, pressure vessels, and interconnecting piping used to significantly reduce the temperature of gas mixtures to liquefy component gases so that they can be separated and purified for further use in multiple energy, industrial, scientific, and commercial applications. Chart’s air cooled heat exchangers are used to cool or condense fluids to allow for further processing and for cooling gas compression equipment. Our process technology includes standard and modular plant solutions and comprises detailed mechanical design, Chart manufactured proprietary equipment and all other plant items required to liquefy pipeline quality natural gas. Customers for our natural gas processing applications include large companies in the hydrocarbon processing industry, as well as engineering, procurement and construction (“EPC”) contractors.
Demand for these applications is primarily driven by the growth in the natural gas liquids (or NGLs) separation and other natural gas segments of the hydrocarbon processing industries, including LNG. In the future, management believes that continuing efforts by petroleum producing countries to better utilize stranded natural gas and associated gases which historically had been flared, present a promising source of demand. We have several competitors for our heat exchangers and fans, including certain leading companies in the industrial gas and hydrocarbon processing industries as well as many smaller fabrication-only facilities around the world. Competition with respect to our more specialized brazed aluminum heat exchangers includes a small number of global (European and Asian) manufacturers.
LNG Applications
We provide process technology, liquefaction train, and independent mission critical equipment for the liquefaction of natural gas (LNG), including small to mid-scale facilities, floating LNG applications, and large base-load export facilities. We are a leading supplier to EPC firms where we provide equipment and process technology, providing an integrated and optimized approach to the project. These “Concept-to-Reality” process systems incorporate many of Chart’s core products, including brazed aluminum heat exchangers, Core-in-Kettle® heat exchangers, cold boxes, air cooled heat exchangers, pressure vessels, and pipe work. These systems are used for global LNG projects, for both local LNG production as well as LNG export terminals. Our proprietary IPSMR® (Integrated Pre-cooled Single Mixed Refrigerant) liquefaction process technology offers lower capital expenditure rates than competing processes measured on a per ton of LNG produced basis, along with very competitive operating costs.
Demand for LNG applications is primarily driven by increased use and global trade in natural gas (transported as LNG) since natural gas offers significant cost and environmental advantages over other fossil fuels. Demand for LNG for fuel applications is also driven by diesel displacement and continuing efforts by petroleum producing countries to better utilize stranded natural gas and previously flared gases. We have several competitors for these applications, including leading industrial gas companies, other brazed aluminum heat exchanger manufacturers, and other equipment fabricators to whom we also act as a supplier of equipment, including heat exchangers and cold boxes.
HVAC, Power and Refining Applications
Our air cooled heat exchangers and axial cooling fans are used in HVAC, power and refining applications. Demand for HVAC is driven by growing construction activities and demand for energy efficient devices, and there is also positive impact from growing industrial production. Refining demand continues to be driven by United States shale production, benefiting from low cost shale crude and gas resulting in high utilization and increased investment. Our air cooled heat exchangers are used in each phase of the refining process to condense and cool fluids. Worldwide power use is projected to grow 50% through 2050. This growth is focused in regions where strong economic growth is driving demand, particularly in Asia.
Specialty Products
Specialty Products (21% of consolidated sales for the year ended December 31, 2020) supplies highly-engineered equipment used in specialty end-market applications for hydrogen, LNG, biogas, CO2 Capture, food and beverage, aerospace, lasers, cannabis and water treatment, amongst others. Leveraging our manufacturing presence in both the Eastern and Western Hemispheres, Specialty Products serves customers globally. During 2020, we made a number of acquisitions to capitalize on clean energy market opportunities within this segment.
We supply solutions for the storage, distribution and end-use of hydrogen while also providing highly-specialized mobility and transportation equipment for use with LNG, including onboard vehicle tanks, fuel stations and railcars. More specifically, our horizontal LNG tanks are used onboard heavy-duty trucks and buses while our cryogenic railcars are used to transport not only LNG, but a number of other gaseous and liquid molecules. Additionally, we design and manufacture nitrogen dosing products and other equipment used in packaging as well as the food and beverage industry. These applications include processing, preservation and beverage carbonation.
Our water treatment technology is also offered through the Specialty Products segment. Serving both municipal and industrial end markets globally, our water treatment process technology utilizes Chart’s cryogenic storage and vaporization equipment to efficiently deliver dissolved oxygen, CO2 and ozone into water. Our technology is used for oxygenation, pH adjustment, oxidation and odor control with modular and mobile solution options. Other equipment and technology offered through Specialty Products have applications in CO2 Capture, space and cannabis industries. We also offer cryogenic components, including vacuum insulated pipe (“VIP”), specialty liquid nitrogen, or LN2, end-use equipment and cryogenic flow meters.
Hydrogen Applications
We design and manufacture solutions for the storage, distribution, liquefaction, regasification and use of hydrogen. There are a number of commercial uses for hydrogen including traditional applications in the chemical, refining and space industries. More recently however, hydrogen is increasingly being used as an alternative fuel for the transportation sector, with both onshore and marine applications. Given the global movement towards a lower carbon footprint, there are also a number of other potential uses for hydrogen on the horizon including power generation. To help enable this transition, we supply ISO containers and transport trailers for both gaseous and liquid hydrogen, in addition to fuel stations and other fueling solutions. We also manufacture various types of heat exchangers for hydrogen applications including brazed aluminum, air-cooled and shell & tube varieties.
Demand for many of our specialty applications including hydrogen is primarily driven by the global movement towards a lower-carbon footprint and reduced greenhouse gas emissions through all parts of the economy. These efforts are being guided not only by government policies and related global climate goals, but also by social and environmental pressures by the various stakeholders. Management believes hydrogen in particular will play an ever-increasing role in the energy transition, given its zero emission characteristics and naturally abundant supply. Similarly, management believes other equipment offered by Chart’s Specialty Products segment will be required to achieve global greenhouse gas reduction targets, including the company’s carbon capture and biogas technology, water treatment offerings and specialty packaging equipment. Demand for LNG is also likely to continue benefiting from the ongoing energy transition given its environmental advantages over other fossil fuels. While we have competitors in a portion of these applications, many of our specialty product markets have limited competition.
Repair, Service & Leasing
Our Repair, Service & Leasing segment (13% of consolidated sales for the year ended December 31, 2020) provides installation, service, repair, maintenance, and refurbishment of our products globally in addition to providing equipment leasing solutions. With operations in the United States, Latin America, Europe and Asia, our Repair, Service & Leasing segment serves customers globally.
To support the products and solutions we sell, our Repair, Service & Leasing segment offers services through the entire lifecycle of our products, which is unique and unparalleled in the markets we serve. Our focus is to build relationships with plant stakeholders, from process and mechanical engineers to operations and maintenance personnel, focusing on the optimized performance and lifespan of Chart proprietary equipment. Aftermarket services include extended warranties, plant start-up, parts, 24/7 support, monitoring and process optimization, as well as repair, maintenance, and upgrades. We perform plant services on equipment, including brazed aluminum heat exchangers, cold boxes, etc.
We also install, service, maintain and refurbish bulk and packaged gas cryogenic solutions for the storage, distribution, vaporization, and application of industrial gases. With multiple service locations in the Americas, Europe and Asia, we not only service Chart products, we also service numerous other manufacturers including many of our competitors. We provide services for storage vessels, VIP, reconfiguration, relocation, trailers, ISO containers, vaporizers, and other gas to liquid equipment.
Additionally, we offer a variety of leasing options on certain types of Chart equipment, providing our customers with the flexibility to quickly respond to seasonal or sudden increases in demand with similar flexibility when existing equipment is being repaired or refurbished. We offer short and long-term operating leases as well as lease to own options with up to a ten-
year term. Typical equipment we offer with leasing options include standard trailers, bulk and micro bulk storage systems, vaporizers and delivery tankers.
Demand for services provided by this segment is being driven by our substantial existing and growing install base, exceptional reputation for high-quality service, breadth of services offered and expanded geographic footprint. Additionally, this segment is benefiting from new long-term agreements being executed that incorporate parts, repair and aftermarket service components not included in prior agreements. Our competitors tend to be regionally focused while we supply a broad range of services on a worldwide basis.
Engineering and Product Development
Our engineering and product development activities are focused primarily on developing new and improved solutions and equipment for the users of cryogenic liquids and hydrocarbon and industrial gases across all industries served. Our engineering, technical, and marketing employees actively assist customers in specifying their needs and in determining appropriate products to meet those needs. Portions of our engineering expenditures typically are charged to customers, either as separate items or as components of product cost.
Competition
We believe we can compete effectively around the world and that we are a leading competitor in the industries we serve. Competition is based primarily on performance and the ability to provide the design, engineering, and manufacturing capabilities required in a timely and cost-efficient manner. Contracts are usually awarded on a competitive bid basis. Quality, technical expertise, and timeliness of delivery are the principal competitive factors within the industries we serve. Price and terms of sale are also important competitive factors. Although we believe we rank among the leaders in each of the markets we serve and because our equipment is specialized and independent third-party prepared market share data is not available, it is difficult to know for certain our exact position in our markets. We base our statements about industry and market positions on our reviews of annual reports and published investor presentations of our competitors and augment this data with information received by marketing consultants conducting competition interviews and our sales force and field contacts. For information concerning competition within a specific segment of our business, see the descriptions provided under segment captions in this Annual Report on Form 10-K.
Marketing
We market our products and services in each of our segments throughout the world primarily through direct sales personnel and independent sales representatives and distributors. The technical and custom design nature of our products requires a professional, highly trained sales force. We use independent sales representatives and distributors to market our products and services in certain foreign countries and in certain North American regions. These independent sales representatives supplement our direct sales force in dealing with language and cultural matters. Our domestic and foreign independent sales representatives earn commissions on sales, which vary by product type.
Backlog
For information about our backlog, including backlog by business segment, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Customers
We sell our products primarily to gas producers, distributors, and end-users across energy, industrial, cryobiological storage, power, HVAC and refining applications in countries throughout the world. Sales to our top ten customers accounted for 42%, 34%, and 41% of consolidated sales in 2020, 2019 and 2018, respectively.
Our sales to particular customers fluctuate from period to period, but the global producers and distributors of hydrocarbon and industrial gases and their suppliers tend to be a consistently large source of revenue for us. Our supply contracts are generally contracts for “requirements” only. While our customers may be obligated to purchase a certain percentage of their supplies from us, there are generally no minimum requirements. Also, many of our contracts may be canceled at any time, subject to possible cancellation charges. To minimize credit risk from trade receivables, we review the financial condition of potential customers in relation to established credit requirements before sales credit is extended and we monitor the financial condition of customers to help ensure timely collections and to minimize losses. In addition, for certain domestic and foreign customers, we require advance payments, letters of credit, bankers’ acceptances, and other such guarantees of payment. Certain customers also require us to issue letters of credit or performance bonds, particularly in instances where advance payments are involved, as a condition to placing the order. We believe our relationships with our customers are generally good.
Intellectual Property
Although we have a number of patents, trademarks, and licenses related to our business, no one of them or related group of them is considered by us to be of such importance that its expiration or termination would have a material adverse effect on our business. In general, we depend upon technological capabilities, manufacturing quality control, and application of know-how, rather than patents or other proprietary rights, in the conduct of our business.
Raw Materials and Suppliers
We manufacture most of the products we sell. The raw materials used in manufacturing include aluminum products (including sheets, bars, plate, and piping), stainless steel products (including sheets, plates, heads, and piping), palladium oxide, carbon steel products (including sheets, plates, and heads), valves and gauges, and fabricated metal components. Most raw materials are available from multiple sources of supply. We have long-term relationships with our raw material suppliers and other vendors. Commodity components of our raw material (stainless steel and carbon steel) could experience some level of volatility during 2021 and may have a relational impact on raw material pricing. Subject to certain risks related to our suppliers as discussed under Item 1A. “Risk Factors,” we foresee no acute shortages of any raw materials that would have a material adverse effect on our operations.
Human Capital Resources
As of January 31, 2021, we had 4,318 employees, including 2,006 domestic employees and 2,312 international employees.
We are party to one collective bargaining agreement with the International Association of Machinists and Aerospace Workers (“IAM”) covering 242 employees at our La Crosse, Wisconsin heat exchanger facility. Effective February 8, 2021, we entered into a five agreement with the IAM which expires on February 8, 2026.
Chart is committed to attracting and retaining the best talent. Therefore, investing, developing, and maintaining human capital is critical to our success. As a global manufacturing company, a meaningful number of our employees are engineers or trained trade or technical workers focusing on advanced manufacturing. Chart prioritizes several measures and objectives in managing its human capital assets, including, among others, employee safety and wellness, talent acquisition and retention, employee engagement, development, and training, diversity and inclusion, and compensation and pay equity. In 2020, we did not experience any employee-generated work stoppages or disruptions, and we consider our employee relations to be satisfactory.
Our key human capital measures include employee safety, turnover, absenteeism and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization. Our notable health, welfare and retirement benefits include company-subsidized health insurance, 401(k) plan with company matching contributions, tuition assistance program and paid time off.
Covid-19 and Employee Safety and Wellness
During the coronavirus (Covid-19) pandemic, the safety and well-being of our employees and their families has been a top priority as we continue to serve our customers, many of which are directly involved in critical medical care. Our global pandemic efforts include leveraging the advice and recommendations of infectious disease experts and recognized organizations to establish appropriate safety standards and secure appropriate levels of personal protective equipment for our workforce. Based upon these recommendations, we have adopted and implemented a Covid-19 Response Plan to outline our company policies and procedures designed to mitigate the potential for transmission of Covid-19 and prevent exposure to illness from certain other infectious diseases. These protocols, which remain in place, meet or exceed the Centers for Disease Control guidelines and where applicable, state and local government mandates. Our employees were trained on these protocols prior to or upon returning to work and on an ongoing basis, receive regular updates as rules and guidelines evolve.
Among other things, Chart’s Covid-19 Response Plan details employee, manager, and company responsibilities related to house-keeping and sanitization, hygiene and respiratory etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and accommodations, travel guidelines, remote working opportunities and infrastructure, and protocols for not reporting to work and/or when to return to work upon potential and/or confirmed Covid-19 exposure or infection. Chart also suspended tele-doc charges for all employees to reduce unnecessary hospital and doctor visits. In addition to procuring personal protective equipment, screening stations and other preventative resources, we also leveraged our
technology and human capital to accommodate the heightened level of demand for critical care equipment required by customers around the world to fight Covid-19.
Chart has ongoing communications about safety performance at all levels of the organization. Our Global Safety Council meets monthly to discuss accidents, injuries, near misses, trends and lessons learned. Council members present metrics and other safety information at every executive staff and Board of Directors meeting. The cross-functional Global Safety Council is dedicated to reaching our target of zero accidents. All Chart employees have Stop Work Authority and are expected to use it if there is concern that any task or procedure could be unsafe. Each site recognizes and rewards employees based on local objectives such as achieving safety performance milestones and completing regular audits. All Chart sites implement our Occupational Health and Safety Program Requirements for training, reporting, accident investigation, auditing, implementation, and compliance. The policy encourages employee involvement, a crucial element of a successful safety program, by requiring each site to create a safety committee and safety suggestion program.
Employee Engagement, Development and Training
Chart strives to recruit, hire, develop and promote a diverse workforce. It is our goal to provide each employee a challenging and rewarding experience that allows for personal and professional development. We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. We advance continual learning and career development through ongoing performance and development conversations or evaluations with employees, internally and externally developed training programs, and educational reimbursement programs. In connection with the latter, reimbursement is available to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relative to our business or otherwise to the development of the employee’s skill set or knowledge base. In addition, we routinely invest in seminar, conference and other training or continuing education events for our employees. We believe education empowers our people to identify and adopt best practices that will enhance our sustainability. Our university relations program includes recruitment, co-operative programs and internships. To train a local workforce, our manufacturing facilities forge relationships with community colleges and trade schools and pay their employees based on the job and level of skill.
Other examples of Chart employee development programs include our Emerging Leaders program, Emerging Welders program, an Engineering Rotational program, an Engineering Fellows and Key Experts program, in addition to the aforementioned Global Safety Council. Chart’s Emerging Leaders accelerated development program assigns immersive, high-impact projects to high-potential employees across the organization to prepare them for advancement to executive roles. Engineering Fellows are long-tenured employees who are recognized externally and internally as having contributed to our success in unique ways while our Key Experts are widely recognized within Chart for their engineering expertise and contributions to the field. Together, Fellows and Key Experts manage the rotational engineering program to mentor and develop our early-career engineers.
We strive to maintain an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment. All employees are expected to put into practice our Code of Ethics, related policies, laws, rules and regulations in all countries where we operate. In addition, employees have a duty to report violations and have multiple avenues available through which inappropriate behavior can be reported, such as supervisors, managers, ethics representatives or the confidential, anonymous Chart Ethics Hotline. Designated ethics representatives are always available for employees who have questions or need guidance on compliance. All reports of inappropriate behavior are promptly investigated with appropriate action taken to stop such behavior. Chart investigates alleged incidents and communicates the resolution to the person who reported it. We prohibit retaliation and threats of retaliation against anyone who reports a possible violation or misconduct in good faith and protect employees with our Whistleblower Policy. Chart has partnered with Historically Black Colleges and Universities (HBCUs) to drive a more diverse and inclusive workforce. Our Chief Executive Officer and President, Jillian Evanko, has also signed the CEO Action for Diversity & Inclusion™ pledge, and our Global Diversity & Inclusion Committee is working with our 4,318 team members to ensure all of our key themes and priorities work seamlessly together in our culture for the best employee experience.
Environmental Matters
Our operations have historically included and currently include the handling and use of hazardous and other regulated substances, such as various cleaning fluids used to remove grease from metal, that are subject to federal, state, local, and foreign environmental laws and regulations. These regulations impose limitations on the discharge of pollutants into the soil, air, and water and establish standards for their handling, management, use, storage, and disposal. We monitor and review our procedures and policies for compliance with environmental laws and regulations. Our management is familiar with these regulations and supports an ongoing program to maintain our adherence to required standards.
We are involved with environmental compliance, investigation, monitoring, and remediation activities at certain of our owned or formerly owned manufacturing facilities and at one owned facility that is leased to a third party. We believe that we are currently in substantial compliance with all known environmental regulations. We accrue for certain environmental remediation-related activities for which commitments or remediation plans have been developed or for which costs can be reasonably estimated. These estimates are determined based upon currently available facts regarding each facility. Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. Future expenditures relating to these environmental remediation efforts are expected to be made over the next 7 years as ongoing costs of remediation programs. We do not believe that these regulatory requirements have had a material effect upon our capital expenditures, earnings, or competitive position. We are not anticipating any material capital expenditures in 2021 that are directly related to regulatory compliance matters. Although we believe we have adequately provided for the cost of all known environmental conditions, additional contamination, the outcome of disputed matters, or changes in regulatory posture could result in more costly remediation measures than budgeted, or those we believe are adequate or required by existing law. We believe that any additional liability in excess of amounts accrued which may result from the resolution of such matters will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations.
Available Information
Additional information about the Company is available at www.chartindustries.com. On the Investor Relations page of the website, the public may obtain free copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable following the time that they are filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Additionally, we have posted our Code of Ethical Business Conduct and Officer Code of Ethics on our website, which are also available free of charge to any shareholder interested in obtaining a copy. References to our website do not constitute incorporation by reference of the information contained on such website, and such information is not part of this Form 10-K.

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ITEM 1A. RISK FACTORS
Item 1A.Risk Factors
Investing in our common stock involves risk. You should carefully consider the risks described below, as well as the other information contained in this Annual Report on Form 10-K in evaluating your investment in us. If any of the following risks actually occur, our business, financial condition, operating results, or cash flows could be harmed materially. Additional risks, uncertainties, and other factors that are not currently known to us or that we believe are not currently material may also adversely affect our business, financial condition, operating results or cash flows. In any of these cases, you may lose all or part of your investment in us.
Risks Related to Our Business
The markets we serve are subject to cyclical demand and vulnerable to economic downturn, which could harm our business and make it difficult to project long-term performance.
Demand for our products depends in large part upon the level of capital and maintenance expenditures by many of our customers and end-users, in particular those customers in the global hydrocarbon and industrial gas markets. These customers’ expenditures historically have been cyclical in nature and vulnerable to economic downturns. Decreased capital and maintenance spending by these customers could have a material adverse effect on the demand for our products and our business, financial condition, and results of operations. In addition, this historically cyclical demand limits our ability to make accurate long-term predictions about the performance of our company. Even if demand improves, it is difficult to predict whether any improvement represents a long-term improving trend or the extent or timing of improvement. There can be no assurance that historically improving cycles are representative of actual future demand.
The loss of, or significant reduction or delay in, purchases by our largest customers could reduce our sales and profitability.
While we sell to more than 2,000 customers, sales to our top ten customers accounted for 42%, 34%, and 41% of consolidated sales in 2020, 2019 and 2018, respectively, with sales to one customer of approximately 11.9% of consolidated sales in 2018; we expect that a similar number of customers will continue to represent a substantial portion of our sales for the foreseeable future. While our sales to particular customers fluctuate from period to period, the global producers and distributors of hydrocarbon and industrial gases and their suppliers tend to be a consistently large source of our sales.
The loss of any of our major customers, consolidation of our customers, or a decrease or delay in orders or anticipated spending by such customers could materially reduce our sales and profitability. Although order activity in 2020 increased year over year, we continued to experience energy price volatility and our customers’ adjusted project timing. Delays in the
anticipated timing of LNG infrastructure build out could materially reduce the demand for our products. Our largest customers could also engage in business combinations, which could increase their size, reduce their demand for our products as they recognize synergies or rationalize assets and increase or decrease the portion of our total sales concentration to any single customer. For example, four of our largest customers have combined in recent years, with Airgas and Air Liquide combining in 2016 and Praxair and Linde combining in 2018. Further industry consolidation could further exacerbate our customer concentration risk.
We may fail to successfully integrate companies that provide complementary products or technologies.
An important component of our recent business strategy has been the acquisition of businesses that complement our existing products and services. Such a strategy involves the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities, and potential profitability of acquisition candidates and in integrating the operations of acquired companies. In addition, any acquisitions of businesses with foreign operations or sales may increase our exposure to risks inherent in doing business outside the United States.
As part of this acquisition strategy, we have closed on several acquisitions in the past three years. For example, we completed the acquisition of the Air-X-Changers business “AXC” in July 2019 for a purchase price of approximately $599.7 million. More recently, we have closed on several acquisitions in new clean energy markets, such as hydrogen, water, carbon and direct air capture. These high growth markets represent new businesses that are complementary to our existing LNG and gas technologies. The failure to achieve the anticipated synergies of our recent significant acquisitions or recognize the anticipated market opportunities or integration from our new clean energy acquisitions, could have a material adverse effect on our business, financial condition and results of operations.
From time to time, we may have acquisition discussions with other potential target companies both domestically and internationally. If a large acquisition opportunity arises and we proceed, a substantial portion of our cash and surplus borrowing capacity could be used for the acquisition or we may seek additional debt or equity financing.
Potential acquisition opportunities become available to us from time to time, and we periodically engage in discussions or negotiations relating to potential acquisitions, including acquisitions that may be material in size or scope to our business. Any acquisition may or may not occur and, if an acquisition does occur, it may not be successful in enhancing our business for one or more of the following reasons:
•Any business acquired may not be integrated successfully and may not prove profitable;
•The price we pay for any business acquired may overstate the value of that business or otherwise be too high;
•Liabilities we take on through the acquisition may prove to be higher than we expected;
•We may fail to achieve acquisition synergies; and/or
•The focus on the integration of operations of acquired entities may divert management’s attention from the day-to-day operation of our businesses.
Inherent in any future acquisition is the risk of transitioning company cultures and facilities. The failure to efficiently and effectively achieve such transitions could increase our costs and decrease our profitability.
If we are unable to successfully control our costs and efficiently manage our operations, it may place a significant strain on our management and administrative resources and lead to increased costs and reduced profitability.
We have implemented cost savings initiatives to align our business with current and expected economic conditions. Our ability to operate our business successfully and implement our strategies depends, in part, on our ability to allocate our resources optimally in each of our facilities in order to maintain efficient operations. Ineffective management could cause manufacturing inefficiencies, increase our operating costs, place significant strain on our management and administrative resources, and prevent us from being able to take advantage of opportunities as economic conditions improve. If we are unable to align our cost structure in response to prevailing economic conditions on a timely basis, or if implementation or failure to implement any cost structure adjustments has an adverse impact on our business or prospects, then our financial condition, results of operations, and cash flows may be negatively affected.
Similarly, it is critical that we appropriately manage our planned capital expenditures in this uncertain economic environment. For example, we have invested or plan to invest approximately $40 to $50 million in new capital expenditures in 2021. If we fail to manage the projects related to these capital expenditures in an effective manner, we may lose the opportunity to obtain some new customer orders or the ability to operate our businesses efficiently. Even if we effectively implement these projects, the orders needed to support the capital expenditure may not be obtained, may be delayed, or may be less than expected, which may result in sales or profitability at lower levels than anticipated.
Changes in the energy industry, including pricing fluctuations and reductions and capital expenditures could harm our business, financial condition, and results of operations.
A significant amount of our sales is to customers in the energy production and supply industry. Our concentration of sales to the energy industry has increased as a result of our recent acquisitions and the divestiture of our oxygen-related products business in December 2018 and our Cryobiological business in October 2020. We estimate that 63% of our sales for the year ended December 31, 2020 were generated by end-users in the energy industry, with many of our products sold for natural gas-related applications. Accordingly, demand for a significant portion of our products depends upon the level of capital expenditures by companies in the oil and gas industry, which depends, in part, on energy prices, as well as the price of oil relative to natural gas for some applications. Some applications for our products could see greater demand when prices for natural gas are relatively low compared to oil prices, but a sustained decline in energy prices generally and a resultant downturn in energy production activities could negatively affect the capital expenditures of our customers. Deterioration and significant decline in the capital expenditures of our customers, whether due to a decrease in the market price of energy or otherwise, may decrease demand for our products and cause downward pressure on the prices we charge. Accordingly, if there is a downturn in the energy production and supply industry, including a decline in the cost of oil relative to natural gas, our business, financial condition, and results of operations could be adversely affected.
We carry goodwill and indefinite-lived intangible assets on our balance sheet, which are subject to impairment testing and could subject us to significant non-cash charges to earnings in the future if impairment occurs.
As of December 31, 2020, we had goodwill and indefinite-lived intangible assets of $1,009.8 million, which represented approximately 39.3% of our total assets. Goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment annually in the fourth quarter or more often if events or changes in circumstances indicate a potential impairment may exist. Factors that could indicate that our goodwill or indefinite-lived intangible assets are impaired include a decline in our stock price and market capitalization, lower than projected operating results and cash flows, and slower growth rates in our industry. Our stock price historically has shown volatility and often fluctuates significantly in response to market and other factors. Declines in our stock price, lower operating results and any decline in industry conditions in the future could increase the risk of impairment. Impairment testing incorporates our estimates of future operating results and cash flows, estimates of allocations of certain assets and cash flows among reporting segments, estimates of future growth rates, and our judgment regarding the applicable discount rates used on estimated operating results and cash flows. As a result of the above analyses, we recorded an impairment charge related to indefinite-lived intangible assets of $16.0 million during the fourth quarter of 2020. If we determine at a future time that further impairment exists, it may result in a significant non-cash charge to earnings and lower stockholders’ equity.
We have identified material weaknesses in our internal control over financial reporting that may, if not remediated, result in material misstatements in our financial statements.
We are responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As disclosed in Item 9A, “Controls and Procedures,” we identified material weaknesses in our control over financial reporting related to the review of our goodwill and indefinite-lived intangible assets for impairment. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weaknesses, we concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission framework. The material weaknesses did not result in any identified misstatements to the financial statements, and there were no changes to previously issued financial results. Our remediation of the identified material weaknesses and strengthening our internal control environment is ongoing. However, we cannot guarantee that these steps have been sufficient or that we will prevent a material weakness in the future. If our remediation efforts are insufficient to address the material weaknesses, or if additional material weaknesses in our internal control over financial reporting are discovered or occur in the future, our financial statements may contain material misstatements, and we could be required to restate our financial statements.
The Covid-19 pandemic may disrupt our operations and could adversely affect our business in the future.
While, the Covid-19 pandemic has not had a material impact on our business or operations to date, the pandemic could have a negative effect on our business, results of operations, cash flows and financial condition in the future. The Covid-19 pandemic may affect our business, including as a result of temporary facility closures, work-from-home orders and policies, absenteeism in our facilities, inability to efficiently transport our goods, social distancing and other health and safety protocols and reduced customer demand. While our production has been considered “essential” in all locations we operate in, we have experienced, and expect to continue to experience in the future, temporary facility closures in response to government mandates
and for the safety of our employees due to positive diagnoses for Covid-19 in certain facilities. Temporary facility closures could impact our productivity and hamper the implementation of our ongoing operational improvement efforts. We have implemented work-from-home policies for many employees. The effects of these work-from-home policies could be negative and could impact productivity, research and development efforts, our ongoing operational improvement efforts, internal control over financial reporting, record keeping and access to books and records, and could lead to increased cyber security or data privacy risks. We do not yet know when these work-from-home policies will change or how they may develop. The Covid-19 outbreak could impact the timing of our operational improvement efforts by limiting our ability to implement planned improvements at several of our facilities. The Covid-19 outbreak could adversely impact our ability to secure materials for our products or supplies for our facilities or to provide personal protective equipment for our employees, any of which could adversely affect our operations. Even after the Covid-19 pandemic subsides, there may be long-term effects on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition. Any or all of these risks could be increased or intensified if there is a continued resurgence of the Covid-19 virus after the initial outbreaks subside. As we cannot predict the duration, scope or severity of the Covid-19 pandemic, which continues to develop and change rapidly, the negative financial impact to our results cannot be reasonably estimated, but could be material.
Our backlog is subject to modification, termination or reduction of orders, which could negatively impact our sales.
Our 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 sales. The dollar amount of backlog as of December 31, 2020 was $810.0 million. Our backlog can be significantly affected by the timing of orders for large projects, and the amount of our backlog at December 31, 2020 is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. Although modifications and terminations of our orders may be partially offset by cancellation fees, customers can, and sometimes do, terminate or modify these orders. We cannot predict whether cancellations will accelerate or diminish in the future. Cancellations of purchase orders, indications that the customers will not perform or reductions of product quantities in existing contracts could substantially and materially reduce our backlog and, consequently, our future sales. For example, during 2015, certain backlog in China was reduced by approximately $150.0 million when circumstances suggested that our customers were not likely to take delivery in the future. Our failure to replace canceled orders could negatively impact our sales and results of operations. We did not have any significant cancellations in 2020, 2019 and 2018.
Due to the nature of our business and products, we may be liable for damages based on product liability and warranty claims.
Due to the high pressures and low temperatures at which many of our products are used, the inherent risks associated with concentrated industrial and hydrocarbon gases, and the fact that some of our products are relied upon by our customers or end users in their facilities or operations or are manufactured for relatively broad industrial, medical, transportation, or consumer use, we face an inherent risk of exposure to claims (which we have been subject to from time to time and some of which were substantial including the cryobiological storage tank lawsuits filed in 2018 as discussed in Item 3. “Legal Proceedings”) in the event that the failure, use, or misuse of our products results, or is alleged to result, in death, bodily injury, property damage, or economic loss. We believe that we meet or exceed existing professional specification standards recognized or required in the industries in which we operate. Although we currently maintain product liability coverage, which we believe is adequate for existing product liability claims and for the continued operation of our business, it includes customary exclusions and conditions, it may not cover certain specialized applications such as aerospace-related applications, and it generally does not cover warranty claims. Additionally, such insurance may become difficult to obtain or be unobtainable in the future on terms acceptable to us. A successful product liability claim or series of claims against us, including one or more consumer claims purporting to constitute class actions or claims resulting from extraordinary loss events, in excess of or outside our insurance coverage, or a significant warranty claim or series of claims against us, could materially decrease our liquidity, impair our financial condition, and adversely affect our results of operations.
Governmental energy policies could change or expected changes could fail to materialize which could adversely affect our business or prospects.
Energy policy can develop rapidly in the markets we serve, including the United States, Asia, Australia, Europe, and Latin America. Within the last few years, significant developments have taken place, primarily in international markets that we serve with respect to energy policy and related regulations. We anticipate that energy policy will continue to be an important regulatory priority globally, as well as on a national, state, and local level. As energy policy continues to evolve, the existing rules and incentives that impact the energy-related segments of our business may change. It is difficult, if not impossible, to predict what changes in energy policy might occur in the future and the timing of potential changes and their impact on our business, including likely changes in the United States as a result of the change in Presidential administration. The elimination
or reduction of favorable policies for our energy-related business, or the failure to adopt expected policies that would benefit our business, could negatively impact our sales and profitability.
Our exposure to fixed-price contracts, including exposure to fixed pricing on long-term customer contracts and performance guarantees, could negatively impact our financial results.
A substantial portion of our sales has historically been derived from fixed-price contracts for large system projects which may involve long-term fixed price commitments to customers or guarantees of equipment or process performance and which are sometimes difficult to execute. To the extent that any of our fixed-price contracts are delayed, we fail to satisfy a performance guarantee, our subcontractors fail to perform, contract counterparties successfully assert claims against us, the original cost estimates in these or other contracts prove to be inaccurate or the contracts do not permit us to pass increased costs on to our customers, profitability from a particular contract may decrease or project losses may be incurred, which, in turn, could decrease our sales and overall profitability. The uncertainties associated with our fixed-price contracts make it more difficult to predict our future results and exacerbate the risk that our results will not match expectations, which has happened in the past.
We depend on the availability of certain key suppliers; if we experience difficulty with a supplier, we may have difficulty finding alternative sources of supply.
The cost, quality, and availability of raw materials, certain specialty metals and specialized components used to manufacture our products are critical to our success. The materials and components we use to manufacture our products are sometimes custom made and may be available only from a few suppliers, and the lead times required to obtain these materials and components can often be significant. We rely on sole suppliers or a limited number of suppliers for some of these materials, including special grades of aluminum used in our brazed aluminum heat exchangers and compressors included in some of our product offerings. While we have not historically encountered problems with availability, and our global sourcing team has mitigated these risks by increasing inventory for some of these materials, this does not mean that we will continue to have timely access to adequate supplies of essential materials and components in the future or that supplies of these materials and components will be available on satisfactory terms when needed. If our vendors for these materials and components are unable to meet our requirements, fail to make shipments in a timely manner, or ship defective materials or components, we could experience a shortage or delay in supply or fail to meet our contractual requirements, which would adversely affect our results of operations and negatively impact our cash flow and profitability.
Fluctuations in currency exchange or interest rates may adversely affect our financial condition and operating results.
A significant portion of our revenue and expense is incurred outside of the United States. We must translate revenues, income and expenses, as well as assets and liabilities into U.S. dollars using exchange rates during or at the end of each period. Fluctuations in currency exchange rates have had, and will continue to have an impact on our financial condition, operating results, and cash flow. While we monitor and manage our foreign currency exposure with limited use of derivative financial instruments to mitigate these exposures, fluctuations in currency exchange rates may materially impact our financial and operational results.
In addition, we are exposed to changes in interest rates. While our convertible notes have a fixed cash coupon, other instruments, primarily borrowings under our senior secured revolving credit facility (the “SSRCF”) and a term loan (together, the “2024 Credit Facilities”) are exposed to a variable interest rate. The impact of a 100 basis point increase in interest rates to our senior secured revolving credit facility is discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section of this Annual Report.
As an increasingly global business, we are exposed to economic, political, and other risks in different countries which could materially reduce our sales, profitability or cash flows, or materially increase our liabilities.
Since we manufacture and sell our products worldwide, our business is subject to risks associated with doing business internationally. In 2020, 2019 and 2018, 51%, 48%, and 43%, respectively, of our sales occurred in international markets. Our future results could be harmed by a variety of factors, including:
•changes in foreign currency exchange rates;
•exchange controls and currency restrictions;
•changes in a specific country’s or region’s political, social or economic conditions, particularly in emerging markets;
•civil unrest, turmoil or outbreak of disease or illness, such as the Covid-19, in any of the countries in which we sell our products or in which we or our suppliers operate;
•tariffs, other trade protection measures, as discussed in more detail below, and import or export licensing requirements;
•potential adverse changes in trade agreements between the United States and foreign countries, including the recently enacted United States-Mexico-Canada Agreement (USMCA), among the United States, Canada and Mexico;
•uncertainty and potentially negative consequences relating to the implementation of the United Kingdom’s decision to leave the European Union (“Brexit”);
•potentially negative consequences from changes in U.S. and international tax laws;
•difficulty in staffing and managing geographically widespread operations;
•differing labor regulations;
•requirements relating to withholding taxes on remittances and other payments by subsidiaries;
•different regulatory regimes controlling the protection of our intellectual property;
•restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions;
•restrictions on our ability to repatriate dividends from our foreign subsidiaries;
•difficulty in collecting international accounts receivable;
•difficulty in enforcement of contractual obligations under non-U.S. law;
•transportation delays or interruptions;
•changes in regulatory requirements; and
•the burden of complying with multiple and potentially conflicting laws.
Our international operations and sales also expose us to different local political and business risks and challenges. For example, we are faced with potential difficulties in staffing and managing local operations and we have to design local solutions to manage credit and legal risks of local customers and distributors, which may not be effective. In addition, because some of our international sales are to suppliers that perform work for foreign governments, we are subject to the political risks associated with foreign government projects. For example, certain foreign governments may require suppliers for a project to obtain products solely from local manufacturers or may prohibit the use of products manufactured in certain countries.
Our operations in markets such as Asia, Australia, India, Europe, and South America, may cause us difficulty due to greater regulatory barriers than in the United States, the necessity of adapting to new regulatory systems, problems related to entering new markets with different economic, social and political systems and conditions, and significant competition from the primary participants in these markets, some of which may have substantially greater resources than us. In addition, unstable political conditions or civil unrest, including political instability in Eastern Europe, the Middle East, Hong Kong or elsewhere, could negatively impact our order levels and sales in a region or our ability to collect receivables from customers or operate or execute projects in a region.
Changes in U.S. trade policy, tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.
Our international operations and transactions also depend upon favorable trade relations between the United States and the foreign countries in which our customers and suppliers have operations. Changes in U.S. or international social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our business, as well as any negative sentiment toward the U.S. as a result of such changes, could adversely affect our business. The Trump administration instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the U.S. and other countries where we conduct our business. It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with these and any additional changes that may be implemented by the Biden administration.
U.S. government policy changes and proposals may result in greater restrictions and economic disincentives on international trade. The implementation of new tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments have instituted or have been considering imposing trade sanctions on certain U.S. goods. We do a significant amount of business that would be impacted by changes to the trade policies of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global
demand for our products. We may not succeed in developing and implementing policies and strategies to counter the foregoing factors effectively in each location where we do business and the foregoing factors may cause a reduction in our sales, profitability or cash flows, or cause an increase in our liabilities.
Data privacy and data security considerations could impact our business.
The interpretation and application of data protection laws, including but not limited to the General Data Protection Regulation (the “GDPR”) in Europe, are uncertain and evolving. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data security practices. Complying with these various laws is difficult and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Further, although we are implementing internal controls and procedures designed to ensure compliance with the GDPR and other privacy-related laws, rules and regulations (collectively, the “Data Protection Laws”), there can be no assurance that our controls and procedures will enable us to fully comply with all Data Protection Laws.
Despite our efforts to protect sensitive information and confidential and personal data, comply with applicable laws, rules and regulations and implement data security measures, our facilities and systems may be vulnerable to security breaches and other data loss, including cyber-attacks. In addition, it is not possible to predict the impact on our business of the future loss, alteration or misappropriation of information in our possession related to us, our employees, former employees, customers, suppliers or others. This could lead to negative publicity, legal claims, theft, modification or destruction of proprietary information or key information, damage to or inaccessibility of critical systems, manufacture of defective products, production downtimes, operational disruptions and other significant costs, which could adversely affect our reputation, financial condition and results of operations.
We are subject to potential insolvency or financial distress of third parties.
We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices or on other terms that are less favorable to us or we may have to write off receivables in the case of customer failures to pay. If this happens, whether as a result of the insolvency or financial distress of a third party or otherwise, we may incur losses, or our results of operations, financial position or liquidity could otherwise be adversely affected.
Failure to protect our intellectual property and know-how could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant.
We rely on a combination of internal procedures, nondisclosure agreements and intellectual property rights assignment agreements, as well as licenses, patents, trademarks and copyright law to protect our intellectual property and know-how. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. For example, we frequently explore and evaluate potential relationships and projects with other parties, which often require that we provide the potential partner with confidential technical information. While confidentiality agreements are typically put in place, there is a risk the potential partner could violate the confidentiality agreement and use our technical information for its own benefit or the benefit of others or compromise the confidentiality. In addition, the laws of certain foreign countries in which our products may be sold or manufactured do not protect our intellectual property rights to the same extent as the laws of the United States. In addition, the United States has transitioned from a “first-to-invent” to a “first-to-file” patent system, which means that between two identical, pending patent applications, the first inventor no longer receives priority on the patent to the invention. As a result, the Leahy-Smith America Invents Act may require us to incur significant additional expense and effort to protect our intellectual property. Failure or inability to protect our proprietary information could result in a decrease in our sales or profitability.
We have obtained and applied for some U.S. and foreign trademark and patent registrations and will continue to evaluate the registration of additional trademarks and patents, as appropriate. We cannot guarantee that any of our pending applications will be approved. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge them. A failure to obtain registrations in the United States or elsewhere could limit our ability to protect our trademarks and technologies and could impede our business. Further, the protection of our intellectual property may require expensive investment in protracted litigation and the investment of substantial management time and there is no assurance we ultimately would prevail or that a successful outcome would lead to an economic benefit that is greater than the investment in the litigation. The patents in our patent portfolio are scheduled to expire from 2021 to 2039.
In addition, we may be unable to prevent third parties from using our intellectual property rights and know-how without our authorization or from independently developing intellectual property that is the same as or similar to ours, particularly in
those countries where the laws do not protect our intellectual property rights as fully as in the United States. We compete in a number of industries (e.g., heat exchangers and cryogenic storage) that are small or specialized, which makes it easier for a competitor to monitor our activities and increases the risk that ideas will be stolen. The unauthorized use of our know-how by third parties could reduce or eliminate any competitive advantage we have developed, cause us to lose sales or otherwise harm our business or increase our expenses as we attempt to enforce our rights.
We may be required to make expenditures in order to comply with environmental, health and safety laws and climate change regulations, or incur additional liabilities under these laws and regulations.
We are subject to numerous environmental, health and safety laws and regulations that impose various environmental controls on us or otherwise relate to environmental protection and various health and safety matters, including the discharge of pollutants in the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous materials and wastes, the investigation and remediation of soil and groundwater affected by hazardous substances and the requirement to obtain and maintain permits and licenses. These laws and regulations often impose strict, retroactive and joint and several liability for the costs and damages resulting from cleaning up our or our predecessors’ facilities and third-party disposal sites. Compliance with these laws generally increases the costs of transportation and storage of raw materials and finished products, as well as the costs of storing and disposing waste, and could decrease our liquidity and profitability and increase our liabilities. Health and safety and other laws in the jurisdictions in which we operate impose various requirements on us including state licensing requirements that may benefit our customers. If we are found to have violated any of these laws, we may become subject to corrective action orders and fines or penalties, and incur substantial costs, including substantial remediation costs and commercial liability to our customers. Further, we also could be subject to future liability resulting from conditions that are currently unknown to us that could be discovered in the future.
We are currently remediating or developing work plans for remediation of environmental conditions involving certain current or former facilities. For example, the discovery of contamination arising from historical industrial operations at our Clarksville, Arkansas property, which is currently being leased to a third party business, has exposed us, and in the future may continue to expose us, to remediation obligations. We have also been subject to environmental liabilities for other sites where we formerly operated or at locations where we or our predecessors did or are alleged to have operated. To date, our environmental remediation expenditures and costs for otherwise complying with environmental laws and regulations have not been material, but the uncertainties associated with the investigation and remediation of contamination and the fact that such laws or regulations change frequently makes predicting the cost or impact of such laws and regulations on our future operations uncertain. Stricter environmental, safety and health laws, regulations or enforcement policies could result in substantial costs and liabilities to us and could subject us to more rigorous scrutiny. Consequently, compliance with these laws could result in significant expenditures, as well as other costs and liabilities that could decrease our liquidity and profitability and increase our liabilities.
There is a growing political and scientific consensus that emissions of greenhouse gases alter the composition of the global atmosphere in ways that are affecting the global climate. Various stakeholders, including legislators and regulators, stockholders and non-governmental organizations, as well as companies in many business sectors, are considering ways to reduce greenhouse gas emissions. New regulations could result in product standard requirements for our global businesses but because any impact is dependent on the design of the mandate or standard, we are unable to predict its significance at this time. Furthermore, the potential physical impacts of theorized climate change on our customers, and therefore on our operations, are speculative and highly uncertain, and would be particular to the circumstances developing in various geographical regions. These may include changes in weather patterns (including drought and rainfall levels), water availability, storm patterns and intensities, and temperature levels. These potential physical effects may adversely impact the cost, production, sales and financial performance of our operations.
Our pension plan is currently underfunded and we contribute to a multi-employer plan for collective bargaining U.S. employees, which is also underfunded.
Certain U.S. hourly and salaried employees are covered by our defined benefit pension plan. The plan has been frozen since February 2006. As of December 31, 2020, the projected benefit obligation under our pension plan was approximately $62.5 million, and the value of the assets of the plan was approximately $53.9 million, resulting in our pension plan being underfunded by approximately $8.6 million.
As part of the Hudson acquisition we acquired a noncontributory defined benefit plan covering certain employees of a Hudson subsidiary. The Hudson plan is closed to new participants. As of December 31, 2020, the projected benefit obligation of the Hudson plan was $2.9 million, and the fair value of plan assets were $2.0 million, resulting in the pension plan being underfunded by approximately $0.9 million.
We are also a participant in a multi-employer plan, which is underfunded. Among other risks associated with multi-employer plans, contributions and unfunded obligations of the multi-employer plan are shared by the plan participants and we may inherit unfunded obligations if other plan participants withdraw from the plan or cease to participate. Additionally, if we elect to stop participating in the multi-employer plan, we may be required to pay amounts related to withdrawal liabilities associated with the underfunded status of the plan. If the performance of the assets in our pension plan or the multi-employer plan does not meet expectations or if other actuarial assumptions are modified, our required pension contributions for future years could be higher than we expect, which may negatively impact our results of operations, cash flows and financial condition.
We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws. We operate in many parts of the world that have experienced corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. Despite our training and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from reckless or criminal acts committed by our employees or agents. Our continued expansion outside the U.S., including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations or financial condition.
Our operations could be impacted by the effects of severe weather.
Some of our operations, including our operations in New Iberia, Louisiana, Theodore, Alabama and Houston, Texas, are located in geographic regions and physical locations that are susceptible to physical damage and longer-term economic disruption from hurricanes or other severe weather. We also could make significant future capital expenditures in hurricane-susceptible or other severe weather locations from time to time. These weather events can disrupt our operations, result in damage to our properties and negatively affect the local economy in which these facilities operate. In September 2008, for example, our New Iberia, Louisiana facility was forced to close as a result of heavy rainfall, evacuations, strong winds and power outages resulting from Hurricane Gustav. Two weeks after Hurricane Gustav, winds and flooding from Hurricane Ike damaged our New Iberia, Louisiana, Houston, Texas and The Woodlands, Texas operations and offices, and those facilities were also closed for a period of time. Future hurricanes or other severe weather may cause production or delivery delays as a result of the physical damage to the facilities, the unavailability of employees and temporary workers, the shortage of or delay in receiving certain raw materials or manufacturing supplies and the diminished availability or delay of transportation for customer shipments, any of which may have an adverse effect on our sales and profitability. Additionally, the potential physical impact of theorized climate change could include more frequent and intense storms, which would heighten the risk to our operations in areas that are susceptible to hurricanes and other severe weather. Although we maintain insurance subject to certain deductibles, which may cover some of our losses, that insurance may become unavailable or prove to be inadequate.
We are subject to regulations governing the export of our products.
Due to our significant foreign sales, our export activities are subject to regulation, including the U.S. Treasury Department’s Office of Foreign Assets Control’s regulations. We believe we are in compliance with these regulations and maintain robust programs intended to maintain compliance. However, unintentional lapses in our compliance or uncertainties associated with changing regulatory requirements could result in future violations (or alleged violations) of these regulations. Any violations may subject us to government scrutiny, investigation and civil and criminal penalties and may limit our ability to export our products.
As a provider of products to the U.S. government, we are subject to federal rules, regulations, audits and investigations, the violation or failure of which could adversely affect our business.
We sell certain of our products to the U.S. government; and, therefore, we must comply with and are affected by laws and regulations governing purchases by the U.S. government. Government contract laws and regulations affect how we do business with our government customers and, in some instances, impose added costs on our business. For example, a violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts. In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions.
Current economic and political conditions make tax rules in jurisdictions subject to significant change, and unanticipated changes in our effective tax rate could adversely affect our future results.
Our future results of operations could be affected by changes in the effective tax rate as a result of changes in tax laws, regulations and judicial rulings. In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law in the United States, which among other things, lowered the federal corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of foreign subsidiaries. Although our effective tax rate decreased during 2018, there can be no assurances that any expected benefit from the Tax Cuts and Jobs Act will be maintained long-term given political and other uncertainties.
Also, further changes in the tax laws of foreign jurisdictions could arise, including as a result of the base erosion and profit shifting (BEPS) project undertaken by the Organisation for Economic Co-operation and Development (OECD). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes, to the extent adopted by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes.
Our effective tax rate could also be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses arising from share-based compensation, the valuation of deferred tax assets and liabilities and changes in accounting principles. In addition, we are subject to income tax audits by many tax jurisdictions throughout the world. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.
Risks Related to Our Leverage
Our leverage and future debt service obligations could adversely affect our financial condition, limit our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, impact the way we operate our business, expose us to interest rate risk to the extent of our variable rate debt and prevent us from fulfilling our debt service obligations.
We are leveraged and have future debt service obligations. Our financial performance could be affected by our leverage. As of December 31, 2020, our total indebtedness was $485.4 million. In addition, at that date, under our senior secured revolving credit facility, we had $63.3 million of letters of credit and bank guarantees outstanding and borrowing capacity of approximately $363.2 million. Through separate facilities, our subsidiaries had $47.7 million in bank guarantees outstanding at December 31, 2020.
Our level of indebtedness could have important negative consequences, including:
•difficulty in generating sufficient cash flow and reduced availability of cash for our operations and other business activities;
•difficulty in obtaining financing in the future;
•exposure to risk of increased interest rates due to variable rates of interest under our senior secured revolving credit facility;
•vulnerability to general economic downturns and adverse industry conditions;
•increased competitive disadvantage due to our debt service obligations;
•adverse customer reaction to our debt levels;
•inability to comply with covenants in, and potential for default under, our debt instruments; and
•failure to refinance any of our debt. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. We may be unable to consummate those asset sales to raise capital or sell assets at prices that we believe are fair and proceeds that we do receive may be inadequate to meet any debt service obligations then due.
We may still be able to incur substantially more debt. This could further exacerbate the risks that we face.
We may be able to incur substantial additional indebtedness in the future. The terms of our debt instruments do not fully prohibit us from doing so. In connection with our AXC acquisition, we entered into a $450.0 million term loan facility, furthermore, our senior secured revolving credit facility provides commitments of up to $550.0 million, approximately $363.2 million of which would have been available for future borrowings (after giving effect to letters of credit and bank guarantees outstanding) as of December 31, 2020. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt Instruments and Related Covenants.” We may also further increase the size of our senior secured revolving credit facility which includes an expansion option permitting us to add up to an aggregate of $450.0 million in additional borrowings, subject to certain conditions, or we could refinance with higher borrowing limits. If new debt is added to our current debt levels, the related risks that we now face could intensify.
The senior secured revolving credit facility contains a number of restrictive covenants which limit our ability to finance future operations or capital needs or engage in other business activities that may be in our interest.
The 2024 Credit Facilities impose, and the terms of any future indebtedness may impose, operating and other restrictions on us and our subsidiaries. Such restrictions affect or will affect, and in various circumstances limit or prohibit, among other things, our ability and the ability of our subsidiaries to:
•incur or guarantee additional indebtedness;
•create liens;
•pay dividends based on our leverage ratio and make other distributions in respect of our capital stock;
•redeem or buy back our capital stock based on our leverage ratio;
•make certain investments or certain other restricted payments;
•enter into a new line of business;
•sell or transfer certain kinds of assets;
•enter into certain types of transactions with affiliates; and
•effect mergers or consolidations.
The 2024 Credit Facilities also require us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control.
The restrictions contained in the senior secured revolving credit facility could:
•limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans; and
•adversely affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would be in our interest.
A breach of any of these covenants or our inability to comply with the required financial ratios could result in a default under our 2024 Credit Facilities. If an event of default occurs under our senior secured revolving credit facility, which includes an event of default under the indenture governing our 1.00% Convertible Senior Subordinated Notes due November 2024, the lenders could elect to:
•declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable; or
•require us to apply all of our available cash to repay the borrowings,
either of which could result in an event of default under our convertible notes or prevent us from making payments on the convertible notes when due in 2024, as the case may be. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further financing.
If we were unable to repay or otherwise refinance these borrowings when due, our lenders could sell the collateral securing the 2024 Credit Facilities, which constitutes substantially all of our and our domestic wholly-owned subsidiaries’ assets.
Our 1.00% Convertible Senior Subordinated Notes due November 2024 have certain fundamental change and conditional conversion features which, if triggered, may adversely affect our financial condition.
If a fundamental change occurs under our 1.00% Convertible Senior Subordinated Notes due November 2024, the holders of the convertible notes may require us to purchase for cash any or all of the convertible notes. However, there can be no assurance that we will have sufficient funds at the time of the fundamental change to purchase all of the convertible notes
delivered for purchase, and we may not be able to arrange necessary financing on acceptable terms, if at all. Likewise, if one of the conversion contingencies of our convertible notes is triggered, holders of convertible notes will be entitled to convert the convertible notes at any time during specified periods.
We are subject to counterparty risk with respect to the convertible note hedge and capped call transactions associated with our 1.00% Convertible Senior Subordinated Notes due November 2024.
The option counterparties for our convertible note hedging arrangements are financial institutions, and we will be subject to the risk that any or all of them might default under the convertible note hedge and capped call transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Global economic conditions during the 2008-2009 economic downturn resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the convertible note hedge and capped call transactions with that option counterparty. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
Risks Related to the Trading Market for Our Common Stock
Our common stock has experienced, and may continue to experience, price volatility.
Our common stock has at times experienced substantial price volatility as a result of many factors, including the general volatility of stock market prices and volumes, changes in securities analysts’ estimates of our financial performance, variations between our actual and anticipated financial results, fluctuations in order or backlog levels, fluctuations in energy prices, or uncertainty about current global economic conditions. For these reasons, among others, the price of our stock may continue to fluctuate.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and other agreements and in Delaware law may discourage a takeover attempt.
Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire us. Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our amended and restated certificate of incorporation authorizes our board of directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. Therefore, our board of directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. These rights may have the effect of delaying or deterring a change of control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.
In addition, the terms of our 1.00% Convertible Senior Subordinated Notes due November 2024 may require us to purchase these convertible notes for cash in the event of a takeover of our Company. The indentures governing the convertible notes also prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertible notes. These and other provisions applicable to the convertible notes may have the effect of increasing the cost of acquiring us or otherwise discourage a third party from acquiring us.
The issuance of common stock upon conversion of our 1.00% Convertible Senior Subordinated Notes due November 2024 could cause dilution to the interests of our existing stockholders.
As of December 31, 2020, we had $258.8 million aggregate principal amount of our 1.00% Convertible Senior Subordinated Notes due November 2024. Prior to the close of business on the business day immediately preceding August 15, 2024, the convertible notes will be convertible only upon satisfaction of certain conditions. Holders may convert their 1.00% convertible notes at their option at any time after August 15, 2024 until the close of business on the second scheduled trading day immediately preceding November 15, 2024. As a result of attaining these specified market price conditions, the notes were convertible in the first quarter of 2021, although no notes have been converted to date. We currently intend to settle conversions of 1.00% convertible notes through a combination of the payment of cash and issuance of shares, with payments of cash up to the aggregate principal amount of the convertible notes to be converted and delivering shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being
converted. The number of shares issued could be significant and such an issuance could cause significant dilution to the interests of the existing stockholders.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2.Properties
We occupy 54 facilities totaling approximately 5.7 million square feet, including the locations listed below, with the majority devoted to manufacturing, assembly, and storage. We also own several plots of land in the Czech Republic totaling approximately 0.5 million square feet, with the majority devoted to outdoor storage. Of these facilities, approximately 4.5 million square feet are owned and 1.2 million square feet are occupied under operating leases. One of our owned facilities, a 0.1 million square foot facility in Clarksville, Arkansas, is leased to a third party. We currently lease approximately 7.1 thousand square feet for our corporate office in Ball Ground, Georgia. Our major owned facilities in the United States are subject to mortgages securing our 2024 Credit Facilities.
The following table summarizes information about our principal plants and other materially important physical properties as of January 31, 2021:
Segment Location Ownership Use
Corporate Ball Ground, Georgia, U.S. Leased Office
Corporate Hyderabad, India Leased Office
Corporate Luxembourg, Luxembourg Leased Office
Cryo Tank Solutions/Specialty Products Canton, Georgia, U.S. Leased Office/Warehouse
Cryo Tank Solutions/Heat Transfer Systems/Repair, Service & Leasing Milan, Italy Owned Manufacturing/Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing Andhra Pradesh, India Owned Manufacturing/Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing Changzhou, China Owned Manufacturing/Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing Decin, Czech Republic Leased/Owned Manufacturing/Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing Goch, Germany Owned Manufacturing/Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing Kuala Lumpur, Malaysia Leased Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing Lery, France Owned Manufacturing/Office
Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing New Prague, Minnesota, U.S. Leased/Owned Manufacturing/Office
Heat Transfer Systems Pombia, Italy Leased Manufacturing/Office
Heat Transfer Systems/Repair, Service & Leasing Beasley, Texas, U.S. Owned Manufacturing/Warehouse
Heat Transfer Systems/Repair, Service & Leasing Monterey, Mexico Owned Manufacturing/Office
Heat Transfer Systems/Repair, Service & Leasing Tulsa, Oklahoma, U.S. Leased/Owned Manufacturing/Office/Warehouse
Heat Transfer Systems/Specialty Products/Repair, Service & Leasing La Crosse, Wisconsin, U.S. Leased/Owned Manufacturing/Office/Warehouse
Heat Transfer Systems/Specialty Products/Repair, Service & Leasing New Iberia, Louisiana, U.S. Leased Manufacturing
Heat Transfer Systems/Specialty Products/Repair, Service & Leasing The Woodlands, Texas, U.S. Leased Office
Specialty Products Fayetteville, Arkansas, U.S. Leased Office/Warehouse
Specialty Products Orem, Utah, U.S. Leased Manufacturing/Office
Specialty Products Theodore, Alabama, U.S. Owned Manufacturing/Office
Repair, Service & Leasing Franklin, Indiana, U.S. Leased Manufacturing/Office/Service
Repair, Service & Leasing Houston, Texas, U.S. Owned Service
Regulatory Environment
We are subject to federal, state, and local regulations relating to the discharge of materials into the environment, production and handling of hazardous and regulated materials, and the conduct and condition of our production facilities. We do not believe that these regulatory requirements have had a material effect upon our capital expenditures, earnings, or competitive position. We are not anticipating any material capital expenditures in 2021 that are directly related to regulatory compliance matters. We are also not aware of any pending or potential regulatory changes that would have a material adverse impact on our business.

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ITEM 3. LEGAL PROCEEDINGS
Item 3.Legal Proceedings
Stainless Steel Cryobiological Tank Legal Proceedings
During the second quarter of 2018, Chart was named in lawsuits (including lawsuits filed in the U.S. District Court for the Northern District of California) filed against Chart and other defendants with respect to the alleged failure of a stainless steel cryobiological storage tank (model MVE 808AF-GB) at the Pacific Fertility Center in San Francisco, California. We continue
to evaluate the merits of such claims in light of the information available to date regarding use, maintenance and operation of the tank that was sold to the Pacific Fertility Center through an independent distributor and which has been out of our control for six years prior to the alleged failure. Accordingly, an accrual related to any damages that may result from the lawsuits has not been recorded because a potential loss is not currently probable or estimable. In connection with the Cryobiological Divestiture, Chart retained certain potential liabilities and claims, including the claims asserted in connection with the litigation.
We have asserted various defenses against the claims in the lawsuits, including a defense that since manufacture, we were not in any way involved with the installation, ongoing maintenance or monitoring of the tank or related fertility center cryogenic systems at any time since the initial delivery of the tank.
Aluminum Cryobiological Tank Legal Proceeding
Chart was named in a purported class action lawsuit filed during the second quarter of 2018 in the Ontario Superior Court of Justice against the Company and other defendants with respect to the alleged failure of an aluminum cryobiological storage tank (model FNL XC 47/11-6 W/11) at The Toronto Institute for Reproductive Medicine in Etobicoke, Ontario. A settlement has been reached by the parties in the lawsuit with no material effect on the Company’s financial position, results of operations or cash flows.
We are occasionally subject to various legal claims related to performance under contracts, product liability, taxes, employment matters, environmental matters, intellectual property, and other matters incidental to the normal course of our business. Based on our historical experience in litigating these claims, as well as our current assessment of the underlying merits of the claims and applicable insurance, if any, management believes that the final resolution of these matters will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect. See Item 1A. “Risk Factors.”

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
Item 4A.Executive Officers of the Registrant*
The name, age and positions of each Executive Officer of the Company as of February 15, 2021 are as follows:
Name Age Position
Jillian C. (Jill) Evanko 43 Chief Executive Officer, President and Chief Financial Officer
Gerald F. (Gerry) Vinci 55 Vice President, Chief Human Resources Officer
Herbert G. (Herb) Hotchkiss 50 Vice President, General Counsel and Secretary
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Jillian C. (Jill) Evanko was appointed Chief Executive Officer and President on June 12, 2018 and served as Chief Financial Officer from March 1, 2017 until January 14, 2019 and more recently, since August 29, 2019, has also served as Chief Financial Officer. Ms. Evanko joined Chart on February 13, 2017 as Vice President of Finance. Prior to joining Chart, Ms. Evanko served as the Vice President and Chief Financial Officer of Truck-Lite Co., LLC, a manufacturer of lighting and specialty products for the truck and commercial vehicle industries, since October 2016. Prior to that, she held multiple executive positions at Dover Corporation, a diversified global manufacturer, and its subsidiaries, including the role of Vice President and Chief Financial Officer of Dover Fluids since January 2014. Prior to joining Dover in 2004, Ms. Evanko worked in valuation services at Arthur Andersen, LLP and also held audit and accounting roles for Honeywell and Sony Corporation of America. Ms. Evanko also serves as a director of Parker-Hannifin Corporation (NYSE: PH).
Gerald F. (Gerry) Vinci was appointed our Vice President and Chief Human Resources Officer and has served in that capacity since December 5, 2016, when he joined Chart. Mr. Vinci was designated an executive officer of Chart on August 23, 2017. Prior to joining Chart, Mr. Vinci held various executive Human Resources roles at Dover Corporation, a diversified global manufacturer, from February 2013 to November 2016, including Vice President, Human Resources for Dover Engineered Systems and Dover Refrigeration and Food Equipment Segments. From 1997 to 2013, Mr. Vinci served in numerous Human Resources executive roles and as Senior Counsel for Harsco Corporation. Prior to that, Mr. Vinci was an attorney for Sunoco, Inc.
Herbert G. Hotchkiss was appointed Vice President, General Counsel and Secretary on March 3, 2019. Prior to joining Chart, Mr. Hotchkiss spent over 11 years at Truck-Lite Co., LLC, a manufacturer of lighting and specialty products for the
truck and commercial vehicle industries, as Vice President and Corporate Counsel. Prior to joining Truck-Lite, Mr. Hotchkiss worked for Blair Corporation as its Vice President and General Counsel. Prior to joining Blair Corporation, Mr. Hotchkiss was employed as a Cleveland attorney, working as corporate associate at Calfee, Halter & Griswold LLP and Hahn, Loeser & Parks LLP.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Chart’s common stock is traded on the New York Stock Exchange under the symbol “GTLS.” As of February 1, 2021, there were 154 holders of record of our common stock. Since many holders hold shares in “street name,” we believe that there are a significantly larger number of beneficial owners of our common stock than the number of record holders.
We do not currently intend to pay any cash dividends on our common stock, and instead intend to retain earnings, if any, for debt reduction, organic capital expenditures for productivity and capacity and potential acquisitions. The amounts available to us to pay future cash dividends may be restricted by our 2024 Credit Facilities to the extent our pro forma leverage ratio exceeds certain targets. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, and other factors that our board of directors may deem relevant.
Cumulative Total Return Comparison
Set forth below is a line graph comparing the cumulative total return of a hypothetical investment in the shares of common stock of Chart with the cumulative return of a hypothetical investment in each of the S&P SmallCap 600 Index and our Peer Group Index based on the respective market prices of each such investment on the dates shown below, assuming an initial investment of $100 on December 31, 2015, including reinvestment of dividends, if any.
December 31,
2015 2016 2017 2018 2019 2020
Chart Industries, Inc. $ 100.00 $ 200.56 $ 260.91 $ 362.08 $ 375.78 $ 655.85
S&P SmallCap 600 Index 100.00 126.46 143.09 130.90 160.66 178.72
Peer Group Index 100.00 129.49 157.48 129.74 171.89 194.93
We select the peer companies that comprise the Peer Group Index solely on the basis of objective criteria. These criteria result in an index composed of oil field equipment/service and other comparable industrial companies. The Peer Group Index is comprised of Acuity Brands, Inc., Barnes Group Inc., Circor International, Inc., Colfax Corp., Enpro Industries Inc., Esco Technologies Inc., Graco Inc., Harsco Corporation, Idex Corp., Nordson Corporation, SPX Corporation and Worthington Industries, Inc.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
Period Total Number of Shares Purchased (1)
Average Price Paid Per Share (1)
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (2)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1 - 31, 2020 1,142 $ 72.01 - $ -
November 1 - 30, 2020 34 84.45 - -
December 1 - 31, 2020 151 113.09 - -
Total 1,327 $ 77.00 - $ -
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(1)Includes shares of common stock surrendered to us during the fourth quarter of 2020 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 $102,200. 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 December 31, 2020.
(2)On March 11, 2020, our Board of Directors authorized a share repurchase program for up to $75 million of the Company’s common stock over the next twelve months through various means, including open market transactions, block purchases, privately negotiated transactions or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. We suspended the program on March 20, 2020 in light of uncertainty resulting from the Covid-19 pandemic and the desire to conserve cash resources.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.Selected Financial Data
The following table sets forth selected historical consolidated financial information as of the dates and for each of the periods indicated. We selected historical financial consolidated data as of and for the years ended December 31, 2020, 2019 and 2018 derived from our audited financial statements for such periods incorporated by reference into Item 8 of this Annual Report on Form 10-K, which have been audited by Deloitte & Touche, LLP for the years ended December 31, 2020 and 2019 and Ernst & Young LLP for the year ended December 31, 2018. This selected financial data has been modified in order to conform to the discontinued operations presentation as further discussed in our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
The following table should be read together with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included under Item 15. “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K (all dollar amounts in millions, except per share data):
Year Ended December 31,
2020 2019 2018 2017 2016
Statements of Operations Data:
Sales (1) (2) (3)
$ 1,177.1 $ 1,215.5 $ 1,003.9 $ 765.9 $ 651.4
Cost of sales (4)
845.0 918.0 744.8 574.5 476.2
Gross profit 332.1 297.5 259.1 191.4 175.2
Operating expenses (5) (6) (7) (8)
223.9 245.5 194.6 185.0 158.6
Asset impairments (9)
16.0 - - - 1.2
Operating income (1) (2) (3)
92.2 52.0 64.5 6.4 15.4
Interest expense, net (including deferred financing costs amortization) 22.0 17.7 22.7 17.6 15.7
Gain on bargain purchase (5.0) - - - -
Loss on extinguishment of debt (10)
- - - 4.9 -
Unrealized (gain) loss on investment in equity securities (13.1) 0.1 - - -
Foreign currency loss (gain) 0.9 (0.4) 0.1 (2.9) (6.5)
Other expense 2.2 - - - -
Other expense, net 7.0 17.4 22.8 19.6 9.2
Income (loss) before income taxes 85.2 34.6 41.7 (13.2) 6.2
Income tax expense (benefit), net (11)
14.9 2.8 7.2 (27.9) 1.8
Net income (loss) from continuing operations 70.3 31.8 34.5 14.7 4.4
Income from discontinued operations,
net of tax (12)
239.2 15.0 55.5 14.8 20.3
Net income 309.5 46.8 90.0 29.5 24.7
Less: Income (loss) attributable to noncontrolling interests, net of taxes
1.4 0.4 2.0 1.5 (3.5)
Net income attributable to Chart Industries, Inc. $ 308.1 $ 46.4 $ 88.0 $ 28.0 $ 28.2
Year Ended December 31,
2020 2019 2018 2017 2016
Earnings Per Share Data:
Basic earnings per common share attributable to Chart Industries, Inc.
Income from continuing operations $ 1.95 $ 0.93 $ 1.05 $ 0.43 $ 0.26
Income from discontinued operations 6.76 0.44 1.78 0.48 0.66
Net income attributable to Chart Industries, Inc. $ 8.71 $ 1.37 $ 2.83 $ 0.91 $ 0.92
Diluted earnings per common share attributable to Chart Industries, Inc.
Income from continuing operations $ 1.89 $ 0.89 $ 1.01 $ 0.42 $ 0.26
Income from discontinued operations 6.56 0.43 1.72 0.47 0.65
Net income attributable to Chart Industries, Inc. $ 8.45 $ 1.32 $ 2.73 $ 0.89 $ 0.91
Weighted-average shares - basic 35.38 33.91 31.05 30.74 30.58
Weighted-average shares - diluted 36.45 35.17 32.20 31.34 30.98
Cash Flow Data:
Cash provided by operating activities $ 172.7 $ 133.9 $ 88.8 $ 47.0 $ 170.8
Cash provided by (used in) investing activities 185.0 (642.7) (127.9) (480.0) (18.1)
Cash (used in) provided by financing activities (363.4) 511.6 38.2 275.2 7.7
Cash provided by discontinued operations 335.0 15.7 120.5 0.5 0.4
Other Financial Data:
Depreciation and amortization, including deferred financing costs amortization (13)
$ 88.8 $ 80.7 $ 51.0 $ 36.3 $ 31.6
As of December 31,
2020 2019 2018 2017 2016
Balance Sheet Data:
Cash and cash equivalents $ 125.1 $ 119.0 $ 117.4 $ 122.6 $ 281.8
Working capital (14)
164.0 192.6 160.6 171.0 51.0
Goodwill 865.9 811.4 487.2 426.2 175.4
Identifiable intangible assets, net 493.1 522.4 323.7 279.6 67.5
Total assets (15) (16) (17)
2,570.5 2,481.4 1,826.0 1,656.7 1,164.4
Long-term debt 221.6 761.0 533.2 439.2 233.7
Total debt (18) (19)
442.5 777.3 544.4 498.1 240.2
Chart Industries, Inc. shareholders’ equity 1,572.7 1,227.6 820.3 764.0 639.5
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(1) Includes sales and operating (loss) income for AXC included in the Heat Transfer Systems segment results since the acquisition date, July 1, 2019 as follows:
•Sales were $80.5 and $103.1 for the years ended December 31, 2020 and 2019, respectively, and
•Operating (loss) income was $(24.2) and $4.6 for the years ended December 31, 2020 and 2019, which included $27.2 and $18.4 of combined depreciation and amortization expense, respectively.
(2) Includes sales and operating (loss) income for VRV in the Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing segments results since the acquisition date, November 15, 2018 as follows:
•Sales were $104.0 (Cryo Tank Solutions: $53.2, Heat Transfer Systems: $43.6, Specialty Products: $4.2, Repair, Service & Leasing: $3.0) for the year ended December 31, 2019,
•Sales were $14.1 (Cryo Tank Solutions: $9.3, Heat Transfer Systems: $3.2, Specialty Products: $0.6, Repair, Service & Leasing: $1.0) for the year ended December 31, 2018,
•Operating income (loss) was $11.2 (Cryo Tank Solutions: $8.7, Heat Transfer Systems: $1.9, Specialty Products: $(0.5), Repair, Service & Leasing: $1.1) for the year ended December 31, 2019, and
•Operating (loss) income was $2.1 (Cryo Tank Solutions: $0.3, Heat Transfer Systems: $2.4, Specialty Products: $(0.2), Repair, Service & Leasing: $(0.4)) for the year ended December 31, 2018, which included $1.5 of depreciation and amortization expense and $1.6 in expense recognized in the cost of sales related to inventory step-up.
(3)Includes sales and operating income for Hudson in the Heat Transfer Systems segment results since the acquisition date, September 20, 2017 as follows:
•Sales were $180.3 and $58.0 for the years ended December 31, 2018 and 2017, respectively, and
•Operating income was $19.0 and $6.4 for the years ended December 31, 2018 and 2017, respectively.
(4)Cost of sales includes restructuring costs of $5.7, $12.2, $0.8, $2.7 and $3.5 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(5)Operating expenses include selling, general and administrative expenses and amortization expense. Amortization expense related to intangible assets was $45.7, $39.8, $21.9 $12.0 and $8.4 for the years ended December 31, 2020, 2019, 2018, 2017, and 2016, respectively.
(6)Operating income includes restructuring costs of $13.6, $15.6, $4.3, $11.2 and $9.5 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(7)Includes transaction-related costs of $2.6, $5.4, $2.1, $10.1 and $0.4 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(8)Includes transaction-related costs of $4.3 and $0.8 related to integration activities for previous acquisitions for the years ended December 31, 2019 and 2018, respectively.
(9)Includes $16.0 impairment of our trademarks and trade names indefinite-lived intangible assets related to the AXC business in our Heat Transfer Systems segment.
(10)During the year ended December 31, 2017 we recorded a $4.9 loss on extinguishment of debt associated with the repurchase of $192.9 principal amount of our $250.0 2.0% convertible notes due August 2018 and refinance of our senior secured credit facility.
(11)Includes a one-time $22.5 net favorable tax benefit for the year ended December 31, 2017, which resulted from the enactment of the Tax Cuts and Jobs Act.
(12)Includes gain on sale of the cryobiological products business of $224.2, net of taxes of $25.2 for the year ended December 31, 2020 and includes gain on sale of the CAIRE business of $34.3, net of taxes of $2.6, for the year ended December 31, 2018.
(13)Includes deferred financing costs amortization of $4.3 and $3.0 for the years ended December 31, 2020 and 2019 and $1.3 for each of the remaining years.
(14)Working capital is defined as current assets excluding cash and cash equivalents minus current liabilities excluding short-term debt and current portion of long-term debt (including current convertible notes, if applicable).
(15)Total assets at December 31, 2019 included $593.8 related to AXC of which $287.5 and $256.4 represented acquired goodwill and identifiable intangible assets, net, respectively. For further information, see Note 13, “Business Combinations,” in the consolidated financial statements located elsewhere in this report.
(16)Total assets at December 31, 2018 included $327.8 related to VRV of which $64.0 and $66.4 represented acquired goodwill and identifiable intangible assets, net, respectively.
(17)Total assets at December 31, 2017 included $572.8 related to Hudson of which $238.3 and $207.7 represented acquired goodwill and identifiable intangible assets, net, respectively.
(18)Total debt at December 31, 2020 includes $220.9 convertible notes due November 2024, net of unamortized discount and debt issuance costs and $221.6 senior secured revolving credit facility and term loan, net of debt issuance costs. At December 31, 2020 current maturities were $220.9, which represents our convertible notes due November 2024.
(19)Total debt at December 31, 2019 includes $212.2 convertible notes due November 2024, net of unamortized discount and debt issuance costs, $560.7 senior secured revolving credit facility and term loan, net of debt issuance costs and $4.4 foreign facilities. At December 31, 2019 current maturities were $16.3.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our results of operations and financial condition should be read in conjunction with the “Selected Financial Data” section and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements. Actual results may differ materially from those discussed below. See “Forward-Looking Statements” at the end of this discussion and Item 1A. “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with this discussion.
Overview
We are a leading independent global manufacturer of highly engineered equipment servicing multiple applications in the Energy and Industrial Gas markets. Our unique product portfolio is used in every phase of the liquid gas supply chain, including upfront engineering, service and repair. Being at the forefront of the clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas and CO2 Capture amongst other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With over 25 global locations from the United States to Asia, Australia, India, Europe and South America, we maintain accountability and transparency to our team members, suppliers, customers and communities.
Covid-19 Update
While the outbreak and continued uncertainty associated with the coronavirus (Covid-19) did not have a material adverse effect on our reported results for 2020, we continue to actively monitor the impact of the Covid-19 outbreak on our results of operations for 2021 and beyond. The extent to which our operations will be impacted by the outbreak will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity, or reemergence, of the outbreak and actions by government authorities to contain the outbreak or treat its impact, among other things.
In terms of macro drivers, Covid-19 has sparked an emphasis on health and clean energy transformation, in many cases, accelerating efforts and incenting governments to think through investments in renewable energy sources and storage, including hydrogen, carbon capture, biogas/biomethane and LNG. We continue to expand our footprint in these varied clean energy spaces as highlighted by our recent increased investments in hydrogen-related and emissions reductions businesses. Governments have been responding on a massive scale with stimulus packages, many of which are targeted to kick starting or further progressing the transition to clean energy and to achieve their climate targets.
Cryobiological Divestiture
On October 1, 2020, we closed on the sale of our cryobiological products business, which was formerly within our D&S West segment prior to the realignment of our segment reporting structuring in the fourth quarter of 2020, as further discussed in the following paragraph, to Cryoport, Inc. (NASDAQ: CYRX) for net cash proceeds of $317.5 million, inclusive of the base purchase price of $320.0 million less estimated closing adjustments of $2.5 million (the “Cryobiological Divestiture”). The strategic decision to divest of our cryobiological products business reflects our strategy and capital allocation approach to focus on our core capabilities and offerings. We recorded a gain, net of taxes on the Cryobiological Divestiture of $224.2 million for the year ended December 31, 2020.
Reorganization of Reportable Segments
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019, the structure of our internal organization was divided into the following reportable segments, which were also our operating segments: D&S East, D&S West, E&C Cryogenics and E&C FinFans. Effective October 1, 2020, we changed our reportable segments to the following four reportable segments, which are also our operating segments: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing. Further detailed information regarding our operating segments is presented in Note 4, “Segment and Geographic Information,” of the consolidated financial statements included under Item 15 “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
The financial information presented and discussion of results that follows is presented on a continuing operations basis. All prior period amounts presented below have been reclassified based on our current reportable segments.
2020 Highlights
Being at the forefront of the clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas and CO2 Capture amongst other applications. We saw record backlog in our Cryo Tank Solutions and Specialty Products segments of $222.6 million and $199.7 million at December 31, 2020,
respectively. Total backlog as of December 31, 2020 and 2019 was $810.0 million and $751.2 million, respectively. Our backlog as of December 31, 2020 was inclusive of $21.0 million of backlog remaining on the Venture Global Calcasieu Pass LNG export terminal project order (“Calcasieu Pass”), compared to $117.6 million of Calcasieu Pass remaining as of December 31, 2019. Excluding Calcasieu Pass, backlog increased by $155.4 million or 24.5% in 2020 compared to 2019. Orders of $279.2 million and $196.8 million for our Specialty Products and Repair, Service & Leasing segments, respectively, were records in 2020 based on favorable HLNG vehicle tank and hydrogen equipment orders and full lifecycle and leasing services. Operating Income was a record in each of our four segments. Furthermore, as a percentage of sales, operating income was a record in each of our four segments primarily driven by ongoing cost structure improvement across the global organization. Further driving our strategy, we executed on three acquisitions and two investments during 2020, which are discussed below:
Sustainable Energy Solutions, Inc. Acquisition: On December 23, 2020, we completed the acquisition of Sustainable Energy Solutions, Inc. (“SES”). SES’s Cryogenic Carbon Capture™ (CCC) technology eliminates most emissions from fossil fuels while enabling better use of intermittent renewables through grid-scale energy storage. The stock purchase was completed for a closing purchase price of $20.0 million in cash at closing, subject to a post-closing working capital adjustment, plus a potential earn-out not to exceed $25.0 million in the aggregate.
BlueInGreen, LLC Acquisition: On November 3, 2020, we completed the acquisition of BlueInGreen, LLC (“BIG”), a leading dissolved-gas expert providing custom-engineered solutions for water treatment and industrial process applications that delivers tangible economic, social and environmental value. The stock purchase was completed for a purchase price of $20.0 million in cash at closing (subject to customary adjustments), plus a potential earn-out not to exceed $6.0 million in the aggregate.
Alabama Trailers Acquisition: On October 13, 2020, we completed the acquisition of the Theodore, Alabama cryogenic trailer and hydrogen trailer (transport) assets of Worthington Industries, Inc. (NYSE: WOR) for $10.0 million in cash (“Alabama Trailers”). Alabama Trailers designs, manufactures and sells cryogenic trailers and hydrogen trailers used in industrial gas and energy applications. This acquisition will produce strong synergies by combining Chart’s deep knowledge of cryogenics and liquid hydrogen storage and handling with Alabama Trailers’ expertise and experience in the packaging and assembly of liquid hydrogen trailers. As a result of the acquisition, we recorded a bargain purchase gain of $5.0 million.
HTEC Investment: During the fourth quarter of 2020, we completed an investment in HTEC Hydrogen Technology & Energy Corporation (“HTEC”) in the amount of CAD20 million ($15.7 million) for 15.6% of its capital stock on a fully-diluted basis. HTEC designs, builds, and operates hydrogen fuel supply solutions to support the deployment of hydrogen fuel cell electric vehicles. It has significant hydrogen development experience in the Canadian market, with signed contracts for numerous projects across the country.
McPhy Investment: Also during the fourth quarter of 2020, we made an investment in McPhy (Euronext Paris: MCPHY - ISIN; FR0011742329) by subscribing to 1,276,595 shares for 30 million euros ($35.1 million). As of December 31, 2020, we hold 4.6% of the capital of McPhy and the value of the investment was $53.8 million, which reflects a $17.0 million unrealized gain upon conversion and subsequent mark-to-market. Gains and losses for this investment in equity securities were recorded in other expenses, net on the consolidated statement of income and comprehensive income during the year ended December 31, 2020.
Outlook
Our 2021 full year outlook reflects execution on the clean energy transition including recovery in air cooled heat exchangers related to growth in CO2 Capture applications, small scale LNG opportunities and growth in our Specialty Products business, especially in water treatment, over the road trucking and hydrogen applications. We will continue to evaluate opportunities to redeploy capital from the Cryobiological Divestiture into clean energy applications. As such, on February 2, 2021, we completed a $15 million investment in Svante Inc. and signed a commercial carbon capture memorandum of understanding to explore commercial opportunities as a channel to market preferred partners and collaborate to develop an integrated carbon capture solution using Svante’s rapid adsorption technology and Chart’s cryogenic carbon capture technology to make high-purity CO2 products from industrial flue gas streams. On February 16, 2021, we completed the acquisition of Cryogenic Gas Technologies, Inc. (“Cryo Technologies”) for approximately $55 million in cash (subject to certain customary adjustments). Cryo Technologies is a global leader in custom engineered process systems to separate, purify, refrigerate, liquefy and distribute high value industrial gases such as hydrogen, helium, argon and hydrocarbons with design capabilities for cold boxes for hydrogen and helium use. The distribution systems Cryo Technologies supplies are located within the helium and hydrogen liquefaction facilities and are inclusive of trailer loading systems, which facilitates the first step in product distribution. Our 2021 sales outlook is inclusive of $21 million of Venture Global’s Calcasieu Pass revenue in the first quarter of 2021 as well as $30 million of 2021 revenue from the acquisition of Cryo Technologies. There is no additional Big LNG
revenue included in our outlook although we believe new orders will be received during the year. We continue to invest in our automation, process improvement, and productivity activities across Chart, with total anticipated 2021 capital expenditures spend of $40.0 million to $50.0 million.
Operating Results
The following table sets forth the percentage relationship that each line item in our consolidated statements of income represents to sales for the years ended December 31, 2020, 2019 and 2018 (dollars in millions):
2020 2019 2018
Sales 100.0 % 100.0 % 100.0 %
Cost of sales (1)
71.8 75.5 74.2
Gross profit 28.2 24.5 25.8
Selling, general and administrative expenses (2) - (5)
15.1 16.9 17.2
Amortization expense 3.9 3.3 2.2
Asset impairments (6)
1.4 - -
Operating income 7.8 4.3 6.4
Interest expense, net (7) (8)
1.5 1.2 2.1
Gain on bargain purchase (0.4) - -
Unrealized gain on investment in equity securities (1.1) - -
Financing costs amortization 0.4 0.2 0.1
Foreign currency loss 0.1 - -
Other expense 0.2 - -
Income tax expense, net 1.3 0.2 0.7
Net income from continuing operations 6.0 2.6 3.4
Income from discontinued operations, net of tax 20.3 1.2 5.5
Net income 26.3 3.9 9.0
Income attributable to noncontrolling interests, net of taxes 0.1 - 0.2
Net income attributable to Chart Industries, Inc. 26.2 3.8 8.8
_______________
(1)Cost of sales includes restructuring costs of $5.7, $12.2 and $0.8 for the years ended December 31, 2020, 2019 and 2018, respectively.
(2)Selling, general and administrative expenses includes restructuring costs of $7.9, $3.4 and $3.5 for the years ended December 31, 2020, 2019 and 2018, respectively.
(3)Includes transaction-related costs of $2.6, $5.4 and $2.1 for the years ended December 31, 2020, 2019 and 2018, respectively.
(4)Includes transaction-related costs of $4.3 and $0.8 related to integration activities for previous acquisitions for the years ended December 31, 2019 and 2018, respectively.
(5)Includes share-based compensation expense of $8.6, $8.8 and $4.6, representing 0.7%, 0.7% and 0.5% of sales, for the years ended December 31, 2020, 2019 and 2018, respectively.
(6)Includes $16.0 impairment of our trademarks and trade names indefinite-lived intangible assets related to the AXC business in our Heat Transfer Systems segment.
(7)Includes $8.0, $7.6 and $7.2 of non-cash interest accretion expense related to the carrying amount of the 1.00% Convertible Senior Subordinated Notes due November 2024 (the “2024 Notes”), representing 0.7%, 0.6% and 0.7% of sales for the years ended December 31, 2020, 2019 and 2018, respectively.
(8)Includes $1.9 of non-cash interest accretion expense related to the carrying amount of the 2.00% Convertible Senior Subordinated Notes due August 2018 (the “2018 Notes”), representing 0.2% of sales, for the year ended December 31, 2018.
Consolidated Results for the Years Ended December 31, 2020, 2019 and 2018
The following table includes key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the years ended December 31, 2020, 2019 and 2018 (dollars in millions). Further detailed information regarding our operating segments is presented in Note 4, “Segment and Geographic Information,” of the consolidated financial statements included under Item 15 “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
Selected Segment Financial Information
Year Ended December 31,
2020 2019 2018
Sales
Cryo Tank Solutions $ 415.8 $ 409.9 $ 371.4
Heat Transfer Systems 369.8 441.7 289.8
Specialty Products 242.6 207.9 184.5
Repair, Service & Leasing 158.3 162.6 160.4
Intersegment eliminations (9.4) (6.6) (2.2)
Consolidated $ 1,177.1 $ 1,215.5 $ 1,003.9
Gross Profit
Cryo Tank Solutions $ 99.5 $ 77.2 $ 87.3
Heat Transfer Systems 93.7 94.1 56.1
Specialty Products 84.3 72.2 68.5
Repair, Service & Leasing 54.6 54.0 47.2
Consolidated $ 332.1 $ 297.5 $ 259.1
Gross Profit Margin
Cryo Tank Solutions 23.9 % 18.8 % 23.5 %
Heat Transfer Systems 25.3 % 21.3 % 19.4 %
Specialty Products 34.7 % 34.7 % 37.1 %
Repair, Service & Leasing 34.5 % 33.2 % 29.4 %
Consolidated 28.2 % 24.5 % 25.8 %
SG&A Expenses
Cryo Tank Solutions $ 41.7 $ 45.9 $ 42.6
Heat Transfer Systems 36.6 51.4 36.8
Specialty Products 22.2 22.4 22.0
Repair, Service & Leasing 15.3 18.6 20.1
Corporate
62.4 67.4 51.2
Consolidated $ 178.2 $ 205.7 $ 172.7
SG&A Expenses (% of Sales)
Cryo Tank Solutions 10.0 % 11.2 % 11.5 %
Heat Transfer Systems 9.9 % 11.6 % 12.7 %
Specialty Products 9.2 % 10.8 % 11.9 %
Repair, Service & Leasing 9.7 % 11.4 % 12.5 %
Consolidated 15.1 % 16.9 % 17.2 %
Operating Income (Loss) (1)
Cryo Tank Solutions $ 52.5 $ 25.7 $ 41.1
Heat Transfer Systems (2)
11.2 17.7 8.7
Specialty Products 60.7 48.1 44.8
Repair, Service & Leasing 30.3 27.9 21.2
Corporate (3) (4)
(62.5) (67.4) (51.3)
Consolidated $ 92.2 $ 52.0 $ 64.5
Operating Margin
Cryo Tank Solutions 12.6 % 6.3 % 11.1 %
Heat Transfer Systems 3.0 % 4.0 % 3.0 %
Specialty Products 25.0 % 23.1 % 24.3 %
Repair, Service & Leasing 19.1 % 17.2 % 13.2 %
Consolidated 7.8 % 4.3 % 6.4 %
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(1)Restructuring costs (credits) for the years ended:
•December 31, 2020 were $13.6 ($2.7 - Cryo Tank Solutions, $7.4 - Heat Transfer Systems, $0.7 - Specialty Products, $0.2 - Repair, Service & Leasing and $2.6 - Corporate);
•December 31, 2019 were $15.6 ($9.1 - Cryo Tank Solutions, $4.5 - Heat Transfer Systems, $0.3 - Specialty Products, $1.5 - Repair, Service & Leasing and $0.2 - Corporate); and
•December 31, 2018 were $4.3 ($1.7 - Cryo Tank Solutions, $0.7 - Heat Transfer Systems, $(0.3) - Specialty Products, $(0.1) - Repair, Service & Leasing and $2.3 - Corporate).
(2)Includes $16.0 impairment of our trademarks and trade names indefinite-lived intangible assets related to the AXC business in our Heat Transfer Systems segment.
(3)Includes transaction-related costs of $2.6, $5.4 and $2.1 for the years ended December 31, 2020, 2019 and 2018 respectively.
(4)Includes transaction related costs of $4.3 and $0.8 related to integration activities for previous acquisitions for the years ended December 31, 2019 and 2018, respectively.
Results of Operations for the Years Ended December 31, 2020 and 2019
Sales in 2020 decreased by $38.4 million from $1,215.5 million to $1,177.1 million, or 3.2%. Heat Transfer Systems segment sales decreased by $71.9 million during 2020 as compared to 2019 primarily due to an industry-wide softness in demand for midstream and upstream compression equipment. This decrease with the Heat Transfer Systems segment was partially offset by revenue contributions from the continued execution of our backlog on big LNG, including Venture Global’s Calcasieu Pass LNG export terminal project and other petrochemical applications and our Specialty Products segment where sales increased by $34.7 million as compared to 2019 primarily driven by favorable sales in hydrogen equipment and HLNG vehicle tanks.
Gross profit in 2020 increased by $34.6 million from $297.5 million to $332.1 million, or 11.6% compared to 2019. Gross profit as a percentage of sales increased within each of our four segments in 2020 as compared to 2019 primarily as a result of ongoing cost structure improvement across the global organization, the impact of higher restructuring costs in 2019 within our Cryo Tank Solutions segment and product mix, especially where Venture Global’s Calcasieu Pass LNG export terminal project drove higher margins in our Heat Transfer Systems segment.
SG&A expenses decreased by $27.5 million, or 13.4% in 2020 compared to 2019 across multiple SG&A categories primarily as a result of cost reduction initiatives. During 2020, we implemented certain cost reduction actions across all segments and corporate to appropriately size our workforce with demand as well as eliminate redundant work. Costs were primarily related to headcount reductions. These actions resulted in total restructuring costs of $13.6 million for the year ended December 31, 2020, consisting of mainly employee severance costs. As previously reported, on July 17, 2020, we announced internally our intention to transfer operations of our heat exchanger leased facility in Tulsa, Oklahoma to our Beasley, Texas location at which we own 260 acres of land. This was a cost reduction measure within our Heat Transfer Systems segment to structure the business for profitable growth in equipment for midstream and upstream energy applications. Total costs related to this action are expected to be approximately $9.0 million, of which $2.7 million has been spent year to date, associated with severance, relocation and moving expenses. We expect this project to be completed by June 30, 2021. We are closely monitoring our end markets and order rates and will continue to take appropriate and timely actions as necessary.
During 2019, we implemented certain cost reduction or avoidance actions, including facility consolidations at certain of our U.S. properties, and a streamlining of the commercial activities surrounding our Lifecycle business in our Repair, Service & Leasing segment, geographic realignment of our manufacturing capacity and a facility closure in Asia, as well as departmental restructuring, including headcount reductions in each of our four segments. These actions resulted in total restructuring costs of $15.6 million, consisting of employee severance costs, disposals of property, plant and equipment and other costs. Restructuring costs for 2019 reflect a $1.6 million credit to Repair, Service & Leasing segment restructuring costs recorded in the second quarter of 2019 due to the successful negotiation of a lease termination for a facility for our previous Lifecycle business. These restructuring activities were substantially completed by the end of 2019.
Impairment of Intangible assets
We recorded an impairment loss of $16.0 million during 2020 relative to our $55.0 million trademarks and trade names indefinite-lived intangible asset of our AXC business (“AXC Intangible Asset”) in our Heat Transfer Systems segment. Industry-wide softness in demand for midstream and upstream compression equipment represented impairment indicators requiring us to re-evaluate the fair value of the AXC Intangible Asset. We determined the fair value of the AXC Intangible Asset under the relief-from-royalty method and conducted an impairment test as defined in the Application of Critical Accounting Policies section. We determined that the fair value of the AXC Intangible Asset was $39.0 million and impaired the AXC Intangible Asset by a value equal to the difference in the carrying amount and calculated fair value.
Interest Expense, Net and Financing Costs Amortization
Net interest expense for the year ended December 31, 2020 and 2019 was $17.7 million and $14.7 million, respectively. Interest expense for the year ended December 31, 2020 included $2.6 million of 1.0% cash interest and $8.0 million of non-cash interest accretion expense related to the carrying value of the convertible notes due 2024, and $7.0 million in interest related to borrowings on our previous and current senior secured revolving credit facility and term loan. For 2020 and 2019, financing costs amortization was $4.3 million and $3.0 million, respectively. The increase of $1.3 million was primarily due to recognition of a full year of financing costs amortization related to the term loan in 2020 as compared to six months of financing costs amortization recognized in 2019.
Foreign Currency Loss (Gain)
For 2020 foreign currency losses were $0.9 million as compared to foreign currency gains of $0.4 million for 2019. Losses increased by $1.3 million during 2020 due to exchange rate volatility, especially with respect to the euro and Chinese yuan.
Gain on Bargain Purchase
As a result of the Alabama Trailers acquisition, we recorded a bargain purchase gain of $5.0 million.
Unrealized (Gain) Loss on Investment in Equity Securities
The unrealized gain on investment in equity securities was $13.1 million in 2020 as compared to the unrealized loss on investment in equity securities of $0.1 million in 2019. Gains increased by $13.2 million primarily due to an $17.0 million unrealized gain on the mark-to-market adjustment of our investment in McPhy (Euronext Paris: MCPHY - ISIN; FR0011742329), partially offset by a $2.9 million unrealized loss on the mark-to-market adjustment of our investment in Stabilis.
Income Tax Expense (Benefit)
Income tax expense of $14.9 million and expense of $2.8 million for the years ended December 31, 2020 and 2019 represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 17.5% and 8.1%, respectively. The effective income tax rate of 17.5% for the year ended December 31, 2020 differed from the U.S. federal statutory rate of 21% primarily due to tax benefits associated with share-based compensation and the Alabama Trailers bargain purchase gain offset by the effect of income earned by certain of our foreign entities being taxed at higher rates than the federal statutory rate as well as losses incurred by certain of our Chinese operations for which no benefit was recorded.
The effective income tax rate of 8.1% for the year ended December 31, 2019 differed from the U.S. federal statutory rate of 21% primarily due to tax benefits related to certain share-based compensation, partially offset by the effect of income earned by certain of our foreign entities being taxed at higher rates than the federal statutory rate as well as losses incurred by certain of our Chinese operations for which no benefit was recorded.
Net Income from Continuing Operations
As a result of the foregoing, net income from continuing operations attributable to Chart was $68.9 million and $31.4 million for 2020 and 2019, respectively.
Discontinued Operations
The financial results of our cryobiological products business formerly reported in our D&S West segment and financial results from our oxygen-related products business formerly reported in our BioMedical segment are reflected in our consolidated financial statements as discontinued operations for all periods presented. For further information, refer to Note 3, “Discontinued Operations.”
Results of Operations for the Years Ended December 31, 2019 and 2018
Sales in 2019 increased by $211.6 million from $1,003.9 million to $1,215.5 million, or 21.1% (1.9% organically), with increases across all segments as compared to 2018. AXC sales of $103.1 million are included in the Heat Transfer Systems segment results since the July 1, 2019 acquisition date. Sales for VRV in 2019, included in Cryo Tank Solutions, Heat Transfer Systems and Specialty segments’ results since the November 15, 2018 acquisition date were $104.0 million (Cryo Tank Solutions: $53.2 million, Heat Transfer Systems: $43.6 million, Specialty Products: $4.2 million, Repair, Service & Leasing: $3.0 million) as compared to $14.1 million (Cryo Tank Solutions: $9.3 million, Heat Transfer Systems: $3.2 million, Specialty Products: $0.6 million, Repair, Service & Leasing: $1.0 million) in 2018. Excluding the impact of AXC and VRV, sales growth was primarily driven by axial flow fans sales in our Heat Transfer Systems segment and an increase in HLNG vehicle tank sales within our Specialty Products segment.
Gross profit in 2019 increased by $38.4 million or 14.8% (0.7% organically) compared to 2018. AXC gross profit of $29.2 million is included in 2019, and gross profit for VRV was $8.5 million and $1.0 million in 2019 and 2018, respectively. Excluding AXC and VRV, gross profit increased by $1.7 million. Gross profit included restructuring costs of $12.2 million and $0.8 million for the year ended December 31, 2019 and 2018, respectively, which during 2019 were related to cost reduction or avoidance actions, including facility consolidations across the global organization and a streamlining of the commercial activities surrounding our after-market services business in our Repair, Service & Leasing segment, geographic realignment of our manufacturing capacity and a facility closure in China, as well as departmental restructuring, including headcount reductions in each of our segments. Excluding the impact of the AXC and VRV acquisitions and restructuring costs, gross profit increased by $13.1 million. Gross margin as a percent of sales was 24.5% for the year ended December 31, 2019 which decreased from 25.8% in 2018. Excluding the impact of the AXC and VRV acquisitions and restructuring costs, gross margin as a percent of sales was 27.0% for the year ended December 31, 2019 which increased from 26.2% in the same period in 2018.
SG&A expenses increased by $33.0 million ($10.3 million organically), or 19.1% (6.0% organically) in 2019 compared to 2018. SG&A expenses for AXC were $7.8 million in 2019. Furthermore, SG&A expenses for VRV were $16.9 million and $2.0 million for 2019 and 2018, respectively. Excluding the impact of AXC and VRV, SG&A expenses were 17.9% of sales for the year ended December 31, 2019 compared to 17.2% for the year ended December 31, 2018. This increase in SG&A expenses as a percentage of sales was primarily driven by Corporate SG&A expenses, which increased by $16.2 million during 2019 as compared to 2018 primarily due to $7.3 million in transaction-related costs, $4.3 million in integration costs related to acquisitions and an increase in share-based compensation expense partially offset by a decrease in employee-related costs.
Interest Expense, Net and Financing Costs Amortization
Net interest expense for the year ended December 31, 2019 and 2018 was $14.7 million and $21.4 million, respectively. Interest expense for the year ended December 31, 2019 included $2.6 million of 1.0% cash interest and $7.6 million of non-cash interest accretion expense related to the carrying value of the convertible notes due 2024, and $5.3 million in interest related to borrowings on our previous and current senior secured revolving credit facility and term loan. For 2019 and 2018, financing costs amortization was $3.0 million and $1.3 million, respectively. The increase of $1.7 million was primarily due to higher financing costs amortization as a result of debt restructuring actions in 2019.
Foreign Currency (Gain) Loss
For 2019, foreign currency gains were $0.4 million as compared to foreign currency losses of $0.1 million for 2018. Gains increased by $0.5 million during 2019 due to exchange rate volatility, especially with respect to the euro and Chinese yuan.
Income Tax (Benefit) Expense
Income tax expense of $2.8 million and expense of $7.2 million for the years ended December 31, 2019 and 2018 represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 8.1% and 17.3%, respectively. The effective income tax rate of 8.1% for the year ended December 31, 2019 differed from the U.S. federal statutory rate of 21% primarily due to tax benefits associated with share-based compensation and a reduction in our state tax rate partially offset by the effect of income earned by certain of our foreign entities being taxed at higher rates than the federal statutory rate as well as losses incurred by certain of our Chinese operations for which no benefit was recorded.
The effective income tax rate of 17.3% for the year ended December 31, 2018 differed from the U.S. federal statutory rate of 21% primarily due to tax benefits related to certain share-based compensation, partially offset by the effect of income earned by certain of our foreign entities being taxed at higher rates than the federal statutory rate as well as losses incurred by certain of our Chinese operations for which no benefit was recorded.
Net Income from Continuing Operations
As a result of the foregoing, net income from continuing operations attributable to Chart was $31.4 million and $32.5 million for 2019 and 2018, respectively.
Segment Results for the Years Ended December 31, 2020, 2019 and 2018
Our reportable and operational segments include: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing. Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, and risk management. Corporate support functions are not currently allocated to the segments. For further information, refer to Note 4, “Segment and Geographic Information” of our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K. The following tables include key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the years ended December 31, 2020, 2019 and 2018 (dollars in millions):
Cryo Tank Solutions-Results of Operations for the Years Ended December 31, 2020 and 2019
Year Ended December 31, 2020 vs. 2019
2020 2019 Variance
($) Variance
(%)
Sales $ 415.8 $ 409.9 $ 5.9 1.4 %
Gross Profit 99.5 77.2 22.3 28.9 %
Gross Profit Margin 23.9 % 18.8 %
SG&A Expenses $ 41.7 $ 45.9 $ (4.2) (9.2) %
SG&A Expenses (% of Sales) 10.0 % 11.2 %
Operating Income $ 52.5 $ 25.7 $ 26.8 104.3 %
Operating Margin 12.6 % 6.3 %
For the year 2020, Cryo Tank Solutions segment sales increased by $5.9 million as compared to 2019 primarily due to higher volume in engineered tanks in the U.S. and higher mobile equipment sales in China, partially offset by lower sales in storage equipment in the U.S. mainly driven by business disruptions where certain of our large customers shut down production temporarily due to the Covid-19 pandemic earlier in the year.
For the year 2020, Cryo Tank Solutions segment gross profit increased by $22.3 million as compared to 2019. This increase in gross profit was mainly attributable to increased volume efficiencies related to our mobile equipment product lines in China and in VRV and one-time restructuring costs in China during 2019. The increase in the related margin percentage was primarily driven by restructuring costs in 2019 and favorable product mix as our Cryo Tank Solutions segment operations in Europe and China gained better leverage on increased volume. This increase was partially offset by unfavorable product mix relative to engineered systems related to our U.S. Cryo Tank Solutions segment operations.
Cryo Tank Solutions SG&A expenses decreased during the year 2020 as compared to 2019 primarily driven by lower employee-related costs as a result of cost reduction actions. Restructuring expenses were $2.3 million in 2020 as compared to $1.1 million in 2019. Cryo Tank Solutions SG&A expenses include a $2.6 million gain on sale of China facility in 2020.
Cryo Tank Solutions-Results of Operations for the Years Ended December 31, 2019 and 2018
Year Ended December 31, 2019 vs. 2018
2019 2018 Variance
($) Variance
(%)
Sales $ 409.9 $ 371.4 $ 38.5 10.4 %
Gross Profit 77.2 87.3 (10.1) (11.6) %
Gross Profit Margin 18.8 % 23.5 %
SG&A Expenses $ 45.9 $ 42.6 $ 3.3 7.7 %
SG&A Expenses (% of Sales) 11.2 % 11.5 %
Operating Income $ 25.7 $ 41.1 $ (15.4) (37.5) %
Operating Margin 6.3 % 11.1 %
For the full year 2019, Cryo Tank Solutions segment sales increased by $38.5 million compared to 2018. Sales for VRV, included in the Cryo Tank Solutions segment since the acquisition date November 15, 2018, were $53.2 million and $9.3 million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of VRV, Cryo Tank Solutions
segment sales decreased by $5.4 million during 2019, which was primarily driven by lower sales in China largely relative to a decline in LNG and bulk products partially offset by an increase in all product applications in Europe.
During the full year 2019, Cryo Tank Solutions segment gross profit decreased by $10.1 million as compared to 2018 primarily as a result of higher restructuring costs in 2019 as compared to 2018. Gross profit for VRV included in the Cryo Tank Solutions segment was $2.6 million and $1.4 million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of VRV, gross profit decreased by $11.3 million. Restructuring expenses recognized in cost of sales were $7.8 million ($7.6 million excluding VRV) and $0.5 million for the years ended December 31, 2019 and 2018, respectively. The restructuring charges that negatively impacted the Cryo Tank Solutions segment gross profit and the related margin percentage were primarily due to the closing of two production lines in China.
Cryo Tank Solutions segment SG&A expenses increased by $3.3 million during 2019 as compared to 2018. SG&A expenses for VRV included in the Cryo Tank Solutions segment were $8.8 million and $1.2 million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of VRV, Cryo Tank Solutions segment SG&A expenses decreased by $4.3 million during 2019, which was primarily driven by lower employee-related costs, mainly in China, due to workforce reductions.
Heat Transfer Systems-Results of Operations for the Years Ended December 31, 2020 and 2019
Year Ended December 31, 2020 vs. 2019
2020 2019 Variance
($) Variance
(%)
Sales $ 369.8 $ 441.7 $ (71.9) (16.3) %
Gross Profit 93.7 94.1 (0.4) (0.4) %
Gross Profit Margin 25.3 % 21.3 %
SG&A Expenses $ 36.6 $ 51.4 $ (14.8) (28.8) %
SG&A Expenses (% of Sales) 9.9 % 11.6 %
Operating Income $ 11.2 $ 17.7 $ (6.5) (36.7) %
Operating Margin 3.0 % 4.0 %
Heat Transfer Systems segment sales decreased by $71.9 million during 2020 as compared to 2019 primarily due to an industry-wide softness in demand for midstream and upstream compression equipment. This decrease was partially offset by revenue contributions from the continued execution of our backlog on big LNG, including Venture Global’s Calcasieu Pass LNG export terminal project and other petrochemical applications. As of the beginning of 2020, our previous Cooler Service air cooled heat exchanger facility in Tulsa was closed, and its operations were combined with our AXC operations.
Heat Transfer Systems segment gross profit decreased by $0.4 million during 2020 compared to 2019 while the related margin increased by 400 basis points. Gross profit as a percentage of sales increased mainly due to mix where Venture Global’s Calcasieu Pass LNG export terminal project drove higher margins.
Heat Transfer Systems segment SG&A expenses decreased by $14.8 million during the year 2020 as compared to 2019 primarily driven by general reductions across most SG&A categories, especially employee-related costs in light of restructuring actions taken during the period.
Heat Transfer Systems operating income decreased by $6.5 million during the year 2020 as compared to 2019. As discussed in the Consolidated Results section, we recorded an impairment loss of $16.0 million during 2020 relative to our AXC Intangible Asset. Excluding the impact of the impairment loss, operating income increased by $9.5 million.
Heat Transfer Systems-Results of Operations for the Years Ended December 31, 2019 and 2018
Year Ended December 31, 2019 vs. 2018
2019 2018 Variance
($) Variance
(%)
Sales $ 441.7 $ 289.8 $ 151.9 52.4 %
Gross Profit 94.1 56.1 38.0 67.7 %
Gross Profit Margin 21.3 % 19.4 %
SG&A Expenses $ 51.4 $ 36.8 $ 14.6 39.7 %
SG&A Expenses (% of Sales) 11.6 % 12.7 %
Operating Income $ 17.7 $ 8.7 $ 9.0 103.4 %
Operating Margin 4.0 % 3.0 %
Heat Transfer Systems segment sales increased by $151.9 million during 2019 as compared to 2018. AXC sales, included in the Heat Transfer Systems segment since the acquisition date July 1, 2019 was $103.1 million for the year ended December 31, 2019. Furthermore sales for VRV, included in the Heat Transfer Systems segment since the acquisition date November 15, 2018, were $43.6 million and $3.2 million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of AXC and VRV, Heat Transfer Systems segment sales increased $8.4 million during 2019, which was primarily driven by higher volume in brazed aluminum heat exchangers and cold box projects.
Heat Transfer Systems segment gross profit increased by $38.0 million during 2019 as compared to 2018. AXC gross profit for the Heat Transfer Systems segment was $29.2 million for the year ended December 31, 2019. Furthermore, VRV gross profit/(loss) for the Heat Transfer Systems segment was $4.9 million and $(1.1) million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of AXC and VRV, Heat Transfer Systems segment gross profit increased by $2.8 million. Gross profit margin was 21.3% in 2019 compared to 19.4% in 2018. The increase in gross profit margin was primarily driven by AXC which contributed a higher margin compared to the rest of the Heat Transfer Systems segment’s business.
Heat Transfer Systems segment SG&A expenses increased by $14.6 million during 2019 as compared to 2018. AXC SG&A expenses for the Heat Transfer Systems segment were $7.8 million for the year ended December 31, 2019. Furthermore, VRV SG&A expenses for the Heat Transfer Systems segment was $6.5 million and $0.7 million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of AXC and VRV, Heat Transfer Systems segment SG&A expenses increased by $1.0 million.
Specialty Products-Results of Operations for the Years Ended December 31, 2020 and 2019
Year Ended December 31, 2020 vs. 2019
2020 2019 Variance
($) Variance
(%)
Sales $ 242.6 $ 207.9 $ 34.7 16.7 %
Gross Profit 84.3 72.2 12.1 16.8 %
Gross Profit Margin 34.7 % 34.7 %
SG&A Expenses $ 22.2 $ 22.4 $ (0.2) (0.9) %
SG&A Expenses (% of Sales) 9.2 % 10.8 %
Operating Income $ 60.7 $ 48.1 $ 12.6 26.2 %
Operating Margin 25.0 % 23.1 %
For the year 2020, Specialty Products segment sales increased by $34.7 million as compared to 2019. This increase was primarily driven by favorable sales in hydrogen equipment and HLNG vehicle tanks.
For the year 2020, Specialty Products segment gross profit increased by $12.1 million as compared to 2019. This increase in gross profit was mainly attributable to higher HLNG vehicle tanks volume, partially offset by new production line ramp up in Ornago, Italy during 2020. The increase in the related margin percentage was primarily driven by favorable product mix and volume as the Specialty Products segment gained better leverage on increased volume, primarily related to hydrogen equipment and HLNG vehicle tanks.
Specialty Products segment SG&A expenses decreased by $0.2 million during the year 2020 as compared to 2019. As a percentage of sales, Specialty Products segment SG&A expenses was more favorable in 2020 compared to 2019 primarily due to general reductions across most SG&A categories.
Specialty Products-Results of Operations for the Years Ended December 31, 2019 and 2018
Year Ended December 31, 2019 vs. 2018
2019 2018 Variance
($) Variance
(%)
Sales $ 207.9 $ 184.5 $ 23.4 12.7 %
Gross Profit 72.2 68.5 3.7 5.4 %
Gross Profit Margin 34.7 % 37.1 %
SG&A Expenses $ 22.4 $ 22.0 $ 0.4 1.8 %
SG&A Expenses (% of Sales) 10.8 % 11.9 %
Operating Income $ 48.1 $ 44.8 $ 3.3 7.4 %
Operating Margin 23.1 % 24.3 %
For the year 2019, Specialty Products segment sales increased by $23.4 million ($19.8 million organically) as compared to 2018 primarily on an increase in HLNG vehicle tank sales in Europe.
For the year 2019, Specialty Products segment gross profit increased by $3.7 million ($2.7 million organically) as compared to 2018 mainly driven by sales volume. As a percentage of sales, Specialty Products segment gross profit decreased by 240 basis points (220 basis points organically) based on product mix.
Specialty Products segment SG&A expenses increased by $0.4 million during 2019 as compared to 2018. Specialty Products segment SG&A expenses as a percentage of sales were more favorable in 2019 compared to 2018 primarily due to lower employee-related costs.
Repair, Service & Leasing-Results of Operations for the Years Ended December 31, 2020 and 2019
Year Ended December 31, 2020 vs. 2019
2020 2019 Variance
($) Variance
(%)
Sales $ 158.3 $ 162.6 $ (4.3) (2.6) %
Gross Profit 54.6 54.0 0.6 1.1 %
Gross Profit Margin 34.5 % 33.2 %
SG&A Expenses $ 15.3 $ 18.6 $ (3.3) (17.7) %
SG&A Expenses (% of Sales) 9.7 % 11.4 %
Operating Income $ 30.3 $ 27.9 $ 2.4 8.6 %
Operating Margin 19.1 % 17.2 %
For the year 2020, Repair, Service & Leasing segment sales decreased by $4.3 million as compared to 2019, which was primarily driven by lower volume in aftermarket air cooled heat exchangers, partially offset by an increase in high margin, short-lead time replacement equipment and full lifecycle services.
For the year 2020, Repair, Service & Leasing segment gross profit increased by $0.6 million, and the related margin percentage increased by 130 basis points primarily on lower restructuring costs in 2020 as compared to 2019.
Repair, Service & Leasing segment SG&A expenses decreased by $3.3 million during the year 2020 as compared to 2019 As a percentage of sales, Repair, Service & Leasing segment SG&A expenses were more favorable in 2020 compared to 2019 primarily due to general reductions across most SG&A categories, mainly employee-related costs in light of restructuring actions taken during the period.
Repair, Service & Leasing-Results of Operations for the Years Ended December 31, 2019 and 2018
Year Ended December 31, 2019 vs. 2018
2019 2018 Variance
($) Variance
(%)
Sales $ 162.6 $ 160.4 $ 2.2 1.4 %
Gross Profit 54.0 47.2 6.8 14.4 %
Gross Profit Margin 33.2 % 29.4 %
SG&A Expenses $ 18.6 $ 20.1 $ (1.5) (7.5) %
SG&A Expenses (% of Sales) 11.4 % 12.5 %
Operating Income $ 27.9 $ 21.2 $ 6.7 31.6 %
Operating Margin 17.2 % 13.2 %
For the year 2019, Repair, Service & Leasing segment sales increased by $2.2 million ($0.2 million organically) as compared to 2018, which was primarily driven by higher volume in aftermarket air cooled heat exchangers, partially offset by a decrease in full lifecycle services.
For the year 2019, Repair, Service & Leasing segment gross profit increased by $6.8 million ($7.5 million organically) as compared to 2018, and the related margin increased by 380 basis points. The increase in gross profit and the related margin was mainly driven by volume and mix with high margin, short-lead time replacement equipment contributing more in volume as compared to the rest of the product and services lines of the business during 2019.
Repair, Service & Leasing segment SG&A expenses for 2019 decreased by $1.5 million as compared to 2018 primarily due to lower employee-related costs driven by the effect of restructuring actions relative to the streamlining of commercial activities surrounding our lifecycle business.
Corporate
Corporate SG&A expenses decreased by $5.0 million during 2020 as compared to 2019 primarily due to lower transaction-related costs. Corporate SG&A expenses increased by $16.2 million during 2019 as compared to 2018 primarily due to $7.3 million in transaction-related costs, $4.3 million in integration costs related to acquisitions and an increase in share-based compensation expense partially offset by a decrease in employee-related costs.
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 from customers for which work has not been performed, or is partially completed, that we have not recognized as revenue and excludes unexercised contract options and potential orders. Our backlog as of December 31, 2020, 2019 and 2018 was $810.0 million, $751.2 million and $557.5 million, respectively. Our backlog as of December 31, 2020 was inclusive of $21.0 million of backlog remaining on Calcasieu Pass, compared to $117.6 million of Calcasieu Pass remaining as of December 31, 2019. Excluding Calcasieu Pass, backlog increased by $155.4 million or 24.5% in 2020 compared to 2019 driven by strong order intake across our business.
The tables below represent orders received and backlog by segment for the periods indicated (dollar amounts in millions):
Year Ended December 31,
2020 2019 2018
Orders
Cryo Tank Solutions $ 417.5 $ 409.5 $ 397.4
Heat Transfer Systems 331.1 477.5 292.3
Specialty Products 279.2 274.9 221.2
Repair, Service & Leasing 196.8 166.5 152.1
Intersegment eliminations (14.5) (2.5) -
Consolidated $ 1,210.1 $ 1,325.9 $ 1,063.0
As of December 31,
2020 2019 2018
Backlog
Cryo Tank Solutions $ 222.6 $ 210.2 $ 184.7
Heat Transfer Systems 329.2 357.1 187.7
Specialty Products 199.7 150.1 110.4
Repair, Service & Leasing 63.1 33.8 74.7
Intersegment eliminations (4.6) - -
Consolidated $ 810.0 $ 751.2 $ 557.5
Orders and Backlog for the Year Ended and As of December 31, 2020 Compared to the Year Ended and As of December 31, 2019
Cryo Tank Solutions segment orders for 2020 were $417.5 million compared to $409.5 million for 2019, an increase of $8.0 million. This increase was primarily driven by solid order intake for mobile equipment in China and India and favorable engineered systems orders in Europe and the U.S. partially offset by unfavorable orders for mobile equipment in Europe and the U.S. During 2020, Covid-19 shut downs softened order intake during the second quarter of 2020, but increased the last half of 2020 as restrictions eased and demand for medical oxygen equipment increased. Cryo Tank Solutions segment backlog totaled $222.6 million as of December 31, 2020, compared to $210.2 million as of December 31, 2019, an increase of $12.4 million.
Heat Transfer Systems segment orders for 2020 were $331.1 million compared to $477.5 million for 2019, a decrease of $146.4 million mainly driven by softness in demand for natural gas compression equipment. Included in 2020 Heat Transfer Systems segment orders was a $70 million order for a downstream project (100% air cooled heat exchangers). Heat Transfer Systems segment backlog totaled $329.2 million as of December 31, 2020 compared to $357.1 million as of December 31, 2019, a decrease of $27.9 million. Excluding Calcasieu Pass, Heat Transfer Systems backlog increased by $68.7 million or 28.7% in 2020 compared to 2019. Included in Heat Transfer Systems segment backlog for all periods presented is approximately $40.0 million related to the previously announced Magnolia LNG order where production release is delayed. In general, similar projects previously put on hold in the market are beginning to move ahead as the clean energy infrastructure build out ramps up.
Specialty Products segment orders for 2020 were $279.2 million compared to $274.9 million for 2019, an increase of $4.3 million. This increase was mainly driven by an increase in HLNG vehicle tank and hydrogen equipment orders. Specialty Products segment backlog totaled $199.7 million as of December 31, 2020, compared to $150.1 million as of December 31, 2019, an increase of $49.6 million.
Repair, Service & Leasing segment orders for 2020 were $196.8 million compared to $166.5 million for 2019, an increase of $30.3 million, which was primarily driven by increases in aftermarket fans, full lifecycle services and our expanded leasing fleet partially offset by a decrease in aftermarket air cooled heat exchangers. Repair, Service & Leasing segment backlog totaled $63.1 million as of December 31, 2020, compared to $33.8 million as of December 31, 2019, an increase of $29.3 million.
Orders and Backlog for the Year Ended and As of December 31, 2019 Compared to the Year Ended and As of December 31, 2018
Cryo Tank Solutions segment orders for 2019 were $409.5 million compared to $397.4 million for 2018, an increase of $12.1 million or 3.0%. Cryo Tank Solutions segment orders include $42.4 million and $8.0 million in orders related to VRV for 2019 and 2018, respectively. Excluding the impact of VRV, Cryo Tank Solutions segment orders decreased by $22.3 million primarily due to unfavorable mobile and storage equipment in Asia and unfavorable engineered systems in Europe. Cryo Tank Solutions segment backlog totaled $210.2 million as of December 31, 2019, compared to $184.7 million as of December 31, 2018. Cryo Tank Solutions segment backlog includes $27.4 million and $37.2 million in orders related to VRV as of December 31, 2019 and 2018, respectively. Excluding the impact of VRV, Cryo Tank Solutions segment backlog increased by $35.3 million. The increase in Cryo Tank Solutions segment backlog was mainly driven by mobile equipment, primarily in Europe as demand for LNG fueling stations in Europe was increasing and key customers continued to order trailers for over the road trucking.
Heat Transfer Systems segment orders for 2019 were $477.5 million compared to $292.3 million for 2018, an increase of $185.2 million, or 63.4%. Heat Transfer Systems segment orders includes $48.9 million and $2.0 million in orders related to VRV for 2019 and 2018, respectively. Furthermore, Heat Transfer Systems segment orders includes $51.4 million in orders related to AXC for 2019. Excluding the impact of VRV and AXC, Heat Transfer Systems segment orders increased by $86.9 million. Heat Transfer Systems segment backlog totaled $357.1 million as of December 31, 2019 compared to $187.7 million as of December 31, 2018. Heat Transfer Systems segment backlog includes $45.1 million and $38.5 million in backlog related to VRV as of December 31, 2019 and 2018, respectively. Furthermore, Heat Transfer Systems segment backlog includes $31.5 million in backlog related to AXC as of December 31, 2019. Excluding the impact of VRV and AXC, Heat Transfer Systems segment backlog increased by $131.3 million, which was primarily driven by Venture Global’s Calcasieu Pass LNG export terminal project and petrochemical and natural gas processing applications.
Specialty Products segment orders for 2019 were $274.9 million compared to $221.2 million for 2018, an increase of $53.7 million. Specialty Products segment orders includes $13.8 million and $0.6 million in orders related to VRV for 2019 and 2018, respectively. Excluding the impact of VRV, Specialty Products segment orders increased by $40.5 million. This increase was primarily driven by an increase in hydrogen equipment orders partially offset by a decrease in orders for HLNG vehicle tanks. Specialty Products segment backlog totaled $150.1 million as of December 31, 2019, compared to $110.4 million as of December 31, 2018, an increase of $39.7 million. Specialty segment backlog includes $13.3 million and $0.8 million in backlog related to VRV as of December 31, 2019 and 2018, respectively. Excluding the impact of VRV, Specialty Products segment backlog increased by $27.2 million. The increase was driven by a $21.0 million LNG rail order, the first of its magnitude for our Gas By Rail (“GBR”) unique offering.
Repair, Service & Leasing segment orders for 2019 were $166.5 million compared to $152.1 million for 2018, an increase of $14.4 million, which was primarily driven by air cooled heat exchangers, partially offset by a decrease in orders for full lifecycle services. Repair, Service & Leasing segment backlog totaled $33.8 million as of December 31, 2019, compared to $74.7 million as of December 31, 2018, a decrease of $40.9 million primarily on work off of high margin, short-lead time replacement equipment during 2019.
Liquidity and Capital Resources
Our debt instruments and related covenants are described in Note 10, “Debt and Credit Arrangements,” of our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
Sources and Uses of Cash
Our cash and cash equivalents totaled $125.1 million as of December 31, 2020, an increase of $6.1 million from the balance at December 31, 2019. Our foreign subsidiaries held cash of approximately $102.7 million and $75.9 million at December 31, 2020 and 2019, respectively, to meet their liquidity needs. No material restrictions exist to accessing cash held by our foreign subsidiaries. We expect to meet our U.S. funding needs without repatriating non-U.S. cash and incurring incremental U.S. taxes. Cash equivalents are primarily 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, and in the case of cash equivalents in China, obligations of local banks. We believe that our existing cash and cash equivalents, funds available under our SSRCF or other financing alternatives, and cash provided by operations will be sufficient to meet our normal working capital needs and capital expenditures for the foreseeable future.
Years Ended December 31, 2020 and 2019
Cash provided by operating activities during 2020 was $172.7 million and includes $18.3 million in cash provided by operating activities of discontinued operations, an increase of $38.8 million from 2019, mainly due to favorable operating results, partially offset by an increase in cash used for working capital, primarily due to higher inventory levels.
Cash provided by investing activities during 2020 was $185.0 million and includes $316.7 million in cash provided by investing activities of discontinued operations, as compared to cash used in investing activities of $642.7 million during 2019, which includes $0.9 million in cash used in investing activities of discontinued operations. During 2020, we received net cash proceeds of $317.5 million from the sale of our cryobiological products business. We used $51.9 million of cash primarily for the acquisitions of Sustainable Energy Solutions, Inc. ($20.0 million) BlueInGreen, LLC ($20.0 million) and Alabama Trailers ($10.0 million), $50.8 million in investments in HTEC Hydrogen Technology & Energy Corporation (“HTEC”) and McPhy (Euronext Paris: MCPHY - ISIN; FR0011742329) and paid $37.9 million for capital expenditures. See below for discussion regarding the composition of cash used in investing activities during 2019.
Cash used in financing activities during 2020 was $363.4 million compared to cash provided by financing activities of $511.6 million during 2019. During 2020, we borrowed $215.0 million on credit facilities and repaid $223.1 million in borrowings on credit facilities. We repaid $344.1 million in borrowings on our term loan due 2024 mainly with proceeds from the Divestiture. We used $19.3 million to repurchase shares of Chart common stock related to our share purchase program during 2020. We suspended the program on March 20, 2020 in light of uncertainty resulting from the Covid-19 pandemic and the desire to conserve cash resources. We received $11.0 million in proceeds from stock option exercise during 2020. See below for discussion regarding the composition of cash provided by financing activities during 2019.
Years Ended December 31, 2019 and 2018
Cash provided by operating activities during 2019 was $133.9 million and includes $16.6 million in cash provided by operating activities of discontinued operations, an increase of $45.1 million from 2018, mainly due to favorable operating results and a reduction in cash used for working capital, primarily lower inventory levels.
Cash used in investing activities during 2019 was $642.7 million and includes $0.9 million in cash used in investing activities of discontinued operations. Cash using in investing activities during 2018 was $127.9 million and includes $132.3 million in cash provided by investing activities of discontinued operations. During 2019, we used $603.9 million of cash primarily for the acquisition of AXC with proceeds from a common stock offering and borrowings under our SSRCF and term loan due November 24, 2024 and paid $36.2 million for capital expenditures mainly related to maintenance capital spending at VRV, investment in the LNG fuel systems production line in Europe, and automation projects in our New Prague, Minnesota facility. During 2018, we received net cash proceeds of $133.5 million from the sale of our oxygen-related products business. Also during 2018, we used $225.8 million of cash for acquisitions and $36.4 million for capital expenditures mainly related to a capacity expansion project at our brazed aluminum heat exchanger facility in La Crosse, Wisconsin and capacity increase in Canton, Georgia to support LNG vehicle tanks production.
Cash provided by financing activities during 2019 and 2018 was $511.6 million and $38.2 million, respectively. During 2019, we borrowed $450 million under the term loan and received proceeds of $295.8 million from the 2019 Equity Offering to fund the AXC acquisition. During 2019, we borrowed $235.8 million on our SSRCF to fund working capital needs and to fund a portion of the AXC acquisition and repaid $451.1 million in SSRCF borrowings. We received $9.4 million in proceeds from stock option exercises and used $2.0 million for the purchase of common stock which was surrendered to cover tax withholding elections during the year. Cash provided by financing activities in 2018 mainly included borrowings on our previous senior secured revolving credit facility mainly to fund acquisitions, the settlement of our previous convertible notes and working capital needs proceeds net of repayments on our previous senior secured revolving credit facility.
Cash Requirements
We do not currently anticipate any unusual cash requirements for working capital needs for the year ending December 31, 2021. Management anticipates we will be able to satisfy cash requirements for our ongoing business for the foreseeable future with cash generated by operations, existing cash balances and available borrowings under our credit facilities. We expect capital expenditures for 2021 to be in the range of $40.0 million to $50.0 million.
Contractual Obligations
Our known contractual obligations as of December 31, 2020 and cash requirements resulting from those obligations are as follows (all dollar amounts in millions):
Payments Due by Period
Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years
Gross debt (1)
$ 485.4 $ - $ - $ 485.4 $ -
Contractual convertible notes interest 10.4 2.6 7.8 - -
Operating leases 31.3 6.6 11.8 9.4 3.5
Pension obligations (2)
0.7 - - 0.7 -
Total contractual cash obligations $ 527.8 $ 9.2 $ 19.6 $ 495.5 $ 3.5
_______________
(1)The $258.8 principal balance of the 2024 Notes will mature on November 15, 2024, yet the carrying amount of the 2024 Notes is treated as current for financial statement reporting purposes.
(2)The planned funding of the pension obligations is based upon actuarial and management estimates taking into consideration the current status of the plan.
Our commercial commitments as of December 31, 2020, which include standby letters of credit and bank guarantees, represent potential cash requirements resulting from contingent events that require performance by us or our subsidiaries pursuant to funding commitments, and are as follows (all dollar amounts in millions):
Total Expiring in 2021 Expiring in 2022 and beyond
Standby letters of credit $ 47.4 $ 0.5 $ 46.9
Bank guarantees 63.6 6.1 57.5
Total commercial commitments $ 111.0 $ 6.6 $ 104.4
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contingencies
We are subject to federal, state, local, and foreign environmental laws and regulations concerning, among other matters, waste water effluents, air emissions, and handling and disposal of hazardous materials, such as cleaning fluids. We are involved with environmental compliance, investigation, monitoring, and remediation activities at certain of our owned and formerly owned manufacturing facilities and at one owned facility that is leased to a third party, and, except for these continuing remediation efforts, believes we are currently in substantial compliance with all known environmental regulations. Management believes that any additional liability in excess of amounts accrued, which may result from the resolution of such matters, should not have a material adverse effect on our financial position, liquidity, cash flows or results of operations.
We are occasionally subject to various legal claims related to performance under contracts, product liability, taxes, employment matters, environmental matters, intellectual property, and other matters, several of which claims assert substantial damages, in the ordinary course of our business. Based on our historical experience in litigating these claims, as well as our current assessment of the underlying merits of the claims and applicable insurance, if any, we believe the resolution of these legal claims will not have a material adverse effect on our financial position, liquidity, cash flows or results of operations. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect. See Item 1A. “Risk Factors” and Item 3, “Legal Proceedings” for further information.
Foreign Operations
During 2020, we had operations in Asia, Australia, India, Europe, and South America, which accounted for approximately 51% of consolidated sales and 31% of total assets at December 31, 2020. Functional currencies used by these operations include the U.S. dollar, Chinese yuan, the euro, the British pound, the Japanese yen and the Indian rupee. We are exposed to foreign currency exchange risk as a result of transactions by these subsidiaries in currencies other than their functional
currencies, and from transactions by our domestic operations in currencies other than the U.S. dollar. The majority of these functional currencies and the other currencies in which we record transactions are fairly stable, although we experienced variability in the current year as more fully discussed in Item 7A. The use of these currencies, combined with the use of foreign currency forward purchase and sale contracts, has enabled us to be sheltered from significant gains or losses resulting from foreign currency transactions. This situation could change if these currencies experience significant fluctuations or the volume of forward contracts changes.
Application of Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are based on the selection and application of significant accounting policies, which require management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Management believes the following are the more critical judgmental areas in the application of its accounting policies that affect its financial position and results of operations.
Goodwill and Indefinite-Lived Intangible Assets. We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis, as of October 1 or whenever events or changes in circumstances indicate that an evaluation should be completed. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, a decline in stock price and market capitalization, adverse changes in the markets in which we operate, and a trend of negative or declining cash flows over multiple periods. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
Goodwill is analyzed on a reporting unit basis. As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019, our reporting units, which were the same as our operating and reportable segments were D&S East, D&S West, E&C Cryogenics and E&C FinFans. Effective October 1, 2020, we changed our reporting units, which are the same as our operating and reportable segments, to the following four segments: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing. We first evaluate qualitative factors, such as macroeconomic conditions and our overall financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We then evaluate how significant each of the identified factors could be to the fair value or carrying amount of a reporting unit and weigh these factors in totality in forming a conclusion of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount (the “Step 0 Test”). If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the first step of the goodwill impairment test is not necessary. Otherwise, we would proceed to the first step of the goodwill impairment test.
Alternatively, we may also bypass the Step 0 Test and proceed directly to the first step of the goodwill impairment test. Under the first step (“Step 1”), we estimate the fair value of our reporting units by considering income and market approaches to develop fair value estimates, which are weighted to arrive at a fair value estimate for each reporting unit. With respect to the income approach, a model has been developed to estimate the fair value of each reporting unit. This fair value model incorporates estimates of future cash flows, estimates of allocations of certain assets and cash flows among reporting units, estimates of future growth rates, and management’s judgment regarding the applicable discount rates to use to discount such estimates of cash flows. With respect to the market approach, a guideline company method is employed whereby pricing multiples are derived from companies with similar assets or businesses to estimate fair value of each reporting unit. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, then goodwill is not impaired, and no further testing is required. However, if the fair value of the reporting unit is less than its carrying amount, the impairment charge is based on the excess of a reporting unit’s carrying amount over its fair value (i.e., we would measure the charge based on the result from Step 1).
In order to assess the reasonableness of the calculated fair values of our reporting units, we also compare the sum of the reporting units’ fair values to our market capitalization and calculate an implied control premium (the excess of the sum of the reporting units’ fair values over the market capitalization). We evaluate the control premium by comparing it to control premiums of recent comparable transactions. If the implied control premium is not reasonable in light of this assessment, we reevaluate our fair value estimates of the reporting units by adjusting the discount rates and other assumptions as necessary.
Changes to the assumptions and estimates used throughout the steps described above may result in a significantly different estimate of the fair value of the reporting units, which could result in a different assessment of the recoverability of goodwill and result in future impairment charges.
With respect to indefinite-lived intangible assets, we first evaluate relevant events and circumstances to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, in weighing all relevant events and circumstances in totality, we determine that it is not more likely than not that an indefinite-
lived intangible asset is impaired, no further action is necessary. Otherwise, we would determine the fair value of indefinite-lived intangible assets and perform a quantitative impairment assessment by comparing the indefinite-lived intangible asset’s fair value to its carrying amount. We may bypass such a qualitative assessment and proceed directly to the quantitative assessment. We estimate the fair value of our indefinite-lived assets using the income approach. This may include the relief from royalty method or use of a model similar to the one described above related to goodwill which estimates the future cash flows attributed to the indefinite-lived intangible asset and then discounting these cash flows back to a present value. Under the relief from royalty method, fair value is estimated by discounting the royalty savings, as well as any tax benefits related to ownership to a present value. The fair value from either approach is compared to the carrying value and an impairment is recorded if the fair value is determined to be less than the carrying value.
In connection with the annual impairment process described above, the Company, with the assistance of an outside professional accounting firm, performed an impairment analysis with respect to the trademarks and trade names indefinite-lived intangible assets of our AXC business (“AXC Intangible Asset”). Our preliminary analysis determined that no impairment was required for the AXC Intangible Asset, partially as a result of the inclusion of carbon capture future revenue streams in our forecast. After further analysis, we determined that these carbon capture opportunities should not have been included in our forecast as they resulted from investments and activities that occurred in the business after October 1, 2020, the appropriate measurement date. As a result of removing this revenue from the forecast, we recorded an impairment loss of $16.0 million during 2020 relative to our $55.0 million AXC Intangible Asset in our Heat Transfer Systems segment. Industry-wide softness in demand for midstream and upstream compression equipment represented impairment indicators requiring us to re-evaluate the fair value of the AXC Intangible Asset. We determined the fair value of the AXC Intangible Asset under the relief-from-royalty method and conducted an impairment test as defined above. We determined that the fair value of the AXC Intangible Asset was $39.0 million and impaired the AXC Intangible Asset by a value equal to the difference in the carrying amount and calculated fair value.
As of October 1, 2020 and 2019 (“annual assessment dates”) we elected to bypass the Step 0 test and based on our Step 1 test, we determined that the fair value of each of our reporting units was greater than its respective carrying value at each annual assessment date and, therefore, no further action was necessary. Furthermore, as of the annual assessment dates, we also elected to bypass the qualitative assessment for the indefinite-lived intangible assets and based on our quantitative assessments, we determined that the fair value of each of the indefinite-lived intangible assets was greater than its respective carrying value, therefore, no further action was necessary.
Long-Lived Assets. We monitor our property, plant and equipment, and finite-lived intangible assets for impairment indicators on an ongoing basis. If impairment indicators exist, assets are grouped and tested at the lowest level for which identifiable cash flows are available and we perform the required analysis and record impairment charges if applicable. In conducting its analysis, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated from discounted future net cash flows (for assets held for use) or net realizable value (for assets held for sale). In assessing the recoverability of our long-lived assets, a significant amount of judgment is involved in estimating the future cash flows, discount rates and other factors necessary to determine the fair value of the respective assets. If these estimates or the related assumptions change in the future, we may be required to record impairment charges for these assets in the period such determination was made. We amortize intangible assets that have finite lives over their estimated useful lives. We had no long-lived asset impairments in the last three years.
Convertible Debt. We determined that the conversion option within our 1.00% Convertible Senior Subordinated Notes due November 2024 (the “2024 Notes”) was not clearly and closely related to the debt instrument host, however, the conversion option met a scope exception to derivative instrument accounting since the conversion feature is indexed to our common stock and meets equity classification criteria. Convertible debt instruments exempt from derivative accounting and subject to cash settlement of the conversion option are recognized by bifurcating the principal balance into a liability component and an equity component where the fair value of the liability component is estimated by calculating the present value of its cash flows discounted at an interest rate that we would have received for similar debt instruments that have no conversion rights (the “straight-debt rate”), and the equity component is the residual amount, net of tax, which creates a discount on the 2024 Notes. We recognize non-cash interest accretion expense related to the carrying amount of the 2024 Notes which is accreted back to its principal amount over the expected life of the debt, which is also the stated life of the debt.
Business Combinations. We account for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” We recognize and measure identifiable assets acquired and liabilities assumed based on their estimated fair values. The excess of the consideration transferred over the fair value of the net assets acquired, including identifiable intangible assets, is assigned to goodwill. As additional information becomes available, we may further
revise the preliminary acquisition consideration allocation during the remainder of the measurement period, which shall not exceed twelve months from the closing of the acquisition.
Identifiable finite-lived intangible assets generally consist of customer relationships, unpatented technology, patents and trademarks and trade names and are amortized over their estimate useful lives which generally range from 2 to 15 years. Identifiable indefinite-lived intangible assets generally consist of trademarks and trade names and are subject to impairment testing on at least an annual basis. We estimate the fair value of identifiable intangible assets under income approaches where the fair value models incorporate estimates of future cash flows, estimates of allocations of certain assets and cash flows, estimates of future growth rates, and management’s judgment regarding the applicable discount rates to use to discount such estimates of cash flows.
We expense transaction-related costs, including legal, consulting, accounting and other costs, in the periods in which the costs are incurred.
Revenue Recognition: Revenue is recognized when (or as) we satisfy performance obligations by transferring a promised good or service, an asset, to a customer. An asset is transferred to a customer when, or as, the customer obtains control over that asset. In most contracts, the transaction price includes both fixed and variable consideration. The variable consideration contained within our contracts with customers includes discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties and other similar items. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at each reporting date. When a contract includes multiple performance obligations, the contract price is allocated among the performance obligations based upon the stand alone selling prices. When the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service is expected, at contract inception, to be one year or less, we do not adjust for the effects of a significant financing component.
For brazed aluminum heat exchangers, air cooled heat exchangers, cold boxes, liquefied natural gas fueling stations, engineered tanks, and repair services, most contracts contain language that transfers control to the customer over time. For these contracts, revenue is recognized as we satisfy the performance obligations by an allocation of the transaction price to the accounting period computed using input methods such as costs incurred. Input methods recognize revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. The costs incurred input method measures progress toward the satisfaction of the performance obligation by multiplying the transaction price of the performance obligation by the percentage of incurred costs as of the balance sheet date to the total estimated costs at completion after giving effect to the most current estimates. Timing of amounts billed on contracts varies from contract to contract and could cause significant variation in working capital needs. Revisions to estimated cost to complete that result from inefficiencies in our performance that were not expected in the pricing of the contract are expensed in the period in which these inefficiencies become known. Contract modifications can change a contract’s scope, price, or both. Approved contract modifications are accounted for as either a separate contract or as part of the existing contract depending on the nature of the modification.
For standard industrial gas and LNG tanks and some products identified in the prior paragraph with contract language that does not meet the over time recognition requirements, the contract with the customer contains language that transfers control to the customer at a point in time. For these contracts, revenue is recognized when we satisfy our performance obligation to the customer. Timing of amounts billed on contracts varies from contract to contract. The specific point in time when control transfers depends on the contract with the customer, contract terms that provide for a present obligation to pay, physical possession, legal title, risk and rewards of ownership, acceptance of the asset, and bill-and-hold arrangements may impact the point in time when control transfers to the customer. We recognize revenue under bill-and-hold arrangements when control transfers and the reason for the arrangement is substantive, the product is separately identified as belonging to the customer, the product is ready for physical transfer and we do not have the ability to use the product or direct it to another customer.
Incremental contract costs are expensed when incurred when the amortization period of the asset that would have been recognized is one year or less; otherwise, incremental contract costs are recognized as an asset and amortized over time as promised goods and services are transferred to a customer. When losses are expected to be incurred on a contract, we recognize the entire anticipated loss in the accounting period when the loss becomes evident. The loss is recognized when the current estimate of the consideration we expect to receive, modified to include unconstrained variable consideration instead of constrained variable consideration, is less than the current estimate of total costs for the contract.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.
Shipping and handling fee revenues and the related expenses are reported as fulfillment revenues and expenses for all customers because we have adopted the practical expedient contained in ASC 606-10-25-18B. Therefore, all shipping and handling costs associated with outbound freight are accounted for as a fulfillment costs and are included in cost of sales.
Income Taxes. The Company and its U.S. subsidiaries file a consolidated federal income tax return. Deferred income taxes are provided for temporary differences between financial reporting and the consolidated tax return in accordance with the liability method. A valuation allowance is provided against net deferred tax assets when conditions indicate that it is more likely than not that the benefit related to such assets will not be realized. In assessing the need for a valuation allowance against deferred tax assets, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, the valuation allowance will be adjusted with a corresponding impact to the provision for income taxes in the period in which such determination is made.
We utilize a two-step approach for the recognition and measurement of uncertain tax positions. The first step is to evaluate the tax position and determine whether it is more likely than not that the position will be sustained upon examination by tax authorities. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon settlement.
Interest and penalties related to income taxes are accounted for as income tax expense (benefit), net on the consolidated statements of income.
We have accounted for the tax effects of the Tax Cuts and Jobs Act (“Tax Act”), which was signed into law on December 22, 2017. The Tax Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, requires a current inclusion in U.S. federal taxable income of certain earnings of foreign corporations, and creates a new limitation on deductible interest expense. In 2017, we accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118, on a provisional basis. In 2018, we finalized our analyses under SAB 118. For further information, see Note 16, “Income Taxes” included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K. We are subjected to a tax on Global Intangible Low Taxed Income (“GILTI”), which we record as a period cost as incurred.
Recent Accounting Standards
For disclosures regarding recent accounting standards, refer to Note 2, “Significant Accounting Policies,” of our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
Forward-Looking Statements
We are making this statement in order to satisfy the “safe harbor” provisions contained in the Private Securities Litigation Reform Act of 1995. This Annual Report includes “forward-looking statements.” These forward-looking statements include statements relating to our business, including statements regarding revenues, cost synergies, accretion and earnings related to our recently completed acquisitions or statements with respect to the use of proceeds or redeployment of capital from recent divestitures. In some cases, forward-looking statements may be identified by terminology such as “may,” “will”, “should,” “expects,” “anticipates,” “believes,” “projects,” “forecasts,” “outlook,” “guidance,” “target,” “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, margins, capital expenditures, industry and business, trends, new market or expansion opportunities, cost synergies and savings objectives, and government initiatives 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.
The risk factors discussed in Item 1A. “Risk Factors” and the factors discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others, could affect our future performance and liquidity and value of our securities and could cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. These factors should not be construed as exhaustive and there may also be other risks that we are unable to predict at this time. All forward-looking statements included in this Annual Report are expressly qualified in their entirety by these cautionary statements.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Annual Report and are expressly qualified in their entirety by the cautionary statements included in this Annual Report. 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, except as otherwise required by law.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to fluctuations in interest rates and foreign currency values that can affect the cost of operating and financing. Accordingly, we address a portion of these risks through a program of risk management.
Interest Rate Risk: Our primary interest rate risk exposure results from the SSRCF’s various floating rate pricing mechanisms. If interest rates were to increase 100 basis points (1 percent) from the weighted-average interest rate of 2.1% at December 31, 2020, and assuming no changes in the $123.5 million of borrowings outstanding under the SSRCF at December 31, 2020, our additional annual expense would be approximately $1.2 million on a pre-tax basis.
Foreign Currency Exchange Rate Risk: We operate in the United States and other foreign countries, which creates exposure to foreign currency exchange fluctuations in the normal course of business, which can impact our financial position, results of operations, cash flow, and competitive position. The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income (loss) as reported in the consolidated statements of comprehensive income. Translation exposure is primarily with the euro, the Czech koruna, the Chinese yuan and the Indian rupee. During 2020, both the Chinese yuan and euro increased in relation to the U.S. dollar by less than 10%. At December 31, 2020, a hypothetical further 10% strengthening of the U.S. dollar would not materially affect our financial statements.
Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the consolidated statements of income as a component of foreign currency loss. We enter into foreign exchange forward contracts to hedge anticipated and firmly committed foreign currency transactions. We do not use derivative financial instruments for speculative or trading purposes. The terms of the contracts are generally one year or less. At December 31, 2020, a hypothetical 10% weakening of the U.S. dollar would not materially affect our outstanding foreign exchange forward contracts.
Market Price Sensitive Instruments
In connection with the pricing of the 2024 Notes, we entered into privately negotiated convertible note hedge transactions (the “Note Hedge Transactions”) with certain parties, including affiliates of the initial purchasers of the 2024 Notes (the “Option Counterparties”). These Note Hedge Transactions are expected to reduce the potential dilution upon any future conversion of the 2024 Notes.
We also entered into separate, privately negotiated warrant transactions with the Option Counterparties to acquire up to 4.41 million shares of our common stock. The warrant transactions will have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock exceeds the strike price of the warrants unless we elect, subject to certain conditions, to settle the warrants in cash. The strike price of the warrant transactions related to the 2024 Notes was initially $71.775 per share. Further information is located in Note 10, “Debt and Credit Arrangements,” of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.Financial Statements and Supplementary Data
Our Financial Statements and the accompanying Notes that are filed as part of this Annual Report are listed under Item 15. “Exhibits and Financial Statement Schedules” and are set forth beginning on page immediately following the signature page of this Form 10-K and are incorporated into this Item 8 by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2020, an evaluation was performed under the supervision and with the participation of our management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The term “disclosure controls” means disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit 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 our management including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in the Company’s internal control over financial reporting described below, as of such date, our disclosure controls and procedures were not effective.
Management’s Report on Internal Control Over Financial Reporting
Management of Chart Industries, Inc. and its subsidiaries (the “Company,” “Chart,” “we,” “us,” or “our”) is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2020 based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the “COSO criteria”).
We did not include an evaluation of the internal control over financial reporting of SES, BIG and Alabama Trailers, which were acquired during 2020 and which, combined, constituted $88.9 million and $77.0 million of total and net assets, respectively, as of December 31, 2020, and $2.9 million and $0.3 million of sales and operating loss, respectively, for the year then ended.
Based on our assessment of internal control over financial reporting, management has concluded that, as of December 31, 2020, our internal control over financial reporting, because of the unremediated material weaknesses in our internal control over financial reporting described below, was not effective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
As a result of its review, management concluded that we had material weaknesses in our internal control over financial reporting that were identified in connection with our annual goodwill and trademark impairment testing, consisting of the following:
•Control Activities - The Company did not maintain effective control activities based on criteria established by the COSO framework as the control activities that involve more complex judgments did not adequately consider the competency of personnel assigned to perform the review.
•Goodwill and Identifiable Intangible Assets, Net - As a result of the material weakness identified above, the Company failed to adequately design and implement internal controls over the review of its goodwill and indefinite-lived intangible assets for impairment.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Deloitte & Touche, LLP, an independent registered public accounting firm, and is included in this Annual Report on Form 10-K on page under the caption “Report of Independent Registered Public Accounting Firm,” which notes the identification of these material weaknesses and is incorporated herein by reference.
Remediation Plan and Status
Our remediation efforts are in process, and we will continue our initiatives to design and implement and document policies, procedures, and internal controls. The Board of Directors and management have implemented, among other items, the following measures to address the material weaknesses identified:
•With respect to our annual impairment analysis, complete the formal review of the annual forecast by no later than September 30th;
•Evaluate and re-assess the design of our goodwill and intangible asset impairment process, including control activities associated with the review of data provided to third-party valuation specialists and evaluate the appropriateness of the assumptions and methodology used to measure the fair value of reporting units and the reasonableness of the conclusions in the third-party valuation specialists’ reports;
•Evaluate the assignment of responsibilities associated with the accounting for goodwill and intangible asset impairment, including considering hiring additional resources or providing additional training to existing resources; and
•In order to ensure the quality and consistency of accounting treatments and interpretation across the impairment analysis process and maintain effective control activities, designate at least one of our senior accounting personnel to provide enhanced oversight to monitor the process, provide guidance on accounting treatment and assumptions and ensure quality-control for the process.
Our remediation of the identified material weaknesses and strengthening our internal control environment is ongoing. We will test the ongoing design and implementation and operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above.
Changes in Internal Control over Financial Reporting
Except for the Company’s identification and assessment of the material weaknesses described above, there were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B.Other Information
Not applicable.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.Directors, Executive Officers and Corporate Governance
Information required by this item as to the Directors of the Company appearing under the caption “Election of Directors” in our 2021 Proxy Statement is incorporated herein by reference. Information required by this item as to the Executive Officers of the Company is included as Item 4A of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item 405 is set forth in the 2021 Proxy Statement under the heading “Delinquent section 16(a) Reports,” which information is incorporated herein by reference. Information required by Items 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is set forth in the 2021 Proxy Statement under the headings “Information Regarding Meetings and Committees of the Board of Directors,” “Code of Ethical Business Conduct and Officer Code of Ethics” and “Stockholder Communications with the Board,” which information is incorporated herein by reference.
The Charters of the Audit Committee, Compensation Committee and Nominations and Corporate Governance Committee and the Corporate Governance Guidelines, Officer Code of Ethics and Code of Ethical Business Conduct are available free of charge on our website at www.chartindustries.com and in print to any stockholder who requests a copy. Requests for copies should be directed to Secretary, Chart Industries, Inc., 3055 Torrington Drive, Ball Ground, Georgia 30107. We intend to disclose any amendments to the Code of Ethical Business Conduct or Officer Code of Ethics and any waiver of the Code of Ethical Business Conduct or Officer Code of Ethics granted to any Director or Executive Officer of the Company on our website.
Set forth below is a list of the members of our Board of Directors as of March 1, 2021:
Directors
STEVEN W. KRABLIN (2) (3)
Chairman of the Board
Retired President, Chief Executive Officer and Chairman of the Board
T-3 Energy Services, Inc.
Oilfield services company that manufactures products used in the drilling, production and transportation of oil and gas
JILLIAN C. EVANKO
Chief Executive Officer, President and Chief Financial Officer
Chart Industries, Inc.
CAREY CHEN (1) (3)
Chief Executive Officer, Incodema Holdings
Precision sheet metal fabricator, photo chemical etching manufacturer and high speed CNC machining manufacturer
SINGLETON B. MCALLISTER (1) (2)
Of Counsel and Senior Advisor
Husch Blackwell LLP
Law firm and affiliated lobbying and governmental affairs counseling firm
MICHAEL L. MOLININI (1) (2)
Retired Chief Executive Officer and President
Airgas, Inc.
Supplier of gases, welding equipment and supplies, and safety products
DAVID M. SAGEHORN (1) (3)
Retired Executive Vice President and Chief Financial Officer
Oshkosh Corporation
Global producer of specialty trucks, truck bodies, and access equipment used in defense, construction and service markets
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(1)Compensation Committee
(2)Nominations and Corporate Governance Committee
(3)Audit Committee

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ITEM 11. EXECUTIVE COMPENSATION
Item 11.Executive Compensation
The information required by Item 402 of Regulation S-K is set forth in the 2021 Proxy Statement under the heading “Executive and Director Compensation,” which information is incorporated herein by reference. The information required by Items 407(e)(4) and 407(e)(5) of Regulation S-K is set forth in the 2021 Proxy Statement under the headings “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report,” respectively, which information is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is set forth in the 2021 Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.Certain Relationships, Related Transactions, and Director Independence
The information required by this item is set forth in the 2021 Proxy Statement under the headings “Related Party Transactions” and “Director Independence,” which information is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.Principal Accounting Fees and Services
The information required by this item is set forth in the 2021 Proxy Statement under the heading “Principal Accounting Fees and Services,” which information is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this 2020 Annual Report on Form 10-K:
1. Financial Statements. The following consolidated financial statements of the Company and its subsidiaries and the reports of the Company’s independent registered public accounting firm are incorporated by reference in Item 8:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following additional information should be read in conjunction with the consolidated financial statements:
Schedule II Valuation and Qualifying Accounts for the Years Ended December 31, 2020, 2019 and 2018
All other financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
3. Exhibits. See the Index to Exhibits at page E-1 of this Annual Report on Form 10-K.