SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 20192022
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File No. 1-11442
CHART INDUSTRIES, INC.INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 34-1712937 |
State or other jurisdiction of
incorporation or organization
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Identification No.)
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3055 Torrington2200 Airport Industrial Drive,, Suite 100, Ball Ground,, Georgia30107
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (770) (770) 721-8800
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.01 | | GTLS | | The NASDAQNew York Stock Market LLCExchange |
| Depositary shares, each representing 1/20th interest in a share of 6.75% Series B Mandatory Convertible Preferred Stock, par value $0.01 | | GTLS.PRB | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price of $76.88$167.38 per share at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter, was $2,748,027,704.$6,102,449,841.
As of February 10, 2020,20, 2023, there were 35,894,98642,721,378 outstanding shares of the Company’s common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into Part III of this Annual Report on Form 10-K: the definitive Proxy Statement to be used in connection with the Registrant’s Annual Meeting of Stockholders to be held on May 12, 202025, 2023 (the “2020“2023 Proxy Statement”).
Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of December 31, 2019.
CHART INDUSTRIES, INC.
TABLE OF CONTENTS
PART I
PART I
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 diversifiedindependent global manufacturer of highly engineered cryogenic equipment servicing multiple market applications in the industrial gas and clean energy markets. We provide product and industrial gas.technology solutions to advance clean power, clean water, clean food and clean industrials in our unique offering for the Nexus of CleanTM. Our unique product portfolio is used throughoutin 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, CO2 Capture and water treatment, among other applications. We are committed to excellence in the production, storage, distributionenvironmental, social and end-use of atmospheric, hydrocarbon, and industrial gases. Chart has domestic operations located acrosscorporate governance (“ESG”) issues both for our company as well as our customers. With 29 global manufacturing locations from the United States to Asia, India and an international presence in Asia, Australia, Europe, we maintain accountability and the Americas. Our equipmenttransparency to our team members, suppliers, customers and engineered systems are primarily used to cool gases often to cryogenic liquid temperatures and then to transport and store them as liquids utilizing our expertise in cryogenic systems and equipment. Our equipment often operates at temperatures approaching absolute zero (0 Kelvin; -273° Centigrade; -459° Fahrenheit). Our products include vacuum insulated containment vessels, heat exchangers, cold boxes, liquefaction process units, other cryogenic components, gas processing equipment, ambient temperature fans and after market services.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 2,0002,500 customers worldwide. We haveworldwide, having developed long-standing relationships with leading companies in the gas production, gas distribution gasand processing industries as well as those involved in liquefied natural gas or LNG, petroleum refining, chemical(LNG), chemicals and industrial gasgasses. Our well-established relationships extend to truck manufacturers in addition to those in other clean energy industries including Air Products,such as biofuels, hydrogen and CO2 capture. Our customers include: Linde, Air Liquide, Bechtel Corporation,IVECO, Air Products, Shell, Chevron, ExxonMobil, British Petroleum or BP, ConocoPhillips, PetroChina, CB&I, Toyo, JGC,Chick-fil-A, New Fortress Energy, Samsung, UOP,United Launch Alliance, and Shell,Blue Origin, some of whom have been purchasing our products for over 2030 years.
We have attainedachieved this competitive position by capitalizing on our technical expertise, and know-how, broad product and service offering, reputation for a high quality low-cost global manufacturing footprint, and by focusing on attractive, growinggrowth markets. We have an established sales and customer support presence across the globe andwith manufacturing operations in the United States, Europe, ChinaAsia, India and India.Europe. For the years ended December 31, 2019, 20182022, 2021 and 2017,2020, we generated sales of $1,299.1$1,612.4 million, $1,084.3$1,317.7 million, and $842.9$1,177.1 million, respectively.
On July 1, 2019,November 9, 2022 we completed the acquisition of Harsco Corporation’s Industrial Air-X-Changers business (“AXC”announced that we signed a definitive agreement to acquire Howden from KPS Capital Partners (the “Acquisition”). AXCHowden is a leading supplierglobal provider of custom engineeredmission critical air and manufactured air cooled heat exchangers (“ACHX”) forgas handling products and services. We expect to close on the natural gas compression and processing industry and refining and petrochemical industryAcquisition within the next 45 days. Howden, headquartered in the United States. AXC’s results are included in our Energy & Chemicals FinFans (“E&C FinFans”) segment from the date of the acquisition. For further discussion refer to Note 13, “Business Combinations”U.K., to our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
On November 15, 2018, we completed the acquisition of VRV S.r.l. and its subsidiaries (collectively “VRV”). VRV is a leading global provider of mission critical air and gas handling products providing service and support to customers around the world in highly diversified multinational corporation withend markets and geographies. The combination of Chart and Howden is complimentary and furthers our global leadership position in highly automated, purpose-built facilities for the designengineered process technologies and manufacture of pressure equipmentproducts serving the industrial gasNexus of CleanTM – clean power, clean water, clean food and energy end markets. VRV’s results are includedclean industrials.
As discussed in our E&C Cryogenics and D&S East segments fromItem 3. Legal Proceedings, the date of acquisition. For further discussion refer to “Note 13, Business Combinations,” to our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
On December 20, 2018, we completed the divestiture of our oxygen-related business (the “CAIRE Divestiture”) to NGK SPARK PLUG CO., LTD. A portion of our former Biomedical segment businessCompany has reached a settlement agreement related to cryogenic technological expertise (the “Cryobiological Business”) was excluded from the CAIRE Divestiture. Our disclosureglobal plaintiff’s Pacific Fertility Clinic lawsuits and has recognized the impact in “Item 1 – Business” reflects the CAIRE Divestiture and is presented on a continuingdiscontinued operations basis. in connection with these settlements.
Segments, Applications and Products
Upon closing of our acquisition of AXC, we changed ourOur reportable segments, from three to four segments: Distribution & Storage Eastern Hemisphere (“D&S East”), Distribution & Storage Western Hemisphere (“D&S West”), Energy & Chemicals Cryogenics (“E&C Cryogenics”), and E&C FinFans. AXC was combined with Chart’s Hudsonwhich are also our operating segments, are currently as follows: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and CoolerRepair, Service businesses from& Leasing.
Our Cryo Tank Solutions segment, which has principal operations in the prior E&CUnited States, Europe and Asia, serves 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, to create a new segment called E&C FinFans. The E&C FinFans segment is focused on our uniquewith principal operations in the United States and broad product offering and capabilities in air cooled heat exchangers (“ACHX”) and fans. E&C Cryogenics suppliesEurope, also serves 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, biofuels, 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.
The following charts show the proportionCryo Tank Solutions
Cryo Tank Solutions (31% of our revenues generated by each business segment, as well as our estimate of the proportion of revenue generated by end-user application for the year ended December 31, 2019:
D&S East
D&S East (23% ofconsolidated sales for the year ended December 31, 2019)2022) designs manufactures, and servicesmanufactures cryogenic solutions for the storage and delivery of cryogenic liquids used in industrial gas and LNG applications. D&S East includes distribution and storageWith operations in the United States, Latin America, Europe and Asia, and primarilyour Cryo Tank Solutions segment serves the geographic regions of Europe, the Middle East, Africa, and Asia (including China and India).customers globally.
Industrial Gas Applications
We design manufacture, install, service, and maintainmanufacture bulk and packaged gas cryogenic solutions for the storage, distribution, vaporization, and application of industrial gases, which accounted for 17.0%, 16.7%, and 18.0% of consolidated sales for the years ended December 31, 2019, 2018, and 2017, respectively. Industrial gas applications include any end-use of the major elements of air (nitrogen, oxygen, and argon), including manufacturing, welding, electronics, medical, nitrogen dosing, food processing, and beverage carbonation. Carbon dioxide, nitrous oxide, hydrogen, and helium applications also utilize our equipment.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. We also offerUsing sophisticated vacuum insulation technology, our cryogenic components,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 vacuum insulated pipe (“VIP”), engineered bulk gas installations, specialty liquid nitrogen, or LN2, end-use equipment,manufacturing, welding, electronics and cryogenic flow meters.medical. 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.producers and in some cases they are also our customer. 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.areas. 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, railcars, bulk storage tanks, fuel stations, loading facilities, and regasification equipment specially configured for delivering LNG into Virtual Pipeline applications. LNG may also be used as a fuel for a variety of on and off-road vehicles and applications. Our LNG vehicle fueling applications primarily consist of LNG and liquefied/compressed natural gas refueling systems for heavy-duty truck and bus fleets. We sell LNG applications around the world from various D&S EastEastern and D&S WestWestern 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 E&C Cryogenics business.Heat Transfer Systems segment.
Demand for LNG applications is driven by diesel displacement initiatives, environmental and energy security initiatives,considerations, 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 (or CNG) or field gas in several
Heat Transfer Systems
Heat Transfer Systems (29% of these applications and LNG is most highly valued where its energy density and purity are beneficial to the end-user.
Product lines within D&S East which represent significant consolidated sales in any of the three years ending December 31, 2019 are as follows:
Cryogenic bulk storage systems (including LNG cryogenic systems and after market services) accounted for 17.3%, 16.4% and 18.0% of consolidated sales for the years ended December 31, 2019, 2018 and 2017 respectively.
After Market Services
D&S East operates multiple service locations in Europe and Asia. These service locations provide installation, service, repair, maintenance, and refurbishment of cryogenic products. We service Chart products, as well as our competitors mainly throughout Europe and Asia. We provide services for storage vessels, VIP, reconfigurations, relocation, trailers, ISO containers, vaporizers, and other gas to liquid equipment.
D&S West
D&S West (35% of sales for the year ended December 31, 2019) designs, manufactures, and services cryogenic solutions for the storage and delivery of cryogenic liquids used in industrial gas and LNG applications. D&S West includes distribution and storage operations in the United States and Latin America and primarily serves the Americas geographic region. D&S West also includes cryobiological storage manufacturing and distribution operations in the U.S., Europe and Asia, which serve customers around the world. 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. End-use customers for our cryogenic storage equipment include industrial gas producers and distributors, chemical producers, manufacturers of electrical components, health care organizations, food processors, and businesses in the oil and natural gas industries. D&S West utilizes the same technologies and product lines as those employed by and disclosed with respect to D&S East, except for a valves business acquired as part of the VRV acquisition and located within the D&S East and the Cryobiological Storage business in D&S West.
Product lines within D&S West which represent significant consolidated sales in any of the three years ending December 31, 2019 are as follows:
Cryogenic bulk storage systems, which include LNG cryogenic systems and after market services, accounted for 13.0%, 15.0% and 18.8% of consolidated sales for the years ended December 31, 2019, 2018 and 2017 respectively.
Cryogenic packaged gas systems, which include LNG cryogenic systems and after market services accounted for 16.1%, 19.5% and 19.6% of consolidated sales for the years ended December 31, 2019, 2018 and 2017 respectively.
Within Industrial Gas Applications
We design, manufacture, install, service and maintain bulk and packaged gas cryogenic solutions for the storage, distribution, vaporization, and application of industrial gases, which accounted for 23.5%, 27.8% and 31.5% of consolidated sales for the years ended December 31, 2019, 2018 and 2017 respectively.
After Market Services
D&S West operates multiple service locations in the U.S. These service locations provide installation, service, repair, maintenance, and refurbishment of cryogenic products. We service Chart products, as well as numerous other manufacturers,
primarily in North America. We provide services for storage vessels, VIP, reconfigurations, relocation, trailers, ISO containers, vaporizers, and other gas to liquid equipment
Cryobiological Storage
Our cryobiological storage products include vacuum insulated containment vessels for the storage of biological materials. The primary applications for this product line include medical laboratories, biotech/pharmaceutical research facilities, blood and tissue banks, veterinary laboratories, large-scale repositories, and artificial insemination, particularly in the beef and dairy industry.
The competitors for cryobiological storage products include several companies worldwide. These products are sold through multiple channels of distribution specifically applicable to each industry sector. The distribution channels range from highly specialized cryogenic storage systems providers to general supply and catalogue distribution operations and breeding service providers. Competition in this field is focused on design, reliability, and price. Alternatives to vacuum insulated containment vessels include electrically powered mechanical refrigeration.
E&C Cryogenics
E&C Cryogenics (14% of sales for the year ended December 31, 2019) supports2022) facilitates major natural gas, petrochemical processing, petroleum refining, power generation and industrial gas companies in the production or processing of their products. E&C CryogenicsWith primary manufacturing capabilities in the U.S. and Europe, Heat Transfer Systems serves customers globally. This segment supplies highlymission critical engineered equipment and technology-driven process systems used in the separation, liquefaction, and purification of hydrocarbon and industrial gases that span most gas-to-liquid applications. Our principal products include brazed aluminum heat exchangers, Core-in-Kettle® heat exchangers, cold boxes, shell & tube heat exchangers, high pressure reactors and vessels and process technology.
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 Core-in-Kettle®.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 cold boxes,fans, including certain leading companies in the industrial gas and hydrocarbon processing industries and 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,capabilities, 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 forin global LNG projects, for both local LNG production as well as LNG export terminals. Our proprietary IPSMR® (Integrated Pre-cooled Single Mixed Refrigerant) and IPSMR+® liquefaction process technology offers lower capital expenditure ratesrequirements 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.
Industrial GasHVAC, Power and Refining Applications
For industrial gas applications, our brazed aluminum heat exchangers and cold boxes are used to produce high purity atmospheric gases, such as oxygen, nitrogen, and argon, which have diverse industrial applications. Cold boxes, which incorporate our brazed aluminum heat exchangers, are used to separate air into its major atmospheric components, including oxygen, nitrogen, and argon, where the gases are used in a diverse range of applications such as metal production and heat treating, enhanced oil and gas production, coal gasification, chemical and oil refining, electronics, medical, the quick-freezing of food, wastewater treatment, and industrial welding. Our brazed aluminum heat exchangers and cold boxes are also used in the purification of helium and hydrogen.
Demand for industrial gas applications is driven by growth in manufacturing and industrial gas use. Other key global drivers involve developing Gas to Liquids, or GTL, clean coal processes including Coal to Liquids, or CTL, and Integrated Gasification Combined Cycle, or IGCC, power projects. In addition, demand for our products in developed countries is expected to continue as customers upgrade their facilities for greater efficiency and regulatory compliance. We have a number of competitors for these applications, including leading industrial gas companies and EPC firms, to whom we also act as a supplier of equipment, including heat exchangers and cold boxes.
After Market Services
To support the products and solutions we sell,our after market services group 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. After market 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.
E&C FinFans
E&C FinFans (28% of sales for the year ended December 31, 2019) facilitates major natural gas, petrochemical processing, petroleum refining, power generation and industrial gas companies in the production of their products. E&C FinFans supplies mission critical engineered equipment and 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 . Our principal products include air cooled heat exchangers and axial cooling fans for power, HVAC, and refining end user applications.
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, which accounted for 20.3%, 16.8%, and 9.2% of consolidated sales for the years ended December 31, 2019, 2018 and 2017, respectively. Primary products used in these applications are air cooled heat exchangers. Our air cooled heat exchangers are used to cool or condense fluids to allow for further processing and for cooling gas compression equipment. 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 and many smaller fabrication-only facilities around the world.
LNG Applications
We provide air cooled heat exchangers for the liquefaction of LNG, including small to mid-scale facilities, floating LNG applications, and large base-load export facilities. In conjunction with our other business segments, we are a leading supplier to EPC firms where we provide equipment or design the process and provide equipment, providing an integrated and optimized approach to the project. These “Concept-to-Reality” process systems incorporate many of Chart’s core products, including air cooled heat exchangers. These systems are used for global LNG projects, including projects in North America and China, for local LNG production and LNG export terminals.
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 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 a number of competitors for these applications, including leading industrial gas companies and other equipment fabricators to whom we also act as a supplier of equipment.
HVAC, Power and Refining Applications
Our Air Cooled Heat Exchangers (ACHX) and 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 crudeoil, natural gas liquids and gas resulting in high utilization and increased investment. Our ACHX productsair cooled heat exchangers are used in each phase of the refining process to condense and cool gases and fluids. Worldwide power use is projected to grow 40%50% through 2035,2050. This growth is focused in regions where strong economic growth is driving demand, particularly in Asia.
Specialty Products
Specialty Products (28% of consolidated sales for the year ended December 31, 2022) supplies highly-engineered equipment and process technologies used in specialty end-market applications for hydrogen, LNG, biofuels, CO2 Capture, food and beverage, aerospace, lasers, cannabis and water treatment, among others. Leveraging our global manufacturing presence Specialty Products serves customers globally. We have made a number of acquisitions over the past three years to capitalize on clean power, clean industrials, clean water and clean food, beverages and agriculture market opportunities within this segment. These include the acquisitions of BlueInGreen, LLC, Sustainable Energy Solutions, Inc., Cryogenic Gas Technologies, Inc., L.A. Turbine, AdEdge Holdings, LLC and Earthly Labs Inc.
We supply a wide range of solutions used in the production, storage, distribution and end-use of hydrogen while also providing highly-specialized mobility and transportation equipment for use with growth steadyboth hydrogen and LNG, including onboard vehicle tanks and fueling stations. More specifically, our horizontal LNG vehicle tanks are widely used onboard heavy-duty trucks and buses while our recently-released liquid hydrogen vehicle tank enjoys many of the same characteristics. Chart also manufactures specialized cryogenic railcars 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. Additional water treatment capabilities include but are not limited to adsorption, filtration, ion exchange, reverse osmosis and flow reversal processes, to name a few. Our expanded solution set effectively addresses a wide range of organic and inorganic contaminants including arsenic and per- and polyfluorinated alkylated substances (PFAS), often referred to as “forever chemicals.” Other equipment and technology offered through Specialty Products have applications in CO2 Capture, space and cannabis industries. We also offer cryogenic components, including turboexpanders, vacuum insulated pipe (“VIP”), specialty liquid nitrogen, or LN2, end-use equipment and cryogenic flow meters.
We design and manufacture solutions for the liquefaction, storage, distribution, regasification and use of hydrogen. We have over 57 years of experience in manufacturing hydrogen-related equipment. There are a number of commercial uses for hydrogen including applications in the chemical, refining and space industries. More recently, hydrogen is increasingly being used as an alternative fuel for the power transportation sectors, 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, public and private sector movement towards a lower-carbon footprint, reduced greenhouse gas emissions and overall sustainability trends. These efforts are being guided not only by government policies and related global climate goals, but also by social and environmental actions by 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 and other environmental-related goals, including our carbon capture and biofuel 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 (12% of consolidated sales for the year ended December 31, 2022) provides installation, service, repair, maintenance, and refurbishment of our products globally in addition to providing equipment leasing solutions. With primary operations in the United States and Europe, while additional growth comes from emerging economies.
After Market Servicesour Repair, Service & Leasing segment serves customers globally. We have made a number of acquisitions over the years to expand our global footprint including CSC Cryogenic Service Center AB, Skaff, LLC and VCT Vogel GmbH.
To support the products and solutions we sell, our after market services groupRepair, 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. After marketAftermarket 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 air cooledbrazed aluminum heat exchangers, cold boxes, etc.
We also install, service, maintain and fans.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 are standard trailers, bulk and micro bulk storage systems, vaporizers and delivery tankers. Chart also offers Treatment-as-a-Service options for water treatment customers in addition to remote monitoring services.
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 broader array 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 hydrocarbonhydrocarbons 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 andas well as 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
The dollar amount of our backlog as of December 31, 2019, 2018 and 2017 was $762.3 million, $568.2 million, and $446.4 million, respectively. Backlog as of December 31, 2019 included $31.5 million related to our July 1, 2019 acquisition of AXC. Backlog as of December 31, 2018 included $81.6 million related to our November 15, 2018 acquisition of VRV. We expect to recognize revenue on approximately 83.4% of the remaining performance obligations over the next 12 months and 10% of the remaining performance obligations over the next 13 to 24 months, with the remaining balance recognized thereafter. Backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments received from customers that we have not recognized as revenue under the percentage of completion method or based upon shipment. Backlog can be significantly
affected by the timing of orders for large products, particularly in the E&C Cryogenics segment, and the amount of backlog at December 31, 2019 described above is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. Orders included in our backlog may include customary cancellation provisions under which the customer could cancel all or part of the order, potentially subject to the payment of certain costs and/or penalties. For further information about our backlog, including backlog by business segment, see Item 7,7. “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. We capture clean power, clean water, clean food and clean industrials as our unique offering for the Nexus of CleanTM. Sales to our top ten customers accounted for 32%38%, 39%, and 38%42% of consolidated sales in 2019, 20182022, 2021 and 2017,2020, respectively. Sales to Praxair and Linde, which combined in 2018, exceeded 10% of consolidated sales in 2018 on a combined basis and represented approximately $121.6 million or 11.2% of consolidated sales in 2018 and is primarily attributable to the D&S West segment, along with D&S East, E&C Cryogenics and E&C FinFans.
Our sales to particular customers fluctuate from period to period, but the global producers and distributors of hydrocarbon and industrial gases andas well as 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 areAlso, 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.supply, although shortages and delays to certain materials have been experienced during the past year, as a result of market disruptions caused by macroeconomic conditions such as inflation and supply chain disruptions. We have long-term relationships with our raw material suppliers and other vendors. Commodity components of our raw material (stainless(aluminum, stainless steel and carbon steel) could experience some leveladditional levels of volatility during 20202023 and may have a relational impact on raw material pricing. Subject to certain short-term 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.
EmployeesHuman Capital Resources
As of January 31, 2020,2023, we had 5,7435,178 employees, including 2,6862,790 domestic employees and 3,0572,388 international employees.
We are party to one collective bargaining agreement with the International Association of Machinists and Aerospace Workers (“IAM”) covering 236279 employees at our La Crosse, Wisconsin heat exchanger facility. Effective February 3, 2018,8, 2021, we entered into a three-yearfive-year agreement with the IAM which expires on February 6, 2021.8, 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 2022, 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 and as always, 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 essential manufacturing and critical medical care. Our global pandemic efforts have included 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 its variants 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 and on an ongoing basis, receive regular updates as rules and guidelines evolve, and as recommended responses to the pandemic have also been modified.
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. In addition to procuring and maintaining 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 or executive management 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 and global 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, Welding Council, Rotational Engineering program and 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. Our Network of Women employee resource group was started to help create a more equitable workplace and offer career advancement opportunities for women across Chart. 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 5,178 team members to ensure all of our key themes and priorities work seamlessly together in our culture for the best employee experience.
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.
Environmental Matters
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. 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 7coming 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 20202023 relating to our existing business 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.
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 (which we have managed to balance through diversification of our products and offerings) 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 2,0002,500 customers, sales to our top ten customers accounted for 32%38%, 39%, and 38%42% of consolidated sales in 2019, 20182022, 2021 and 2017, respectively, with sales to one customer of approximately 11.2% of consolidated sales in 2018; we2020, respectively. 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, distributors and distributorsusers of hydrocarbonenergy 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 20192022 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,years including acquisitions in new clean energy markets, such as hydrogen, water, carbon and direct air capture and we completedexpect to close on the acquisition of the Air-X-Changers business “AXC”Howden in May 2019 for a purchase price of approximately $599.7 million. Furthermore, we acquired VRV in November 2018 for a purchase price of euro 125.0 million,late first quarter or approximately $141.3 million in cash and assumed indebtedness of VRV, which was paid off immediately at closing or shortly thereafter, of euro 63.7 million (equivalent to $72.0 million), and net working capital and other agreed-upon purchase price adjustments finalized during the first half of 2019 of 3.7 million euros (equivalent to $4.2 million) which was settled early in the second quarter of 2019. In addition, we acquired Hudson in September 2017 for a purchase price of $419.5 million, net of cash acquired (including certain estimated net working capital adjustments and acquisition-related tax benefits acquired). The benefitsquarter. These high growth markets represent new businesses that are expectedcomplementary to result from the AXC, VRVour existing LNG and Hudson acquisitions will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies from these acquisitions. Although we have already achieved certain of the anticipated disclosed synergies from these transactions, there can be no assurance that we successfully or cost-effectively integrate AXC, VRV and Hudson into our business and realize the remainder of these expected benefits.gas technologies. The failure to do soachieve the anticipated cost savings or synergies of our recent significant acquisitions or recognize the anticipated market opportunities or integration from our new clean energy acquisitions, including our pending acquisition of Howden, 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. Ifinternationally and expect a net near term large acquisition with the pending acquisition of Howden. In the event we pursued a large acquisition opportunity arisesin the future 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 and obligations we take on through the acquisition may prove to be higher than we expected;
•We may fail to achieve acquisition synergies; 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.businesses; and/or
•The Acquisition and combined business may not be successfully received by our customers, business partners, suppliers and employees.
Inherent in any future acquisition is the risk of transitioning company cultures and facilities.facilities and the corresponding risk of management and employee turnover. 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 challenginguncertain economic environment. For example, we have invested or plan to invest approximately $35$60 to $40$65 million in new capital expenditures in 2020.2023 relating to our existing business. 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.
ChangesOur results of operations could materially suffer if we are unable to obtain sufficient pricing for our products and services to meet our profitability expectations.
If we are unable to obtain favorable pricing for our products and services in a timely manner, our revenues and profitability could materially suffer. For example, current conditions in our supply chain have resulted in rapid increases in the energy industry,prices for the raw materials we use. Furthermore, the prices we are able to charge for our products and services are affected by a number of other factors, including:
•general economic and political conditions;
•our customers’ desire to reduce their costs;
•the competitive environment;
•our ability to accurately estimate our costs, including pricing fluctuationsour ability to estimate the impact of inflation on our costs over long-term contracts; and reductions and capital expenditures
•the procurement practices of our customers.
Our inability to pass increased prices along to our customers in a timely manner could harmhave a material adverse effect on our business, financial condition andor results of operations.
A significant amountWe 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 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 sales isproduct 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 customershave timely access to adequate supplies of essential materials and components in the energy productionfuture 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 industry. Our concentration of salesor fail to the energy industry has increased as a result ofmeet our recent acquisitions and the divestiture ofcontractual requirements, which would adversely affect our oxygen-related products business in December 2018. We estimate that 52% of our sales for the year ended December 31, 2019 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.and negatively impact our cash flow and profitability.
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, 2019,2022, we had goodwill and indefinite-lived intangible assets of $1,008.8$1,148.4 million, which represented approximately 40.7%19.5% 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.
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 ongoing impact of 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. The Covid-19 pandemic 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 pandemic 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 resurgence of the Covid-19 virus and its variants 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, 20192022 was $762.3$2,338.1 million. Our backlog can be significantly affected by the timing of orders for large projects, particularly in our E&C Cryogenics segment, and the amount of our backlog at December 31, 20192022 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, D&S East segment 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. Included in the E&C Cryogenics backlog is approximately $40.0 million related to the previously announced Magnolia LNG order where production release is delayed into 2020. We did not have any significant cancellations in 2019, 20182022, 2021 and 2017.
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)substantial including the cryobiological storage tank lawsuits filed in 2018 as discussed in Item 3. “Legal Proceedings” relating to our since divested Cryobiological business, but for which we retained and are in the process of settling certain potential liabilities) 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. During 2019, we were named in lawsuits (including purported class action 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 at the Pacific Fertility Center in San Francisco, California, and we have also been named in a purported class action lawsuit filed in the Ontario Superior Court of Justice against Chart and other defendants with respect to the alleged failure of an aluminum cryobiological storage tank at The Toronto Institute for Reproductive Medicine in Etobicoke, Ontario. See Item 3. “Legal Proceedings,” for further details. Although we currently maintain product liability coverage, which we believe ishas generally been 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. We had net out-of-pocket exposure with respect to the recent settlement related to the Cryobiological business in the amount of $73.0 million. 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 whetherwhat changes in energy policy might occur in the future and the timing of potential changes and their impact on our business. The elimination or reductionbusiness, including potential changes that could originate from the current U.S Presidential administration.
Changes in the industries that we operate in, including pricing fluctuations and reductions and capital expenditures could harm our business, financial condition, and results of favorable policiesoperations.
A significant amount of our sales is to customers in concentrated industries. Demand for a significant portion of our products depends upon the level of capital expenditures by companies in the industries we serve. Deterioration and significant decline in the capital expenditures of our customers may decrease demand for our energy-related business, orproducts and cause downward pressure on the failure to adopt expected policies that would benefitprices we charge. Accordingly, if there is a downturn in the industries we serve, our business, financial condition, and results of operations could negatively impact our sales and profitability.
Our exposure to fixed-price contracts, including exposure to fixed pricing on certain 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-pricelong-term 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, 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 convertiblesenior secured and senior unsecured 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 “2019 Credit Facilities”)due October 2026 are exposed to a variable interest rate.rates. Our convertible notes contain cumulative dividends that can be paid in cash or equity shares, in certain circumstances. 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. We also will have increased interest rate exposure with respect to certain indebtedness incurred in connection with the pending Howden acquisition.
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 2019, 20182022, 2021 and 2017, 47%2020, 42%, 44%56%, and 44%51%, 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, the threat of or actual military conflict between nations, such as the Russian invasion of Ukraine, or increased international tensions, such as between the U.S. and China, other turmoil or outbreak of disease or illness, such as the novel coronavirus,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;
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• | •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; •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 LatinSouth 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 or threatened military actions 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. Likewise, any prolonged or widening exposure of the novel coronavirus now impacting China may cause production or delivery delays or reduction in product demand as a result of 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 in transportation shipments.
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 current U.S. presidentialFor example, the Trump administration has instituted or proposed changes in trade policies that includeincluded 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 any such changes.changes in policy that may be implemented from time to time.
As a result of recentU.S. government policy changes of the U.S. presidential administration and recent U.S. government proposals there may beresult 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 arehave 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 and evolving standards in the U.S., 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 20202023 to 2039.2040.
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, 2019,2022, the projected benefit obligation under our pension plan was approximately $58.5$50.0 million, and the value of the assets of the plan was approximately $49.1 million, resulting in our pension plan being underfunded by approximately $9.4 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, 2019, 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 severeSevere 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 certain 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. GovernmentAlthough we are not subject to all contractor requirements, the generally more extensive requirements governing “Government contract laws and regulationsregulations” 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 CooperationCo-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.
In December 2022, we issued 8,050,000 depositary shares, each representing a 1/20th interest in a share of Chart’s Series B Mandatory Convertible Preferred Stock (the “Mandatory Convertible Preferred Stock”). Any future payments of cash dividends, and the amount of any cash dividends we pay, on the Mandatory Convertible Preferred Stock will depend on, among other things, business condition, our financial condition, earnings and liquidity, as well as other factors that our board of directors (or an authorized committee thereof) may consider relevant. Dividends will accumulate from the initial issue date and, to the extent that we are legally permitted to pay dividends and our board of directors, or an authorized committee thereof, declares a dividend payable with respect to the Mandatory Convertible Preferred Stock, we will pay such dividends in cash, or subject to certain limitations, by delivery of shares of our common stock or through any combination of cash and shares of our common stock, as determined by our board of directors in its sole discretion. Any unpaid dividends will continue to accumulate.
The terms of the Mandatory Convertible Preferred Stock further provide that if dividends have not been declared and paid for six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date and ending on, but excluding, March 15, 2023), whether or not for consecutive dividend periods, the holders of such shares of Mandatory Convertible Preferred Stock, voting together as a single class with holders of all other preferred stock of equal rank having similar voting rights, will be entitled at our next annual or special meeting of stockholders to vote for the election of a total of two additional members of our board of directors, subject to certain limitations.
Risks Related to Our Leverage
Our substantial 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 substantially leveraged and have future debt service obligations. Our financial performance could be affected by our leverage. As of December 31, 2019,2022, our total indebtedness was $829.4$2,333.3 million. In addition, at that date, under our senior secured revolving credit facility, we had $71.5$89.1 million of letters of credit and bank guarantees outstanding and borrowing capacity of approximately $359.5$806.4 million. Further, as of December 31, 2022, our indebtedness under our senior secured notes due 2030 and our senior unsecured notes due 2031 was $1,460.0 million and $510.0 million, respectively. As of December 31, 2022, our indebtedness under our Convertible notes due 2024 was $258.8 million. Through separate facilities, our subsidiaries had $12.6$45.7 million inof letters of credit bank guarantees outstanding at December 31, 2019.2022. We expect to incur additional debt in connection with closing of the Acquisition as described below.
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.
WeDespite our current debt levels, 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, ourOur senior secured revolving credit facility provides commitments of up to $550.0$1,000.0 million, approximately $359.5$806.4 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, 2019.2022. Additionally, we entered into a debt commitment letter for a senior bridge loan facility with an aggregate principal amount of $1,467.1 million to fund the Acquisition. We also entered into a debt commitment letter for a senior secured term loan facility in the aggregate amount of up to $1,434.8 million to fund the Acquisition. As of December 31, 2022, both the senior bridge loan facility and the senior secured term loan facility were undrawn. 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 numberterms of restrictive covenants whichour existing debt may limit our ability to finance future operations or capital needs or engage in other business activities that may be in our interest.
The 2019 Credit Facilitiesterms of our existing debt 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 2019 Credit Facilitiessenior secured revolving credit facility due October 2026 also requirerequires 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 and our indentures 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 2019 Credit Facilities.debt agreements. If an event of default occurs under our senior secured revolving credit facility,debt agreements, which includes an event of default under the indenture governing our 1.00% Convertible Senior Subordinated Notes due November 2024,other debt agreements, the lenders or holders could elect to:
to declare all borrowingsindebtedness 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 defaultpayable. The lenders under our convertible notes or prevent us from making payments on the convertible notes when due in 2024, as the case may be. The lenderssenior secured revolving credit facility 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 borrowingsthis indebtedness when due, our lenders could sell the collateral securing the 2019 Credit Facilities,senior secured revolving credit facility due October 2026 and the secured notes, 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 and our Senior Secured Notes due 2030 and our Senior Unsecured Notes due 2031 have certain change in control 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. In addition, upon the occurrence of certain kinds of change of control, we will be required to offer to repurchase all of the outstanding secured notes and unsecured notes at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. However, there can be no assurance that we will have sufficient funds at the time of the fundamental change or change in control to purchase all of the convertible notes, secured notes or unsecured 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 2024convertible notes, secured notes and unsecured notes may require us to purchase these convertible notes for cash in the event of a takeover of our Company. The indentures governing the convertibleapplicable notes also prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertibleapplicable 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, 6.75% Series B Mandatory Convertible Preferred Stock or the Series A Cumulative Participating Convertible Preferred Stock to be issued upon the closing of the Howden Acquisition could cause dilution to the interests of our existing stockholders.
As of December 31, 2019,2022, 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 2023, although no notes have been converted to date. On December 31, 2020, we amended the Indenture governing our 1.00% Convertible Senior Subordinated Notes due November 2024 to eliminate share settlement thus leaving us with two settlement options: (1) cash settlement or (2) cash for par and any combination of cash and shares for the excess settlement amount above the $258.8 million aggregate principal amount of our 1.00% Convertible Senior Subordinated Notes due November 2024. 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. Furthermore, holders of the Series A Cumulative Participating Convertible Preferred Stock (that will be issued) upon the closing of the Howden Acquisition have the right to convert their shares into common stock in certain circumstances. The number of shares issued could be significant and such an issuance could cause significant dilution to the interests of the existing stockholders.
In addition, unless earlier converted, each share of the Mandatory Convertible Preferred Stock will automatically convert on or around December 15, 2025 into between 7.0520 and 8.4620 shares of our common stock, subject to customary anti-dilution adjustments. At any time prior to December 15, 2025, a holder of Mandatory Convertible Preferred Stock may elect to convert such holder’s shares of the Mandatory Convertible Preferred Stock, in whole or in part, at the minimum conversion rate of 7.0520 shares of common stock per share. If a fundamental change occurs on or prior to December 15, 2025, holders of the Mandatory Convertible Preferred Stock will have the right to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part, into shares of common stock at a conversion rate based on the effective date of the fundamental change and the price paid (or deemed paid) per share of our common stock in such fundamental change. We may also pay declared dividends in cash or, subject to certain limitations, in shares of common stock or in any combination of cash and common stock. Conversion of the Mandatory Convertible Preferred Stock into common stock, as well as the payment of dividends in shares of common stock, could be dilutive to our existing stockholders.
Our common stock will rank junior to the Mandatory Convertible Preferred Stock with respect to dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
| |
Item 1B. | Unresolved Staff Comments |
Item 1B.Unresolved Staff Comments
Not applicable.
Item 2.Properties
We occupy 5065 facilities totaling approximately 6.05.9 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 4.64.2 million square feet are owned and 1.41.7 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 2020.8 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 20192026 Credit Facilities.
The following table summarizes information about our principal plants and other materially important physical properties as of January 31, 2020:
|
| | | | | | | | | | | | | | | | | | | |
LocationSegment | | SegmentLocation | | Ownership | | Use |
| Cryo Tank Solutions/Specialty Products/Corporate | | Ball Ground, Georgia, U.S. | | CorporateLeased | | Leased | | OfficeManufacturing/Office/Warehouse |
Luxembourg, LuxembourgCorporate | | CorporateHyderabad, India | | Leased | | Office |
Chennai, IndiaCorporate | | D&S EastLuxembourg, Luxembourg | | OwnedLeased | | Manufacturing/Office |
| Cryo Tank Solutions/Specialty Products | | Canton, Georgia, U.S. | | Owned | | Manufacturing/Office |
| Cryo Tank Solutions/Heat Transfer Systems/Repair, Service & Leasing | | Milan, Italy | | Owned | | Manufacturing/Office |
| Cryo Tank Solutions/Specialty Products | | Theodore, Alabama, U.S. | | 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 | | Leased/Owned | | Manufacturing/Office |
| Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing | | Decin, Czech Republic | | D&S EastLeased/Owned | | Owned | | Manufacturing/Office |
| Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing | | Goch, Germany | | D&S EastOwned | | Owned | | Manufacturing/Office |
| Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing | | Kuala Lumpur, Malaysia | | D&S EastLeased | | Leased | | Marketing & Sales/Office |
| Cryo Tank Solutions/Specialty Products/Repair, Service & Leasing | | Lery, France | | D&S EastOwned | | Owned | | Manufacturing/Office |
Changzhou, ChinaCryo Tank Solutions/Specialty Products/Repair, Service & Leasing | | D&S East | | Owned | | Manufacturing/Office |
Milan, Italy | | D&S East and E&C Cryogenics | | Leased/Owned | | Manufacturing/Office |
Canton, Georgia, U.S. | | D&S West | | Leased/Owned | | Manufacturing/Office/Service |
Chengdu, China | | D&S West | | Owned | | Manufacturing/Office |
| New Prague, Minnesota, U.S. | | D&S WestLeased/Owned | | Leased/Owned | | Manufacturing/Office/ServiceOffice |
Houston,Heat Transfer Systems | | Pombia, Italy | | Leased | | Manufacturing/Office |
| Heat Transfer Systems/Repair, Service & Leasing | | Beasley, Texas, U.S. | | D&S West and E&C CryogenicsOwned | | Leased/Owned | | Manufacturing/Office/ServiceWarehouse |
Franklin, Indiana,Heat Transfer Systems/Repair, Service & Leasing | | Tulsa, Oklahoma, U.S. | | E&C CryogenicsLeased/Owned | | Leased | | Manufacturing/Office/ServiceOffice |
| Heat Transfer Systems/Specialty Products/Repair, Service & Leasing | | La Crosse, Wisconsin, U.S. | | E&C CryogenicsLeased/Owned | | Owned | | Manufacturing/OfficeOffice/Warehouse |
| Heat Transfer Systems/Specialty Products/Repair, Service & Leasing | | New Iberia, Louisiana, U.S. | | E&C CryogenicsLeased | | Leased | | ManufacturingManufacturing/Office |
| Heat Transfer Systems/Specialty Products/Repair, Service & Leasing | | Valencia, California, U.S. | | Leased | | Manufacturing/Office |
| Heat Transfer Systems/Specialty Products/Repair, Service & Leasing/Corporate | | The Woodlands, Texas, U.S. | | E&C CryogenicsLeased | | Leased | | Office |
Beasley,Specialty Products | | Allentown , Pennsylvania, U.S. | | Owned | | Office |
| Specialty Products | | Austin, Texas, U.S. | | E&C FinFansLeased | | Owned | | Manufacturing/OfficeWarehouse |
Changshu, ChinaSpecialty Products (1)
| | E&C FinFansDuluth, Georgia, U.S. | | Leased | | Manufacturing/Office |
Monterey, MexicoSpecialty Products | | E&C FinFansFayetteville, Arkansas, U.S. | | OwnedLeased | | Manufacturing/OfficeOffice/Warehouse |
Pombia, ItalySpecialty Products | | E&C FinFansHaryana, India | | Leased | | Manufacturing/Office |
Tulsa, Oklahoma, U.S.Specialty Products | | E&C FinFans | | Leased/Owned | | Manufacturing/Office |
_______________
| Orem, Utah, U.S. | | Leased | | Manufacturing/Office |
(1)Specialty Products
| This facility is designated for closure April 30, 2020. | Palmerton, Pennsylvania, U.S. | | Leased | | Office/Warehouse |
| Repair, Service & Leasing | | Franklin, Indiana, U.S. | | Leased | | Manufacturing/Office/Service |
| Repair, Service & Leasing | | Goteborg, Sweden | | Leased | | Manufacturing/Office/Service |
| Repair, Service & Leasing | | Houston, Texas, U.S. | | Owned | | Manufacturing/Office/Service |
| Repair, Service & Leasing | | Richburg, South Carolina, U.S. | | Owned | | Manufacturing/Office/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 20202023 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.
Stainless Steel Cryobiological Tank Item 3.Legal Proceedings
In connection with our divestiture of our Cryobiological business, Chart retained certain potential liabilities, including claims in connection with our following litigation. During the second quarter of 2018, Chart was named in lawsuits (including a class action lawsuitlawsuits 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. In May and June of 2021, the first five of the federal lawsuits went to trial, and on June 10, 2021, the jury reached a verdict against Chart in favor of the plaintiffs in those lawsuits in the amount of $14.9 million, of which 90% ($13.5 million) is attributable to Chart. Subsequent to the initial verdict, the Company filed various post-trial motions and appeals based on various factors, including the Company’s belief that the allocation of fault was not supported by the record, the award of emotional distress damages, the exclusion of certain evidence of trial, and our contention that plaintiffs failed to present sufficient evidence to prove each element of their claim.
In the second quarter 2021, we recorded a loss contingency accrual and corresponding charge to net income for $13.5 million in the amount of the jury verdict attributable to Chart, with an offsetting $13.5 million loss recovery receivable for anticipated insurance proceeds, with a corresponding credit to net income.
On June 13, 2022, Starr Indemnity & Liability Company (“Starr”) filed a complaint for declaratory relief and reimbursement in the U.S. District Court for the Northern District of California seeking a determination of what obligation, if any, Starr has to indemnify Chart in connection with the Pacific Fertility Center actions. On June 14, 2022, Chart filed its own declaratory judgment action against Starr in the U.S. District Court for the Northern District of Georgia seeking a determination that Starr has a duty to indemnify the Company in connection with the Pacific Fertility Center actions.
As previously disclosed, the Company has been engaged in ongoing discussions in an effort to establish a settlement framework for the various lawsuits (both in the U.S. District Court for the Northern District of California, as well as the San Francisco Superior Court) associated with the Pacific Fertility Center. After substantial discussions with the various constituent parties, the Company reached a preliminary settlement in late January 2023 to resolve these 217 cases. This preliminary settlement will resolve the prior verdict for the initially tried cases, which is on appeal, as well as the previously disclosed Starr insurance dispute, and remains subject to the satisfaction of certain conditions, which the Company currently anticipates occurring as early as March 2023. The Company has taken a loss contingency accrual of $305.6 million and a related loss receivable of $231.9 million from insurance proceeds from these combined cases which are recognized in our consolidated balance sheet. The net loss of approximately $73.0 million is recognized in discontinued operations and represents the expected out-of-pocket, payments in connection with these settlements. We continue to evaluate the merits of such claimsthe sole remaining lawsuit that is not included in the preliminary settlement in light of the information available to date regarding use, maintenance and operationavailable. Based on the status of the tank which has been outthat lawsuit, a current estimate of our custody for the past six years when it was sold to the Pacific Fertility Center through an independent distributor. Accordingly, an accrual related to any damagesreasonably possible losses in that may result from the lawsuits has not been recorded because a potential loss is not currently probable or estimable.
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 has been named in a purported class action lawsuits filed during the second quarter of 2018 in the Ontario Superior Court of Justice againstcase cannot be made; however, the Company does not anticipate the potential exposure to be material. This preliminary settlement and other defendantsthe expected net out-of-pocket payments does not reflect third party recoveries which the Company will aggressively pursue with respect to the alleged failureunderlying facts in these cases, and which the Company currently anticipates will result in recoveries approximating one-quarter or more 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.out-of-pocket, net payments.
We are occasionally subject to various legal claims related to performance under contracts, product liability, environmental liability, taxes, employment matters, environmental matters, intellectual property, and other matters several of which claims assert substantial damages inincidental to the ordinarynormal 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 believemanagement believes that the final resolution of these legal claimsmatters, including the Pacific Fertility Center cases described above, will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations. operations, except that our results of operations for any particular reporting period may be adversely affected by any potential or actual loss that is accrued in such period.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.”
Item 4. Mine Safety Disclosures
Not applicable.
24
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Item 4A. | Executive Officers of the Registrant* |
Item 4A.Executive Officers of the Registrant*
The name, age and positions of each Executive Officer of the Company as of February 14, 202024, 2023 are as follows:
|
| | | | | | | | | | | | | |
| Name | | Age | | Position |
| Jillian C. (Jill) Evanko | | 4245 | | Chief Executive Officer and President (Principal Executive Officer) |
| Joseph R. (Joe) Brinkman | | 53 | | Vice President and Chief Financial Officer and Treasurer(Principal Financial Officer) |
John Bishop | | 46 | | Chief Operating Officer |
| Gerald F. (Gerry) Vinci | | 5457 | | Vice President, Chief Human Resources Officer |
| Herbert G. (Herb) Hotchkiss | | 4952 | | Vice President, General Counsel and Secretary |
| Joseph A. (Joe) Belling | | 53 | | Chief Commercial Officer |
| Brian P. Bostrom | | 49 | | Chief Technology Officer |
* 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, sincefrom August 29, 2019 has also served as Chief Financial Officer and Treasurer.until March 16, 2021. 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 Alliant Energy (NASDAQ: LNT)Parker-Hannifin Corporation (NYSE: PH).
John Bishop Joseph R. (Joe) Brinkmanwas appointed our Vice President and Chief OperatingFinancial Officer on August 21, 2019.October 1, 2021. Prior to joining Chart,his appointment, Mr. Bishop served as HeadBrinkman was Vice President and General Manager of Morgan Stanley’s Global Oilfield Services and a member ofIndustrial Gas Products, the North American Upstream team. Mr. Bishop joined Morgan Stanley, a multinational investment bank and financial services company, in 2012. Prior to joining Morgan Stanley, Mr. Bishop spent 10Company’s largest business. In his 24 years with Citigroup’sthe Company Mr. Brinkman has held various roles including Materials Manager, Director of Global Energy Group. Prior to working for Citigroup, Mr. Bishop worked for Deloitte ConsultingSourcing and Motorola.most recently Vice President & General Manager of Bulk Gas Products.
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 (NYSE:DOV), 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.Corporation (NYSE:HSC). Prior to that, Mr. Vinci was an attorney for Sunoco, Inc.(NYSE:SUN).
Herbert G. (Herb) 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.
Brian P. Bostrom was appointed Chief Technology Officer on January 9, 2023. Mr. Bostrom joined Chart in 1994. During his 28 years with the Company, Mr. Bostrom has held numerous engineering roles, including his most recent role of President of Global Engineering. As Chief Technology Officer, Mr. Bostrom will have responsibility for all global engineering activities and advancement and commercialization of global product applications across the Company. He will also continue to be a leader in developing the Company’s engineering depth and capabilities. Mr. Bostrom holds an engineering degree from the University of Minnesota, is a member of the Compressed Gas Association and a member of the 2019 inaugural class of Chart Fellows.
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
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 NASDAQ Global Select MarketNew York Stock Exchange under the symbol “GTLS.” As of February 1, 2020,2023, there were 168180 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.
WeApart from the dividend requirements associated with the Series B Mandatory Convertible Preferred Stock that we issued to fund a portion of the Acquisition, 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 20192026 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, 2014,2017, including reinvestment of dividends, if any.
| | | | December 31, | | December 31, |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Chart Industries, Inc. | $ | 100.00 |
| | $ | 52.51 |
| | $ | 105.32 |
| | $ | 137.02 |
| | $ | 190.15 |
| | $ | 197.34 |
| Chart Industries, Inc. | $ | 100.00 | | | $ | 138.78 | | | $ | 144.02 | | | $ | 251.37 | | | $ | 340.35 | | | $ | 245.90 | |
| S&P SmallCap 600 Index | 100.00 |
| | 98.03 |
| | 124.06 |
| | 140.48 |
| | 128.56 |
| | 157.85 |
| S&P SmallCap 600 Index | 100.00 | | | 91.48 | | | 112.28 | | | 124.90 | | | 158.30 | | | 132.74 | |
| Peer Group Index | 100.00 |
| | 89.67 |
| | 117.14 |
| | 139.30 |
| | 114.40 |
| | 154.09 |
| Peer Group Index | 100.00 | | | 90.10 | | | 119.62 | | | 143.10 | | | 164.48 | | | 171.09 | |
|
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,Air Products and Chemicals, Inc., Baker Hughes Company, Barnes Group Inc., Circor International,ChampionX Corporation, Cheniere Energy, Inc., Colfax Corp.CIMC Enric Holdings Limited, CNH Industrial N.V., EnproEnPro Industries, Inc., EscoESCO Technologies Inc., GracoFranklin Electric Co., Inc., Harsco Corporation, Idex Corp.IDEX Corporation, ITT Inc., Nordson Corporation,New Fortress Energy LLC, NIKKISO CO., LTD., Plug Power Inc., SPX Corporation and Worthington Industries, Inc.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 — 31, 2022 | | 10 | | | $ | 196.77 | | | — | | | $ | — | |
| November 1 — 30, 2022 | | 1,123 | | | 129.00 | | | — | | | — | |
| December 1 — 31, 2022 | | — | | | — | | | — | | | — | |
| Total | | 1,133 | | | $ | 129.56 | | | — | | | $ | — | |
_______________
(1)Includes shares of common stock surrendered to us during the fourth quarter of 2019, 458 shares of common stock were surrendered to us2022 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 $26,400.$146,800. The total number of shares repurchased represents the net shares issued to satisfy tax withholdings.withholding. All such repurchased shares were subsequently retired during the three months ended December 31, 2019.2022.
Item 6.[Reserved]
|
| | | | | | | | | | | | | | |
| | | Issuer Purchases of Equity Securities |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 — 31, 2019 | | 138 |
| | $ | 59.99 |
| | — |
| | $ | — |
|
| November 1 — 30, 2019 | | 154 |
| | 57.56 |
| | — |
| | — |
|
| December 1 — 31, 2019 | | 166 |
| | 55.85 |
| | — |
| | — |
|
| Total | | 458 |
| | $ | 57.67 |
| | — |
| | $ | — |
|
| |
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, 2019, 2018 and 2017 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 year ended December 31, 2019 and Ernst & Young LLP for the remaining years. We selected historical financial consolidated data as of and for the years ended December 31, 2016 and 2015 derived from our audited financial statements for such periods, which have 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’sManagement’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, |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Statements of Operations Data: | | | | | | | | | |
Sales (1) (2) (3) | $ | 1,299.1 |
| | $ | 1,084.3 |
| | $ | 842.9 |
| | $ | 722.0 |
| | $ | 883.2 |
|
Cost of sales (4) | 962.3 |
| | 788.4 |
| | 611.3 |
| | 512.3 |
| | 631.1 |
|
| Gross profit | 336.8 |
| | 295.9 |
| | 231.6 |
| | 209.7 |
| | 252.1 |
|
Operating expenses (5) (6) (7) (8) (9) (10) | 255.9 |
| | 203.8 |
| | 193.1 |
| | 167.5 |
| | 174.8 |
|
| Asset impairments | — |
| | — |
| | — |
| | 1.2 |
| | 151.8 |
|
Operating income (loss) (1) (2) (3) | 80.9 |
| | 92.1 |
| | 38.5 |
| | 41.0 |
| | (74.5 | ) |
| Interest expense, net (including deferred financing costs amortization) | 28.3 |
| | 22.7 |
| | 18.6 |
| | 16.4 |
| | 13.9 |
|
Loss on extinguishment of debt (11) | — |
| | — |
| | 4.9 |
| | — |
| | — |
|
| Foreign currency (gain) loss | (0.2 | ) | | 0.4 |
| | 3.9 |
| | 0.5 |
| | 2.0 |
|
| Other expenses, net | 28.1 |
| | 23.1 |
| | 27.4 |
| | 16.9 |
| | 15.9 |
|
| Income (loss) before income taxes | 52.8 |
| | 69.0 |
| | 11.1 |
| | 24.1 |
| | (90.4 | ) |
Income tax expense (benefit), net (12) | 6.0 |
| | 13.4 |
| | (16.6 | ) | | 10.6 |
| | 8.3 |
|
| Net income (loss) from continuing operations | 46.8 |
| | 55.6 |
| | 27.7 |
| | 13.5 |
| | (98.7 | ) |
Income (loss) from discontinued operations, net of tax (13) | — |
| | 34.4 |
| | 1.8 |
| | 11.2 |
| | (105.8 | ) |
| Net income (loss) | 46.8 |
| | 90.0 |
| | 29.5 |
| | 24.7 |
| | (204.5 | ) |
| Less: Income (loss) attributable to noncontrolling interests, net of taxes | 0.4 |
| | 2.0 |
| | 1.5 |
| | (3.5 | ) | | (1.5 | ) |
| Net income (loss) attributable to Chart Industries, Inc. | $ | 46.4 |
| | $ | 88.0 |
| | $ | 28.0 |
| | $ | 28.2 |
| | $ | (203.0 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Earnings Per Share Data: | | | | | | | | | |
| Basic earnings (loss) per common share attributable to Chart Industries, Inc. | | | | | | | | | |
| Income (loss) from continuing operations | $ | 1.37 |
| | $ | 1.73 |
| | $ | 0.85 |
| | $ | 0.55 |
| | $ | (3.19 | ) |
| Income (loss) from discontinued operations | — |
| | 1.10 |
| | 0.06 |
| | 0.37 |
| | (3.47 | ) |
| Net income (loss) attributable to Chart Industries, Inc. | $ | 1.37 |
| | $ | 2.83 |
| | $ | 0.91 |
| | $ | 0.92 |
| | $ | (6.66 | ) |
| Diluted earnings (loss) per common share attributable to Chart Industries, Inc. | | | | | | | | | |
| Income (loss) from continuing operations | $ | 1.32 |
| | $ | 1.67 |
| | $ | 0.84 |
| | $ | 0.55 |
| | $ | (3.19 | ) |
| Income (loss) from discontinued operations | — |
| | 1.06 |
| | 0.05 |
| | 0.36 |
| | (3.47 | ) |
| Net income (loss) attributable to Chart Industries, Inc. | $ | 1.32 |
| | $ | 2.73 |
| | $ | 0.89 |
| | $ | 0.91 |
| | $ | (6.66 | ) |
| | | | | | | | | | |
| Weighted-average shares — basic | 33.91 |
| | 31.05 |
| | 30.74 |
| | 30.58 |
| | 30.49 |
|
Weighted-average shares — diluted (14) | 35.17 |
| | 32.20 |
| | 31.34 |
| | 30.98 |
| | 30.49 |
|
| | | | | | | | | | |
| Cash Flow Data: | | | | | | | | | |
| Cash provided by operating activities | $ | 133.9 |
| | $ | 119.0 |
| | $ | 44.3 |
| | $ | 169.3 |
| | $ | 98.4 |
|
| Cash used in investing activities | (642.7 | ) | | (260.6 | ) | | (477.8 | ) | | (17.0 | ) | | (70.2 | ) |
| Cash provided by financing activities | 511.6 |
| | 38.2 |
| | 275.2 |
| | 7.7 |
| | 0.4 |
|
| Cash provided by (used in) discontinued operations | — |
| | 102.5 |
| | 0.5 |
| | 0.4 |
| | (0.7 | ) |
| | | | | | | | | | |
| Other Financial Data: | | | | | | | | | |
Depreciation and amortization, including deferred financing costs amortization (15) | $ | 81.8 |
| | $ | 52.1 |
| | $ | 38.9 |
| | $ | 34.4 |
| | $ | 36.2 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Balance Sheet Data: | | | | | | | | | |
| Cash and cash equivalents | $ | 119.0 |
| | $ | 118.1 |
| | $ | 122.6 |
| | $ | 282.0 |
| | $ | 123.7 |
|
Working capital (16) | 192.6 |
| | 177.0 |
| | 73.0 |
| | 60.4 |
| | 139.1 |
|
Goodwill (17) (18) (19) | 844.9 |
| | 520.7 |
| | 459.7 |
| | 208.9 |
| | 209.3 |
|
Identifiable intangible assets, net (17) (18) (19) | 529.1 |
| | 330.4 |
| | 286.4 |
| | 74.5 |
| | 84.8 |
|
Total assets (17) (18) (19) | 2,481.4 |
| | 1,897.7 |
| | 1,724.7 |
| | 1,233.0 |
| | 1,200.1 |
|
| Long-term debt | 761.0 |
| | 533.2 |
| | 439.2 |
| | 233.7 |
| | 213.8 |
|
Total debt (20) | 777.3 |
| | 544.4 |
| | 498.1 |
| | 240.2 |
| | 220.0 |
|
| Chart Industries, Inc. shareholders’ equity | 1,227.6 |
| | 884.5 |
| | 802.2 |
| | 697.2 |
| | 670.6 |
|
_______________
| |
(1)Operations
| Includes sales and operating income for AXC in the E&C FinFans segment results since the acquisition date, July 1, 2019 as follows: |
| |
• | Sales were $103.1 for the year ended December 31, 2019, and
|
| |
• | Operating income was $4.6 for the year ended December 31, 2019, which included $18.4 of depreciation and amortization expense.
|
| |
(2)
| Includes sales and operating (loss) income for VRV in the D&S East and E&C Cryogenics segments results since the acquisition date, November 15, 2018 as follows: |
Sales were $104.0 (D&S East: $57.1, E&C Cryogenics: $46.9) for the year ended December 31, 2019,
Sales were $14.1 (D&S East: $10.3, E&C Cryogenics: $3.8) for the year ended December 31, 2018,
Operating loss was $11.2 (D&S East: $9.7, E&C Cryogenics: $1.5) for the year ended December 31, 2019, and
Operating (loss) income was $(2.0) (D&S East: $0.2, E&C Cryogenics: $(2.2)) 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 E&C FinFans 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 $12.2, $0.8, $2.7, $3.5 and $2.9 for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively. |
| |
(5)
| Operating expenses include selling, general and administrative expenses and amortization expense. Amortization expense related to intangible assets was $39.8, $21.9, $12.2, $8.8 and $9.2 for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively. |
| |
(6)
| Includes an expense of $4.0 recorded to cost of sales related to the estimated costs of the aluminum cryobiological tank recall for the year ended December 31, 2018. |
| |
(7)
| Operating income (loss) includes restructuring costs of $15.6, $4.4, $11.2, $9.5 and $6.4 for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively. |
| |
(8)
| Includes transaction-related costs of $5.4 for the year ended December 31, 2019, which were mainly related to the AXC acquisition. Includes integration costs of $1.6 related to the AXC acquisition for the year ended December 31, 2019. |
| |
(9)
| Includes transaction-related costs of $2.1, $10.1, $0.4 and $0.7 for the years ended December 31, 2018, 2017, 2016 and 2015, respectively. |
| |
(10)
| During the year ended December 31, 2018, we recorded net severance costs of $2.3 primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 in payroll severance costs partially offset by a $0.9 credit due to related share-based compensation forfeitures for 2018. Includes net severance costs of $1.4 related to the departure of our former CEO, which includes $3.2 in payroll severance costs partially offset by a $1.8 credit due to related share-based compensation forfeitures for 2018. |
| |
(11)
| 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 2.00% convertible notes due August 2018 and refinance of our senior secured revolving credit facility. |
| |
(12)
| Includes a one-time $22.5 net favorable tax benefit that was recorded during the fourth quarter of 2017, which resulted from the enactment of the Tax Cuts and Jobs Act. This benefit mainly consisted of a one-time, provisional benefit of $26.9 related to the remeasurement of certain of our deferred tax liabilities using the lower U.S. federal corporate tax rate of 21%. This was partially offset by (i) a one-time, provisional charge of $8.7 related to the deemed repatriation transition tax, which is a tax on previously untaxed accumulated earnings and profits of certain of our foreign subsidiaries, and (ii) a one-time tax expense and tax benefit of $4.5 and $8.7, respectively, related to our intent to amend pre-acquisition Hudson U.S. federal tax returns. We have completed our analysis to determine the effect of the Tax Cuts and Jobs Act, and as such, we have recorded an additional tax benefit of $1.8 million. |
| |
(13)
| Includes gain on sale of the CAIRE business of $34.3, net of taxes of $2.6, for the year ended December 31, 2018. |
| |
(14)
| Zero incremental shares from share-based awards are included in the computation of diluted net loss per share for periods in which a net loss occurs, because to do so would be anti-dilutive. |
| |
(15)
| Includes deferred financing costs amortization of $3.0 for the year ended December 31, 2019 and $1.3 for each of the years ended December 31, 2018, 2017 and 2016 and 2015. |
| |
(16)
| 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). |
| |
(17)
| Total assets at December 31, 2017 included $572.8 related to Hudson of which $238.3 and $211.0 represented acquired goodwill and intangible assets, net, respectively. For further information, see Note 13, “Business Combinations,” in the consolidated financial statements located elsewhere in this report. |
| |
(18)
| 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. For further information, see Note 13, “Business Combinations,” in the consolidated financial statements located elsewhere in this report. |
| |
(19)
| 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. |
| |
(20)
| 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 $15.7. |
| |
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 diversifiedindependent global manufacturer of highly engineered cryogenic equipment servicing multiple market applications in energy and industrial gas. Our equipment and engineered systems are primarily used for low-temperature and cryogenic applications utilizing our expertise in cryogenic systems and equipment which operate at low temperatures sometimes approaching absolute zero (0 Kelvin; -273° Centigrade; -459° Fahrenheit).
Strategic Update
On July 1, 2019, we completed the acquisition of AXC pursuant to the previously disclosed Asset Purchase Agreement dated May 8, 2019 (the “AXC acquisition”). AXC is a leading supplier of custom-engineered and ACHX for the natural gas compression and processing industry and refining and petrochemical industry in the United States. The ACHX offered by AXC is used in conditioning natural gas during recovery, compression and transportation from underground reserves through major pipeline distribution channels. In addition to natural gas compression and processing, AXC’s products are also used in the turbine lube oil cooling, landfill gas compression and liquids cooling industries. AXC’s end markets include process industries, power generation and refineries. The acquisition of AXC reinforces our strategic focus on core cryogenic engineering and products for the industrial gas and clean energy spaces.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, CO2 Capture and water treatment, among other applications. We expectare committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With 29 global manufacturing locations from the acquisitionUnited States to Asia, India and Europe, we maintain accountability and transparency to our team members, suppliers, customers and communities.
Macroeconomic Impacts
During 2022, we had record backlog, record sales, record gross profit and record operating income due to broad-based demand for our products, strong execution and continued pricing actions. The current conflict between Russia and Ukraine and the related sanctions imposed by countries against Russia as well as heightened tensions between the U.S and China are creating uncertainty in the global economy. While we do not have operations in Russia or Ukraine, we are unable to predict the impact these actions will have on the global economy or on our business, financial condition and results of AXCoperations. These events did not have a material adverse effect on our reported results for 2022, however we will continue to resultactively monitor in significant annual cost synergies. Duringterms of their potential impact on our first six monthsresults of ownership,operations beyond 2022.
Environmental, Social, Governance
Chart is proud to be at the forefront of the clean energy transition as a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas, carbon capture and water treatment, among other applications. We also captured clean power, clean water, clean food and clean industrials as our unique offering for the Nexus of CleanTM. This leadership position is possible not only because we have completed projects,the broadest offering of clean innovative solutions for the various end markets we serve, but also because we are committed to global responsibility. Reporting our ESG performance is one of the ways we demonstrate accountability and transparency to our team members, suppliers, customers, shareholders and communities. Below are some highlights of our ESG efforts, and further information can be found in our third Annual Sustainability report with scorecard which will achieve over $20 million of cost synergies. Furthermore, we have identified another $9 million of target cost synergies, which will be achievedwas released in additionApril 2022. We intend to release our fourth annual sustainability report in April 2023.
•We reported a 0.52 Total Recordable Incident Rate (TRIR), a year-end record, for the year ended December 31, 2022, with emphasis on safety as our #1 priority and focus on all team members being empowered and authorized to stop work if they see an unsafe or potentially unsafe situation.
•We measure progress through Sustainability Accounting Standards Board (SASB) and Task Force on Climate-Related Financial Disclosures (TCFD) indices, as well as contributing to the $20 million achievedGlobal Reporting Initiative (GRI) and United Nations Sustainable Development Goals (SDGs).
•We utilize Riskmethods analytics to proactively monitor our supply chain for proper governance in our supplier network including their climate targets and other ESG activities.
•We have a Global ESG Committee, Global Safety Council, and Global Diversity & Inclusion Committee, all comprised of team member volunteers and engagement from our global locations.
•Our Global ESG Committee has five sub-committees focused on energy management, zero waste, electrification, renewable energy and water management.
•We have recently entered into a sustainability-linked banking agreement with covenants tied to our Green House Gas (“GHG”) emission reductions’ actual performance.
•We have set a target to reduce our carbon intensity 30% by 2030 and have specific initiatives in place to help us meet this goal. In 2021, we made progress towards achieving our target by reducing GHG Intensity by almost 14% year-over-year.
•In terms of lowering our own emissions, we made plant improvements including energy efficient upgrades for various equipment, replacing diesel powered equipment with electric and installing LED lighting in office spaces. In 2021, Chart reduced Scope 2 emissions by 9.7%.
•We are our helping customers to achieve their own sustainability targets in a number of different ways whether that’s through reducing the amount of plastic used in packaging to lowering greenhouse gas emissions by enabling the transition towards cleaner fuels.
•We have an independent Board of Directors that is comprised of seven directors (four of our seven directors are female and four of our seven are diverse) and governed with a separate independent Chairwoman and CEO.
•We hold quarterly reviews on ESG with our Board of Directors.
•We link our executives and their direct reports short-term incentive payout (25% of the strategic and operational goals) to a metric driven, percentage-reduction ESG metric, and have done this for two years.
•Our team volunteers in their communities with a focus on supporting children and families, ending hunger and improving health. We offer every team member worldwide one paid day off each year to volunteer in our communities, and we donated over $120,000 to charities in the firstcommunities we work in during the 2021 year. The AXC acquisition is further describedIn 2021, Chart started matching employee donations up to $250 per employee per year to charitable organizations.
•We have an employee relief fund for our own team members that need assistance.
•Our team members raised over $30,000 in Note 13, “Business Combinations,”2021 and $25,000 in 2022 to our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.support women through Dress For Success.
The purchase price•In 2021, we received the following ESG-oriented recognition:
◦World LNG Award for AXC was $599.7 million, including post-closing purchase price adjustments with respect to working capital. We paid $592.0 millionEnergy Transition 2021 Finalist
◦Gastech 2021 Emission Reduction Champion – Organization of the purchase price at closing andYear Award Winner
◦Gastech 2021 Organisation Championing Diversity & Inclusion Finalist
◦Gastech 2021 Engineering Partnership of the final working capital adjustmentYear Finalist
◦S&P Global Platts Energy Awards Excellence in LNG Finalist (2021)
◦S&P Global Platts Energy Awards Corporate Social Responsibility (Diversified) Award Finalist (2021)
•In 2022, we received the following ESG-oriented recognition:
◦S&P Global Platts Energy Awards 2022 “Energy Transition - LNG” Finalist
◦S&P Global Platts Energy Awards 2022 “Deal of $7.7the Year - Strategic” Finalist
◦2022 Frost & Sullivan Institute Enlightened Growth Leadership Award
◦goBeyondProfit’s 2022 “In Good Company Report - One of the Most Generous Companies in Georgia (USA)”
2022 Highlights
Record order activity contributed to record ending total backlog of $2,338.1 million as of December 31, 2022 compared to $1,190.1 million as of December 31, 2021, representing an increase of $1,148.0 million or 96.5%, which reflects the broad-based demand we continue to see year-over-year across our product categories. The increase in backlog was paid during the third quarter of 2019. We incurred $5.4 million in transaction related costs related to the AXC acquisition which were recorded in selling, general and administrative expenses on the consolidated statement of income. We funded the purchase pricelargely driven by record orders for the AXC acquisition with proceeds from the Chart common stock public offering (the “2019 Equity Offering”) and borrowings under the Fourth Amended and Restated Credit Agreement, which includes a senior secured revolving credit facility (the “SSRCF”) and a term loan (together, the “2019 Credit Facilities”) as further discussed in Liquidity and Capital Resources.
Upon closingyear ended December 31, 2022 of our acquisition of AXC, effective July 1, 2019, we changed our reportable segments from three segments to four segments: D&S East, D&S West, E&C Cryogenics and E&C FinFans. AXC was combined with Chart’s Hudson Products and Cooler Service businesses from the prior E&C segment to create a new segment called E&C FinFans. The E&C FinFans segment is focused on our unique and broad product offering and capabilities in ACHX and fans. E&C Cryogenics supplies mission critical engineered equipment and systems used in the separation, liquefaction, and purification of hydrocarbon and industrial gases that span gas-to-liquid applications.
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.
2019 Highlights
Broad based global LNG infrastructure build-out, specialty markets and significant synergies from the combination of Chart, VRV and AXC contributed to our order strength and further margin expansion. Orders in 2019 of $1,412.9$2,779.9 million a record for Chart, increased 23.7% compared to 2018 (10.8% organically) with each segments’ orders increasing year-over-year.
Sales in 2019 of $1,299.1 million increased 19.8% compared to 2018 (2.0% organically), with increases across all segments including double-digit increases in our D&S East, E&C Cryogenics and E&C FinFans segments. Sales for AXC, included in the E&C FinFans segment results since the July 1, 2019 acquisition date, were $103.1$1,676.1 million for the year ended December 31, 2019. Sales for VRV, included2021 representing an increase of $1,103.8 million or 65.9%. Record order intake in both the E&C Cryogenics and D&S Eastour Heat Transfer Systems segment results since the November 15, 2018 acquisition date, were $104.0 million and $14.1of $1,417.6 million for the years ended2022 compared to $312.0 million for 2021, was mainly driven by higher order intake for LNG including big and small-scale LNG, as well as floating LNG during 2022. Record order intake in our Repair, Service & Leasing segment of $218.9 million in 2022 compared to $180.6 million in 2021, was mainly driven by higher order intake within lifecycle services, aftermarket fans and our leasing business. Record orders in our Specialty Products segment for 2022 of $665.5 million compared to $648.6 million for 2021 were mainly driven by strong order intake for hydrogen and helium liquefaction, space, water treatment, carbon capture and other specialty applications. Heat Transfer Systems segment backlog totaled a record $1,300.1 million as of December 31, 20192022 compared to $370.4 million as of December 31, 2021. Specialty Products segment backlog totaled a record $645.9 million as of December 31, 2022, compared to $438.2 million as of December 31, 2021. Cryo Tank Solutions segment backlog totaled $371.0 million as of December 31, 2022, also a record high.
Consolidated sales increased to a record $1,612.4 million in 2022 from $1,317.7 million in 2021, representing an increase of $294.7 million or 22.4% (20.3% organically), mainly driven by growth in our Heat Transfer Systems segment on favorable sales in process systems related to big and 2018, respectively.small-scale LNG liquefaction and floating LNG, as well as gains within our Cryo Tank Solutions segment on favorable sales in storage equipment and mobile equipment, within our Repair, Service & Leasing segment on favorable sales in parts, repairs, and services, aftermarket fans, aftermarket air cooled heat exchangers and in our lifecycle business and within our Specialty Products segment on favorable sales in hydrogen and helium applications, water treatment, space applications, food & beverage applications and carbon capture. The consolidated sales increase was bolstered
Consolidated SG&A expenses as a percentage of consolidated sales for 2022 decreased by 1.6% as compared to 2021 primarily due to the effect of cost reduction actions we took in 2022.
Outlook
As previously announced, in November of 2022 we signed a definitive agreement to acquire Howden, a leading global provider of mission critical air and gas handling products and services. The combination of Chart and Howden furthers our global leadership position in highly engineered process technologies and products serving the Nexus of CleanTM – clean power, clean water, clean food and clean industrials. We are currently pursuing divestitures of two significant product lines related to the combined business. While these proposed divestitures are at preliminary stages and there can be no assurances of the completion of these activities, we continue to target a completion of these within the next three to six months and continue to anticipate combined proceeds of approximately $500 million from these divestitures.
We are reiterating our Chart standalone 2023 sales outlook range of $2.10 billion to $2.20 billion, which includes only big LNG projects that are in backlog as of December 31, 2022. We are confident in achieving this sales range, underpinned by five key themes: (1.) It is not unusual for project revenue to shift between months. We anticipate realizing pushed fourth quarter 2022 revenue in 2023 based on customer and project timing. (2.) Our 2020outlook does not include any additional mid-size or large project orders between now and the end of the first half 2023, which could provide additional revenue in the second half of 2023. (3) Even though we are seeing early end market improvement in HLNG vehicle tank sales, our forecast for HLNG vehicle tanks is flat with 2022. (4.) We head into 2023 with record backlog of $2.34 billion. As of December 31, 2022, we had approximately 60% of the full year 2023 sales outlook reflects a recordalready in backlog, heading into 2020, which includes LNG infrastructure orders already booked.is meaningfully higher than in prior years. (5.) We continuehave existing capacity to expect orders between $700 million and $1 billion related to additional large-scale LNG projects in 2020, in particular, Tellurian Inc.’s Driftwood LNG, previously announced, and Cheniere Energy Inc.’s Corpus Christi Stage Three LNG export terminal. A majority of upcoming projects for U.S. LNG export have transitioned from utilizing traditional single train baseload plants to multi-train mid-scale projects, with a modular approach to achieve baseload capacities. This is important to us because multi-train mid-scale projects, such as Driftwood LNG, may use Chart’s patented IPSMR® technologydelivery on our backlog as well as our brazed aluminum heat exchangers and cold boxes asany potential, high probability, new orders that could materialize throughout the main liquefaction heat exchanger technology.year.
Our guidance does not include the operational impact of the pending acquisition with Howden, which is expected to close within the next 45 days. We continue to invest in our automation, process improvement, and productivity activities across Chart, with total anticipated 20202023 capital investmentexpenditures spend of $35.0$60 million to $40.0 million. The total anticipated 2020 capital spend is inclusive of investment in expanding$65 million for our India manufacturing capabilities and completing the LNG vehicle tank line in Italy.existing business.
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, 2019, 20182022, 2021 and 20172020 (dollars in millions):
| | | | 2019 | | 2018 | | 2017 | | 2022 | | 2021 | | 2020 |
| Sales | 100.0 | % | | 100.0 | % | | 100.0 | % | Sales | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales (1) (2) | 74.1 |
| | 72.7 |
| | 72.5 |
| |
Cost of sales (1) | | Cost of sales (1) | 74.7 | | | 75.4 | | | 71.8 | |
| Gross profit | 25.9 |
| | 27.3 |
| | 27.5 |
| Gross profit | 25.3 | | | 24.6 | | | 28.2 | |
Selling, general and administrative expenses (3) - (8) | 16.6 |
| | 16.8 |
| | 21.5 |
| |
Selling, general and administrative expenses (2) - (4) | | Selling, general and administrative expenses (2) - (4) | 13.3 | | | 14.9 | | | 15.1 | |
| Amortization expense | 3.1 |
| | 2.0 |
| | 1.4 |
| Amortization expense | 2.6 | | | 3.0 | | | 3.9 | |
Asset impairments (5) | | Asset impairments (5) | — | | | — | | | 1.4 | |
Operating income (9) | 6.2 |
| | 8.5 |
| | 4.6 |
| 9.4 | | | 6.7 | | | 7.8 | |
Interest expense, net (10) (11) | 1.9 |
| | 2.0 |
| | 2.1 |
| |
Loss on extinguishment of debt (12) | — |
| | — |
| | 0.6 |
| |
| Financing costs amortization | 0.2 |
| | 0.1 |
| | 0.2 |
| |
| Acquisition related finance fees | | Acquisition related finance fees | 2.3 | | | — | | | — | |
| Interest expense, net | | Interest expense, net | 1.8 | | | 0.8 | | | 1.5 | |
| Financing costs amortization (6) | | Financing costs amortization (6) | 0.2 | | | 0.6 | | | 0.4 | |
| Unrealized gain on investment in equity securities | | Unrealized gain on investment in equity securities | (0.8) | | | (0.2) | | | (1.1) | |
| Realized gain on investment in equity securities | | Realized gain on investment in equity securities | — | | | (0.2) | | | — | |
| | Foreign currency loss | — |
| | — |
| | 0.5 |
| Foreign currency loss | — | | | 0.1 | | | 0.1 | |
Income tax expense (benefit), net (9) | 0.5 |
| | 1.2 |
| | (2.0 | ) | |
| | Gain on bargain purchase | | Gain on bargain purchase | — | | | — | | | (0.4) | |
| Other (income) expense | | Other (income) expense | (0.1) | | | — | | | 0.2 | |
| Income tax expense, net | | Income tax expense, net | 1.0 | | | 1.0 | | | 1.3 | |
| Net income from continuing operations | 3.6 |
| | 5.1 |
| | 3.3 |
| Net income from continuing operations | 5.1 | | | 4.6 | | | 6.0 | |
| Income from discontinued operations, net of tax | — |
| | 3.2 |
| | 0.2 |
| Income from discontinued operations, net of tax | (3.6) | | | — | | | 20.3 | |
| Net income | 3.6 |
| | 8.3 |
| | 3.5 |
| Net income | 1.6 | | | 4.6 | | | 26.3 | |
| Income attributable to noncontrolling interests, net of taxes | — |
| | 0.2 |
| | 0.2 |
| Income attributable to noncontrolling interests, net of taxes | 0.1 | | | 0.1 | | | 0.1 | |
| Net income attributable to Chart Industries, Inc. | 3.6 |
| | 8.1 |
| | 3.3 |
| Net income attributable to Chart Industries, Inc. | 1.5 | | | 4.5 | | | 26.2 | |
_______________
| |
(1)(1)Cost of sales includes restructuring (credits)/costs of $(1.0), $2.6 and $5.7 for the years ended December 31, 2022, 2021 and 2020, respectively. | Cost of sales includes restructuring costs of $12.2, $0.8 and $2.7 for the years ended December 31, 2019, 2018 and 2017, respectively. |
| |
(2)
| Includes an expense of $4.0 recorded to cost of sales related to the estimated costs of the aluminum cryobiological tank recall for the year ended December 31, 2018. |
| |
(3)
| Selling, general and administrative expenses includes restructuring costs of $3.4, $3.6 and $8.5 for the years ended December 31, 2019, 2018 and 2017, respectively. |
| |
(4)
| Includes transaction-related costs of $5.4 for the year ended December 31, 2019, which were mainly related to the AXC acquisition. Includes integration costs of $1.6 related to the AXC acquisition for the year ended December 31, 2019. |
| |
(5)
| Includes transaction-related costs of $2.1 for the year ended December 31, 2018, which were mainly related to the VRV acquisition. Includes integration costs of $2.7 and $0.8 related to the VRV acquisition for the years ended December 31, 2019 and 2018 respectively. |
| |
(6)
| Includes transaction-related costs of $10.1 for the year ended December 31, 2017. |
| |
(7)
| During the year ended December 31, 2018, we recorded net severance costs of $2.3 primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 in payroll severance costs partially offset by a $0.9 credit due to related share-based compensation forfeitures for 2018. Includes net severance costs of $1.4 related to the departure of our former CEO, which includes $3.2 in payroll severance costs partially offset by a $1.8 credit due to related share-based compensation forfeitures for 2018. |
| |
(8)(2)Selling, general and administrative expenses includes restructuring costs of $0.9 and $7.9 for the years ended December 31, 2021, and 2020, respectively.
| Includes share-based compensation expense of $9.0, $4.9 and $10.6, representing 0.7%, 0.5% and 1.3% of sales, for the years ended December 31, 2019, 2018 and 2017, respectively. |
| |
(9)
| Includes a one-time $22.5 net favorable tax benefit that was recorded during the fourth quarter of 2017, which resulted from the enactment of the Tax Cuts and Jobs Act. This benefit mainly consisted of a one-time, provisional benefit of $26.9 related to the remeasurement of certain of our deferred tax liabilities using the lower U.S. federal corporate tax rate of 21%. This was partially offset by (i) a one-time, provisional charge of $8.7 related to the deemed repatriation transition tax, which is a tax on previously untaxed accumulated earnings and profits of certain of our foreign subsidiaries, and (ii) a one-time tax expense and tax benefit of $4.5 and $8.7, respectively, related to our intent to amend pre-acquisition Hudson U.S. federal tax returns. We have completed our analysis to determine the effect of the Tax Cuts and Jobs Act, and as such, we have recorded an additional tax benefit of $1.8. |
| |
(10)
| Includes $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 0.6% and 0.7% of sales for the years ended December 31, 2019 and 2018, respectively. |
| |
(11)
| Includes $1.9 and $11.8 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%, and 1.4% of sales, for the years ended December 31, 2018 and 2017, respectively. |
| |
(12)
| 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 2018 Notes and refinance of our senior secured revolving credit facility. |
(4)Includes share-based compensation expense of $10.6, $11.2 and $8.6, representing 0.7%, 0.8% and 0.7% of sales, for the years ended December 31, 2022, 2021 and 2020, respectively. (5)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 for the year ended December 31, 2020.
(6)In conjunction with the amendment of our credit facilities in 2021, we recognized charges of $4.1 in unamortized debt issuance cost write offs associated with previous credit facilities and new debt issuance costs, which are classified as financing costs amortization in our consolidated income statement for the year ended December 31, 2021.
Consolidated Results for the Years Ended December 31, 2019, 20182022, 2021 and 20172020
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, 2019, 20182022, 2021 and 20172020 (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, |
| | 2022 | | 2021 | | 2020 |
| Sales | | | | | |
| Cryo Tank Solutions | $ | 504.3 | | | $ | 447.4 | | | $ | 415.8 | |
| Heat Transfer Systems | 462.7 | | | 262.7 | | | 369.8 | |
| Specialty Products | 448.3 | | | 432.9 | | | 242.6 | |
| Repair, Service & Leasing | 209.6 | | | 187.0 | | | 158.3 | |
| Intersegment eliminations | (12.5) | | | (12.3) | | | (9.4) | |
| Consolidated | $ | 1,612.4 | | | $ | 1,317.7 | | | $ | 1,177.1 | |
| Gross Profit | | | | | |
| Cryo Tank Solutions | $ | 98.7 | | | $ | 93.5 | | | $ | 99.5 | |
| Heat Transfer Systems | 90.6 | | | 35.6 | | | 93.7 | |
| Specialty Products | 138.6 | | | 145.5 | | | 84.3 | |
| Repair, Service & Leasing | 79.5 | | | 49.6 | | | 54.6 | |
| | | | | |
| Consolidated | $ | 407.4 | | | $ | 324.2 | | | $ | 332.1 | |
| Gross Profit Margin | | | | | |
| Cryo Tank Solutions | 19.6 | % | | 20.9 | % | | 23.9 | % |
| Heat Transfer Systems | 19.6 | % | | 13.6 | % | | 25.3 | % |
| Specialty Products | 30.9 | % | | 33.6 | % | | 34.7 | % |
| Repair, Service & Leasing | 37.9 | % | | 26.5 | % | | 34.5 | % |
| Consolidated | 25.3 | % | | 24.6 | % | | 28.2 | % |
| SG&A Expenses | | | | | |
| Cryo Tank Solutions | $ | 41.8 | | | $ | 38.1 | | | $ | 41.7 | |
| Heat Transfer Systems | 24.0 | | | 28.1 | | | 36.6 | |
| Specialty Products | 55.6 | | | 43.3 | | | 22.2 | |
| Repair, Service & Leasing | 15.2 | | | 17.8 | | | 15.3 | |
Corporate | 77.9 | | | 69.5 | | | 62.4 | |
| Consolidated | $ | 214.5 | | | $ | 196.8 | | | $ | 178.2 | |
| SG&A Expenses (% of Sales) | | | | | |
| Cryo Tank Solutions | 8.3 | % | | 8.5 | % | | 10.0 | % |
| Heat Transfer Systems | 5.2 | % | | 10.7 | % | | 9.9 | % |
| Specialty Products | 12.4 | % | | 10.0 | % | | 9.2 | % |
| Repair, Service & Leasing | 7.3 | % | | 9.5 | % | | 9.7 | % |
| Consolidated | 13.3 | % | | 14.9 | % | | 15.1 | % |
Operating Income (Loss) (1) | | | | | |
| Cryo Tank Solutions | $ | 54.0 | | | $ | 52.9 | | | $ | 52.5 | |
Heat Transfer Systems (2) | 51.7 | | | (12.3) | | | 11.2 | |
| Specialty Products | 72.9 | | | 94.1 | | | 60.7 | |
| Repair, Service & Leasing | 51.0 | | | 23.3 | | | 30.3 | |
Corporate (3) | (78.1) | | | (69.5) | | | (62.5) | |
| | | | | |
| Consolidated | $ | 151.5 | | | $ | 88.5 | | | $ | 92.2 | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Sales | | | | | |
| D&S East | $ | 293.4 |
| | $ | 246.3 |
| | $ | 232.3 |
|
| D&S West | 461.7 |
| | 455.5 |
| | 400.6 |
|
| E&C Cryogenics | 190.2 |
| | 136.9 |
| | 125.5 |
|
| E&C FinFans | 361.7 |
| | 253.6 |
| | 100.1 |
|
| Intersegment eliminations | (7.9 | ) | | (8.0 | ) | | (15.6 | ) |
| Consolidated | $ | 1,299.1 |
| | $ | 1,084.3 |
| | $ | 842.9 |
|
| Gross Profit | | | | | |
| D&S East | $ | 45.2 |
| | $ | 52.4 |
| | $ | 48.3 |
|
D&S West (1) | 157.9 |
| | 156.8 |
| | 141.8 |
|
| E&C Cryogenics | 33.5 |
| | 28.6 |
| | 23.6 |
|
| E&C FinFans | 102.5 |
| | 60.6 |
| | 21.5 |
|
| Intersegment eliminations | (2.3 | ) | | (2.5 | ) | | (3.6 | ) |
| Consolidated | $ | 336.8 |
| | $ | 295.9 |
| | $ | 231.6 |
|
| Gross Profit Margin | | | | | |
| D&S East | 15.4 | % | | 21.3 | % | | 20.8 | % |
| D&S West | 34.2 | % | | 34.4 | % | | 35.4 | % |
| E&C Cryogenics | 17.6 | % | | 20.9 | % | | 18.8 | % |
| E&C FinFans | 28.3 | % | | 23.9 | % | | 21.5 | % |
| Consolidated | 25.9 | % | | 27.3 | % | | 27.5 | % |
| SG&A Expenses | | | | | |
| D&S East | $ | 34.7 |
| | $ | 31.6 |
| | $ | 33.0 |
|
| D&S West | 48.7 |
| | 51.0 |
| | 52.0 |
|
| E&C Cryogenics | 28.7 |
| | 23.3 |
| | 23.4 |
|
| E&C FinFans | 33.6 |
| | 24.8 |
| | 10.9 |
|
Corporate | 70.4 |
| | 51.2 |
| | 61.6 |
|
| Consolidated | $ | 216.1 |
| | $ | 181.9 |
| | $ | 180.9 |
|
| SG&A Expenses (% of Sales) | | | | | |
| D&S East | 11.8 | % | | 12.8 | % | | 14.2 | % |
| D&S West | 10.5 | % | | 11.2 | % | | 13.0 | % |
| E&C Cryogenics | 15.1 | % | | 17.0 | % | | 18.6 | % |
| E&C FinFans | 9.3 | % | | 9.8 | % | | 10.9 | % |
| Consolidated | 16.6 | % | | 16.8 | % | | 21.5 | % |
Operating Income (Loss) (1) (2) | | | | | |
| D&S East | $ | 6.9 |
| | $ | 19.3 |
| | $ | 14.2 |
|
| D&S West | 104.5 |
| | 101.2 |
| | 85.2 |
|
| E&C Cryogenics | 1.6 |
| | 1.8 |
| | (2.1 | ) |
| E&C FinFans | 40.6 |
| | 23.7 |
| | 7.2 |
|
Corporate (3) (4) (5) (6) | (70.4 | ) | | (51.4 | ) | | (62.4 | ) |
| Intersegment eliminations | (2.3 | ) | | (2.5 | ) | | (3.6 | ) |
| Consolidated | $ | 80.9 |
| | $ | 92.1 |
| | $ | 38.5 |
|
| Operating Margin | | | | | |
| D&S East | 2.4 | % | | 7.8 | % | | 6.1 | % |
| D&S West | 22.6 | % | | 22.2 | % | | 21.3 | % |
| E&C Cryogenics | 0.8 | % | | 1.3 | % | | (1.7 | )% |
| E&C FinFans | 11.2 | % | | 9.3 | % | | 7.2 | % |
| Consolidated | 6.2 | % | | 8.5 | % | | 4.6 | % |
| | | | | | | | | | | | | | | | | |
| Operating Margin | | | | | |
| Cryo Tank Solutions | 10.7 | % | | 11.8 | % | | 12.6 | % |
| Heat Transfer Systems | 11.2 | % | | (4.7) | % | | 3.0 | % |
| Specialty Products | 16.3 | % | | 21.7 | % | | 25.0 | % |
| Repair, Service & Leasing | 24.3 | % | | 12.5 | % | | 19.1 | % |
| Consolidated | 9.4 | % | | 6.7 | % | | 7.8 | % |
_______________
| |
(1)Restructuring (credits)/charges for the years ended: •(1) | Includes an expense of $4.0 recorded to cost of sales in D&S West related to the estimated costs of the aluminum cryobiological tank recall for the year ended December 31, 2018. |
| |
(2)
| Restructuring costs for the years ended: |
December 31, 20192022 were $15.6$(1.0) ($8.5 - D&S East, $0.9 - D&S West, $2.5 - E&C Cryogenics, $3.5 - E&C FinFans,0.1 – Cryo Tank Solutions, $0.3 – Heat Transfer Systems and $0.2 - Corporate)$(1.4) – Repair, Service & Leasing);
•December 31, 20182021 were $4.4$3.5 ($1.4 - D&S East, $0.6 - E&C Cryogenics, $0.1 - E&C FinFans, and $2.3 - Corporate)0.3 – Cryo Tank Solutions, $1.7 – Heat Transfer Systems, $1.5 – Repair, Service & Leasing); and
•December 31, 20172020 were $11.2$13.6 ($1.7 - D&S East, $1.1 - D&S West, $2.1 - E&C Cryogenics, $0.3 - E&C FinFans,2.7 – Cryo Tank Solutions, $7.4 – Heat Transfer Systems, $0.7 – Specialty Products, $0.2 – Repair, Service & Leasing and $6.0 -$2.6 – Corporate).
| |
(3)(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 for the year ended December 31, 2020. (3)Includes deal-related and integration costs of $17.6 for the year ended December 31, 2022. | Includes transaction-related costs of $5.4 in Corporate for the year ended December 31, 2019, which were mainly related to the AXC acquisition. Includes integration costs of $1.6 in Corporate related to the AXC acquisition for the year ended December 31, 2019. |
| |
(4)
| Includes transaction-related costs of $2.1 in Corporate for the year ended December 31, 2018, which were mainly related to the VRV acquisition. Includes integration costs of $2.7 and $0.8 in Corporate related to the VRV acquisition for the years ended December 31, 2019 and 2018 respectively. |
| |
(5)
| Includes transaction-related costs of $10.1 for the year ended December 31, 2017. |
| |
(6)
| During the year ended December 31, 2018, we recorded net severance costs of $2.3 in Corporate primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 in payroll severance costs partially offset by a $0.9 credit due to related share-based compensation forfeitures for 2018. Includes net severance costs of $1.4 in Corporate related to the departure of our former CEO, which includes $3.2 in payroll severance costs partially offset by a $1.8 credit due to related share-based compensation forfeitures for 2018. |
Results of Operations for the Years Ended December 31, 20192022 and 20182021
Sales in 20192022 increased $214.8by $294.7 million ($258.6 million organically), from $1,084.3$1,317.7 million to $1,299.1a record $1,612.4 million, or 19.8% (2.0% organically), with increases across all segments as compared to 2018. AXC sales of $103.1 million are included in the E&C FinFans segment results since the July 1, 2019 acquisition date. Sales for VRV in 2019, included in both the D&S East and E&C Cryogenics segment results since the November 15, 2018 acquisition date were $104.0 million (D&S East: $57.1 million, E&C Cryogenics: $46.9 million) as compared to $14.1 million (D&S East: $10.3 million, E&C Cryogenics: $3.8 million) in 2018. Excluding the impact of AXC and VRV, sales growth22.4%. This increase was primarily driven by axial flow fansgrowth in our Heat Transfer Systems segment on favorable sales in process systems related to big and small-scale LNG liquefaction and floating LNG, as well as gains within our Cryo Tank Solutions segment on favorable sales in our E&C FinFans segmentstorage equipment and an increase in salesmobile equipment, within our D&S WestRepair, Service & Leasing segment related to systemson favorable sales in parts, repairs, and cryobiological storage products, which was partially offset by a declineservices, aftermarket fans, aftermarket air cooled heat exchangers and in packaged gas.our lifecycle business and within our Specialty Products segment on favorable sales in hydrogen and helium applications, water treatment, space applications, food & beverage applications and carbon capture.
Gross profit in 20192022 increased $40.9by $83.2 million ($74.6 million organically) from $324.2 million to $407.4 million or 13.8% (1.4% organically)25.7% compared to 2018. AXC2021. Gross profit margin of 25.3% in 2022 increased from 24.6% in 2021. The increase in gross profit of $29.2 million is included in 2019, and gross profit margin for VRV2022 compared to 2021 was $8.5primarily driven by product mix and pricing and cost reduction actions we took for all segments overall. Restructuring (credits)/costs recorded to cost of sales were $(1.0) million and $1.0$2.6 million in 2019for the years ended December 31, 2022 and 2018,2021, respectively. Excluding AXC and VRV, gross profit
Consolidated SG&A expenses increased by $4.2 million. Gross profit included restructuring$17.7 million or 9.0% ($8.9 million organically) during 2022 compared to the same period in 2021 primarily driven by higher employee-related costs while consolidated SG&A expenses as a percentage of $12.2 million and $0.8 millionconsolidated sales for 2022 decreased by 1.6% as compared to 2021 primarily due to the effect of cost reduction actions we took in 2022.
Acquisition Related Finance Fees
Acquisition related finance fees for the year ended December 31, 2019 and 2018, respectively, which during 20192022 were $37.0 million related to cost reduction or avoidance actions, including facility consolidations in D&S West, E&C Cryogenics and E&C FinFans and a streamliningfinancing for our pending Acquisition of the commercial activities surrounding our after market services business in E&C Cryogenics, geographic realignment of our manufacturing capacity and a facility closure in D&S East, as well as departmental restructuring, including headcount reductions in each of these segments. We anticipate these restructuring actions will result in incremental annualized savings of $14.3 million. Excluding the impact of the AXC and VRV acquisitions and restructuring costs, gross profit increased by $15.6 million primarily driven by higher volume of axial flow fans sales within our E&C FinFans segment. Gross margin as a percent of sales was 25.9%Howden. There were no acquisition related finance fees for the year ended December 31, 2019 which decreased from 27.3% in 2018. Excluding the impact of the AXC and VRV acquisitions and restructuring costs, gross margin as a percent of sales was 28.5% for the year ended December 31, 2019 which increased from 27.6% in the same period in 2018.
SG&A expenses increased by $34.2 million ($11.5 million organically), or 18.8% (6.4% organically), in 2019 compared to 2018, AXC SG&A expenses of $7.8 million is included in 2019, and VRV SG&A expenses of $16.9 million and $2.0 million for 2019 and 2018, respectively. Furthermore, restructuring costs related to the acquisitions of AXC and VRV were $3.4 million for the year ended December 31, 2019. Excluding the impact of restructuring costs, SG&A expenses were 16.4% of sales for the year ended December 31, 2019 compared to 16.4% for the year ended December 31, 2018.
Interest Expense, Net and Financing Costs Amortization
Net interestInterest expense, net for the year ended December 31, 20192022 and 20182021 was $25.3$28.8 million and $21.4$10.7 million, respectively. The increase in interest expense, net, is primarily due to higher borrowings outstanding and higher average interest rates during 2022 on our senior secured revolving credit facility due October 2026, as compared to borrowings outstanding and average interest rates on our previous senior secured revolving credit facility and term loan due June 2024 during 2021 as well as borrowings related to our senior secured notes due 2030 and senior unsecured notes due 2031, which were issued on December 22, 2022. The increase was partially offset by interest income of $1.3 million from our cross-currency swaps entered into during 2022. Interest expense, net for the year ended December 31, 20192022 included $4.0 million of 1.5% cash interest expense related to our convertible notes due November 2024. Interest expense, net for the year ended December 31, 2021 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 theour convertible notes due 2024,November 2024. Interest expense, net for the year ended December 31, 2022 and $15.92021 included $23.4 million and $9.0 million, respectively, in interest related to borrowings on our previouscurrent senior secured revolving credit facility due 2026 and currentprevious senior secured revolving credit facility and term loan. For 2019loan
due 2024. Interest expense, net for the year ended December 31, 2022 related to borrowings on our senior secured notes due 2030 and 2018, financing costs amortizationsenior unsecured notes due 2031 was $3.0 million and $1.3 million, respectively.
For 2022 and 2021, financing costs amortization was $2.9 million and $8.3 million, respectively. The increasedecrease of $1.7$5.4 million was primarily due to higher financingthe amendment of our credit facilities during the fourth quarter of 2021 and the related write off of the unamortized deferred debt issuance costs amortizationassociated with the senior secured revolving credit facility due June 2024 and the term loan due June 2024, respectively. In conjunction with the amendment of our credit facilities in the fourth quarter of 2021, we recorded charges to net income of $3.8 million of the unamortized deferred debt issuance costs associated with the senior secured revolving credit facility due 2024 and the term loan due June 2024 as well as $0.3 million in new debt issuance costs resulting in a resulttotal one-time charge to net income of debt restructuring actions$4.1 million.
Unrealized Gain On Investments In Equity Securities
During 2022, we recognized an unrealized gain on investments in 2019.equity securities of $13.1 million, which was driven by an unrealized gain of $23.3 million upon remeasurement of the Svante investment due to an observable price change in an orderly transaction for similar instruments of the same issuer and a $1.6 million unrealized gain on the mark-to-market adjustment of our investment in Stabilis, partially offset by a $11.8 million unrealized loss on the mark-to-market adjustment of our investment in McPhy. During 2021, we recognized an unrealized gain on investments in equity securities of $3.2 million, which was driven by an unrealized gain of $20.7 million upon remeasurement of the initial HTEC investment due to an observable price change in an orderly transaction for similar instruments of the same issuer and a $2.2 million unrealized gain on the mark-to-market adjustment of our investment in Stabilis, partially offset by a $19.7 million unrealized loss on the mark-to-market adjustment of our investment in McPhy.
Foreign Currency (Gain) Loss
For 2019the year ended December 31, 2022, foreign currency gains were $0.2gain was $0.8 million, as compared toand for the year ended December 31, 2021 foreign currency losses of $0.4 million for 2018. Gains increasedloss was $0.9 million. The variance between periods was primarily driven by $0.6 million during 2019 due to exchange rate volatility, especially with respectfluctuations in the U.S dollar as compared to the euro and Chinese yuan.
Income Tax Expense
Income tax expense of $6.0$15.9 million and $13.4$13.5 million for the years ended December 31, 20192022 and 20182021, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 11.4%16.1% and 19.4%18.2%, respectively. The effective income tax rate of 11.4%16.1% for the year ended December 31, 20192022 differed from the U.S. federal statutory rate of 21% due primarily to tax benefits associated with the release of previously booked valuation allowances, research and development credits and share-based compensation offset by the effect of income earned by certain of our foreign entities being taxed at higher rates than the federal statutory rate.
The effective income tax rate of 18.2% for the year ended December 31, 2021 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 partiallythe release of previously booked valuation allowances 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 incurredincreases in our state taxes due to expansion in new jurisdictions.
Net Income Attributable to Chart Industries, Inc. From Continuing Operations
As a result of the foregoing, net income attributable to Chart Industries, Inc. from continuing operations was $81.6 million and $59.1 million for 2022 and 2021, respectively. Net income attributable to Chart common stockholders after discontinued operations was $22.6 million.
Results of Operations for the Years Ended December 31, 2021 and 2020
Sales in 2021 increased by $140.6 million ($70.9 million organically), from $1,177.1 million to $1,317.7 million, or 11.9%. This increase was primarily driven by growth in our Specialty Products segment on favorable sales in hydrogen and helium applications, HLNG vehicle tanks, water treatment equipment sales and food & beverage applications, within our Cryo Tank Solutions segment on favorable sales in mobile equipment, engineered tanks and storage systems, and within our Repair, Service & Leasing segment on favorable sales in our leasing business. This increase was partially offset by softness in demand for midstream and upstream compression equipment and timing of sales recognized relative to Calcasieu Pass within our Heat Transfer Systems segment.
Gross profit in 2021 decreased by $7.9 million ($32.6 million decrease organically) from $332.1 million to $324.2 million or 2.4% compared to 2020. Gross profit margin of 24.6% in 2021 decreased from 28.2% in 2020. The decrease in gross profit margin for 2021 compared to 2020 was primarily driven by macroeconomic conditions as our price increases lagged more than
the anticipated rapidly accelerating material prices and freight costs for all segments overall and Calcasieu Pass volume mix which drove higher margins in 2020 in our Heat Transfer Systems segment, partially offset by higher gross profit margins within certain recently acquired businesses. Restructuring costs recorded to cost of sales were $2.6 million and $5.7 million for the years ended December 31, 2021 and 2020, respectively.
Consolidated SG&A expenses increased by $18.6 million, or 10.4% during 2021 compared to the same period in 2020 primarily driven by a ramp up in our Specialty Products business which drove higher SG&A expenses in the segment, SG&A expenses related to acquisitions and higher share-based compensation expense in Corporate, partially offset by lower SG&A expenses in our Heat Transfer Systems segment due to lower employee-related costs and in our Cryo Tank Solutions segment due to a $2.6 million gain on sale of a facility in China included in SG&A expenses for the year ended December 31, 2020. Furthermore, lower restructuring costs were recorded to consolidated SG&A expenses, which were $0.1 million and $2.4 million for the years ended December 31, 2021 and 2020, respectively.
Asset Impairments
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 Critical Accounting Estimates 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
Interest expense, net for the year ended December 31, 2021 and 2020 was $10.7 million and $17.7 million, respectively. The decrease in interest expense, net, is primarily due to lower borrowings outstanding on our term loan due June 2024 during 2021 as compared to 2020. Furthermore, we no longer recognize interest accretion of convertible notes discount due to a change in accounting principle adopted at the beginning of fiscal year 2021 whereas we recognized $8.0 million in interest accretion expense in 2020. For further information regarding the change in accounting principle, refer to Note 2, “Significant Accounting Policies” in this report. Interest expense, net for both the years ended December 31, 2021 and 2020 included $2.6 million of 1.0% cash interest and $9.0 million and $7.0 million in interest related to borrowings on our previous and current senior secured revolving credit facility, respectively.
For 2021 and 2020, financing costs amortization was $8.3 million and $4.3 million, respectively. The increase of $4.0 million was primarily due to the amendment of our credit facilities during the fourth quarter of 2021 and the related write off of the unamortized deferred debt issuance costs associated with the senior secured revolving credit facility due June 2024 and the term loan due June 2024, respectively. In conjunction with the amendment of our credit facilities, we recorded charges to net income of $3.8 million of the unamortized deferred debt issuance costs associated with the senior secured revolving credit facility due 2024 and the term loan due June 2024 as well as $0.3 million in new debt issuance costs resulting in a total one-time charge to net income of $4.1 million.
Unrealized Gain On Investments In Equity Securities
During 2021, we recognized an unrealized gain on investments in equity securities of $3.2 million, which was driven by an unrealized gain of $20.7 million upon remeasurement of the initial HTEC investment due to an observable price change in an orderly transaction for similar instruments of the same issuer and a $2.2 million unrealized gain on the mark-to-market adjustment of our investment in Stabilis, partially offset by a $19.7 million unrealized loss on the mark-to-market adjustment of our investment in McPhy. During 2020, we recognized an unrealized gain of $17.0 million on the mark-to-market adjustment of our investment in McPhy, partially offset by a $2.9 million unrealized loss on the mark-to-market adjustment of our investment in Stabilis.
Realized Gain on Investment In Equity Securities
On December 14, 2021 we completed the acquisition of the remaining 85% of the shares of Earthly Labs. On the acquisition date, we recognized a gain of $2.6 million on the remeasurement of our initial 15% investment, which is recorded as realized gain on investment in equity securities in the consolidated statement of income for the year ended December 31, 2021.
Foreign Currency (Gain) Loss
Foreign currency losses were $0.9 million in both of the years ended December 31, 2021 and 2020. Foreign currency fluctuates due to exchange rate volatility, especially with respect to the euro and Chinese operationsyuan.
Gain on Bargain Purchase
As a result of the October 13, 2020 Alabama Trailers acquisition, we recorded a bargain purchase gain of $5.0 million for which no benefit was recorded.the year ended December 31, 2020.
Income Tax Expense
Income tax expense of $13.5 million and $14.9 million for the years ended December 31, 2021 and 2020, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 18.2% and 17.5%, respectively. The effective income tax rate of 19.4%18.2% for the year ended December 31, 20182021 differed from the U.S. federal statutory rate of 21% primarily due to tax benefits related to certainassociated with share-based compensation partiallyand the release of previously booked valuation allowances 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 increases in our state taxes due to expansion into new jurisdictions.
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.
Net Income fromAttributable to Chart Industries, Inc. From Continuing Operations
As a result of the foregoing, net income attributable to Chart Industries, Inc. from continuing operations attributable to Chart was $46.4$59.1 million and $53.6$68.9 million for 20192021 and 2018,2020, respectively.
ResultsDiscontinued Operations
The financial results of Operations for the Years Ended December 31, 2018 and 2017
Sales in 2018 increased by $241.4 million or 28.6% compared to 2017. Driving the sales growth were positive trends in both our E&C Cryogenics and E&C FinFans segments, especiallycryobiological products business are reflected in our air cooled heat exchangers product offering,consolidated financial statements as well as stronger sales in D&S West. Sales for Hudson, included in the E&C FinFans segment results since the September 20, 2017 acquisition date, were $180.3 million and $58.0 milliondiscontinued operations for the years ended December 31, 20182022 and 2017, respectively. Sales for VRV, included in both the D&S East and E&C Cryogenics segment results since the November 15, 2018 acquisition date, were $14.1 million for the year ended December 31, 2018.
Gross profit increased while2020 including the related margin decreased slightly during 2018 compared to 2017. Excluding gross profit added from the Hudson acquisition (2018: $49.5 million, 2017: $15.4 million) and the VRV acquisition (2018: $1.0 million), gross profit increased organically by $29.2 million as a result of higher volumenet out-of-pocket settlement amounts in our D&S East and D&S West segments and project mix in both our E&C Cryogenics and E&C FinFans segments. Gross margin as a percent of sales of 27.3% for 2018 was impacted by an expense of $4.0 million recorded to cost of sales related to the estimated costs of the aluminum cryobiological tank recall for 2018, which negatively impacted consolidated gross margin as a percent of consolidated sales by 0.4 percentage points.
Restructuring costs of $4.4 million for 2018 were recorded in cost of sales ($0.8 million) and SG&A ($3.6 million), which were related to certain cost reduction or avoidance actions, primarily related to departmental restructuring, including our strategic realignment of our segment structure, and including headcount reductions resulting in associated severance costs. Restructuring costs of $11.2 million for 2017 were recorded in cost of sales ($2.7 million) and SG&A ($8.5 million), which were related to costs to relocate the corporate office from Garfield Heights, Ohio to Ball Ground, Georgia and consolidation of certain facilities in China.
Interest Expense, Net and Financing Costs Amortization
Net interest expense for 2018 and 2017 was $21.4 million and $17.3 million, respectively. Interest expense for 2018 included $1.0 million of 2.0% cash interest and $1.9 million of non-cash interest accretion expense related to the carrying value of the 2018 Notes and $2.6 million of 1.0% cash interest and $7.2 million of non-cash interest accretion expense related to the carrying value
of the 2024 Notes. Interest expense also included $11.8 million and $2.7 million in interest related to borrowings on our senior secured revolving credit facility for 2018 and 2017, respectively. For 2018 and 2017, financing costs amortization was $1.3 million for both periods.
Foreign Currency Loss
Foreign currency losses were $0.4 million and $3.9 million for 2018 and 2017, respectively. Losses decreased by $3.5 million during 2018 due to exchange rate volatility, especially with respect to the euro and Chinese yuan.
Income Tax (Benefit) Expense
Income tax expense for 2018 was $13.4 million compared to income tax benefit of $16.6 million for 2017 and represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 19.4% and (149.5)%, respectively. The effective income tax rate of 19.4% for 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.
Income tax benefit in 2017 was mainly driven by a one-time $22.5 million net favorable tax benefit that was recorded during the fourth quarter of 2017, which resulted from the enactment of the Tax Cuts and Jobs Act. This benefit mainly consisted of a one-time, provisional benefit of $26.9 million related to the remeasurement of certain of our deferred tax liabilities using the lower U.S. federal corporate tax rate of 21%. This was partially offset by (i) a one-time, provisional charge of $8.7 million related to the deemed repatriation transition tax, which is a tax on previously untaxed accumulated earnings and profits of certain of our foreign subsidiaries, and (ii) a one-time tax expense and tax benefit of $4.5 million and $8.7 million, respectively, related to our intent to amend pre-acquisition Hudson U.S. federal tax returns. The 2017 effective income tax rate was also impacted by transaction costs incurredconnection with the acquisition of Hudson, a portion of which were non-deductible for U.S. federal income tax purposes. We have completed our analysisPFC litigation, as described in Part I, Item 3. Legal Proceedings described herein. For further information, refer to determine the effect of the Tax Cuts and Jobs Act, and as such, we have recorded an additional tax benefit of $1.8 million.
Net Income from Continuing Operations
As a result of the foregoing, net income from continuing operations attributable to Chart was $53.6 million and $26.2 million for 2018 and 2017, respectively.
Note 3, “Discontinued Operations.”
Segment Results for the Years Ended December 31, 2019, 20182022, 2021 and 20172020
Our reportable and operationaloperating segments include: D&S East, D&S West, E&C CryogenicsCryo Tank Solutions, Heat Transfer Systems, Specialty Products and E&C FinFans.Repair, Service & Leasing. Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, and risk management. Corporate support functions are not currently allocated to the segments. For further information, refer to Note 4, “Segment and Geographic Information.”Information” of our consolidated financial statements included under Item 15, “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K. The following tables include key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the years ended December 31, 2019, 20182022, 2021 and 20172020 (dollars in millions):
D&S East
Cryo Tank Solutions—Results of Operations for the Years Ended December 31, 20192022 and 20182021
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Variance
($) | | Variance
(%) |
| Sales | $ | 504.3 | | | $ | 447.4 | | | $ | 56.9 | | | 12.7 | % |
| Gross Profit | 98.7 | | | 93.5 | | | 5.2 | | | 5.6 | % |
| Gross Profit Margin | 19.6 | % | | 20.9 | % | | | | |
| SG&A Expenses | $ | 41.8 | | | $ | 38.1 | | | $ | 3.7 | | | 9.7 | % |
| SG&A Expenses (% of Sales) | 8.3 | % | | 8.5 | % | | | | |
| Operating Income | $ | 54.0 | | | $ | 52.9 | | | $ | 1.1 | | | 2.1 | % |
| Operating Margin | 10.7 | % | | 11.8 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | Variance ($) | | Variance (%) |
| Sales | $ | 293.4 |
| | $ | 246.3 |
| | $ | 47.1 |
| | 19.1 | % |
| Gross Profit | 45.2 |
| | 52.4 |
| | (7.2 | ) | | (13.7 | )% |
| Gross Profit Margin | 15.4 | % | | 21.3 | % | | | | |
| SG&A Expenses | $ | 34.7 |
| | $ | 31.6 |
| | $ | 3.1 |
| | 9.8 | % |
| SG&A Expenses (% of Sales) | 11.8 | % | | 12.8 | % | | | | |
| Operating Income | $ | 6.9 |
| | $ | 19.3 |
| | $ | (12.4 | ) | | (64.2 | )% |
| Operating Margin | 2.4 | % | | 7.8 | % | | | | |
For the year 2019, D&S EastCryo Tank Solutions segment sales increased $47.1by $56.9 million during 2022 as compared to 2018. Sales for VRV, included2021 to a record $504.3 million. As mentioned in the D&S East segment results since the acquisition date, November 15, 2018, were $57.1 million and $10.3 million for the years ended December 31, 2019 and 2018, respectively. Excluding the impact of VRV, sales increased across all product applications in Europe partially offsetoperations above, this increase was mainly driven by lowerfavorable sales in China largely relative to a declinestorage equipment in LNGthe U.S. and bulk products.Europe and mobile equipment in the U.S.
For the year 2019, D&S EastCryo Tank Solutions segment gross profit and the related margin percentage decreased by $7.2 million (decreased by $7.8 million, organically) as compared to 2018. Excluding restructuring charges of $7.8 million and $0.5 million in 2019 and 2018 respectively, gross profit increased by $0.1$5.2 million during 2022 as compared to 2018. The restructuring charges that negatively impacted the D&S East gross profit and the related margin percentage were2021 primarily due to the closing of two production lineshigher volume, while gross profit margin decreased by 130 basis points. The decrease in China.gross profit margin was mainly driven by higher material prices and higher labor costs due to macroeconomic conditions.
D&S East segmentCryo Tank Solutions SG&A expenses increased during the year 20192022 as compared to 2018 primarily driven by the $9.8 million related to VRV included in 2019 compared to $1.3 million since the acquisition date, November 15, 2018. Excluding the impact of the VRV acquisition,2021 while SG&A expenses decreasedas a percentage of sales improved by $5.4 million or 17.8%,20 basis points. The increase in SG&A expenses was mainly driven by lower employee-related costs in China due to workforce reductions.higher employee-related costs.
Cryo Tank Solutions—Results of Operations for the Years Ended December 31, 20182021 and 20172020
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Variance
($) | | Variance
(%) |
| Sales | $ | 447.4 | | | $ | 415.8 | | | $ | 31.6 | | | 7.6 | % |
| Gross Profit | 93.5 | | | 99.5 | | | (6.0) | | | (6.0) | % |
| Gross Profit Margin | 20.9 | % | | 23.9 | % | | | | |
| SG&A Expenses | $ | 38.1 | | | $ | 41.7 | | | $ | (3.6) | | | (8.6) | % |
| SG&A Expenses (% of Sales) | 8.5 | % | | 10.0 | % | | | | |
| Operating Income | $ | 52.9 | | | $ | 52.5 | | | $ | 0.4 | | | 0.8 | % |
| Operating Margin | 11.8 | % | | 12.6 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2018 vs. 2017 |
| | 2018 | | 2017 | | Variance ($) | | Variance (%) |
| Sales | $ | 246.3 |
| | $ | 232.3 |
| | $ | 14.0 |
| | 6.0 | % |
| Gross Profit | 52.4 |
| | 48.3 |
| | 4.1 |
| | 8.5 | % |
| Gross Profit Margin | 21.3 | % | | 20.8 | % | | | | |
| SG&A Expenses | $ | 31.6 |
| | $ | 33.0 |
| | $ | (1.4 | ) | | (4.2 | )% |
| SG&A Expenses (% of Sales) | 12.8 | % | | 14.2 | % | | | | |
| Operating Income | $ | 19.3 |
| | $ | 14.2 |
| | $ | 5.1 |
| | 35.9 | % |
| Operating Margin | 7.8 | % | | 6.1 | % | | | | |
For the full year 2018, D&S EastCryo Tank Solutions segment sales increased $14.0by $31.6 million during 2021 as compared to 2017, which2020. This increase was primarilymainly driven by the inclusion of VRVhigher sales of $10.3 million for the six weeks of ownership,in mobile equipment, engineered tanks and the remaining increase driven by strength across all product applications.storage systems with strong performance in China, India and Germany.
During the full year 2018, D&S EastCryo Tank Solutions segment gross profit increased $4.1decreased by $6.0 million during 2021 as compared to 2017 primarily2020, and gross profit margin decreased by 300 basis points. The decrease in gross profit and gross profit margin was mainly driven by higher material prices and higher labor costs due to the increase in volume, and the related margin increased mainly due to favorable product mix, primarily in China, which was operating income positive for the first time since 2014.macroeconomic conditions.
D&S EastCryo Tank Solutions segment SG&A expenses decreased during the year 20182021 as compared to 2017 by $1.4 million primarily due to the inclusion of additional commissions expense2020. Furthermore, Cryo Tank Solutions segment SG&A expenses as a resultpercentage of Cryo Tank Solutions segment sales improved by 150 basis points in
2021 as compared to 2020. Cryo Tank Solutions SG&A expenses for the year ended December 31, 2020 include a $2.6 million gain on sale of a litigation awardfacility in China, which are reflectedChina. Additionally, restructuring expenses were $0.3 million in 2017 results.2021 as compared to $2.3 million in 2020.
D&S West
Heat Transfer Systems—Results of Operations for the Years Ended December 31, 20192022 and 20182021
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Variance
($) | | Variance
(%) |
| Sales | $ | 462.7 | | | $ | 262.7 | | | $ | 200.0 | | | 76.1 | % |
| Gross Profit | 90.6 | | | 35.6 | | | 55.0 | | | 154.5 | % |
| Gross Profit Margin | 19.6 | % | | 13.6 | % | | | | |
| SG&A Expenses | $ | 24.0 | | | $ | 28.1 | | | $ | (4.1) | | | (14.6) | % |
| SG&A Expenses (% of Sales) | 5.2 | % | | 10.7 | % | | | | |
| Operating Income (Loss) | $ | 51.7 | | | $ | (12.3) | | | $ | 64.0 | | | (520.3) | % |
| Operating Margin | 11.2 | % | | (4.7) | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | Variance ($) | | Variance (%) |
| Sales | $ | 461.7 |
| | $ | 455.5 |
| | $ | 6.2 |
| | 1.4 | % |
| Gross Profit | 157.9 |
| | 156.8 |
| | 1.1 |
| | 0.7 | % |
| Gross Profit Margin | 34.2 | % | | 34.4 | % | | | | |
| SG&A Expenses | $ | 48.7 |
| | $ | 51.0 |
| | $ | (2.3 | ) | | (4.5 | )% |
| SG&A Expenses (% of Sales) | 10.5 | % | | 11.2 | % | | | | |
| Operating Income | $ | 104.5 |
| | $ | 101.2 |
| | $ | 3.3 |
| | 3.3 | % |
| Operating Margin | 22.6 | % | | 22.2 | % | | | | |
D&S WestHeat Transfer Systems segment sales increased $6.2by $200.0 million during the full year 20192022 as compared to 20182021 to a record $462.7 million. As previously mentioned in the results of operations section above, the increase was primarily due to an increasedriven by sales in sales related to systemssmall-scale, floating LNG and cryobiological storage products which was partially offset by a decline in packaged gas sales.big LNG.
D&S WestHeat Transfer Systems segment gross profit increased $1.1by $55.0 million during the full year2022 as compared to 2018 mainly driven2021, and gross profit margin increased by higher600 basis points. The increase in Heat Transfer Systems segment gross profit was primarily due to overall product and project volume in cryobiological storage tanks while the related margin percentage decreased by 0.2 percentage points primarily driven by lower margins in industrial gas and systems partially offset by higher margin within cryobiological systems.mix.
D&S WestHeat Transfer Systems segment SG&A expenses decreased $2.3by $4.1 million during the year 20192022 as compared to 2018 primarily2021and SG&A expenses as a percentage of sales improved by 550 basis points. The decrease in SG&A expenses was mainly due to lower employee related expenses.employee-related costs.
Heat Transfer Systems—Results of Operations for the Years Ended December 31, 20182021 and 20172020
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Variance
($) | | Variance
(%) |
| Sales | $ | 262.7 | | | $ | 369.8 | | | $ | (107.1) | | | (29.0) | % |
| Gross Profit | 35.6 | | | 93.7 | | | (58.1) | | | (62.0) | % |
| Gross Profit Margin | 13.6 | % | | 25.3 | % | | | | |
| SG&A Expenses | $ | 28.1 | | | $ | 36.6 | | | $ | (8.5) | | | (23.2) | % |
| SG&A Expenses (% of Sales) | 10.7 | % | | 9.9 | % | | | | |
| Operating Income | $ | (12.3) | | | $ | 11.2 | | | $ | (23.5) | | | (209.8) | % |
| Operating Margin | (4.7) | % | | 3.0 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2018 vs. 2017 |
| | 2018 | | 2017 | | Variance ($) | | Variance (%) |
| Sales | $ | 455.5 |
| | $ | 400.6 |
| | $ | 54.9 |
| | 13.7 | % |
| Gross Profit | 156.8 |
| | 141.8 |
| | 15.0 |
| | 10.6 | % |
| Gross Profit Margin | 34.4 | % | | 35.4 | % | | | | |
| SG&A Expenses | $ | 51.0 |
| | $ | 52.0 |
| | $ | (1.0 | ) | | (1.9 | )% |
| SG&A Expenses (% of Sales) | 11.2 | % | | 13.0 | % | | | | |
| Operating Income | $ | 101.2 |
| | $ | 85.2 |
| | $ | 16.0 |
| | 18.8 | % |
| Operating Margin | 22.2 | % | | 21.3 | % | | | | |
D&S WestHeat Transfer Systems segment sales increaseddecreased by $107.1 million during the full year 20182021 as compared to 20172020. During 2021, we recognized $20.1 million in sales relative to Calcasieu Pass as compared to $97.7 million in 2020. The decrease was driven by industry-wide softness in demand for midstream and upstream compression equipment.
Heat Transfer Systems segment gross profit decreased by $58.1 million during 2021 compared to 2020, and gross profit margin decreased by 1,170 basis points driven by lower volume, partially offset by lower restructuring costs. The decrease in Heat Transfer Systems segment gross profit was primarily due to an increase in sales within packaged gas industrial applications.
D&S West segmentoverall product and project volume mix, including Calcasieu Pass, which drove higher gross profit increased during the full year 2018 as compared to 2017 mainly driven by higher volumemargin in both packaged gas industrial applications and cryobiological storage. The 2018 year-to-date gross margin percentage was negatively impacted 0.9 percentage points due to the estimated costs of the aluminum cryobiological tank recall of $4.0 million recorded in cost of sales during 2018.2020.
D&S WestHeat Transfer Systems segment SG&A expenses decreased by $8.5 million during the full year 20182021 as compared to 20172020 mainly due to cost based saving measures takenlower restructuring costs and lower employee-related costs.
Heat Transfer Systems operating income decreased by $23.5 million during the period2021 as well as share-based compensation forfeiture credits relatedcompared to the strategic realignment2020 due to industry-wide softness in demand for midstream and upstream compression equipment and overall product and project volume mix, including Calcasieu Pass. During 2020, we recorded an impairment loss of $16.0 million to our segment structure. All severance costs related to the strategic realignment of our segment structure were recorded in restructuring within SG&A at Corporate. Additionally, the full year of 2017 included a reduction in a contingent consideration liability associated with a prior acquisition, which partially offset the decrease in D&S West segment SG&A expenses.AXC Intangible Asset.
Energy & Chemicals Cryogenics
Specialty Products—Results of Operations for the Years Ended December 31, 20192022 and 20182021
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Variance
($) | | Variance
(%) |
| Sales | $ | 448.3 | | | $ | 432.9 | | | $ | 15.4 | | | 3.6 | % |
| Gross Profit | 138.6 | | | 145.5 | | | (6.9) | | | (4.7) | % |
| Gross Profit Margin | 30.9 | % | | 33.6 | % | | | | |
| SG&A Expenses | $ | 55.6 | | | $ | 43.3 | | | $ | 12.3 | | | 28.4 | % |
| SG&A Expenses (% of Sales) | 12.4 | % | | 10.0 | % | | | | |
| Operating Income | $ | 72.9 | | | $ | 94.1 | | | $ | (21.2) | | | (22.5) | % |
| Operating Margin | 16.3 | % | | 21.7 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | Variance ($) | | Variance (%) |
| Sales | $ | 190.2 |
| | $ | 136.9 |
| | $ | 53.3 |
| | 38.9 | % |
| Gross Profit | 33.5 |
| | 28.6 |
| | 4.9 |
| | 17.1 | % |
| Gross Profit Margin | 17.6 | % | | 20.9 | % | | | | |
| SG&A Expenses | $ | 28.7 |
| | $ | 23.3 |
| | $ | 5.4 |
| | 23.2 | % |
| SG&A Expenses (% of Sales) | 15.1 | % | | 17.0 | % | | | | |
| Operating Income | $ | 1.6 |
| | $ | 1.8 |
| | $ | (0.2 | ) | | (11.1 | )% |
| Operating Margin | 0.8 | % | | 1.3 | % | | | | |
For the year 2019, E&C CryogenicsSpecialty Products segment sales increased $53.3by $15.4 million during 2022 as compared to 2018. Sales for VRV, included2021 to a record $448.3 million. Similar to the comments previously mentioned in the E&C Cryogenics segment results sinceof operations section, the acquisition date, November 15, 2018, were$46.9 millionincrease in Specialty Products sales was primarily driven by favorable sales in hydrogen and $3.8 million for the years ended December 31, 2019helium applications, water treatment, space applications, food & beverage applications and 2018, respectively. Excluding the impactcarbon capture. The sales increase was almost fully offset by a 79.2% decline in HLNG vehicle tank sales driven by higher natural gas prices and our customers’ availability of VRV, sales increased mainlysemiconductors due to higher volume in brazed aluminum heat exchangers and cold box projects partially offset by lower sales relative to field services work.macroeconomic conditions.
For the year 2019, E&C CryogenicsSpecialty Products segment gross profit increaseddecreased by $4.9$6.9 million (decreased by $2.0 million, organically)during 2022 as compared to 2018.2021, and gross profit margin decreased by 270 basis points largely due to stronger HLNG vehicle tank sales in 2021 as compared to 2022. The increasedecrease in gross profit was primarily due to VRV sales included in 2019 as compared to 2018. The decrease in organic gross profit was primarily due toand the less favorable brazed aluminum heat exchangers product mix. The related margin decreased 3.3 percentage points (2.9 percentage points organically), primarily due to higherwas mainly driven by overall product and project volume in high margin short lead-time replacement equipment in 2018 as compared to 2019.mix.
E&C CryogenicsSpecialty Products segment SG&A expenses increased by $12.3 million during the year 20192022 as compared to 20182021 primarily driven by SG&A expenses of $7.1 millionramp up in the business and $0.7 million related to the VRV acquisition for the years ended December 31, 2019 and 2018, respectively. Excluding VRV costs, SG&A expenses decreased as a percent of sales by 1.9 percent.additions.
Specialty Products—Results of Operations for the Years Ended December 31, 20182021 and 20172020
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Variance
($) | | Variance
(%) |
| Sales | $ | 432.9 | | | $ | 242.6 | | | $ | 190.3 | | | 78.4 | % |
| Gross Profit | 145.5 | | | 84.3 | | | 61.2 | | | 72.6 | % |
| Gross Profit Margin | 33.6 | % | | 34.7 | % | | | | |
| SG&A Expenses | $ | 43.3 | | | $ | 22.2 | | | $ | 21.1 | | | 95.0 | % |
| SG&A Expenses (% of Sales) | 10.0 | % | | 9.2 | % | | | | |
| Operating Income | $ | 94.1 | | | $ | 60.7 | | | $ | 33.4 | | | 55.0 | % |
| Operating Margin | 21.7 | % | | 25.0 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2018 vs. 2017 |
| | 2018 | | 2017 | | Variance ($) | | Variance (%) |
| Sales | $ | 136.9 |
| | $ | 125.5 |
| | $ | 11.4 |
| | 9.1 | % |
| Gross Profit | 28.6 |
| | 23.6 |
| | 5.0 |
| | 21.2 | % |
| Gross Profit Margin | 20.9 | % | | 18.8 | % | | | | |
| SG&A Expenses | $ | 23.3 |
| | $ | 23.4 |
| | $ | (0.1 | ) | | (0.4 | )% |
| SG&A Expenses (% of Sales) | 17.0 | % | | 18.6 | % | | | | |
| Operating Income | $ | 1.8 |
| | $ | (2.1 | ) | | $ | 3.9 |
| | (185.7 | )% |
| Operating Margin | 1.3 | % | | (1.7 | )% | | | | |
For the year 2018, E&C CryogenicsSpecialty Products segment sales increased by $190.3 million ($126.6 million organically) during 2021 as compared to 2017. Sales for VRV included2020 to $432.9 million. The increase in E&C Cryogenics segment results since the November 15, 2018 acquisition date were $3.8 million for the year ended December 31, 2018. Excluding the impact from VRV,Specialty Products sales increasedwas primarily driven by $7.6 million, which was driven primarily by increasedfavorable sales in brazed aluminum heat exchangers offsethydrogen and helium applications, HLNG vehicle tanks, water treatment and food & beverage applications, each of which had double digit growth during 2021 as compared to 2020. This increase was bolstered by a decreaseinorganic additions during 2021. The increase in sales associated withfor water treatment equipment sales primarily related to our previous Lifecycle business.acquisitions of BlueInGreen, LLC and AdEdge.
Excluding the impact of the VRV acquisition, E&C CryogenicsSpecialty Products segment gross profit increased by $6.0$61.2 million ($38.9 million organically) during 2021 as compared to 2020 primarily due to higher volume while gross profit margin decreased by 110 basis points. The decrease in gross profit margin was mainly driven by increased sales volume in NGLhigher material prices and petrochemical applications. The related margin increased 2.1 percentage points (3.4 percentage points organically), primarilyhigher labor costs due to an increase in high margin short lead-time replacement equipment.macroeconomic conditions.
E&C CryogenicsSpecialty Products segment SG&A expenses for 2018increased by $21.1 million ($13.0 million organically) during 2021 as compared to 2017 were relatively flat. Excluding2020 primarily driven by ramp up in the impact of the VRV acquisition,business. Furthermore, Specialty Products segment SG&A expenses decreased $0.8included $1.1 million relative to acquisition-related contingent consideration adjustments recognized during 2018.2021.
EnergyRepair, Service & Chemicals FinFans
Leasing—Results of Operations for the Years Ended December 31, 20192022 and 20182021
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Variance
($) | | Variance
(%) |
| Sales | $ | 209.6 | | | $ | 187.0 | | | $ | 22.6 | | | 12.1 | % |
| Gross Profit | 79.5 | | | 49.6 | | | 29.9 | | | 60.3 | % |
| Gross Profit Margin | 37.9 | % | | 26.5 | % | | | | |
| SG&A Expenses | $ | 15.2 | | | $ | 17.8 | | | $ | (2.6) | | | (14.6) | % |
| SG&A Expenses (% of Sales) | 7.3 | % | | 9.5 | % | | | | |
| Operating Income | $ | 51.0 | | | $ | 23.3 | | | $ | 27.7 | | | 118.9 | % |
| Operating Margin | 24.3 | % | | 12.5 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | Variance ($) | | Variance (%) |
| Sales | $ | 361.7 |
| | $ | 253.6 |
| | $ | 108.1 |
| | 42.6 | % |
| Gross Profit | 102.5 |
| | 60.6 |
| | 41.9 |
| | 69.1 | % |
| Gross Profit Margin | 28.3 | % | | 23.9 | % | | | | |
| SG&A Expenses | $ | 33.6 |
| | $ | 24.8 |
| | $ | 8.8 |
| | 35.5 | % |
| SG&A Expenses (% of Sales) | 9.3 | % | | 9.8 | % | | | | |
| Operating Income | $ | 40.6 |
| | $ | 23.7 |
| | $ | 16.9 |
| | 71.3 | % |
| Operating Margin | 11.2 | % | | 9.3 | % | | | | |
For the year 2019, E&C FinFansRepair, Service & Leasing segment sales increased $108.1by $22.6 million during 2022 as compared to 2018. Sales for AXC, included2021 to a record $209.6 million. Similar to the comments previously mentioned in the E&C FinFans segment results sinceof operations section, the acquisition date, July 1, 2019, were $103.1 million for the year ended December 31, 2019. Excluding the impact of AXC,increase was mainly driven by favorable sales increased by $5.0 million mainly due to higher axial flow fan sales partially offset by lower sales ofin parts, repairs, and services, aftermarket fans, aftermarket air cooled heat exchangers fromand in our Coolerlifecycle business.
Repair, Service and Smithco businesses.
For the year 2019, E&C FinFans& Leasing segment gross profit increased by $41.9$29.9 million (increased by $12.7 million, organically)during 2022 as compared to 2018. Gross2021 to a record $79.5 million, and gross profit margin increased primarily dueby 1,140 basis points to higher volume for axial flow fansa record 37.9%. The increase in gross profit and the related margin increased mainly duewas driven by more high margin, short-lead time replacement equipment sales during 2022 as compared to product mix.2021. Furthermore, during 2021 we incurred unfavorable material costs relative to our leasing business which we did not incur during 2022.
E&C FinFansRepair, Service & Leasing segment SG&A expenses increaseddecreased by $8.8$2.6 million during the year 20192022 as compared to 2018 mainly due to acquisition2021. SG&A expenses as a percentage of AXC.sales improved by 220 basis points as a result of large aftermarket sales without incremental SG&A.
Repair, Service & Leasing—Results of Operations for the Years Ended December 31, 20182021 and 20172020
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Variance
($) | | Variance
(%) |
| Sales | $ | 187.0 | | | $ | 158.3 | | | $ | 28.7 | | | 18.1 | % |
| Gross Profit | 49.6 | | | 54.6 | | | (5.0) | | | (9.2) | % |
| Gross Profit Margin | 26.5 | % | | 34.5 | % | | | | |
| SG&A Expenses | $ | 17.8 | | | $ | 15.3 | | | $ | 2.5 | | | 16.3 | % |
| SG&A Expenses (% of Sales) | 9.5 | % | | 9.7 | % | | | | |
| Operating Income | $ | 23.3 | | | $ | 30.3 | | | $ | (7.0) | | | (23.1) | % |
| Operating Margin | 12.5 | % | | 19.1 | % | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | 2018 vs. 2017 |
| | 2018 | | 2017 | | Variance ($) | | Variance (%) |
| Sales | $ | 253.6 |
| | $ | 100.1 |
| | $ | 153.5 |
| | 153.3 | % |
| Gross Profit | 60.6 |
| | 21.5 |
| | 39.1 |
| | 181.9 | % |
| Gross Profit Margin | 23.9 | % | | 21.5 | % | | | | |
| SG&A Expenses | $ | 24.8 |
| | $ | 10.9 |
| | $ | 13.9 |
| | 127.5 | % |
| SG&A Expenses (% of Sales) | 9.8 | % | | 10.9 | % | | | | |
| Operating Income | $ | 23.7 |
| | $ | 7.2 |
| | $ | 16.5 |
| | 229.2 | % |
| Operating Margin | 9.3 | % | | 7.2 | % | | | | |
For the year 2018, E&C FinFansRepair, Service & Leasing segment sales increased by $28.7 million during 2021 as compared to 2017. Sales for Hudson,2020. The increase was mainly driven by favorable sales in our leasing business, partially offset by a decrease in sales within our full lifecycle services business.
Repair, Service & Leasing segment gross profit decreased by $5.0 million during 2021 as compared to 2020, and gross profit margin decreased by 800 basis points. The decrease in gross profit margin was mainly driven by unfavorable material costs relative to our leasing business and fewer high margin, short-lead time replacement equipment sales in 2021 as compared to 2020.
Repair, Service & Leasing segment SG&A expenses increased by $2.5 million during 2021 as compared to 2020. L.A. Turbine SG&A expenses of $2.4 million are included in the E&C FinFansRepair, Service & Leasing segment results since the September 20, 2017July 1, 2021 acquisition date were $180.3 million and $58.0 million for 2018 and 2017, respectively.date. Excluding the impact from Hudson, sales increased by $31.2 million, which was driven primarily by growth in air cooled heat exchangers within NGL and petrochemical applications.
Excluding the impact of the Hudson acquisition, E&C FinFans segment gross profit increased by $5.0 million during 2018 as compared to 2017, mainly due to improved productivity driven by increased sales volume in NGL and petrochemical applications. The related margin increased 2.4 percentage points (0.6 percentage points organically), primarily due to favorable product mix.
E&C FinFans segmentL.A. Turbine, SG&A expenses increased during 2018 as compared to 2017 primarily driven by the Hudson acquisition, which added $12.8 million in incremental SG&A expenses during the year (2018: $18.5 million, 2017: $5.7 million). Excluding the impact of the Hudson acquisition, SG&A expenses increased by $1.0 million during 2018.
Corporate
Corporate SG&A expenses increased by $19.2$8.4 million during 20192022 as compared to 2018 primarily2021 mainly due to $7.3 million in transaction-related costs, $4.3 million in integration costs related to the VRV and AXC acquisitions and an increase in share-based compensation, which were partially offset by a decrease inhigher employee-related costs.
Corporate SG&A expenses decreased by $10.4 million during 2018 as compared to 2017 primarily due to prior restructuring activities and lower transaction-related costs. Corporate SG&A expenses in 2018 included transaction-relatedincreased by $7.1 million during 2021 as compared to 2020 mainly due to higher
share-based compensation expense, information technology costs of $2.1 million for the year ended December 31, 2018, which were mainly related to the VRV acquisition. This compares favorably to transaction-related costs of $10.1 million in 2017 drivenand legal fees partially offset by the Hudson acquisition.lower 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. Backlog can be significantly affected by the timing of orders for large projects, particularly in the E&C segment, and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. Orders included in our backlog may include customary cancellation provisions under which the customer could cancel part or all of the order, potentially subject to the payment of certain costs and/or fees. Backlog may be negatively impacted by the ability or likelihood of customers to fulfill their obligations. Our backlog as of December 31, 2019, 20182022, 2021 and 20172020 was $762.3$2,338.1 million, $568.2$1,190.1 million and $446.4$810.0 million, respectively.
The tables below represent orders received and backlog by segment for the periods indicated (dollar amounts in millions):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Orders | | | | | |
| Cryo Tank Solutions | $ | 508.4 | | | $ | 555.4 | | | $ | 417.5 | |
| Heat Transfer Systems | 1,417.6 | | | 312.0 | | | 331.1 | |
| Specialty Products | 665.5 | | | 648.6 | | | 279.2 | |
| Repair, Service & Leasing | 218.9 | | | 180.6 | | | 196.8 | |
| Intersegment eliminations | (30.5) | | | (20.5) | | | (14.5) | |
| Consolidated | $ | 2,779.9 | | | $ | 1,676.1 | | | $ | 1,210.1 | |
| | | | | |
| As of December 31, |
| 2022 | | 2021 | | 2020 |
| Backlog | | | | | |
| Cryo Tank Solutions | $ | 371.0 | | | $ | 346.8 | | | $ | 222.6 | |
| Heat Transfer Systems | 1,300.1 | | | 370.4 | | | 329.2 | |
| Specialty Products | 645.9 | | | 438.2 | | | 199.7 | |
| Repair, Service & Leasing | 57.0 | | | 56.5 | | | 63.1 | |
| Intersegment eliminations | (35.9) | | | (21.8) | | | (4.6) | |
| Consolidated | $ | 2,338.1 | | | $ | 1,190.1 | | | $ | 810.0 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Orders | | | | | |
| D&S East | $ | 330.3 |
| | $ | 277.0 |
| | $ | 210.8 |
|
| D&S West | 479.9 |
| | 477.4 |
| | 407.1 |
|
| E&C Cryogenics | 333.8 |
| | 119.9 |
| | 146.5 |
|
| E&C FinFans | 268.9 |
| | 268.1 |
| | 97.1 |
|
| Consolidated | $ | 1,412.9 |
| | $ | 1,142.4 |
| | $ | 861.5 |
|
| | | | | | |
| | As of December 31, |
| | 2019 | | 2018 | | 2017 |
| Backlog | | | | | |
| D&S East | $ | 224.0 |
| | $ | 185.4 |
| | $ | 116.9 |
|
| D&S West | 147.1 |
| | 129.8 |
| | 118.6 |
|
| E&C Cryogenics | 285.3 |
| | 139.7 |
| | 108.9 |
|
| E&C FinFans | 105.9 |
| | 113.3 |
| | 102.0 |
|
| Consolidated | $ | 762.3 |
| | $ | 568.2 |
| | $ | 446.4 |
|
Orders and Backlog for the Year Ended and As of December 31, 20192022 Compared to the Year Ended and As of December 31, 20182021
Orders for 2019 were $1,412.9 million compared to $1,142.4 million for 2018, representing an increase of $270.5 million, or 23.7% (10.8% organically), and set multiple annual order records. Consolidated orders include $52.2 million in orders related to AXC for the year ended December 31, 2019. Consolidated backlog includes $31.5 million in backlog related to AXC as of December 31, 2019.
D&S EastCryo Tank Solutions segment orders for 20192022 were $330.3$508.4 million, as compared to $277.0$555.4 million for 2018, an increase2021, a decrease of $53.3$47.0 million. D&S East segment orders include $54.7 million and $8.7 million in orders related to VRV for 2019 and 2018, respectively. The increase in D&S East segment orders over the prior yearThis decrease was mainly driven by increases in bulk standard tanks within bulk industrial gas applicationslower order intake for mobile equipment and cryogenic trailers, primarily in Europe as demand for LNG fueling stations in Europe is increasing and key customers continuestorage equipment due to order trailers and LNG fuel systems for over the road trucking. D&S Easttiming shifts of customer orders. Cryo Tank Solutions segment backlog totaled $224.0 million at December 31, 2019, compared to $185.4$371.0 million as of December 31, 2018, an increase of $38.6 million. D&S East segment backlog for 2019 and 2018 includes $40.4 million and $42.3 million related to VRV, respectively.
D&S West segment orders for 2019 were $479.9 million2022, a record high, compared to $477.4 million for 2018, an increase of $2.5 million driven by an increase in systems, offset by lower orders in industrial gas. D&S West segment backlog totaled $147.1 million at December 31, 2019 compared to $129.8$346.8 million as of December 31, 2018,2021, an increase of $17.3$24.2 million.
Heat Transfer Systems segment orders for 2022 were a record $1,417.6 million compared to $312.0 million for 2021, an increase of $1,105.6 million mainly driven by a $21.0 millionhigher order intake for LNG by rail order, the first of its magnitude for our Gas By Rail (“GBR”) unique offering.
E&C Cryogenics segment orders for 2019 were $333.8 million compared to $119.9 million for 2018, an increase of $213.9 million. E&C Cryogenics segment orders include $53.1 millionincluding big and $2.5 million in orders related to VRV for 2019 and 2018, respectively. E&C Cryogenics segment orders in 2019 include a $23 million order for a propane dehydrogenation plant. E&C Cryogenicssmall-scale LNG, as well as floating LNG. Heat Transfer Systems segment backlog totaled $285.3a record $1,300.1 million as of December 31, 2019,2022 compared to $139.7$370.4 million as of December 31, 2018,2021, an increase of $145.6$929.7 million. E&C Cryogenics segment backlog for 2019 and 2018 includes $47.0 million and $39.3 million related to VRV, respectively. Excluding VRV, the increase in backlog from 2019 as compared to 2018 was primarily driven by Venture Global’s Calcasieu Pass LNG export terminal project and petrochemical and natural gas processing applications. Included in E&C Cryogenics segment’s backlog for 2019 and 2018 is approximately $40 million related to the previously announced Magnolia LNG order where production release is delayed until 2020. Order flow in the E&C Cryogenics segment is historically volatile due to project size and it is not unusual to see order intake change significantly year over year.
E&C FinFansSpecialty Products segment orders for 20192022 were $268.9a record $665.5 million compared to $268.1$648.6 million for 2018,2021, an increase of $0.8$16.9 million. E&C FinFans segmentComparatively, during 2022 we recorded hydrogen and helium orders include $52.2of $300.1 million that included four liquefaction orders totaling $194.4 million whereas during 2021 we recorded hydrogen and helium orders of $282.1 million that included four liquefaction orders totaling approximately $150.0 million. The increase in orders relatedwas also attributed to AXCan increase in space, water treatment, carbon capture and other specialty applications partially offset by lower order intake for the year ended December 31, 2019. Excluding AXC, orders decreasedHLNG vehicle tanks driven by $51.4 million. Included in 2018 orders was a $28 million order forhigher natural gas prices and our Hudsoncustomers’ availability of semiconductors due to macroeconomic conditions. Specialty Products air cooled heat exchangers on a large LNG project. E&C Fin Fans segment backlog totaled $105.9 million at December 31, 2019, compared to $113.3a record $645.9 million as of December 31, 2018, a decrease of $7.4 million. E&C FinFans segment backlog2022, compared to $438.2 million as of December 31, 2019 includes $31.52021, an increase of $207.7 million.
Repair, Service & Leasing segment orders for 2022 were a record $218.9 million for AXC. Order flowcompared to $180.6 million in the E&C FinFans segment is2021, an increase of $38.3 million. The increase was primarily driven by customer demand for energy related expenditures and it is not unusual forhigher order intake within lifecycle services, aftermarket fans
and our leasing business. Repair, Service & Leasing segment backlog totaled $57.0 million as of December 31, 2022, compared to fluctuate year over year.$56.5 million as of December 31, 2021, an increase of $0.5 million.
Orders and Backlog for the Year Ended and As of December 31, 20182021 Compared to the Year Ended and As of December 31, 20172020
OrdersCryo Tank Solutions segment orders for 20182021 were $1,142.4$555.4 million, as compared to $861.5$417.5 million for 2017, representing2020, an increase of $280.9 million, or 32.6% (11.7% organically). Consolidated orders include $11.2 million in orders related to VRV (D&S East: $8.7 million, E&C Cryogenics: $2.5 million) for the year ended December 31, 2018. Consolidated backlog includes $81.6 million related to VRV (D&S East: $42.3 million, E&C Cryogenics: $39.3 million) as of December 31, 2018.
D&S East segment orders for 2018 were $277.0 million compared to $210.8 million for 2017, an$137.9 million. This increase of $66.2 million or 31.4%. The increase in D&S East segment orders was mainly driven by increases in bulkfavorable order intake for standard tanks within bulk industrial gas applications and cryogenic trailers, primarilymobile equipment as a result of higher pre-order activity, especially in Europe. Orders also increasedthe second quarter of 2021, as customers anticipated higher prices in Asia, especially engineered tanks within bulk industrial gas applications. D&S Eastfuture periods. Cryo Tank Solutions segment backlog totaled $185.4 million at December 31, 2018, compared to $116.9$346.8 million as of December 31, 2017.
D&S West segment orders for 2018 were $477.4 million2021, compared to $407.1 million for 2017, an increase of $70.3 million, or 17.3%. The increase in D&S West segment orders over the prior year was driven by increases across all product applications, especially LNG vehicle tanks within packaged gas industrial applications. D&S West segment backlog totaled $129.8 million at December 31, 2018 compared to $118.6$222.6 million as of December 31, 2017.2020, an increase of $124.2 million.
E&C CryogenicsHeat Transfer Systems segment orders for 20182021 were $119.9$312.0 million (net of a $14.4 million change order) compared to $146.5$331.1 million for 2017,2020, a decrease of $26.6 million. E&C Cryogenics$19.1 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 $139.7 million at December 31, 2018, compared to $108.9$370.4 million as of December 31, 2017,2021 compared to $329.2 million as of December 31, 2020, an increase of $30.8$41.2 million. E&C Cryogenics
Specialty Products segment orders included $2.5for 2021 were $648.6 million ($494.0 million organically) compared to $279.2 million ($277.0 million organically) for 2020, an increase of $369.4 million ($217.0 million organically). This increase was mainly driven by strong orders in hydrogen and helium (liquefaction, distribution and storage), HLNG vehicle tanks, LNG regasification, laser applications and food & beverage applications. During 2021, we recorded four hydrogen/helium liquefaction orders totaling approximately $150 million, covering three different geographies and three different customers. The increase in orders was also attributed to an increase in food & beverage applications and favorable water treatment equipment solutions primarily related to VRV for the year endedour recent acquisitions of BlueInGreen, LLC and AdEdge. Specialty Products segment backlog totaled $438.2 million ($320.4 million organically) as of December 31, 2018. Excluding VRV2021, compared to $199.7 million ($191.5 million organically) as of December 31, 2020, an increase of $238.5 million ($128.9 million organically).
Repair, Service & Leasing segment orders E&C Cryogenics orders decreased by $29.1for 2021 were $180.6 million compared to $196.8 million for 2020, a decrease of $16.2 million. TheThis decrease was primarily driven by inclusion of largefewer high margin, short-lead time replacement equipment orders within both our Systems businessin 2021 as compared to 2020 and our previous Lifecycle business related to work for a large plant, which were reflected in 2017 E&C Cryogenics segment orders. Order flow in the E&C Cryogenics segment is historically volatile due to project size and it is not unusual to see order intake change significantly year over year.
E&C FinFans segmentsignificant orders for 2018ISO containers for LNG applications received in 2020, partially offset by higher aftermarket fans and air cooled heat exchangers. Furthermore, orders in our leasing and spare parts businesses were $268.1 million compared to $97.1 million for 2017, an increase of $171.0 million. E&C FinFansfairly consistent between periods. Repair, Service & Leasing segment backlog totaled $113.3 million at December 31, 2018, compared to $102.0$56.5 million as of December 31, 2017, an increase2021, compared to $63.1 million as of $11.3 million. E&C FinFans segment orders includes $203.7 million and $31.3 million in orders related to Hudson for the years ended December 31, 2018 and 2017, respectively. As discussed above, included in 2018 orders was2020, a $28 million order for our Hudson Products air cooled heat exchangers on a large LNG project. This order shipped partially in 2018, and the remainder shipped in 2019. Excluding Hudson orders, E&C FinFans orders decreased by $1.4decrease of $6.6 million.
Liquidity and Capital Resources
OurIn connection with the funding of the proposed Howden acquisition, we entered into a revised and expanded senior secured revolving credit facility and issued new senior secured notes due 2030 and senior unsecured notes due 2031. A description of these and our other debt instruments and related covenants are further 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 $119.0$2,605.3 million, which includes $1,941.7 million of restricted cash as of December 31, 2019,2022, an increase of $0.9$2,482.9 million from the balance at December 31, 2018.2021. Our foreign subsidiaries held cash of approximately $75.9$66.7 million and $71.4$91.2 million at December 31, 20192022 and December 31, 2018,2021, 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 SSRCFsenior secured revolving credit facility due October 2026 or other financing alternatives, and cash provided by operations will be sufficient to meet our normal working capital needs, capital expenditures and investments in properties, facilities, and equipment for the foreseeable future.
Years Ended December 31, 20192022 and 20182021
Cash provided by operating activities during 20192022 was $133.9$80.8 million, an increase of $14.9$102.1 million from 2018, mainly2021, primarily due to lower inventory levels.an increase in operating cash provided by working capital, particularly within accounts payable and inventory.
Cash used in investing activities during 2019 and 20182022 was $642.7$101.6 million, and $260.6as compared to cash used in investing activities of $361.2 million respectively.during 2021. During 2019,2022, we paid $74.2 million for capital expenditures. We also used $603.9$25.8 million of cash primarily for the acquisitions of Fronti Fabrications, Inc., CSC Cryogenic Service Center AB, 100% of a joint venture in AdEdge India and a final net working capital adjustment related to our 2021 acquisition of AXC with proceeds from a common stock offering and borrowings under our SSRCF and term loan due November 2024 and paid $36.2AdEdge. We used $9.9 million for capital expenditures mainly related to maintenance capital spending at VRV, investmentinvestments in the LNG fuel systems production line in Europe,Hy24, Gold Hydrogen LLC and automation projects inAvina Clean Hydrogen Inc., partially offset by $9.4 million cash received from settlements of our New Prague, Minnesota facility.April 1, June 7 and July 8, 2022 cross-currency swaps. See below for discussion regarding the composition of cash used inprovided by investing activities during 2018.2021.
Cash provided by financing activities during 2019 and 20182022 was $511.6$2,504.2 million and $38.2compared to cash provided by financing activities of $381.9 million respectively.during 2021. During 2019, 2022, we borrowed $450.0$2,575.3 million underon credit facilities, primarily related to senior secured notes due 2030, senior unsecured notes due 2031 and our senior secured revolving credit facility and repaid $1,128.2 million in borrowings on credit facilities using proceeds from equity offerings related to the term loan and received proceeds of $295.8 million from the 2019 Equity Offeringpending Howden acquisition to fund the AXC acquisition. During 2019, we borrowed $235.8 million on our SSRCF to fund working capital needs and to fundpay down a portion of the AXC acquisition and repaid $451.1our senior secured revolving credit facility. Also during 2022, we received $675.1 million in SSRCF borrowings. We received $9.4 million innet proceeds from stock option exercises and used $2.0 million for the purchaseissuance of common stock which was surrenderedand $388.1 million net proceeds from the issuance of preferred stock, both related to cover tax withholding elections during the year.pending Howden acquisition. See below for discussion regarding the composition of cash provided by financing activities during 2018.2021.
Years Ended December 31, 20182021 and 20172020
Cash provided byused in operating activities during 20182021 was $119.0$21.3 million, an increasea decrease of $74.7$194.0 million from 2017, largely2020, primarily due to higher net income.a decrease in operating cash provided by working capital, particularly within inventory, accounts receivable and unbilled contract revenue during 2021. Due to widespread supply chain and cost challenges, cash used for inventory was primarily driven by cost and availability of raw materials to ensure that we had sufficient stock to meet demand. We continually evaluate our supply chain and make strategic inventory purchases as appropriate.
Cash used in investing activities during 2021 was $260.6$361.2 million, and $477.8as compared to cash provided by investing activities of $185.0 million during 2018 and 2017, respectively.2020, which includes $316.7 million in cash provided by investing activities of discontinued operations primarily related to net cash proceeds of $317.5 million from the sale of our cryobiological products business in 2020. During 2018,2021, we used $225.8$205.1 million of cash for the VRVacquisitions of Cryogenic Gas Technologies, Inc., L.A. Turbine, AdEdge and Skaff acquisitions (euro 188.7Earthly Labs, net of cash acquired. We used $103.9 million or $213.3 million equivalentfor investments in Svante Inc., Transform Materials LLC, Cryomotive GmbH, Earthly Labs and $12.5, respectively) and $35.6an additional investment in HTEC Hydrogen Technology & Energy Corporation (“HTEC”). We also paid $52.7 million for capital expenditures mainly related to the capacity expansionexpenditures. During 2020, we used $51.9 million of the brazed aluminum heat exchanger facility in La Crosse, Wisconsin and the capacity increase in Ball Ground, Georgia, to support demand for LNG vehicle tanks. Cash used in investing activities in 2017 wascash primarily for the acquisitions including $419.5of Sustainable Energy Solutions, Inc. ($20.0 million) BlueInGreen, LLC ($20.0 million) and Alabama Trailers ($10.0 million), $50.8 million usedin investments in HTEC and McPhy (Euronext Paris: MCPHY – ISIN; FR0011742329) and paid $37.9 million for the Hudson acquisition.capital expenditures.
Cash provided by financing activities during 2018 and 20172021 was $38.2$381.9 million and $275.2compared to cash used in financing activities of $363.4 million respectively.during 2020. During 2018,2021, we borrowed $405.4$1,361.1 million on credit facilities and repaid $873.6 million in borrowings on credit facilities primarily to fund the acquisitions and investments described in the paragraph above. Furthermore, during the fourth quarter of 2021, we refinanced our previous senior secured revolving credit facility (euro 140.0 million or $160.3 million equivalent plus $245.1 million) mainly to fund the VRV and Skaff acquisitions, the settlementwhich resulted in additional sources of the 2018 Notes and working capital needs. We repaid $315.1cash of $482.0 million in U.S. dollar borrowings onand 78 million euros (equivalent to $90.5 million) in euro borrowings. These sources of cash repaid principal and interest outstanding under our previous senior secured revolving credit facility during 2018 (euro 55.0prior to the amendment ($478.7 million or $63.0in U.S. dollar borrowings and 78 million equivalent plus $252.1 million). We also borrowed 40.0 million Chinese yuaneuros (equivalent to $6.3$90.5 million) and repaid 11.5 million Chinese yuan (equivalent to $1.7 million) on certain of our China facilities. We repaid 40.0 million Chinese yuan (equivalent to $5.9 million) on certain of our China term loans. Wein euro borrowings) plus upfront debt issuance costs. Total debt issuance costs paid during 2021 were $3.0 million. Also during 2021, we received $10.8$6.9 million in proceeds from stock option exercises and used $2.7paid $6.4 million for the purchase of common stock which was surrenderedrepurchases from share-based compensation plans to coversatisfy tax withholding elections during 2018. Cash provided by financing activitiesobligations relating to the vesting or payment of equity awards. During 2020, we borrowed $215.0 million on credit facilities and repaid $223.1 million in 2017 mainly includedborrowings on credit facilities. We repaid $344.1 million in borrowings on our previous senior secured revolving credit facility,term loan due June 2024 mainly with proceeds from the issuance of convertible notes partially offset by the majority repurchasedivestiture of our 2018 Notes.cryobiological products business. We used $19.3 million to repurchase shares of Chart common stock related to our share purchase program during 2020 (on March 11, 2021, the share repurchase program expired with no further repurchases). We also received $11.0 million in proceeds from stock option exercises during 2020.
Cash Requirements
We do not currently anticipate any unusual cash requirements for working capital needs for the year ending December 31, 2020.2023 relating to our existing business. 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 20202023 to be in the rangerange of $35.0$60.0 million to $40.0$65.0 million.
Contractual Obligations
Our known contractual obligations as of December 31, 20192022 and cash requirements resulting from those obligations are as follows (all dollar(dollar amounts in millions):
| | | | Payments Due by Period | | Payments Due by Period |
| | Total | | Less Than 1 Year | | 1 – 3 Years | | 3 – 5 Years | | More Than 5 Years | | Total | | Less Than 1 Year | | 1 – 3 Years | | 3 – 5 Years | | More Than 5 Years |
| | | | | | | | | | | | | | | | | | | | |
Gross debt (1) | $ | 829.4 |
| | $ | 15.7 |
| | $ | 39.3 |
| | $ | 774.4 |
| | $ | — |
| Gross debt (1) | $ | 2,333.3 | | | $ | — | | | $ | 258.8 | | | $ | 104.5 | | | $ | 1,970.0 | |
| Contractual convertible notes interest | 12.5 |
| | 2.6 |
| | 5.2 |
| | 4.7 |
| | — |
| |
| Contractual coupon interest, convertible notes due November 2024 | | Contractual coupon interest, convertible notes due November 2024 | 5.2 | | | 2.6 | | | 2.6 | | | — | | | — | |
| Contractual coupon interest, 7.500% senior secured notes due 2030 | | Contractual coupon interest, 7.500% senior secured notes due 2030 | 766.6 | | | 54.8 | | | 219.0 | | | 219.0 | | | 273.8 | |
| Contractual coupon interest, 9.500% senior unsecured notes due 2031 | | Contractual coupon interest, 9.500% senior unsecured notes due 2031 | 387.6 | | | 24.2 | | | 96.9 | | | 96.9 | | | 169.6 | |
| Operating leases | 39.1 |
| | 7.8 |
| | 12.5 |
| | 10.9 |
| | 7.9 |
| Operating leases | 21.8 | | | 6.6 | | | 11.0 | | | 3.5 | | | 0.7 | |
Pension obligations (2) | 4.5 |
| | 0.6 |
| | 1.7 |
| | 2.2 |
| | — |
| |
| Purchase obligations | | Purchase obligations | 8.3 | | | 8.3 | | | — | | | — | | | — | |
| | Total contractual cash obligations | $ | 887.7 |
| | $ | 27.0 |
| | $ | 59.2 |
| | $ | 792.7 |
| | $ | 8.8 |
| Total contractual cash obligations | $ | 3,522.8 | | | $ | 96.5 | | | $ | 588.3 | | | $ | 423.9 | | | $ | 2,414.1 | |
_______________
| |
(1)(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. The $104.5 principal balance on the senior secured revolving credit facility will mature on October 19, 2026. The $1,460.0 senior secured notes are due January 1, 2030, and the $510.0 senior unsecured notes are due January 1, 2031 (together, the “Notes”). Not included in the table above is a 49.1 million euros investment commitment for the Clean H2 Infra Fund as mentioned in Note 6, “Investments.” Funding is required when the fund manager issues a capital call, which shall not exceed 30% of our capital commitment in any rolling 12-month period. Also not included in the table above are contingent consideration arrangements from prior acquisitions with a potential payout range of $0.0 million to $31.0 million. Howden Acquisition: As previously discussed, in November 2022, we signed a definitive agreement to acquire Howden. We expect to finance the cash portion of the estimated $4.4 billion purchase price with a combination of debt including a senior secured term loan facility, proceeds from the Notes and cash and restricted cash on our balance sheet. For further discussion, refer to 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. | The $258.8 million principal balance of the 2024 Notes will mature on November 15, 2024. |
| |
(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, 2019,2022, 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(dollar amounts in millions):
| | | | | | | | | | | | | | | | | |
| Total | | Expiring in 2023 | | Expiring in 2024 and beyond |
| Standby letters of credit | $ | 89.1 | | | $ | 11.4 | | | $ | 77.7 | |
| Bank guarantees | 45.7 | | | 28.2 | | | 17.5 | |
| Total commercial commitments | $ | 134.8 | | | $ | 39.6 | | | $ | 95.2 | |
Inventories, net
|
| | | | | | | | | | | |
| | Total | | Expiring in 2020 | | Expiring in 2021 and beyond |
| Standby letters of credit | $ | 56.3 |
| | $ | 4.5 |
| | $ | 51.8 |
|
| Bank guarantees | 27.8 |
| | 0.9 |
| | 26.9 |
|
| Total commercial commitments | $ | 84.1 |
| | $ | 5.4 |
| | $ | 78.7 |
|
Off-Balance Sheet ArrangementsOur accrued income taxes balance was $3.5 million at December 31, 2022 compared to $16.1 million at December 31, 2021, representing a decrease of $12.6 million (78.3)%. This decrease was primarily driven by tax payments made during 2022.
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 operating facilities orowned and formerly owned manufacturing facilities and accrueat one owned facility that is leased to a third party, and, except for these activities when commitments or remediation plans have been developed and when costs are probable and can be reasonably estimated. Historical annual cash expenditures for these activities have been charged against the related environmental reserves. Future expenditures relating to these environmentalcontinuing remediation efforts, believe we are expected to be made over the next 7 years as ongoing costs of remediation programs. 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 2019,2022, we had operations in Asia, Australia, India, Europe, and LatinSouth America, which accounted for approximately 47%42% of consolidated sales and 31%27% of total assets at December 31, 2019.2022. 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 PoliciesEstimates
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.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. The reporting units are the same as our operating and reportable segments: D&S East, D&S West, E&C Cryogenics,segments, which are as follows: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and E&C FinFans. WeRepair, Service & Leasing. To test goodwill for impairment, 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 amountgoodwill (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). The assumptions and judgment used by management to estimate future cash flows, allocation of assets and cash flows among reporting units, estimates of future growth rates and selection of discount rates are subject to change due to the economic environment, including such factors as interest rates, expected market returns and volatility of markets served. 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.
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.
2019 Management’s estimates regarding future cash flows, selection of discount rates and 2018 Goodwillestimated tax benefits are subject to change due to various economic factors and Indefinite-Lived Intangible Assets Impairment Assessmentschanges to the assumptions and estimates used throughout the steps described above and may result in a significantly different estimate of the fair value of indefinite-lived intangible assets which could result in a different assessment of the recoverability of these assets and result in future impairment charges.
As of October 1, 20192022 and 20182021 (“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 with the exception of our recently acquired trade names as of October 1, 2022 which includes Earthly Labs and Fronti Fabrications, Inc (together, the “recently acquired trade names”). Based on our qualitative assessment of the recently acquired trade names, we determined that it is not “more likely than not” that the fair value of each of the recently acquired trade names is less than its respective carrying amount. With one exception as discussed in the next paragraph, based on our quantitative assessments of all other trade names, we determined that the fair value of each of the indefinite-lived intangible assets was greater than its respective carrying value at each annual assessment date and, therefore, no further action was necessary.
Goodwill at December 31, 2019 and 2018 was $844.9 million and $520.7 million, respectively, attributed toDuring 2020, in connection with the segments as follows:
•D&S East: 2019: $117.0 million (2018: $73.6 million);
•D&S West: 2019: $152.1 million and (2018: $151.3 million);
•E&C Cryogenics: 2019: $176.2 million; and
•E&C FinFans: 2019: $399.6 million
Note: Goodwill at December 31, 2018 included $295.8 million attributableannual impairment process described above, Chart, with the assistance of an outside professional accounting firm, performed an impairment analysis with respect to our prior E&CAXC Intangible Asset. As a result, we recorded an impairment loss of $16.0 million during 2020 relative to our AXC Intangible Asset in our Heat Transfer Systems segment.
Long-Lived Assets.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 itsthis 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. Key assumptions used in these estimates include industry and market conditions, costs to produce and projected revenue growth. 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 CombinationsCombinations:. 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. Assigning estimated fair values to the identifiable assets acquired and liabilities assumed requires the use of significant estimates, judgments, inputs and assumptions. Such assumptions are based in part on historical experience, industry and market conditions and information obtained from management of the acquired companies and are thus inherently uncertain. 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.
We expense transaction-related costs, including legal, consulting, accounting and other costs,Investments in Equity Securities Without a Readily Determinable Fair Value: Our investments in equity securities for which there is no readily determinable fair value are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As part of our assessment for impairment indicators, judgement is involved in considering significant deterioration in the periodsearnings performance, credit rating, asset quality or overall business prospects of the investee as well as significant adverse changes in the external environment in which an investee operates, a significant adverse change in the general market condition of either the geographical area or the industry in which the costsinvestee operates or factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. Furthermore, management must use reasonable efforts to identify an observable price change on a timely basis. Despite these efforts, we may not be able to obtain this information. If we determine that an investment is impaired, we shall measure the investment at fair value, which may involve a significant degree of judgement and subjectivity.
Contingencies: On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against us. While it is typically very difficult to determine the timing and ultimate outcome of such actions, management uses its best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any, which are incurred.recorded in other current assets when recoverability is probable. We accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, it is possible that certain matters may be resolved for amounts materially different from any provisions or disclosures that we have previously made.
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, mosthydrogen solutions, water treatment systems and carbon capture systems, 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 revenueSelecting the method used to measure progress towards completion for our contracts requires judgment and is based on the basisnature of the entity’s efforts or inputsproducts to be provided. Accounting for contracts using 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 towardrequires management judgment relative to assessing risks and their impact on the satisfactionestimates of the performance obligation by multiplying the transaction price of the performance obligation by the percentage of incurred costs as of the balance sheet daterevenue and costs. Certain factors can impact these estimates including, but not limited to, the total estimated costs at completion after giving effect topotential for incentives or penalties on performance, schedule delays, labor productivity, the most current estimates. Timingcomplexity of amounts billed on contracts varies from contract to contractwork performed and could cause significant variation in working capital needs.the cost and availability of materials. Revisions to estimated cost to complete a project 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 controlmodification which is subject 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.management’s judgment.
Income Taxes.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. Management must make assumptions, judgments and estimates to determine our deferred tax assets and liabilities, current provision for income taxes and valuation allowances. In making such assumptions we consider all available evidence including past operating results, estimates of future taxable income and the feasibility of tax planning strategies.
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 asOur income tax expense (benefit), netpositions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, management’s estimates of income tax liabilities may differ from actual payments or assessments. Resolution of uncertain tax positions could have a material adverse effect or materially benefit our results of operations in future periods depending on their ultimate resolution.
We use an estimate of our annual effective tax rate at each interim reporting period based on the consolidated statementsfacts and circumstances available at that time, while the actual effective tax rate is calculated at year-end. In calculating these rates, significant judgment is involved regarding the application of income.
We have accounted forglobal income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax effectslaws, court decisions or other guidance provided by taxing authorities influences our estimate of the Tax Cutseffective income tax rates. As a result, our actual effective income tax rates and Jobs Act (“Tax Act”), which was signed into law on December 22, 2017. The Tax Act, among other things, reducedrelated income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in 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.they become known.
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 completed and pending acquisitions and investments and related accretion or statements with respect to the use of proceeds or redeployment of capital from recent or planned divestitures, as well statements regarding revenues, cost synergies accretion and efficiency savings, objectives, future orders, margins, segment sales mix, earnings related to our recently completed acquisitions.or performance, liquidity and cash flow, inventory levels, capital expenditures, supply chain challenges, inflationary pressures including materials costs and pricing increases, business trends, clean energy market opportunities including addressable market and projected industry-wide investments, carbon and GHG emission targets, governmental initiatives, including executive orders and other information that is not historical in nature. 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, clean energy and other 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.mechanisms contained in our senior secured revolving credit facility due October 2026. If interest rates were to increase 100 basis points (1 percent) from the weighted-average interest rate of 2.6%3.4% at December 31, 2019,2022, and assuming no changes in the $119.0$104.5 million of borrowings outstanding under the SSRCFsenior secured revolving credit facility due October 2026 at December 31, 2019,2022, our additional annual expense would be approximately $1.2$1.0 million on a pre-tax basis. For future quarters, we expect that the interest expense will increase as a result of our $450.0 million in borrowings under a new term loan on July 1, 2019 in connection with the closing of the AXC acquisition.
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 (loss) incomeloss as reported in the consolidated statements of comprehensive income. Translation exposure is primarily with the euro, the Czech koruna, the Chinese yuan and the Japanese yen.Indian rupee. During 2019, both2022, the Czech koruna, euro, Chinese yuan and euro decreasedthe Indian rupee increased in relation to the U.S. dollar by less than 2%15%. At December 31, 2019,2022, a hypothetical further 10% strengthening of the U.S. dollar would not materially affect our financial statements.
EUR Revolver Borrowings: Assuming no changes in the 98.0 million euros in EUR Revolver Borrowings outstanding under the senior secured revolving credit facility due October 2026 and an additional 100 basis points (1 percent) strengthening in the U.S dollar in relation to the euro as of the beginning of 2022, during the year ended December 31, 2022, our additional unrealized foreign currency gain would be approximately $1.1 million on a pre-tax basis.
Transaction Gains and Losses: Chart’s primary transaction exchange rate exposures are with the euro, the Chinese yuan, the Czech koruna, the Indian rupee, the Australian dollar, the British pound, the Canadian dollar and the Japanese yen. 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 (gain) loss.
Derivative Instruments: 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, 2019,2022, a hypothetical 10% weakening of the U.S. dollar would not materially affect our outstanding foreign exchange forward contracts. We enter into a combination of cross-currency swaps and foreign exchange collars as a net investment hedge of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. As disclosed in Note 10, “Debt and Credit Arrangements,” we purchased an out-of-the-money protective call while writing a put option with a strike price at which the premium received is equal to the premium of the protective call purchased, which involved no initial capital outlay. The call was structured with a strike price higher than our cost basis in such investments, thereby limiting any foreign exchange losses to approximately $11.4 million on a pre-tax basis.
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 inunder Item 15, “Exhibits and Financial Statement Schedules” of 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 F-1 immediately following the signature page of this Form 10-K and are incorporated into this Item 8 by reference. | |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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, 2019,2022, 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”). Based upon that evaluation, such officers concluded that ourThe term “disclosure controls” means disclosure controls and procedures that are effectivedesigned 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, 2022, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable level of assurance.
Management’s Report on Internal Control Over Financial Reporting
Management’s ReportManagement 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, 2022 based on the framework established in Internal Control Over Financial Reporting is set forth on page F-1 of this Annual Report on Form 10-K and incorporated herein by reference. Management used the updated Internal Control-Integrated— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to perform the evaluation.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Deloitte LLP, an independent registered public accounting firm, as stated in our report which is set forth in Item 8. “Financial Statements and Supplementary Data,” on page F-3 under the caption “Report of Independent Registered Public Accounting Firm” and incorporated herein by reference.(2013 Framework) (the “COSO criteria”).
We did not include an evaluation of the internal control over financial reporting of AXCFronti Fabrications, Inc. or CSC Cryogenic Service Center AB, which waswere acquired during 20192022 and which, combined, constituted $593.8$26.5 million and $108.9$23.9 million of total and net assets, respectively, as of December 31, 2019,2022, and $103.1 million, $4.6$2.0 million and $16.8$0.2 million of revenues,sales and operating income, and intangible assets amortization expense,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, 2022, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2022 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 F-4 under the caption “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control over Financial Reporting
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.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None
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 20202023 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 20202023 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 20202023 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 Torrington2200 Airport Industrial Drive, Suite 100, 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 February 14, 2020:
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| Directors |
SINGLETON B. MCALLISTER(2) |
| Chairman of the Board |
| Of Counsel and Senior Advisor |
| Husch Blackwell LLP |
| Law firm |
|
DirectorsJILLIAN C. EVANKO |
STEVEN W. KRABLIN (2) (3)
|
Chairman of the Board |
Retired President, Chief Executive Officer and Chairman of the BoardDirector |
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, Chief Financial Officer and Treasurer |
| Chart Industries, Inc. |
|
W. DOUGLAS BROWNPAULA M. HARRIS (1) (2)(3)
|
RetiredSenior Vice President General Counselof Community Affairs and SecretaryFoundation Executive Director |
Air Products and Chemicals, Inc.Houston Astros |
Supplier of industrial gases, performance materials, and equipment and servicesMajor league baseball club |
|
CAREY CHENLINDA A. HARTY (1) (2) (3)
|
Executive Chairman andFormer Vice President of Cincinnati IncorporatedTreasurer |
Manufacturer of advanced equipment for the metal fabrication industryMedtronic |
| Global company specializing in medical technology, services and solutions |
SINGLETON MCALLISTER(1) (2)
|
Of Counsel and Senior Advisor |
Husch Blackwell and Husch Blackwell Strategies |
Law firm and affiliated lobbying and governmental affairs counseling firm |
|
MICHAEL L. MOLININI (1) (3) |
| Retired Chief Executive Officer and President |
| Airgas, Inc. |
| Supplier of gases, welding equipment and supplies, and safety products |
|
|
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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 |
|
ELIZABETH G. SPOMERROGER A. STRAUCH (1) (2)
|
Retired Executive Vice PresidentChairman |
Veresen Inc. (former owner of Jordan Cove LNG LLC)The Roda Group |
Retired PresidentEarly-stage venture capital group focused on investment opportunities that address the consequences of climate change and Chief Executive Officer |
Jordan Cove LNG LLC, a wholly owned subsidiary of Pembina Pipeline Corporation |
Diversifiedincreased demand for low carbon energy infrastructure company |
_______________
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(1)(1)Compensation Committee (2)Nominations and Corporate Governance Committee (3)Audit Committee Item 11.Executive Compensation | Compensation Committee |
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(2)
| Nominations and Corporate Governance Committee |
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Item 11. | Executive Compensation |
The information required by Item 402 of Regulation S-K is set forth in the 20202023 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 20202023 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 and Management and Related Stockholder Matters |
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 20202023 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, Related Transactions, and Director Independence |
Item 13.Certain Relationships, Related Transactions, and Director Independence
The information required by this item is set forth in the 20202023 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 20202023 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 and Financial Statement Schedules |
Item 15.Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this 20192022 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:
Management’s Report on Internal Control over Financial Reporting
Report Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017
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, 2019, 20182022, 2021 and 20172020
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.
Item 16. Form 10–K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)15/(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| Chart Industries, Inc. |
| | |
Chart Industries, Inc. |
| By: | | |
By: | | /s/ Jillian C. Evanko |
| | Jillian C. Evanko
Chief Executive Officer President, Chief Financial Officer and Treasurer
President
(Principal Executive Officer) |
Date: February 14, 202024, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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| By: | | |
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By: | | |
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/s/ Steven W. KrablinSingleton B. McAllister | | Chairman of the Board, Director |
Steven W. KrablinSingleton B. McAllister | |
| | |
| /s/ Jillian C. Evanko | | Chief Executive Officer, President Chief Financial Officer and Treasurer anda Director
(Principal Executive Officer and Principal Financial Officer)
|
| Jillian C. Evanko | |
| | |
/s/ Scott W. MerkleJoseph R. Brinkman | | Vice President and Chief AccountingFinancial Officer
(Principal AccountingFinancial Officer)
|
Scott W. MerkleJoseph R. Brinkman | |
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/s/ W. Douglas BrownPaula M. Harris | | Director |
W. Douglas BrownPaula M. Harris | |
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/s/ Carey ChenLinda A. Harty | | Director |
Carey ChenLinda A. Harty | |
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/s/ Singleton McAllister | | Director |
Singleton McAllister | |
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| /s/ Michael L. Molinini | | Director |
| Michael L. Molinini | |
| | |
| /s/ David M. Sagehorn | | Director |
| David M. Sagehorn | |
| | |
/s/ Elizabeth G. Spomer | | Director |
Elizabeth G. Spomer | |
Date: February 14, 2020
INDEX TO FINANCIAL STATEMENTS
|
| | |
| /s/ Roger A. Strauch | | Director |
| Roger A. Strauch | |
Date: February 24, 2023
INDEX TO FINANCIAL STATEMENTS
| | | | | | | | |
| Audited Consolidated Financial Statements: | | |
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of Chart Industries, Inc. and its subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s 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, 2019 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”). Management did not include an evaluation of the internal control over financial reporting of AXC, which constituted $593.8 million and $108.9 million of total and net assets, respectively, as of December 31, 2019, and $103.1 million and $11.1 million of sales and net loss, respectively, for the year then ended.
Based on this assessment, management has determined that the Company’s internal control over financial reporting is effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche, LLP, an independent registered public accounting firm, as stated in their report appearing below, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.
|
|
/s/ Jillian C. Evanko |
Jillian C. Evanko |
Chief Executive Officer, President, Chief Financial Officer and Treasurer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Chart Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Chart Industries, Inc. and subsidiaries (the "Company"“Company”) as of December 31, 2019,2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the yearthree years in the period ended December 31, 2019,2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019,2022 and 2021, and the results of its operations and its cash flows for each of the yearthree years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2020,24, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Note 12 to the financial statements, the Company has changed its method for accounting for leasesconvertible instruments as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02,2020-06, Leases (Topic 842)Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entities Own Equity (Subtopic 815-40), and other subsequent amendments collectively identified as ASC 842 effective January 1, 20192021 using the modified retrospective transition method.approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our auditaudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue - Revenue—Contracts Recognized Over Time - Time—Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
As of December 31, 2019,2022, net sales were $1,299.1$1,612.4 million, of which $530.4$831.3 million was recognized over time. For contracts that contain language that transfers control to the customer over time, revenue is recognized as the Company satisfies the performance obligations by an allocation of the transaction price to the accounting period computed using input methods such as costs incurred.
The input method measures progress toward the satisfaction of the performance obligation by multiplying the transaction price allocated to the performance obligation by the percentage of incurred inputs as of the balance sheet date to the total estimated inputs at completion after giving effect to the most current estimates.
We identified revenue associated with in-process contracts recognized over time as a critical audit matter because of the judgments necessary for management to estimate total inputs used to recognize revenue for these contracts. Management’s estimates of total inputs are subjective in nature resulting in a higher degree of audit effort and judgment. Changes in estimated inputs could have a significant impact on the timing of revenue recognition.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to estimates of total inputs used to recognize revenue for contracts over time included the following, among others:
•We tested the effectiveness of controls over certain revenue contracts recognized over time, including management’s controls over the estimates of total inputs,inputs.
•We selected a sample of in process revenue contracts recognized over time and performed the following:
–Tested the accuracy and completeness of the inputs incurred to date.
–Evaluated the estimates of total inputs by:
| |
▪ | Comparing estimates of total inputs to the original project budget and understanding changes in estimates. |
| |
▪ | Evaluating management’s ability to achieve the estimates of total inputs by performing corroborating inquiries with the Company’s project managers, engineers, and/or other relevant site personnel to understand the progress to date and the estimate of total inputs. |
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▪ | Comparing management’s estimates for the selected contracts to inputs of similar contracts, when applicable. |
▪Comparing estimates of total inputs to the original project budget and understanding changes in estimates.
▪Testing the accuracy of the remaining estimated costs by selecting costs, vouching the costs to supplier contracts or other supporting documents, and evaluating whether the estimated costs are appropriate.
▪Evaluating management’s ability to achieve the estimates of total inputs by performing corroborating inquiries with the Company’s project managers, engineers, and other relevant site personnel to understand the progress to date and the estimate of total inputs.
▪Comparing management’s estimates for the selected contracts to inputs of similar contracts, when applicable.
•We evaluated management’s ability to estimate total inputs accurately by comparing actual inputs to management’s historical estimates for contracts that have been fulfilled.
Business Combinations - Refer to Notes 2 and 13 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Air-X-Changers (“AXC”) for $599.7 million on July 1, 2019. The Company accounted for this acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including customer relationships of $139.1 million, trademarks and trade names of $55.0 million, and unpatented technology of $42.1 million. The determination of fair value of these assets involved management making significant estimates and assumptions related to future cash flows, discount rate, and royalty rate.
We identified the initial valuation of the customer relationship, trademarks and trade names, and unpatented technology intangible assets for AXC as a critical audit matter. A high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, was required when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows and the selection of the discount rate and royalty rate used in determining the fair value of these assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future cash flows and the selection of the discount rate and royalty rate for these assets included the following, among others:
We tested the effectiveness of controls over the valuation of the customer relationship, trademarks and trade names, and unpatented technology, including management’s controls over forecasts of future cash flows and selection of the discount rate and royalty rate for these assets.
We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results, certain peer companies, and industry projections.
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) valuation assumptions, including discount rate and royalty rate by:
Testing the source information underlying the determination of the discount rate and royalty rate and testing the mathematical accuracy of the calculation.
Developing a range of independent estimates and comparing those to the discount rate and royalty rate selected by management.
We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
Goodwill -— Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value annually in the fourth quarter or whenever events or changes in circumstances indicate that an evaluation should be completed. The Company determines the fair value of its reporting units using the income and market approaches. The determination of the fair value using the income approach requires management to make significant estimates and assumptions related to forecasts of future cash flows and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to pricing multiples derived from similar companies. Changes to the assumptions and estimates 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. The goodwill balance was $844.9$977.3 million as of December 31, 2019,October 1, 2022 (the annual impairment testing date), of which $117.0$71.1 million, $152.1$426.1 million, $176.2$301.8 million, and $399.6$178.3 million was allocated to the DistributionCryo Tank Solutions, Heat Transfer Systems, Specialty Products, and Storage Eastern Hemisphere (“D&S East”), Distribution and Storage Western Hemisphere (“D&S West”), Energy and Chemicals Cryogenics (“E&C Cryogenics”), and Energy and Chemicals FinFans (“E&C FinFans”)Repair, Service & Leasing reporting units, respectively. The fair values of D&S East, D&S West, E&C Cryogenics,Cryo Tank Solutions, Heat Transfer Systems, Specialty Products, and E&C FinFansRepair, Service & Leasing reporting units exceeded their carrying values as of the measurement date and, therefore, no impairment was recognized.
We identified goodwill for D&S East,, E&C Cryogenics, and E&C FinFansRepair, Service & Leasing as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of eachthe reporting unit, and the sensitivity of valuationsthe valuation to changes in the assumptions, specifically related to forecasts of future revenue and cash flows and selection of the discount rate used in the income approach and the selection of pricing multiples for similar companies used in the market approach. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of these assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues and cash flows (“forecasts”) , and the selection of pricing multiples and discount rate included the following, among others:
We tested•With the effectivenessassistance of controls over management’sour fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) valuation assumptions, including discount rate and pricing multiples by:
–Testing the source information underlying the determination of the discount rate and pricing multiples and testing the mathematical accuracy of the calculation.
–Developing a range of independent estimates and comparing those to the discount rate and pricing multiples selected by management.
Indefinite-Lived Intangible Assets — Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
The Company has trademarks and trade names that are indefinite-lived intangible assets. As of October 1, 2022 (the annual impairment testing date), the carrying value of the trademarks and trade names was $154.5 million. Management estimates the fair value of the trademarks and trade names annually in the fourth quarter or whenever events or changes in circumstances indicate that an evaluation including those over theshould be completed, using a relief from royalty method, which is a specific discounted cash flow method. The determination of the fair value of each reporting unit, such as controlsrequires management to make significant estimates and assumptions related to management’s forecasts of future revenues and discount rates to estimate the royalty savings. Changes in these assumptions could have a significant impact on the fair value of trademarks and trade names and a significant change in fair value could cause a significant impairment.
We identified trademarks and trade names related to Air-X-Changers as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of the trademark and trade name, and the sensitivity of the valuation to changes in the assumptions related to forecasts of future revenues and selection of the pricing multiplesdiscount rates used in the relief from royalty method. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of these assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues and the selection of the discount rate.rate included the following, among others:
•We evaluated management’s ability to accurately forecast future revenues by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s forecastsforecast of future revenue by comparing the forecasts of future revenue to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in the Company press releases as well as in analyst and industry reports of the Company and companies in its peer group.
•We considered the impact of changes in the industry on management’s forecasts.forecasts of future revenues.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) valuation assumptions, including discount rate and pricing multiples by:
–Testing the source information underlying the determination of the discount rate and pricing multiples and testing the mathematical accuracy of the calculation.
–Developing a range of independent estimates and comparing those to the discount rate and pricing multiples selected by management.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 14, 202024, 2023
We have served as the Company's auditor since 2019.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Chart Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Chart Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2019,2022, based on criteria established inInternal Control - —Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in IInternalnternal Control - —Integrated Framework (2013)issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019,2022, of the Company and our report dated February 14, 2020,24, 2023, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.statements.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Air-X-Changers,CSC Cryogenic Service Center AB, which was acquired on July 1, 2019,May 16, 2022 and Fronti Fabrications, Inc., which was acquired on May 31, 2022, and whose combined financial statements constitute $593.8$26.5 million and $23.9 million of total and net assets, respectively, as of December 31, 2019,2022, and $103.1$2.0 million and $0.2 million of revenuessales and operating loss, respectively, for the year then ended. Accordingly, our audit did not include the internal control over financial reporting at Air-X-Changers.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) 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 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 or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 14, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Chart Industries, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Chart Industries, Inc. and Subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes and the financial statement schedule listed in the index at Item 15(a) 2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for revenue in 2018 as a result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12 effective January 1, 2018.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1991.
Atlanta, Georgia
February 22, 2019
except for Notes 4, 5 and 21, as to which the date is
February 14, 2020
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 663.6 | | | $ | 122.2 | |
| Restricted cash | 1,941.7 | | | 0.2 | |
| Accounts receivable, less allowances of $4.5 and $6.0, respectively | 278.4 | | | 236.3 | |
| Inventories, net | 357.9 | | | 321.5 | |
| Unbilled contract revenue | 133.7 | | | 93.5 | |
| Prepaid expenses | 37.5 | | | 20.9 | |
| Insurance receivable | 234.4 | | | — | |
| Other current assets | 43.7 | | | 58.9 | |
| Total Current Assets | 3,690.9 | | | 853.5 | |
| Property, plant and equipment, net | 430.0 | | | 416.0 | |
| Goodwill | 992.0 | | | 994.6 | |
| Identifiable intangible assets, net | 535.3 | | | 556.1 | |
| Equity method investments | 93.0 | | | 99.6 | |
| Investments in equity securities | 96.5 | | | 77.8 | |
| Other assets | 64.2 | | | 46.2 | |
| TOTAL ASSETS | $ | 5,901.9 | | | $ | 3,043.8 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 211.1 | | | $ | 175.9 | |
| Customer advances and billings in excess of contract revenue | 170.6 | | | 148.5 | |
| Accrued salaries, wages and benefits | 31.5 | | | 27.1 | |
| Accrued income taxes | 3.5 | | | 16.1 | |
| Current portion of warranty reserve | 4.1 | | | 9.7 | |
| | | |
| Current convertible notes | 256.9 | | | 255.9 | |
| Operating lease liabilities, current | 5.4 | | | 5.8 | |
| Accrued legal settlement | 305.6 | | | — | |
| Other current liabilities | 92.9 | | | 54.9 | |
| Total Current Liabilities | 1,081.6 | | | 693.9 | |
| Long-term debt | 2,039.8 | | | 600.8 | |
| Long-term deferred tax liabilities | 46.1 | | | 59.8 | |
| Accrued pension liabilities | 0.9 | | | 1.6 | |
| Operating lease liabilities, non-current | 15.6 | | | 21.4 | |
| Other long-term liabilities | 33.6 | | | 41.1 | |
| | | |
| Total Liabilities | 3,217.6 | | | 1,418.6 | |
| | | |
| | | |
| | | |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 119.0 |
| | $ | 118.1 |
|
| Accounts receivable, less allowances of $8.8 and $8.5 | 202.6 |
| | 194.8 |
|
| Inventories, net | 219.4 |
| | 233.1 |
|
| Unbilled contract revenue | 86.1 |
| | 54.5 |
|
| Prepaid expenses | 17.8 |
| | 14.0 |
|
| Other current assets | 28.7 |
| | 47.2 |
|
| Total Current Assets | 673.6 |
| | 661.7 |
|
| Property, plant and equipment, net | 404.6 |
| | 361.1 |
|
| Goodwill | 844.9 |
| | 520.7 |
|
| Identifiable intangible assets, net | 529.1 |
| | 330.4 |
|
| Investments | 13.4 |
| | 2.8 |
|
| Other assets | 15.8 |
| | 21.0 |
|
| TOTAL ASSETS | $ | 2,481.4 |
| | $ | 1,897.7 |
|
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 125.0 |
| | $ | 125.5 |
|
| Customer advances and billings in excess of contract revenue | 127.8 |
| | 130.0 |
|
| Accrued salaries, wages and benefits | 41.5 |
| | 46.6 |
|
| Accrued income taxes | 11.8 |
| | 3.3 |
|
| Current portion of warranty reserve | 10.4 |
| | 8.6 |
|
| Short-term debt and current portion of long-term debt | 16.3 |
| | 11.2 |
|
| Operating lease liabilities, current | 6.3 |
| | — |
|
| Other current liabilities | 39.2 |
| | 41.4 |
|
| Total Current Liabilities | 378.3 |
| | 366.6 |
|
| Long-term debt | 761.0 |
| | 533.2 |
|
| Long-term deferred tax liabilities | 52.1 |
| | 76.4 |
|
| Accrued pension liabilities | 10.2 |
| | 11.7 |
|
| Operating lease liabilities, non-current | 27.8 |
| | — |
|
| Other long-term liabilities | 19.6 |
| | 20.8 |
|
| Total Liabilities | 1,249.0 |
| | 1,008.7 |
|
| | | | |
| Equity | | | |
| Common stock, par value $0.01 per share — 150,000,000 shares authorized, 35,799,994 and 31,363,650 shares issued and outstanding at December 31, 2019 and 2018, respectively | 0.4 |
| | 0.3 |
|
| Additional paid-in capital | 762.8 |
| | 460.2 |
|
| Retained earnings | 500.3 |
| | 453.9 |
|
| Accumulated other comprehensive loss | (35.9 | ) | | (29.9 | ) |
| Total Chart Industries, Inc. Shareholders’ Equity | 1,227.6 |
| | 884.5 |
|
| Noncontrolling interests | 4.8 |
| | 4.5 |
|
| Total Equity | 1,232.4 |
| | 889.0 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 2,481.4 |
| | $ | 1,897.7 |
|
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | | |
| Equity | | | |
| Preferred stock, par value $0.01 per share, $1,000 aggregate liquidation preference — 10,000,000 shares authorized, 402,500 and 0 shares issued and outstanding at December 31, 2022 and 2021, respectively | — | | | — | |
| Common stock, par value $0.01 per share — 150,000,000 shares authorized, 42,563,032 and 36,548,330 shares issued and outstanding at December 31, 2022 and 2021, respectively | 0.4 | | | 0.4 | |
| Additional paid-in capital | 1,850.2 | | | 779.0 | |
| Treasury Stock; 760,782 shares at both December 31, 2022 and 2021 | (19.3) | | | (19.3) | |
| Retained earnings | 902.2 | | | 878.2 | |
| Accumulated other comprehensive loss | (58.0) | | | (21.7) | |
| Total Chart Industries, Inc. Shareholders’ Equity | 2,675.5 | | | 1,616.6 | |
| Noncontrolling interests | 8.8 | | | 8.6 | |
| Total Equity | 2,684.3 | | | 1,625.2 | |
| TOTAL LIABILITIES AND EQUITY | $ | 5,901.9 | | | $ | 3,043.8 | |
The accompanying notes are an integral part of these consolidated financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in millions, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Sales | $ | 1,612.4 | | | $ | 1,317.7 | | | $ | 1,177.1 | |
| Cost of sales | 1,205.0 | | | 993.5 | | | 845.0 | |
| Gross profit | 407.4 | | | 324.2 | | | 332.1 | |
| Selling, general and administrative expenses | 214.5 | | | 196.8 | | | 178.2 | |
| Amortization expense | 41.4 | | | 38.9 | | | 45.7 | |
| Asset impairments | — | | | — | | | 16.0 | |
| Operating expenses | 255.9 | | | 235.7 | | | 239.9 | |
| Operating income | 151.5 | | | 88.5 | | | 92.2 | |
| Acquisition related finance fees | 37.0 | | | — | | | — | |
| Interest expense, net | 28.8 | | | 10.7 | | | 17.7 | |
| | | | | |
| Financing costs amortization | 2.9 | | | 8.3 | | | 4.3 | |
| Unrealized gain on investment in equity securities | (13.1) | | | (3.2) | | | (13.1) | |
| Realized gain on equity method investment | (0.3) | | | — | | | — | |
| Realized gain on investment in equity securities | — | | | (2.6) | | | — | |
| Foreign currency (gain) loss | (0.8) | | | 0.9 | | | 0.9 | |
| Gain on bargain purchase | — | | | — | | | (5.0) | |
| Other (income) expense, net | (1.9) | | | 0.3 | | | 2.2 | |
| Income from continuing operations before income taxes and equity in earnings of unconsolidated affiliates, net | 98.9 | | | 74.1 | | | 85.2 | |
| Income tax expense (benefit): | | | | | |
| Current | 17.6 | | | 21.4 | | | 13.9 | |
| Deferred | (1.7) | | | (7.9) | | | 1.0 | |
| Income tax expense, net | 15.9 | | | 13.5 | | | 14.9 | |
| Income from continuing operations before equity in earnings of unconsolidated affiliates, net | 83.0 | | | 60.6 | | | 70.3 | |
| Equity in (loss) earnings of unconsolidated affiliates, net | (0.4) | | | 0.3 | | | — | |
| Net income from continuing operations | 82.6 | | | 60.9 | | | 70.3 | |
| (Loss) income from discontinued operations, net of tax | (57.6) | | | — | | | 239.2 | |
| Net income | 25.0 | | | 60.9 | | | 309.5 | |
| Less: Income attributable to noncontrolling interests of continuing operations, net of taxes | 1.0 | | | 1.8 | | | 1.4 | |
| Net income attributable to Chart Industries, Inc. | $ | 24.0 | | | $ | 59.1 | | | $ | 308.1 | |
| | | | | |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in millions, except per share amounts)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Sales | $ | 1,299.1 |
| | $ | 1,084.3 |
| | $ | 842.9 |
|
| Cost of sales | 962.3 |
| | 788.4 |
| | 611.3 |
|
| Gross profit | 336.8 |
| | 295.9 |
| | 231.6 |
|
| Selling, general and administrative expenses | 216.1 |
| | 181.9 |
| | 180.9 |
|
| Amortization expense | 39.8 |
| | 21.9 |
| | 12.2 |
|
| Operating expenses | 255.9 |
| | 203.8 |
| | 193.1 |
|
| Operating income | 80.9 |
| | 92.1 |
| | 38.5 |
|
| Other expenses: | | | | | |
| Interest expense, net | 25.3 |
| | 21.4 |
| | 17.3 |
|
| Loss on extinguishment of debt | — |
| | — |
| | 4.9 |
|
| Financing costs amortization | 3.0 |
| | 1.3 |
| | 1.3 |
|
| Foreign currency (gain) loss | (0.2 | ) | | 0.4 |
| | 3.9 |
|
| Other expenses, net | 28.1 |
| | 23.1 |
| | 27.4 |
|
| Income from continuing operations before income taxes | 52.8 |
| | 69.0 |
| | 11.1 |
|
| Income tax expense (benefit): | | | | | |
| Current | 22.2 |
| | 8.4 |
| | 14.8 |
|
| Deferred | (16.2 | ) | | 5.0 |
| | (31.4 | ) |
| Income tax expense (benefit), net | 6.0 |
| | 13.4 |
| | (16.6 | ) |
| Net income from continuing operations | 46.8 |
| | 55.6 |
| | 27.7 |
|
| Income from discontinued operations, net of tax | — |
| | 34.4 |
| | 1.8 |
|
| Net income | 46.8 |
|
| 90.0 |
|
| 29.5 |
|
| Less: Income attributable to noncontrolling interests of continuing operations, net of taxes | 0.4 |
| | 2.0 |
| | 1.5 |
|
| Net income attributable to Chart Industries, Inc. | $ | 46.4 |
| | $ | 88.0 |
| | $ | 28.0 |
|
| Net income attributable to Chart Industries, Inc. | | | | | |
| Income from continuing operations | 46.4 |
| | 53.6 |
| | 26.2 |
|
| Income from discontinued operations | — |
| | 34.4 |
| | 1.8 |
|
| Net income attributable to Chart Industries, Inc. | $ | 46.4 |
| | $ | 88.0 |
| | $ | 28.0 |
|
| Basic earnings per common share attributable to Chart Industries, Inc. | | | | | |
| Income from continuing operations | $ | 1.37 |
| | $ | 1.73 |
| | $ | 0.85 |
|
| Income from discontinued operations | — |
| | 1.10 |
| | 0.06 |
|
| Net income attributable to Chart Industries, Inc. | $ | 1.37 |
| | $ | 2.83 |
| | $ | 0.91 |
|
| Diluted earnings per common share attributable to Chart Industries, Inc. | | | | | |
| Income from continuing operations | $ | 1.32 |
| | $ | 1.67 |
| | $ | 0.84 |
|
| Income from discontinued operations | — |
| | 1.06 |
| | 0.05 |
|
| Net income attributable to Chart Industries, Inc. | $ | 1.32 |
| | $ | 2.73 |
| | $ | 0.89 |
|
| Weighted-average number of common shares outstanding: | | | | | |
| Basic | 33.91 |
| | 31.05 |
| | 30.74 |
|
| Diluted | 35.17 |
| | 32.20 |
| | 31.34 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Amounts attributable to Chart common stockholders | | | | | |
| Income from continuing operations | $ | 81.6 | | | $ | 59.1 | | | $ | 68.9 | |
| Less: Mandatory convertible preferred stock dividend requirement | 1.4 | | | — | | | — | |
| Income from continuing operations attributable to Chart | 80.2 | | | 59.1 | | | 68.9 | |
| (Loss) income from discontinued operations, net of tax | (57.6) | | | — | | | 239.2 | |
| Net income attributable to Chart common stockholders | $ | 22.6 | | | $ | 59.1 | | | $ | 308.1 | |
| | | | | |
| Basic earnings per common share attributable to Chart Industries, Inc. | | | | | |
| Income from continuing operations | $ | 2.21 | | | $ | 1.66 | | | $ | 1.95 | |
| (Loss) income from discontinued operations | (1.59) | | | — | | | 6.76 | |
| Net income attributable to Chart Industries, Inc. | $ | 0.62 | | | $ | 1.66 | | | $ | 8.71 | |
| Diluted earnings per common share attributable to Chart Industries, Inc. | | | | | |
| Income from continuing operations | $ | 1.92 | | | $ | 1.44 | | | $ | 1.89 | |
| (Loss) income from discontinued operations | (1.38) | | | — | | | 6.56 | |
| Net income attributable to Chart Industries, Inc. | $ | 0.54 | | | $ | 1.44 | | | $ | 8.45 | |
| Weighted-average number of common shares outstanding: | | | | | |
| Basic | 36.25 | | | 35.61 | | | 35.38 | |
| Diluted | 41.80 | | | 41.11 | | | 36.45 | |
The accompanying notes are an integral part of these consolidated financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2022 | | 2021 | | 2020 |
| Net income | $ | 46.8 |
| | $ | 90.0 |
| | $ | 29.5 |
| Net income | $ | 25.0 | | | $ | 60.9 | | | $ | 309.5 | |
| Other comprehensive (loss) income: | | | | | | Other comprehensive (loss) income: | |
| Foreign currency translation adjustments | (7.5 | ) | | (19.7 | ) | | 26.9 |
| Foreign currency translation adjustments | (35.3) | | | (29.0) | | | 38.8 | |
| Defined benefit pension plan: | | | | | | Defined benefit pension plan: | |
| Actuarial gain (loss) on remeasurement | 0.3 |
| | (3.5 | ) | | 2.4 |
| |
| Actuarial (loss) gain on remeasurement | | Actuarial (loss) gain on remeasurement | (1.7) | | | 5.9 | | | (1.9) | |
| Amortization of net loss | 1.3 |
| | 0.9 |
| | 1.2 |
| Amortization of net loss | 0.5 | | | 1.0 | | | 1.2 | |
| Defined benefit pension plan | 1.6 |
| | (2.6 | ) | | 3.6 |
| Defined benefit pension plan | (1.2) | | | 6.9 | | | (0.7) | |
| Other comprehensive (loss) income, before tax | (5.9 | ) | | (22.3 | ) | | 30.5 |
| Other comprehensive (loss) income, before tax | (36.5) | | | (22.1) | | | 38.1 | |
| Income tax (expense) benefit related to defined benefit pension plan | (0.1 | ) | | 0.5 |
| | (3.3 | ) | Income tax (expense) benefit related to defined benefit pension plan | 0.2 | | | (2.0) | | | 0.2 | |
| Other comprehensive (loss) income, net of taxes | (6.0 | ) | | (21.8 | ) | | 27.2 |
| Other comprehensive (loss) income, net of taxes | (36.3) | | | (24.1) | | | 38.3 | |
| Comprehensive income | 40.8 |
| | 68.2 |
| | 56.7 |
| |
| Comprehensive (loss) income | | Comprehensive (loss) income | (11.3) | | | 36.8 | | | 347.8 | |
| Less: Comprehensive income attributable to noncontrolling interests, net of taxes | (0.4 | ) | | (2.0 | ) | | (1.6 | ) | Less: Comprehensive income attributable to noncontrolling interests, net of taxes | (1.0) | | | (1.8) | | | (1.4) | |
| Comprehensive income attributable to Chart Industries, Inc. | $ | 40.4 |
| | $ | 66.2 |
| | $ | 55.1 |
| |
| Comprehensive (loss) income attributable to Chart Industries, Inc. | | Comprehensive (loss) income attributable to Chart Industries, Inc. | $ | (12.3) | | | $ | 35.0 | | | $ | 346.4 | |
The accompanying notes are an integral part of these consolidated financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| OPERATING ACTIVITIES | | | | | |
| Net income | $ | 25.0 | | | $ | 60.9 | | | $ | 309.5 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 81.9 | | | 80.6 | | | 85.2 | |
| Employee share-based compensation expense | 10.6 | | | 11.2 | | | 8.9 | |
| Financing costs amortization | 2.9 | | | 8.3 | | | 4.3 | |
| Interest accretion of convertible notes discount | — | | | — | | | 8.0 | |
| | | | | |
| Unrealized gain on investment in equity securities | (13.1) | | | (3.2) | | | (13.1) | |
| Realized gain on equity method investment | (0.3) | | | — | | | — | |
| Realized gain on investment in equity securities | — | | | (2.6) | | | — | |
| Unrealized foreign currency transaction (gain) loss | (4.1) | | | (1.1) | | | 2.3 | |
| Equity in loss (earnings) of unconsolidated affiliates, net | 0.5 | | | (0.3) | | | — | |
| Deferred income tax expense (benefit) | (1.7) | | | (7.9) | | | 1.0 | |
| Gain on sale of business | — | | | — | | | (249.4) | |
| Asset impairments | — | | | — | | | 16.0 | |
| Gain on bargain purchase | — | | | — | | | (5.0) | |
| | | | | |
| Other non-cash operating activities | 11.3 | | | (4.8) | | | 1.5 | |
| Changes in assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | (45.3) | | | (31.2) | | | (10.1) | |
| Inventory | (48.7) | | | (78.1) | | | (34.9) | |
| Unbilled contract revenue and other assets | (315.4) | | | (71.2) | | | (5.0) | |
Accounts payable and other liabilities (1) | 349.3 | | | (10.4) | | | 62.8 | |
| Customer advances and billings in excess of contract revenue | 27.9 | | | 28.5 | | | (9.3) | |
| Net Cash Provided By (Used In) Operating Activities | 80.8 | | | (21.3) | | | 172.7 | |
| INVESTING ACTIVITIES | | | | | |
| Proceeds from sale of businesses | — | | | — | | | 317.5 | |
| Acquisition of businesses, net of cash acquired | (25.8) | | | (205.1) | | | (51.9) | |
| Investments | (9.9) | | | (103.9) | | | (50.8) | |
| Capital expenditures | (74.2) | | | (52.7) | | | (37.9) | |
| Proceeds from sale of assets | — | | | — | | | 7.9 | |
| Cash received from settlement of cross-currency swap agreements | 9.4 | | | — | | | — | |
| | | | | |
| Government grants and other | (1.1) | | | 0.5 | | | 0.2 | |
| | | | | |
| Net Cash (Used In) Provided By Investing Activities | (101.6) | | | (361.2) | | | 185.0 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| OPERATING ACTIVITIES | | | | | |
| Net income | $ | 46.8 |
| | $ | 90.0 |
| | $ | 29.5 |
|
| Less: Income from discontinued operations | — |
| | 34.4 |
| | 1.8 |
|
| Income from continuing operations | 46.8 |
| | 55.6 |
| | 27.7 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 78.8 |
| | 50.8 |
| | 37.6 |
|
| Interest accretion of convertible notes discount | 7.6 |
|
| 9.1 |
| | 12.8 |
|
| Loss on extinguishment of debt | — |
| | — |
| | 4.9 |
|
| Financing costs amortization | 3.0 |
|
| 1.3 |
| | 1.3 |
|
| Employee share-based compensation expense | 9.0 |
|
| 4.9 |
| | 10.6 |
|
| Unrealized foreign currency transaction loss (gain) | 0.6 |
|
| (2.2 | ) | | 0.3 |
|
| Deferred income tax (benefit) expense | (16.2 | ) | | 5.0 |
| | (31.4 | ) |
| Other non-cash operating activities | 0.9 |
|
| (2.5 | ) | | 2.3 |
|
| Changes in assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | 23.6 |
| | 25.5 |
| | (32.8 | ) |
| Inventory | 9.4 |
| | (14.1 | ) | | (22.0 | ) |
| Unbilled contract revenues and other assets | (1.6 | ) | | (9.1 | ) | | 3.5 |
|
| Accounts payable and other liabilities | (20.9 | ) | | (10.2 | ) | | 13.6 |
|
| Customer advances and billings in excess of contract revenue | (7.1 | ) | | 4.9 |
| | 15.9 |
|
| Net Cash Provided By Operating Activities | 133.9 |
| | 119.0 |
| | 44.3 |
|
| INVESTING ACTIVITIES | | | | | |
| Acquisition of businesses, net of cash acquired | (603.9 | ) | | (225.8 | ) | | (446.1 | ) |
| Capital expenditures | (36.2 | ) | | (35.6 | ) | | (33.0 | ) |
Investments (1) | (3.3 | ) | | — |
| | — |
|
| Government grants | 0.7 |
| | 0.8 |
| | 0.4 |
|
| Proceeds from sale of assets | — |
| | — |
| | 0.9 |
|
| Net Cash Used In Investing Activities | (642.7 | ) | | (260.6 | ) | | (477.8 | ) |
| FINANCING ACTIVITIES | | | | | |
| Borrowings on revolving credit facilities | 235.8 |
| | 411.7 |
| | 302.2 |
|
| Repayments on revolving credit facilities | (451.1 | ) | | (316.8 | ) | | (66.1 | ) |
| Repurchase of convertible notes | — |
| | (57.1 | ) | | (194.9 | ) |
| Proceeds from issuance of convertible notes | — |
| | — |
| | 258.8 |
|
| Proceeds from issuance of warrants | — |
| | — |
| | 46.0 |
|
| Payments for call options related to convertible notes | — |
| | — |
| | (59.5 | ) |
| Borrowings on term loan | 450.0 |
| | — |
| | — |
|
| Repayments on term loan | (2.8 | ) | | (5.9 | ) | | (3.1 | ) |
| Payments for debt issuance costs | (13.6 | ) | | (1.4 | ) | | (8.2 | ) |
| Issuance of Shares | 295.8 |
| | — |
| | — |
|
| Payments for equity issuance costs | (9.5 | ) | | — |
| | — |
|
| Proceeds from exercise of stock options | 9.4 |
| | 10.8 |
| | 2.0 |
|
| Common stock repurchases | (2.0 | ) | | (2.7 | ) | | (2.0 | ) |
| Dividend distribution to noncontrolling interests | (0.4 | ) | | (0.4 | ) | | — |
|
| Net Cash Provided By Financing Activities | 511.6 |
| | 38.2 |
| | 275.2 |
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Dollars in millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| DISCONTINUED OPERATIONS | | | | | |
| Cash (Used In) Provided By Operating Activities | — |
| | (30.2 | ) | | 2.7 |
|
Cash Provided By (Used In) Investing Activities (2) | — |
| | 132.7 |
| | (2.2 | ) |
| Cash Provided By Discontinued Operations | — |
| | 102.5 |
| | 0.5 |
|
| Effect of exchange rate changes on cash and cash equivalents | (1.9 | ) | | (11.4 | ) | | 7.2 |
|
| Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | 0.9 |
| | (12.3 | ) | | (150.6 | ) |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 119.1 |
| | 131.4 |
| | 282.0 |
|
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD (3) | $ | 120.0 |
| | $ | 119.1 |
| | $ | 131.4 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| FINANCING ACTIVITIES | | | | | |
| Borrowings on senior secured and senior unsecured notes | 1,940.0 | | | — | | | — | |
| Borrowings on revolving credit facilities | 635.3 | | | 1,361.1 | | | 215.0 | |
| Repayments on revolving credit facilities | (1,128.2) | | | (873.6) | | | (223.1) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Repayments on term loan | — | | | (103.1) | | | (344.1) | |
| Payments for debt issuance costs | (4.7) | | | (3.0) | | | (1.0) | |
| Proceeds from issuance of common stock, net | 675.5 | | | — | | | — | |
| Proceeds from issuance of preferred stock, net | 388.4 | | | — | | | — | |
| Payments for equity issuance costs | (0.7) | | | — | | | — | |
| Proceeds from exercise of stock options | 2.2 | | | 6.9 | | | 11.0 | |
| Common stock repurchases from share-based compensation plans | (3.6) | | | (6.4) | | | (1.9) | |
Common stock repurchases (2) | — | | | — | | | (19.3) | |
| | | | | |
| | | | | |
| Net Cash Provided By (Used in) Financing Activities | 2,504.2 | | | 381.9 | | | (363.4) | |
| Effect of exchange rate changes on cash and cash equivalents | (0.5) | | | (3.1) | | | 11.8 | |
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents (3) | 2,482.9 | | | (3.7) | | | 6.1 | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 122.4 | | | 126.1 | | | 120.0 | |
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD (4) | $ | 2,605.3 | | | $ | 122.4 | | | $ | 126.1 | |
_______________
| |
(1)(1)Includes $37.0 of acquisition related financing fees for the year ended December 31, 2022. (2)Includes $19.3 in shares repurchased through our share repurchase program. On March 11, 2021, the share repurchase program expired with no further repurchases. Refer to Note 2, “Significant Accounting Policies” for further information. (3)Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents represents cash flows of consolidated operations for all periods presented. For cash flows of discontinued operations, refer to Note 3, “Discontinued Operations.” (4)Includes cash and restricted cash equivalents of $1,941.7 and $0.2 classified within restricted cash on our consolidated balance sheet as of December 31, 2022 and December 31, 2021, respectively. For further information regarding restricted cash and restricted cash equivalents balances, refer to Note 10, “Debt and Credit Arrangements.” | Non-cash investing activities of $7.0 related to the conversion of a note receivable into an investment in equity securities during the year ended December 31, 2019. Refer to Note 6, “Investments” for further information. |
| |
(2)
| Includes proceeds from the sale of CAIRE of $133.5 for the year ended December 31, 2018. |
| |
(3)
| Refer to Note 10, “Debt and Credit Arrangements,” for further information regarding restricted cash and restricted cash equivalents balances. |
The accompanying notes are an integral part of these consolidated financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and shares in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Preferred Stock | | | | | | | | | | | |
| Shares
Outstanding | | Amount | | Shares
Outstanding | | Amount | | Additional
Paid-in
Capital | | Treasury Stock | | Retained
Earnings | | Accumulated
Other
Comprehensive
(Loss) Income | | Noncontrolling
Interests | | Total
Shareholders'
Equity |
| Balance at December 31, 2019 | 35.80 | | | $ | 0.4 | | | — | | | $ | — | | | $ | 762.8 | | | $ | — | | | $ | 500.3 | | | $ | (35.9) | | | $ | 4.8 | | | $ | 1,232.4 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 308.1 | | | — | | | 1.4 | | | 309.5 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 38.3 | | | — | | | 38.3 | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | 8.9 | | | — | | | — | | | — | | | — | | | 8.9 | |
| Common stock issued from share-based compensation plans | 0.42 | | | — | | | — | | | — | | | 11.0 | | | — | | | — | | | — | | | — | | | 11.0 | |
| Common stock repurchases from share-based compensation plans | (0.03) | | | — | | | — | | | — | | | (1.9) | | | — | | | — | | | — | | | — | | | (1.9) | |
Common stock repurchases (1) | — | | | — | | | — | | | — | | | — | | | (19.3) | | | — | | | — | | | — | | | (19.3) | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.4 | | | 0.4 | |
| Balance at December 31, 2020 | 36.19 | | | 0.4 | | | — | | | — | | | 780.8 | | | (19.3) | | | 808.4 | | | 2.4 | | | 6.6 | | | 1,579.3 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 59.1 | | | — | | | 1.8 | | | 60.9 | |
Cumulative effect of accounting change (2) | — | | | — | | | — | | | — | | | (36.9) | | | — | | | 10.7 | | | — | | | — | | | (26.2) | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (24.1) | | | — | | | (24.1) | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | 11.2 | | | — | | | — | | | — | | | — | | | 11.2 | |
| Common stock issued from share-based compensation plans | 0.26 | | | — | | | — | | | — | | | 6.9 | | | — | | | — | | | — | | | — | | | 6.9 | |
| Common stock repurchases from share-based compensation plans | (0.04) | | | — | | | — | | | — | | | (6.4) | | | — | | | — | | | — | | | — | | | (6.4) | |
| Acquisition of Earthly Labs Inc. | 0.14 | | | — | | | — | | | — | | | 23.4 | | | — | | | — | | | — | | | — | | | 23.4 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.2 | | | 0.2 | |
| Balance at December 31, 2021 | 36.55 | | | 0.4 | | | — | | | — | | | 779.0 | | | (19.3) | | | 878.2 | | | (21.7) | | | 8.6 | | | 1,625.2 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 24.0 | | | — | | | 1.0 | | | 25.0 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36.3) | | | — | | | (36.3) | |
| Common stock issuance, net of equity issuance costs | 5.92 | | | — | | | — | | | — | | | 675.1 | | | — | | | — | | | — | | | — | | | 675.1 | |
| Preferred stock issuance, net of equity issuance costs | — | | | — | | | 0.4 | | | — | | | 388.1 | | | — | | | — | | | — | | | — | | | 388.1 | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | 10.6 | | | — | | | — | | | — | | | — | | | 10.6 | |
| Common stock issued from share-based compensation plans | 0.11 | | | — | | | — | | | — | | | 2.2 | | | — | | | — | | | — | | | — | | | 2.2 | |
| Common stock repurchases from share-based compensation plans | (0.02) | | | — | | | — | | | — | | | (3.6) | | | — | | | — | | | — | | | — | | | (3.6) | |
| Acquisition of Earthly Labs Inc. | — | | | — | | | — | | | — | | | (1.2) | | | — | | | — | | | — | | | — | | | (1.2) | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | | | — | | | (0.8) | | | (0.8) | |
| Balance at December 31, 2022 | 42.56 | | | $ | 0.4 | | | 0.4 | | | $ | — | | | $ | 1,850.2 | | | $ | (19.3) | | | $ | 902.2 | | | $ | (58.0) | | | $ | 8.8 | | | $ | 2,684.3 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive
(Loss) Income | | Non-controlling Interests | | |
| | Shares Outstanding | | Amount | | | Retained Earnings | | | | Total Equity |
| Balance at January 1, 2017 | 30.61 |
| | $ | 0.3 |
| | $ | 395.8 |
| | $ | 336.3 |
| | $ | (35.2 | ) | | $ | 1.4 |
| | $ | 698.6 |
|
| Net income | — |
| | — |
| | — |
| | 28.0 |
| | — |
| | 1.5 |
| | 29.5 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 27.1 |
| | 0.1 |
| | 27.2 |
|
| Equity component of convertible notes issuance, net of deferred financing fees and deferred taxes | — |
| | — |
| | 36.6 |
| | — |
| | — |
| | — |
| | 36.6 |
|
| Proceeds from issuance of warrants | — |
| | — |
| | 46.0 |
| | — |
| | — |
| | — |
| | 46.0 |
|
| Purchase of call options, net of deferred taxes | — |
| | — |
| | (38.1 | ) | | — |
| | — |
| | — |
| | (38.1 | ) |
| Repurchase of convertible notes | — |
| | — |
| | (5.8 | ) | | — |
| | — |
| | — |
| | (5.8 | ) |
| Share-based compensation expense | — |
| | — |
| | 11.1 |
| | — |
| | — |
| | — |
| | 11.1 |
|
| Common stock issued from share-based compensation plans | 0.25 |
| | — |
| | 2.0 |
| | — |
| | — |
| | — |
| | 2.0 |
|
| Common stock repurchases | (0.05 | ) | | — |
| | (2.0 | ) | | — |
| | — |
| | — |
| | (2.0 | ) |
| Other | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | 0.1 |
|
| Balance at December 31, 2017 | 30.81 |
| | 0.3 |
| | 445.7 |
| | 364.3 |
| | (8.1 | ) | | 3.0 |
| | 805.2 |
|
| Net income | — |
| | — |
| | — |
| | 88.0 |
| | — |
| | 2.0 |
| | 90.0 |
|
| Cumulative effect of accounting change | — |
| | — |
| | — |
| | 1.6 |
| | — |
| | — |
| | 1.6 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (21.8 | ) | | — |
| | (21.8 | ) |
| Share-based compensation expense | — |
| | — |
| | 6.9 |
| | — |
| | — |
| | — |
| | 6.9 |
|
| Common stock issued from share-based compensation plans | 0.60 |
| | — |
| | 10.3 |
| | — |
| | — |
| | — |
| | 10.3 |
|
| Common stock repurchases | (0.05 | ) | | — |
| | (2.7 | ) | | — |
| | — |
| | — |
| | (2.7 | ) |
| Dividend distribution to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (0.4 | ) | | (0.4 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | (0.1 | ) | | (0.1 | ) |
| Balance at December 31, 2018 | 31.36 |
| | 0.3 |
| | 460.2 |
| | 453.9 |
| | (29.9 | ) | | 4.5 |
| | 889.0 |
|
| Net income | — |
| | — |
| | — |
| | 46.4 |
| | — |
| | 0.4 |
| | 46.8 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (6.0 | ) | | — |
| | (6.0 | ) |
Common stock issuance, net of equity issuance costs (1) | 4.03 |
| | 0.1 |
| | 286.2 |
| | — |
| | — |
| | — |
| | 286.3 |
|
| Share-based compensation expense | — |
| | — |
| | 9.0 |
| | — |
| | — |
| | — |
| | 9.0 |
|
| Common stock issued from share-based compensation plans | 0.30 |
| | — |
| | 9.4 |
| | — |
| | — |
| | — |
| | 9.4 |
|
| Common stock repurchases | 0.11 |
| | — |
| | (2.0 | ) | | — |
| | — |
| | — |
| | (2.0 | ) |
| Dividend distribution to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (0.4 | ) | | (0.4 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | 0.3 |
| | 0.3 |
|
| Balance at December 31, 2019 | 35.80 |
| | $ | 0.4 |
| | $ | 762.8 |
| | $ | 500.3 |
| | $ | (35.9 | ) | | $ | 4.8 |
| | $ | 1,232.4 |
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and shares in millions)
_______________
(1)Equity issuance costs were $9.5 during the year ended December 31, 2019.Includes $19.3 in shares repurchased through our share repurchase program. Refer to Note 2, “Significant Accounting Policies,” for further information.
(2)Refer to Note 2, “Significant Accounting Policies” for discussion regarding cumulative effect of change in accounting principle.
The accompanying notes are an integral part of these consolidated financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share amounts)
NOTE 1 — Nature of Operations and Principles of Consolidation
Nature of Operations: Chart Industries, Inc. and its consolidated subsidiaries (herein referred to as the “Company,” “Chart,” “we,” “us,” or “our”), isWe are a leading diversifiedindependent global manufacturer of highly engineered cryogenic equipment servicing multiple market applications in energy and industrial gas. Chart’s equipment and engineered systems are primarily used for low-temperature and cryogenic applications utilizing our expertise in cryogenic systems and equipment which operate at low temperatures sometimes approaching absolute zero (0 Kelvin; -273° Centigrade; -459° Fahrenheit). We have domestic operations located across the United States, including principal executive offices located in Georgia, and an international presence in Asia, Australia, Europe and the Americas.
On July 1, 2019, we completed the acquisition of Harsco Corporation’s Industrial Air-X-Changers business (“AXC”). AXC is a leading supplier of custom engineered and manufactured air cooled heat exchangers (“ACHX”) for the natural gas compression and processing industry and refining and petrochemical industry in the United States.
On December 20, 2018, we closed the sale of our oxygen-related products business to NGK SPARK PLUG CO., LTD. The strategic decision to divest the oxygen-related products business reflects our strategy and capital allocation approach to focus on our core capabilities and offerings. Refer to Note 3, “Discontinued Operations,” for further information.
On November 15, 2018, we completed the previously announced acquisition of VRV S.r.l. and its subsidiaries (collectively “VRV”). VRV, which has operations in Italy, France and India, is a diversified multinational corporation with highly automated, purpose-built facilities for the design and manufacture of pressure equipment serving the industrial gas and clean energy end markets.
On January 2, 2018, we completed Our unique product portfolio is used in every phase of the acquisition of Skaff Cryogenics and Cryo-Lease, LLC (together “Skaff”). Skaff provides quality repairliquid gas supply chain, including upfront engineering, service and re-manufacturingrepair. Being at the forefront of cryogenicthe clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, storage tankshydrogen, biogas, CO2 Capture and trailerswater treatment, among other applications. We are committed to excellence in environmental, social and also maintains a portfolio of cryogenic storage equipment that is rentedcorporate governance (ESG) issues both for our company as well as our customers. With 29 global manufacturing locations from the United States to Asia, India and Europe, we maintain accountability and transparency to our team members, suppliers, customers for temporary and permanent needs. Skaff is headquartered in Brentwood, New Hampshire and provides services and equipment to customers in North America.
For further information regarding the AXC, VRV and Skaff acquisitions, refer to Note 13, “Business Combinations.”communities.
Principles of Consolidation: The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Chart Industries, Inc. and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
Reclassifications: Certain reclassifications have been made to the 2018 consolidated balance sheet in order to conform to the 2019 presentation.
NOTE 2 — Significant Accounting Policies
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. We have experienced temporary facility closures while awaiting appropriate government approvals in certain jurisdictions. The Covid-19 pandemic could also disrupt our supply chain and materially adversely impact our ability to secure supplies for our facilities, which could materially adversely affect our operations. There may also be long-term effects on our customers in and the economies of affected countries. As a result of these uncertainties, actual results could differ from those estimates and assumptions. If the economy or markets in which we operate remain weak or deteriorate further, our business, financial condition and results of operations may be materially and adversely impacted.
Share Repurchase Program: 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. During the first quarter of 2020, we repurchased 0.76 shares of our common stock at an average price of $25.40 per share for a total purchase price of $19.3. 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. On March 11, 2021, the share repurchase program expired with no further repurchases since the Suspension Date.
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents:We consider all investments with an initial maturity of three months or less when purchased to be cash equivalents. See Note 10, “DebtRestricted cash and Credit Arrangements” for additionalrestricted cash equivalents are included within restricted cash as of December 31, 2022 and December 31, 2021 in the accompanying consolidated balance sheets. For further information aboutregarding restricted cash and restricted cash equivalents which are included in other current assetsbalances, refer to Note 10, “Debt and other assets in the accompanying consolidated balance sheets.Credit Arrangements.”
Accounts Receivable, Net of Allowances:Accounts receivable includes amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. In addition, we estimate expected credit losses based on historical loss information then adjust the estimates based on current, reasonable and supportable forecast economic conditions. Past-due trade receivable balances are written off when our internal collection efforts have been unsuccessful. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers.
Inventories: Inventories are stated at the lower of cost or net realizable value with cost being determined by the first-in, first-out (“FIFO”) method. We determine inventory valuation reserves based on a combination of factors. In circumstances where we are aware of a specific problem in the valuation of a certain item, a specific reserve is recorded to reduce the item to its net realizable value. We also recognize reserves based on the actual usage in recent history and projected usage in the near-term.
Unbilled Contract Revenue: Unbilled contract revenue represents contract assets resulting from revenue recognized over time in excess of the amount billed to the customer and the amount billed to the customer is not just subject to the passage of time. Billing requirements vary by contract but are generally structured around the completion of certain milestones. These contract assets are generally classified as current.
Property, Plant and Equipment:Capital expenditures for property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements that extend the useful life are capitalized. The cost of applicable assets is depreciated over their estimated useful lives. Depreciation is computed using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.
LeaseLessee Accounting: At lease inception, we determine if an arrangement is a lease and if it includes options to extend or terminate the lease if it is reasonably certain that the options will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating leases are recognized as right-of-use (“ROU”) assets and are included within property, plant and equipment, net, and lease liabilities are included in operating lease liabilities, current and operating lease liabilities, non-current in our consolidated balance sheet as of January 1, 2019 (the “Commencement Date”) and at December 31, 2019.sheets. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities wereare recognized on the Commencement Datelease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we useduse our incremental borrowing rate based on the information available on the Commencement Datelease commencement date in determining the present value of lease payments.
Lessor Accounting: Similar to lessee accounting, at lease inception we determine if an arrangement is a lease. The net investment of our lease receivables is measured at the commencement date as the present value of the lease payments not yet received. Operating leases are reported at cost as equipment leased to others within property, plant and equipment, net in our consolidated balance sheets and depreciated based on their useful lives on a straight-line basis. Sales from sales-type and operating leases are presented net of sales tax and other related taxes. Interest income is recognized over the lease term using the effective interest method and is classified as interest expense, net in our consolidated statements of income. Lease payments from operating leases are recorded as income on a straight-line basis over the lease term.
Long-lived Assets: We monitor our property, plant, equipment, and finite-lived intangible assets for impairment indicators on an ongoing basis. Assets are grouped and tested at the lowest level for which identifiable cash flows are available. If impairment indicators exist, we perform the required analysis and record impairment charges, if applicable. In conducting our 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 and used) or net realizable value (for assets held for sale). Changes in economic or operating conditions impacting these estimates and assumptions could result in the impairment of long-lived assets. We amortize intangible assets that have finite lives over their estimated useful lives.
Goodwill and Indefinite-Lived Intangible Assets:Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. We do not amortize goodwill or indefinite-lived intangible assets, but review them for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that an evaluation should be completed.
Goodwill is analyzed on a reporting unit basis. The reporting units are the same as theour operating and reportable segments: Distributionsegments, which are as follows: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Storage Eastern Hemisphere (“D&S East”), Distribution & Storage Western Hemisphere (“D&S West”), Energy & Chemicals Cryogenics (“E&C Cryogenics”), and Energy & Chemicals FinFans (“E&C FinFans”).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
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
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.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
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 the 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 the reporting units, we also compare the sum of the reporting units’ fair values to the 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 the 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 more likely than not that an indefinite-lived intangible asset is not 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 the 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.
See Note 9, “GoodwillEquity Method Investments: Investments, including certain of our joint ventures, where Chart has the ability to exercise significant influence over, but does not possess control, are accounted for using the equity method of accounting. Judgment regarding the level of influence over each investment includes considering key factors such as our ownership interest, our representation on the investee’s board of directors and Intangible Assets,”participation in policy-making decisions. We recognize the equity method investee’s proportionate share of the earnings and losses and classify as equity in earnings of unconsolidated affiliates, net in our consolidated statements of income and comprehensive income. We evaluate our equity method investments for more information relatingimpairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. If a decline in the value of an equity method investment is determined to goodwillbe other than temporary, an impairment loss is recognized in earnings for the amount by which the carrying amount of the investment exceeds its estimated fair value.
Investments in Equity Securities: We measure certain of our investments in equity securities where we have no significant influence and indefinite-lived intangible assets.generally less than 20% ownership interest at fair value on a recurring basis according to the fair value hierarchy as defined below. We reassess measurement options for these investments on a quarterly basis. Mark-to-market fair value adjustments in these investments in equity securities are classified as unrealized loss (gain) on investments in equity securities in our consolidated statements of income and comprehensive income. Investments in equity securities for which there is no readily determinable fair value are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Customer Advances and Billings in Excess of Contract Revenue: Our contract liabilities consist of advance customer payments, billings in excess of revenue recognized and deferred revenue. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. We classify advance customer payments and billings in excess of revenue recognized as current. We classify deferred revenue as current or non-current based on the timing of when we expect to recognize revenue. The current portion of deferred revenue is included in customer advances and billings in excess of contract revenue in our consolidated balance sheets. Long-term deferred revenue is included in other long-term liabilities in our consolidated balance sheets.
Convertible Debt: We determined thatThe $258.8 principal amount of the conversion option within our 1.00% Convertible Senior Subordinated Notesconvertible notes due November 2024 (the “2024 Notes”) was not clearly and closely related tois classified as a current liability in the debt instrument host, however, the conversion option met a scope exception to derivative instrument accountingconsolidated balance sheet at December 31, 2022 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 settlementholders of the conversionconvertible notes due November 2024 could potentially convert their notes at their option are recognized by bifurcatingduring the principal balance into a liability component and an equity component wherethree month period subsequent to December 31, 2022. We reassess 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 amountconvertibility of the 2024 Notes which is accreted back to its principal amountand the related balance sheet classification on a quarterly basis. We amortize debt issuance costs over the expected lifeterm of the debt, which is also2024 Notes using the stated life ofeffective interest method.
We use the debt.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, exceptif-converted method to compute diluted earnings per share amounts)
for our convertible notes due November 2024 such that the denominator includes incremental shares that would be issued upon conversion. Refer to Note 10, “Debt and Credit Arrangements” for further discussion of our convertible notes.
Financial Instruments:The fair values of cash equivalents, accounts receivable, accounts payable and short-term bank debt approximate their carrying amount because of the short maturity of these instruments.
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 monitor the financial condition and payment history of customers to help ensure timely collections and to minimize losses. Additionally, for certain domestic and foreign customers, particularly in the E&C segment, 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 of placing the order.
Fair Value Measurements: We measure our financial assets and liabilities at fair value on a recurring basis using a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies. The three levels of inputs used to measure fair value are as follows:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
Derivative Financial Instruments:We utilize certain derivative financial instruments to enhance our ability to manage foreign currency risk that exists as part of ongoing business operations. Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. We do not enter into contracts for speculative purposes nor are we a party to any leveraged derivative instrument. We are exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. We utilize foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases and certain intercompany transactions in the normal course of business. Contracts typically have maturities of less than one year. Principal currencies include the U.S. dollar, the euro, the Chinese yuan, the Czech koruna, the Australian dollar, the British pound, the Canadian dollar, the Indian rupee and the Japanese yen. Our foreign currency forward contracts do not qualify as hedges as defined by accounting guidance. Foreign currency forward contracts are measured at fair value and recorded on the consolidated balance sheets as other current liabilities or assets. Changes in their fair value are recorded in the consolidated statements of income as foreign currency gains or losses. Our foreign currency forward contracts are not
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
exchange traded instruments and, accordingly, the valuation is performed using Level 2 inputs as defined above. Gains or losses on settled or expired contracts are recorded in the consolidated statements of income as foreign currency gains or losses.
We enter into a combination of cross-currency swaps and foreign exchange collars as a net investment hedge of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. Our cross-currency swaps and foreign exchange collars are measured at fair value and recorded on the consolidated balance sheets within other assets or other long-term liabilities. Changes in fair value are recorded as foreign currency translation adjustments within accumulated other comprehensive loss. See Note 10, “Debt and Credit Arrangements,” for further information regarding the cross-currency swaps and foreign exchange collars.
Product Warranties:We provide product warranties with varying terms and durations for the majority of our products. We estimate product warranty costs and accrue for these costs as products are sold with a charge to cost of sales. Factors considered in estimating warranty costs include historical and projected warranty claims, historical and projected cost-per-claim, and knowledge of specific product issues that are outside of typical experience. Warranty accruals are evaluated and adjusted as necessary based on actual claims experience and changes in future claim and cost estimates.
Business Combinations: We account for business combinations in accordance with Accounting Standards Codification (“ASC”) 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 estimateestimated 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.
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(Dollars As such, acquisitions are classified as Level 3 fair value hierarchy measurements and shares in millions, except per share amounts)
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, hydrogen solutions, water treatment systems and carbon capture systems, 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
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 fulfillment costs and are included in cost of sales. Amounts billed to customers for shipping are classified as sales, and the related costs are classified as cost of sales on the consolidated statements of income. Shipping revenue of $12.1, $11.4,$17.8, $11.8, and $8.5$10.6 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively, are
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
included in sales. Shipping costs of $18.3, $16.9,$17.6, and $11.1$15.0 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively, are included in cost of sales.
Cost of Sales: Manufacturing expenses associated with sales are included in cost of sales. Cost of sales includes all materials, direct and indirect labor, inbound freight, purchasing and receiving, inspection, internal transfers, and distribution and warehousing of inventory. In addition, shop supplies, facility maintenance costs, manufacturing engineering, project management, and depreciation expense for assets used in the manufacturing process are included in cost of sales on the consolidated statements of income.
Selling, General and Administrative (“SG&A”) Expenses: SG&A expenses include selling, marketing, customer service, product management design engineering, and other administrative expenses not directly supporting the manufacturing process, as well as depreciation and amortization expense associated with non-manufacturing assets. In addition, SG&A expenses include corporate operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit and risk management.
Advertising Costs:We incurred advertising costs of $4.3, $4.0,$3.5, $3.9, and $4.2$2.7 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Such costs are expensed as incurred and included in SG&A expenses in the consolidated statements of income.
Research and Development Costs:We incurred research and development costs of $11.0, $11.1,$13.5, $12.7, and $7.1$9.1 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Such costs are expensed as incurred and included in SG&A expenses in the consolidated statements of income.
Foreign Currency Translation:The functional currency for the majority of our foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for asset and liability accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using the average exchange rate
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
during the period. The resulting translation adjustments are recorded as a component of other comprehensive (loss) income in the consolidated statements of comprehensive income. Certain of our foreign entities remeasure from local to functional currencies, which is then translated to the reporting currency of the Company. Remeasurement from local to functional currencies is included in cost of sales or foreign currency loss in the consolidated statements of income. Gains or losses resulting from foreign currency transactions are charged to net income in the consolidated statements of income as incurred.
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 in 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.” We are subjected to a tax on Global Intangible Low Taxed Income (“GILTI”), which we record as a period cost as incurred.
Share-based Compensation:We measure share-based compensation expense for share-based payments to employees and directors, including grants of employee stock options, restricted stock, restricted stock units and performance units based on the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
grant-date fair value. The fair value of stock options is calculated using the Black-Scholes pricing model and is recognized on an accelerated basis over the vesting period. The grant-date fair value calculation under the Black-Scholes pricing model requires the use of variables such as exercise term of the option, future volatility, dividend yield, and risk-free interest rate. The fair value of restricted stock and restricted stock units is based on Chart’s market price on the date of grant and is generally recognized on an accelerated basis over the vesting period. The fair value of performance units is based on Chart’s market price on the date of grant and pre-determined performance conditions as determined by the Compensation Committee of the Board of Directors and is recognized on a straight-line basis over the performance measurement period based on the probability that the performance conditions will be achieved. We reassess the vesting probability of performance units each reporting period and adjust share-based compensation expense based on our probability assessment. Share-based compensation expense for all awards considers estimated forfeitures.
During the year, we may repurchase shares of common stock from equity plan participants to satisfy tax withholding obligations relating to the vesting or payment of equity awards. All such repurchased shares are retired in the period in which the repurchases occur.
Defined Benefit Pension Plans: We sponsor 2a defined benefit pension plans includingplan which includes the Chart Pension Plan, which has been frozen since February 2006, and a noncontributory defined benefit plan that we acquired as part of the Hudson acquisition (the “Hudson Plan”). The Hudson Plan is closed to new participants and not considered significant to our consolidated financial statements. The Hudson Plan merged into the Chart Plan as of February 28, 2021.
The funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation. The change in the funded status of the plan is recognized in the year in which the change occurs through accumulated other comprehensive loss.(loss) income. Our funding policy is to contribute at least the minimum funding amounts required by law. Management has chosen policies according to accounting guidance that allow the use of a calculated value of plan assets, which generally reduces the volatility of expense (income) from changes in pension liability discount rates and the performance of the pension plan’s assets.
Recently Issued Accounting Standards (Not Yet Adopted): In August 2018,June 2022, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This ASU clarifies the accounting treatment for implementation costs for cloud computing arrangements (hosting arrangements) that is a service contract. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. We are currently assessing the effect that this ASU will have on our financial position, results of operations, and disclosures.
In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We are currently assessing the effect that this ASU will have on our financial position, results of operations, and disclosures.
In August 2018, the FASB issued ASU 2018-13,Standards Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. We are currently assessing the effect that this ASU will have on our financial position, results of operations, and disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that modified ASU 2016-13. ASU 2016-13 and the subsequent modifications are identified as ASC 326.” The standard requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. The standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. We are adopting the new standard effective January 1, 2020 using the required modified retrospective transition method with a cumulative-effect adjustment.
We intend to use a provision matrix in applying the new guidance to our trade receivables. Under this approach, we will estimate expected credit losses based on historical loss information then adjust the estimates based on current, reasonable and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
supportable forecast economic conditions. In our current accounting policy, we maintainMeasurement of Equity Securities Subject to Contractual Sale Restrictions.” The amendments in this update clarify that a contractual restriction on the sale of an allowance for doubtful accounts based on customer creditworthiness, historical payment experience and ageequity security is not considered part of the outstanding receivable. Therefore, weunit of account of the security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot recognize and measure a contractual sale restriction and adds additional disclosures for equity securities subject to contractual sale restrictions. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We do not anticipateexpect this ASU to have a material impact on our financial position, and results of operations. However, while weoperations, and disclosures.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The amendments in this update require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Accounting Standards Codification (“ASC”) 326. The amendments in this update are substantially complete, weeffective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect this ASU to have a material impact on our financial position, results of operations, and disclosures.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The amendments in this update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. For public business entities, the amendments in this Update are stilleffective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently assessing the effect of this ASU will have on our financial position, results of operations, and disclosures.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU simplifies the accounting for modifying contracts (including those in hedging relationships) that refer to LIBOR and other interbank offered rates that are expected to be discontinued due to reference rate reform. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We expect application of the amendments to completeimpact accounting for our accounting assessmentsenior secured revolving credit facility due October 2026. Our lenders will notify us when our borrowings transition away from LIBOR, at which point we will adopt this ASU as part of the transition to the new reference rate. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848.” This ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024. We are currently assessing the effect this ASU will have on our financial position, results of operations, and determine the quantitative impact of adoption during the first quarter of 2020.disclosures.
Recently Adopted Accounting Standards: In July 2018,November 2021, the FASB issued ASU 2018-09, “Codification Improvements.2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” This ASU makes amendments to multiple codification Topics. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in this ASU do notupdate require transition guidance and were effective upon issuance of this ASU. However, many of theannual disclosures about transactions with a government that are accounted for by applying a grant or contribution model by analogy. The amendments in this ASU had transition guidance withupdate are effective datesfor all entities within their scope for financial statements issued for annual periods beginning after December 15, 2018.2021. Early application of the amendments is permitted. We adopted this guidance effective January 1, 2022. The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.
In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-05, “Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” This ASU adds various Securities and Exchange Commission (“SEC”) paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which was effective immediately. The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Tax Cuts and Jobs Act in the period of enactment. SAB 118 allowed disclosure that timely determination of some or all of the income tax effects from the Tax Cuts and Jobs Act were incomplete by the due date of the 2017 financial statements and if possible to provide a reasonable estimate. 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.”
In February 2018,August 2020, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entities Own Equity (Subtopic 815-40).” This ASU simplifies accounting for convertible instruments by eliminating two of Certain Tax Effectsthe three models in ASC 470-20 that require separating embedded conversion features from Accumulated Other Comprehensive Income.” The FASB issued the update to provide amended guidance to “allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.” Additionally, under the new guidance an entity was required to provide certain disclosures regarding stranded tax effects.convertible instruments. The guidance wasis effective for fiscal years beginning after December 15, 2018, including interim periods within those years.2021. We adopted this guidance effective January 1, 2019.2021 under the modified retrospective adoption approach. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods.
Upon adoption of this guidance did not impact our financial position, results of operations or disclosures.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU expands and enhances hedge accounting to become more closely aligned with2020-06, we recorded an entity’s risk management activities through hedging strategies. The ASU provides changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements and creates more transparency and better understandability around how economic results are presented in the financial statements. In addition, the new guidance makes certain targeted improvements to ease the application of accounting guidance relative to hedge effectiveness. This guidance was applied prospectively for annual periods and interim periods beginning after December 15, 2018. We adopted this guidance effective January 1, 2019. The adoption of this guidance did not impact our financial position, results of operations or disclosures.
In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The FASB issued this guidance to provide clarity as to when modification accounting should be applied when there is a changeadjustment to the terms or conditionsconvertible notes liability component, equity component (additional paid-in-capital) and retained earnings. This adjustment was calculated based on the carrying amount of a share-based payment award in order to prevent diversity in practice. This ASU requires modification accounting to be applied unless all of the following conditions exist: (1) the fair value of the modified award is the same as the fair value of the original award before the original award is modified; if the modification does not affect any of the inputs to the valuation, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award before it was modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award before it was modified. This guidance is applied prospectively for annual periods and interim periods beginning after December 15, 2017. We adopted this guidance effective January 1, 2018. The adoption of this guidance did not have a material impact on our financial position, results of operations, and disclosures.
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The new guidance requires companies
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Interest expense related to the accretion of our convertible notes due November 2024 is no longer recognized. Interest accretion of convertible notes discount and net income from continuing operations attributable to Chart Industries, Inc. for the year ended December 31, 2022 would have been $8.8 and $74.9 without the adoption of ASU 2020-06. As such, net income from continuing operations attributable to Chart Industries, Inc. per common share for the year ended December 31, 2022 is $0.14 (basic) and $0.13 (diluted) higher due to the effect of adoption of ASU 2020-06. Interest accretion of convertible notes discount and net income from continuing operations attributable to Chart Industries, Inc. for the year ended December 31, 2021 would have been $8.4 and $52.6 without the adoption of ASU 2020-06. As such, net income from continuing operations attributable to Chart Industries, Inc. per common share for the year ended December 31, 2021 is $0.18 (basic) and $0.16 (diluted) higher due to the effect of adoption of ASU 2020-06.
As further described in Note 10, “Debt and Credit Arrangements,” on December 31, 2020, we amended the Indenture governing our convertible notes due November 2024 to eliminate share settlement thus leaving us with sponsored defined benefit pension and/two settlement options: (1) cash settlement or other postretirement benefit plans(2) cash for par and any combination of cash and shares for the excess settlement amount above the $258.8 principal amount of our convertible notes due November 2024. ASU 2020-06 requires usage of the if-converted method to presentcompute diluted earnings per share for our convertible notes due November 2024, however, based on the service cost componentterms of the amended Indenture and the cessation of interest accretion expense recognition from the transition at adoption, the if-converted method was modified such that interest expense is no longer added to the numerator, and the denominator only includes incremental shares that would be issued upon conversion.
Impacts on Financial Statements
The following table summarizes the cumulative effect of the changes to our consolidated balance sheet as of December 31, 2020 from the adoption of ASU 2020-06:
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | Adjustments due to ASU 2020-06 adoption | | Balance at
January 1, 2021 |
| Liabilities | | | | | |
| Accrued income taxes | $ | 46.5 | | | $ | (0.2) | | | $ | 46.3 | |
Current convertible notes (1) | 220.9 | | | 34.0 | | | 254.9 | |
| Long-term deferred tax liabilities | 60.2 | | | (7.6) | | | 52.6 | |
| | | | | |
| Equity | | | | | |
| Additional paid-in-capital | 780.8 | | | (36.9) | | | 743.9 | |
| Retained earnings | $ | 808.4 | | | $ | 10.7 | | | $ | 819.1 | |
_______________
(1)Current convertible notes is presented net periodic benefit costof unamortized discount and debt issuance costs of $34.8 and $3.1, respectively at December 31, 2020. Current convertible notes is presented net of unamortized debt issuance costs of $3.9 at January 1, 2021.
In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” This ASU clarifies the interactions between the measurement alternative in Topic 321, the same income statement line item as other compensation costs. The other componentsequity method of net periodic benefit cost willaccounting in Topic 323 and the application of guidance for certain forward contracts and purchased options that upon settlement or exercise would be presented separately and not includedaccounted for under the equity method of accounting in operating income. In addition, only service costs are eligible to be capitalized as an asset.Topic 815. This standardguidance is effective for fiscal years beginningending after December 15, 2017, including interim periods within those years, and this guidance will generally be applied retrospectively, whereas the capitalization of the service cost component will be applied prospectively.2020. We adopted this guidance effective January 1, 2018. The adoption2021. During the third quarter 2021, we completed an additional investment in HTEC Hydrogen Technology & Energy Corporation and recognized a gain upon remeasurement of this guidance did not have a material impact on our financial position, results of operations, and disclosures.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Testinitial fourth quarter 2020 investment in HTEC Hydrogen Technology & Energy Corporation due to an observable price change in an orderly transaction for Goodwill Impairment.” The new guidance eliminates the requirement to calculate the implied fair value of goodwill (Step 2similar instruments of the current guidance’s goodwill impairment test)same issuer in accordance with the guidance provided in ASU 2020-01. Refer to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excessNote 6, “Investments” for further discussion of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on current guidance’s Step 1). We have adopted this guidance as of January 1, 2018. This guidance will only have an impact on future periods’ financial position, results of operations, and disclosures if a goodwill impairment occurs.
In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This ASU provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentratedour investment in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. This guidance is applied prospectively for annual periods and interim periods beginning after December 15, 2017. We adopted this guidance effective January 1, 2018. The adoption of this guidance did not have a material impact on our financial position, results of operations, and disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The FASB issued this update to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, and this guidance will generally be applied retrospectively. We adopted this guidance effective January 1, 2018. The adoption of this guidance did not have a material impact on our financial position, results of operations, and disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and other subsequent amendments collectively identified as ASC 842, related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Effective January 1, 2019, (the “Commencement Date”) we adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date for all leases with terms greater than 12 months. The adoption of the new standard resulted in the recording of operating ROU assets, primarily consisting of leased facilities and equipment and operating lease liabilities of $34.8 as of the Commencement Date. The adoption did not have a material impact on our audited consolidated statement of income and comprehensive income or cash flows related to existing leases as of the Commencement Date. As a result, there was no cumulative-effect adjustment.
We elected certain practical expedients and as such did not reassess the following: 1) whether any expired or existing contracts are or contain leases, 2) lease classification for any expired or existing leases, 3) initial direct costs for any expired or existing leases and 4) whether existing or expired land easements are or contain leases. However, we will evaluate new or modified land easements under the new guidance after the Commencement Date. We also elected the practical expedient to not separate lease and non-lease components. In addition, we implemented internal controls and key system functionality to enable the preparation of financial information on adoption.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and subsequently issued additional guidance that modified ASU 2014-09. ASU 2014-09 and the subsequent modifications are identified as ASC 606. ASC 606 replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and provides for expanded disclosure requirements. This update requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.HTEC Hydrogen Technology & Energy Corporation.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
On January 1, 2018, we adopted ASC 606 using the modified retrospective method to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. We recorded a net increase to opening retained earnings of $1.6 million, net of tax, as of January 1, 2018, due to the cumulative impact of adopting ASC 606.
NOTE 3 — Discontinued Operations
Cryobiological Products Divestiture
On December 20, 2018,October 1, 2020, we closed on the sale of our oxygen-relatedcryobiological products business, which was formerly within our BioMedicalD&S West segment prior to the realignment of our strategic realignmentsegment reporting structuring in the thirdfourth quarter of 2018 discussed in Note 4, “Segment and Geographic Information,” 2020, to NGK SPARK PLUG CO., LTD.Cryoport, Inc. (NASDAQ: CYRX) for $133.5net cash proceeds of $317.5, inclusive of the base purchase price of $320.0 less estimated closing adjustments of $2.5 (the “Divestiture”“Cryobiological Divestiture”). The strategic decision to divest the oxygen-relatedof our cryobiological products business reflectsreflected our strategy and capital allocation approach to focus on our core capabilities and offerings. We recorded a gain on the Cryobiological Divestiture of $34.3$224.2, net of taxes of $25.2, for the year ended December 31, 2018.
As a result of the Divestiture, the asset group, which included our respiratory and on-site generation systems businesses, met the criteria to be held for sale in the balance sheet as of December 31, 2017. Furthermore, we determined that the assets held for sale qualified for discontinued operations for the years ended December 31, 2018 and 2017. As such, the financial results of the respiratory therapy and on-site generation systems businesses are reflected in our consolidated statements of income and consolidated statements of comprehensive income as discontinued operations for all periods presented.2020. Interest expense of $3.2 and $2.1$7.4 was allocated to discontinued operations for the yearsyear ended December 31, 2018 and 2017, respectively,2020, based on the net assetsinterest on our term loan due June 2024 that was required to be repaid as a result of the discontinued operations as a percentage of the net assets of Chart.Cryobiological Divestiture.
Summarized Financial Information of Discontinued Operations
The following table represents income from discontinued operations, net of tax:
|
| | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 |
| Sales | $ | 157.0 |
| | $ | 145.9 |
|
| Cost of sales | 115.8 |
| | 105.4 |
|
| Selling, general and administrative expenses | 32.7 |
| | 34.2 |
|
| Amortization expense | 2.3 |
| | 2.8 |
|
Operating income (1) | 6.2 |
| | 3.5 |
|
| Interest expense, net | 3.2 |
| | 2.1 |
|
| Other expense (income), net | 0.1 |
| | (1.1 | ) |
| Income before income taxes | 2.9 |
| | 2.5 |
|
| Income tax expense | 2.8 |
| | 0.7 |
|
| Income from discontinued operations before gain on sale of business | 0.1 |
| | 1.8 |
|
| Gain on sale of business, net of taxes of $2.6 | 34.3 |
| | — |
|
| Income from discontinued operations, net of tax | $ | 34.4 |
| | $ | 1.8 |
|
| | | | | | | | | | | | |
| Year Ended December 31, | |
| 2022 | | 2020 | |
| Sales | $ | — | | | $ | 59.9 | | |
| Cost of sales | — | | | 31.8 | | |
| Selling, general and administrative expenses | 74.8 | | | 7.8 | | |
Operating (loss) income (1) (2) | (74.8) | | | 20.3 | | |
| Interest expense, net | — | | | 7.4 | | |
| Other expense (income), net | — | | | (0.8) | | |
| (Loss) income before income taxes | (74.8) | | | 13.7 | | |
| Income tax benefit | (17.2) | | | (1.3) | | |
| (Loss) income from discontinued operations before gain on sale of business | (57.6) | | | 15.0 | | |
Gain on sale of business, net of taxes (3) | — | | | 224.2 | | |
(Loss) income from discontinued operations, net of tax (4) | $ | (57.6) | | | $ | 239.2 | | |
_______________
(1)Includes depreciation expense of $0.7 for the year ended December 31, 2020.
(2)See Note 21, “Commitments and Contingencies,” for further information related to other expense (income), net for the year ended December 31, 2022.
(3)Gain on sale of business is net of taxes of $25.2 for the year ended December 31, 2020.
(4)There was no income or cash flows from discontinued operations for the year ended December 31, 2021.
The following table presents a summary of cash flows related to discontinued operations for the following period:
| | | | | |
| Year Ended December 31, |
| 2020 |
| Net cash provided by: | |
| Operating activities | $ | 18.3 | |
| Investing activities | 316.7 | |
| |
(1)Net cash provided by discontinued operations
| Includes depreciation expense of $1.7 and $1.6 for the years ended December 31, 2018 and 2017, respectively.$ | 335.0 | |
NOTE 4 — Segment and Geographic Information
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2018, the structure of our internal organization was divided into the followingOur reportable segments, which wereare also our operating segments: D&S East, D&S West and Energy & Chemicals (“E&C”).
Upon closing of our acquisition of AXC (see Note 13, “Business Combinations” for more information), effective July 1, 2019, we changed our reportable segments, from 3 segments to 4 segments: D&S East, D&S West, E&C Cryogenics, and E&C FinFans. AXC was combined with our Hudsonare as follows: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Chart CoolerRepair, Service businesses from the prior E&C& Leasing. Our Cryo Tank Solutions segment, to create a new segment called E&C FinFans.
Our D&S East segmentwhich has principal operations in the United States, Europe and Asia and primarily serves themost geographic regions around the globe, supplying bulk, microbulk and mobile equipment used in the storage, distribution, vaporization, and application of Europe,industrial gases and certain hydrocarbons. Our
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Middle East and Asia. Our D&S WestHeat Transfer Systems segment, haswith principal operations in the United States and Latin America and primarilyEurope, also serves the Americasmost geographic region. Our D&S West segment also includes cryobiological storage manufacturing and distribution operations in the U.S., Europe and Asia, which serve customers around the world. E&C Cryogenics suppliesregions 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. The E&C FinFansOperating globally, our Specialty Products segment is focused on our uniquesupplies products used in specialty end-market applications including hydrogen, LNG, biofuels, CO2 Capture, food and broad product offeringbeverage, aerospace, lasers, cannabis and capabilitieswater treatment, among others. Our Repair, Service & Leasing segment provides installation, service, repair, maintenance, and refurbishment of cryogenic products globally in air cooled heat exchangers (“ACHX”) and fans. addition to providing equipment leasing solutions.
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. All prior period amounts presented in the tables below have been reclassified based on our current reportable segments.
We evaluate performance and allocate resources based on operating income as determined in our consolidated statements of income.
Segment Financial Information | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Corporate | | Consolidated |
| Sales | $ | 504.3 | | | $ | 462.7 | | | $ | 448.3 | | | $ | 209.6 | | | $ | (12.5) | | | $ | — | | | $ | 1,612.4 | |
| Depreciation and amortization expense | 16.7 | | | 29.3 | | | 16.4 | | | 17.1 | | | — | | | 2.4 | | | 81.9 |
Operating income (loss) (1) | 54.0 | | | 51.7 | | | 72.9 | | | 51.0 | | | — | | | (78.1) | | | 151.5 |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Corporate | | Consolidated |
| Sales to external customers | $ | 293.4 |
| | $ | 461.7 |
| | $ | 190.2 |
| | $ | 361.7 |
| | $ | (7.9 | ) | | $ | — |
| | $ | 1,299.1 |
|
| Depreciation and amortization expense | 16.6 |
| | 11.6 |
| | 14.5 |
| | 34.5 |
| | — |
| | 1.6 |
| | 78.8 |
|
Operating income (loss) (1) (2) | 6.9 |
| | 104.5 |
| | 1.6 |
| | 40.6 |
| | (2.3 | ) | | (70.4 | ) | | 80.9 |
|
| Capital expenditures | 14.8 |
| | 8.7 |
| | 4.5 |
| | 3.1 |
| | — |
| | 5.1 |
| | 36.2 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 |
| | Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Corporate | | Consolidated |
| Sales | $ | 447.4 | | | $ | 262.7 | | | $ | 432.9 | | | $ | 187.0 | | | $ | (12.3) | | | $ | — | | | $ | 1,317.7 | |
| Depreciation and amortization expense | 14.9 | | | 37.6 | | | 15.1 | | | 11.3 | | | — | | | 1.7 | | | 80.6 | |
Operating income (loss) (1) | 52.9 | | | (12.3) | | | 94.1 | | | 23.3 | | | — | | | (69.5) | | | 88.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| | Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Corporate | | Consolidated |
| Sales | $ | 415.8 | | | $ | 369.8 | | | $ | 242.6 | | | $ | 158.3 | | | $ | (9.4) | | | $ | — | | | $ | 1,177.1 | |
| Depreciation and amortization expense | 18.5 | | | 48.3 | | | 4.8 | | | 10.9 | | | — | | | 2.0 | | | 84.5 | |
Operating income (loss) (1)(2) | 52.5 | | | 11.2 | | | 60.7 | | | 30.3 | | | — | | | (62.5) | | | 92.2 | |
_______________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Corporate | | Consolidated |
| Sales to external customers | $ | 246.3 |
| | $ | 455.5 |
| | $ | 136.9 |
| | $ | 253.6 |
| | $ | (8.0 | ) | | $ | — |
| | $ | 1,084.3 |
|
| Depreciation and amortization expense | 11.1 |
| | 11.2 |
| | 10.9 |
| | 16.1 |
| | — |
| | 1.5 |
| | 50.8 |
|
Operating income (loss) (1) (3) (4) (5) | 19.3 |
| | 101.2 |
| | 1.8 |
| | 23.7 |
| | (2.5 | ) | | (51.4 | ) | | 92.1 |
|
| Capital expenditures | 10.4 |
| | 6.0 |
| | 12.1 |
| | 3.4 |
| | — |
| | 3.7 |
| | 35.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Corporate | | Consolidated |
| Sales to external customers | $ | 232.3 |
| | $ | 400.6 |
| | $ | 125.5 |
| | $ | 100.1 |
| | $ | (15.6 | ) | | $ | — |
| | $ | 842.9 |
|
| Depreciation and amortization expense | 9.5 |
| | 10.6 |
| | 10.3 |
| | 5.0 |
| | — |
| | 2.2 |
| | 37.6 |
|
Operating income (loss) (1) (3) (5) | 14.2 |
| | 85.2 |
| | (2.1 | ) | | 7.2 |
| | (3.6 | ) | | (62.4 | ) | | 38.5 |
|
| Capital expenditures | 11.1 |
| | 4.1 |
| | 14.1 |
| | 1.4 |
| | — |
| | 2.3 |
| | 33.0 |
|
_______________ • | |
(1)
| Restructuring costs for the years ended: |
December 31, 20192022 were $15.6$(1.0) ($8.5 - D&S East, $0.9 - D&S West, $2.5 - E&C Cryogenics, $3.5 - E&C FinFans,0.1 – Cryo Tank Solutions $0.3 – Heat Transfer Systems and $0.2 - Corporate)$(1.4) – Repair, Service & Leasing);
•December 31, 20182021 were $4.4$3.5 ($1.4 - D&S East, $0.6 - E&C Cryogenics, $0.1 - E&C FinFans, and $2.3 - Corporate)0.3 – Cryo Tank Solutions, $1.7 – Heat Transfer Systems, $1.5 – Repair, Service & Leasing); and
•December 31, 20172020 were $11.2$13.6 ($1.7 - D&S East, $1.1 - D&S West, $2.1 - E&C Cryogenics, $0.3 - E&C FinFans,2.7 – Cryo Tank Solutions, $7.4 – Heat Transfer Systems, $0.7 – Specialty Products, $0.2 – Repair, Service & Leasing and $6.0 -$2.6 – Corporate).
| |
(2)(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 for the year ended December 31, 2020. | Includes transaction-related costs of $5.4 recorded in Corporate for the year ended December 31, 2019, which were mainly related to the AXC acquisition. Includes integration costs of $1.6 recorded in Corporate related to the AXC acquisition for the year ended December 31, 2019. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
| |
(3)
| Includes an expense of $4.0 recorded to cost of sales related to the estimated costs of the aluminum cryobiological tank recall for the year ended December 31, 2018. |
| |
(4)
| During the year ended December 31, 2018, we recorded net severance costs of $2.3 in Corporate primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 in payroll severance costs partially offset by a $0.9 credit due to related share-based compensation forfeitures for 2018. Includes net severance costs of $1.4 related to the departure of our former CEO, which includes $3.2 in payroll severance costs partially offset by a $1.8 credit due to related share-based compensation forfeitures for 2018. |
| |
(5)
| Includes transaction-related costs of $2.1 and $10.1 recorded in Corporate for the years ended December 31, 2018 and 2017, respectively. |
Product Sales Informationby Geography
Net sales by geographic area are reported by the destination of sales.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Consolidated |
North America (1) | $ | 214.8 | | | $ | 323.5 | | | $ | 302.2 | | | $ | 147.0 | | | $ | (6.6) | | | $ | 980.9 | |
| Europe, Middle East, Africa and India | 185.7 | | | 97.5 | | | 113.2 | | | 41.9 | | | (3.9) | | | 434.4 | |
Asia-Pacific (2) | 98.1 | | | 40.1 | | | 32.2 | | | 19.3 | | | (1.8) | | | 187.9 | |
| Rest of the World | 5.7 | | | 1.6 | | | 0.7 | | | 1.4 | | | (0.2) | | | 9.2 | |
| Total | $ | 504.3 | | | $ | 462.7 | | | $ | 448.3 | | | $ | 209.6 | | | $ | (12.5) | | | $ | 1,612.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Consolidated |
North America (1) | $ | 178.3 | | | $ | 181.1 | | | $ | 193.2 | | | $ | 118.6 | | | $ | (5.4) | | | $ | 665.8 | |
| Europe, Middle East, Africa and India | 155.2 | | | 28.6 | | | 204.1 | | | 36.4 | | | (4.5) | | | 419.8 | |
Asia-Pacific (2) | 109.9 | | | 51.6 | | | 33.9 | | | 30.6 | | | (2.3) | | | 223.7 | |
| Rest of the World | 4.0 | | | 1.4 | | | 1.7 | | | 1.4 | | | (0.1) | | | 8.4 | |
| Total | $ | 447.4 | | | $ | 262.7 | | | $ | 432.9 | | | $ | 187.0 | | | $ | (12.3) | | | $ | 1,317.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Consolidated |
North America (1) | $ | 168.0 | | | $ | 259.4 | | | $ | 98.9 | | | $ | 111.2 | | | $ | (4.4) | | | $ | 633.1 | |
| Europe, Middle East, Africa and India | 165.3 | | | 39.3 | | | 121.8 | | | 38.1 | | | (3.5) | | | 361.0 | |
Asia-Pacific (2) | 76.1 | | | 69.3 | | | 21.4 | | | 8.4 | | | (1.4) | | | 173.8 | |
| Rest of the World | 6.4 | | | 1.8 | | | 0.5 | | | 0.6 | | | (0.1) | | | 9.2 | |
| Total | $ | 415.8 | | | $ | 369.8 | | | $ | 242.6 | | | $ | 158.3 | | | $ | (9.4) | | | $ | 1,177.1 | |
_______________(1) Consolidated sales in the United States were $938.5, $585.9 and $576.8 for the years ended December 31, 2022, 2021 and 2020, respectively and represent 58.2%, 44.5% and 49.0% of consolidated sales for the same periods, respectively.
(2) Consolidated sales in China were $58.3, $136.2 and $100.7 for the years ended December 31, 2022, 2021 and 2020, respectively and represent 3.6%, 10.3% and 8.6% of consolidated sales for the same periods, respectively.
No single customer accounted for more than 10% of consolidated sales for any of the periods presented in the tables above.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Consolidated |
| Natural gas processing (including petrochemical) applications | $ | — |
| | $ | — |
| | $ | 80.9 |
| | $ | 263.6 |
| | $ | (0.2 | ) | | $ | 344.3 |
|
| Liquefied natural gas (LNG) applications | 72.7 |
| | 73.1 |
| | 53.4 |
| | 42.1 |
| | (0.9 | ) | | 240.4 |
|
| Industrial gas production applications | — |
| | — |
| | 25.2 |
| | — |
| | — |
| | 25.2 |
|
| HVAC, power and refining applications | — |
| | — |
| | 30.7 |
| | 56.0 |
| | (0.9 | ) | | 85.8 |
|
| Bulk industrial gas applications | 168.7 |
| | 156.0 |
| | — |
| | — |
| | (2.3 | ) | | 322.4 |
|
| Packaged gas industrial applications | 52.0 |
| | 149.0 |
| | — |
| | — |
| | (3.5 | ) | | 197.5 |
|
| Cryobiological storage | — |
| | 83.6 |
| | — |
| | — |
| | (0.1 | ) | | 83.5 |
|
| Total | $ | 293.4 |
| | $ | 461.7 |
| | $ | 190.2 |
| | $ | 361.7 |
| | $ | (7.9 | ) | | $ | 1,299.1 |
|
F-25
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Consolidated |
| Natural gas processing (including petrochemical) applications | $ | — |
| | $ | — |
| | $ | 79.5 |
| | $ | 182.6 |
| | $ | — |
| | $ | 262.1 |
|
| Liquefied natural gas (LNG) applications | 65.3 |
| | 71.7 |
| | 15.2 |
| | 25.4 |
| | (2.0 | ) | | 175.6 |
|
| Industrial gas production applications | — |
| | — |
| | 13.6 |
| | — |
| | — |
| | 13.6 |
|
| HVAC, power and refining applications | — |
| | — |
| | 28.6 |
| | 45.6 |
| | — |
| | 74.2 |
|
| Bulk industrial gas applications | 126.1 |
| | 148.5 |
| | — |
| | — |
| | (1.0 | ) | | 273.6 |
|
| Packaged gas industrial applications | 54.9 |
| | 153.4 |
| | — |
| | — |
| | (3.5 | ) | | 204.8 |
|
| Cryobiological storage | — |
| | 81.9 |
| | — |
| | — |
| | (1.5 | ) | | 80.4 |
|
| Total | $ | 246.3 |
| | $ | 455.5 |
| | $ | 136.9 |
| | $ | 253.6 |
| | $ | (8.0 | ) | | $ | 1,084.3 |
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Consolidated |
| Natural gas processing (including petrochemical) applications | $ | — |
| | $ | — |
| | $ | 75.5 |
| | $ | 77.4 |
| | $ | — |
| | $ | 152.9 |
|
| Liquefied natural gas (LNG) applications | 80.2 |
| | 58.0 |
| | 18.8 |
| | 10.7 |
| | (0.2 | ) | | 167.5 |
|
| Industrial gas production applications | — |
| | — |
| | 22.4 |
| | — |
| | — |
| | 22.4 |
|
| HVAC, power and refining applications | — |
| | — |
| | 8.8 |
| | 12.0 |
| | — |
| | 20.8 |
|
| Bulk industrial gas applications | 93.4 |
| | 129.6 |
| | — |
| | — |
| | (0.5 | ) | | 222.5 |
|
| Packaged gas industrial applications | 58.7 |
| | 136.0 |
| | — |
| | — |
| | (14.9 | ) | | 179.8 |
|
| Cryobiological storage | — |
| | 77.0 |
| | — |
| | — |
| | — |
| | 77.0 |
|
| Total | $ | 232.3 |
| | $ | 400.6 |
| | $ | 125.5 |
| | $ | 100.1 |
| | $ | (15.6 | ) | | $ | 842.9 |
|
In both 2019Corporate assets mainly include cash and 2017, no single customer accountedcash equivalents and long-term deferred income taxes as well as certain corporate-specific property, plant and equipment, net and certain investments. Our allocation methodology for more than 10%property, plant and equipment, net of consolidated sales. Salesthe reportable segments differs from our allocation method of depreciation expense of a reportable segment and therefore, depreciation expense does not entirely align with the related depreciable assets of the reportable segments. Furthermore, since finite-lived intangible assets are excluded from total assets of reportable segments while amortization expense is allocated to Praxair and Linde, which combined in 2018, exceeded 10% of consolidated sales in 2018 on a combined basis and represented approximately $121.6 or 11.2% of consolidated sales in 2018 (attributable to alleach of our segments).reportable segments, amortization expense by segment inherently does not align with the related amortizable intangible assets of the reportable segments.
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Cryo Tank Solutions | $ | 382.0 | | | $ | 407.2 | |
| Heat Transfer Systems | 298.6 | | | 225.8 | |
| Specialty Products | 429.8 | | | 327.5 | |
| Repair, Service & Leasing | 182.1 | | | 186.2 | |
| Total assets of reportable segments | 1,292.5 | | | 1,146.7 | |
Goodwill (1) | 992.0 | | | 994.6 | |
Identifiable intangible assets, net (1) | 535.3 | | | 556.1 | |
| Corporate | 2,830.7 | | | 346.4 | |
| Insurance receivable, net of tax | 251.4 | | | — | |
| Total assets | $ | 5,901.9 | | | $ | 3,043.8 | |
_______________ |
| | | | | | | |
| | Total Assets as of December 31, |
| | 2019 | | 2018 |
| D&S East | $ | 528.6 |
| | $ | 496.1 |
|
| D&S West | 414.9 |
| | 420.3 |
|
| E&C Cryogenics | 430.3 |
| | 455.0 |
|
E&C FinFans (1) | 1,028.0 |
| | 434.2 |
|
| Corporate | 79.6 |
| | 92.1 |
|
| Consolidated | $ | 2,481.4 |
| | $ | 1,897.7 |
|
| |
(1)(1)See Note 9, “Goodwill and Intangible Assets,” for further information related to goodwill and identifiable intangible assets, net.
| Total assets at December 31, 2019 includes $593.8 related to AXC of which $287.5 and $256.4 represented acquired goodwill and identifiable intangible assets, net, respectively. See Note 13, “Business Combinations,” for further information related to the AXC acquisition. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Geographic Information
Net sales by geographic area are reported by the destination of sales. Net property, plant and equipment by geographic area are reported by country of domicile. | | | | | | | | | | | |
| | Property, plant and equipment, net as of December 31, |
| 2022 | | 2021 |
| United States | $ | 262.0 | | | $ | 234.0 | |
| Foreign | | | |
| Italy | 56.4 | | | 60.7 | |
| China | 49.3 | | | 58.8 | |
| Czech Republic | 26.6 | | | 29.9 | |
| Germany | 16.3 | | | 16.5 | |
| India | 19.3 | | | 16.1 | |
| Other foreign countries | 0.1 | | | — | |
| Total Foreign | 168.0 | | | 182.0 | |
| Total | $ | 430.0 | | | $ | 416.0 | |
|
| | | | | | | | | | | |
| | Sales for the Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| United States | $ | 688.6 |
| | $ | 604.8 |
| | $ | 475.0 |
|
| Foreign | | | | | |
| China | 89.7 |
| | 115.1 |
| | 101.3 |
|
| Other foreign countries | 520.8 |
| | 364.4 |
| | 266.6 |
|
| Total Foreign | 610.5 |
| | 479.5 |
| | 367.9 |
|
| Total | $ | 1,299.1 |
| | $ | 1,084.3 |
| | $ | 842.9 |
|
F-26
|
| | | | | | | |
| | Property, plant and equipment, net as of December 31, |
| | 2019 | | 2018 |
| United States | $ | 224.8 |
| | $ | 176.8 |
|
| Foreign | | | |
| Italy | 56.4 |
| | 52.9 |
|
| China | 67.8 |
| | 77.2 |
|
| Czech Republic | 25.8 |
| | 21.5 |
|
| Germany | 15.6 |
| | 12.9 |
|
| India | 13.7 |
| | 19.8 |
|
| Other foreign countries | 0.5 |
| | — |
|
| Total Foreign | 179.8 |
| | 184.3 |
|
| Total | $ | 404.6 |
| | $ | 361.1 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Dollars and shares in millions, except per share amounts)
NOTE 5 — Revenue
Disaggregation of Revenue
The following tables represent a disaggregation of revenue by timing of revenue along with the reportable segment for each category:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Consolidated |
| Point in time | $ | 272.2 |
| | $ | 415.1 |
| | $ | 0.3 |
| | $ | 87.9 |
| | $ | (6.8 | ) | | $ | 768.7 |
|
| Over time | 21.2 |
| | 46.6 |
| | 189.9 |
| | 273.8 |
| | (1.1 | ) | | 530.4 |
|
| Total | $ | 293.4 |
| | $ | 461.7 |
| | $ | 190.2 |
| | $ | 361.7 |
| | $ | (7.9 | ) | | $ | 1,299.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Consolidated |
| Point in time | $ | 443.4 | | | $ | 27.3 | | | $ | 214.8 | | | $ | 104.4 | | | $ | (8.8) | | | $ | 781.1 | |
| Over time | 60.9 | | | 435.4 | | | 233.5 | | | 105.2 | | | (3.7) | | | 831.3 | |
| Total | $ | 504.3 | | | $ | 462.7 | | | $ | 448.3 | | | $ | 209.6 | | | $ | (12.5) | | | $ | 1,612.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Consolidated |
| Point in time | $ | 407.6 | | | $ | 19.2 | | | $ | 300.5 | | | $ | 119.1 | | | $ | (10.7) | | | $ | 835.7 | |
| Over time | 39.8 | | | 243.5 | | | 132.4 | | | 67.9 | | | (1.6) | | | 482.0 | |
| Total | $ | 447.4 | | | $ | 262.7 | | | $ | 432.9 | | | $ | 187.0 | | | $ | (12.3) | | | $ | 1,317.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Intersegment Eliminations | | Consolidated |
| Point in time | $ | 222.9 |
| | $ | 405.3 |
| | $ | 1.0 |
| | $ | 135.2 |
| | $ | (6.2 | ) | | $ | 758.2 |
|
| Over time | 23.4 |
| | 50.2 |
| | 135.9 |
| | 118.4 |
| | (1.8 | ) | | 326.1 |
|
| Total | $ | 246.3 |
| | $ | 455.5 |
| | $ | 136.9 |
| | $ | 253.6 |
| | $ | (8.0 | ) | | $ | 1,084.3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Intersegment Eliminations | | Consolidated |
| Point in time | $ | 378.3 | | | $ | 28.6 | | | $ | 184.6 | | | $ | 110.3 | | | $ | (4.5) | | | $ | 697.3 | |
| Over time | 37.5 | | | 341.2 | | | 58.0 | | | 48.0 | | | (4.9) | | | 479.8 | |
| Total | $ | 415.8 | | | $ | 369.8 | | | $ | 242.6 | | | $ | 158.3 | | | $ | (9.4) | | | $ | 1,177.1 | |
Refer to Note 4, “Segment and Geographic Information,” for a table of revenue by reportable segment disaggregated by product application along with the reportable segment for each category.geography.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Contract Balances
The following table represents changes in our contract assets and contract liabilities balances:
|
| | | | | | | | | | | | | | |
| | December 31, 2019 | | January 1, 2019 | | Year-to-date Change ($) | | Year-to-date Change (%) |
| Contract assets | | | | | | | |
| Accounts receivable, net of allowances | $ | 202.6 |
| | $ | 194.8 |
| | $ | 7.8 |
| | 4.0 | % |
| Unbilled contract revenue | 86.1 |
| | 54.5 |
| | 31.6 |
| | 58.0 | % |
| | | | | | | | |
| Contract liabilities | | | | | | | |
| Customer advances and billings in excess of contract revenue | $ | 127.8 |
| | $ | 130.0 |
| | $ | (2.2 | ) | | (1.7 | )% |
| Long-term deferred revenue | 0.8 |
| | 1.4 |
| | (0.6 | ) | | (42.9 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | Year-to-date Change ($) | | Year-to-date Change (%) |
| Contract assets | | | | | | | |
| Accounts receivable, net of allowances | $ | 278.4 | | | $ | 236.3 | | | $ | 42.1 | | | 17.8 | % |
| Unbilled contract revenue | 133.7 | | | 93.5 | | | 40.2 | | | 43.0 | % |
| | | | | | | |
| Contract liabilities | | | | | | | |
| Customer advances and billings in excess of contract revenue | $ | 170.6 | | | $ | 148.5 | | | $ | 22.1 | | | 14.9 | % |
| Long-term deferred revenue | 0.3 | | | 0.4 | | | (0.1) | | | (25.0) | % |
Revenue recognized for the years ended December 31, 20192022 and 2018,2021, that was included in the contract liabilities balance at the beginning of each year was $113.2$127.8 and $83.7,$104.3, respectively. The amount of revenue recognized during the year ended December 31, 20192022 from performance obligations satisfied or partially satisfied in previous periods as a result of changes in the estimates of variable consideration related to long-term contracts, was not significant. Long-term deferred revenue is included in other long-term liabilities in the consolidated balance sheets for the years ended December 31, 2022 and 2021.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm signed purchase orders or other written contractual commitments from customers for which work has not been performed, or is partially completed, and excludes unexercised contract options and potential orders. As of December 31, 2019,2022, the estimated revenue expected to be recognized in the future related to remaining performance obligations was $762.3.$2,338.1, which is equivalent to our backlog. We expect to recognize revenue on approximately 83.4%60% of the remaining performance obligations over the next 12 months and 10% of the remaining performance obligations over the next 13 to 24 months, with the remaining balance recognized over the next few years thereafter.
NOTE 6 — Investments
Equity Method Investments
The following table summarizesrepresents the components of investments:
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Investment in equity securities | $ | 6.9 |
| | $ | — |
|
| Equity investments | 6.5 |
| | 2.8 |
|
| Total investments | $ | 13.4 |
| | $ | 2.8 |
|
Investmentactivity in equity securitiesmethod investments:
| | | | | | | | |
| | Equity Method Investments |
| Balance at December 31, 2020 | | $ | 5.3 | |
New investments (1) (2) | | 58.7 | |
Reclassification from investments in equity securities to equity method investments (2) | | 36.8 | |
Equity in earnings of unconsolidated affiliates, net (1) (2) (3) | | 0.4 | |
| Foreign currency translation adjustments and other | | (1.6) | |
| Balance at December 31, 2021 | | $ | 99.6 | |
New investments (4) | | 0.5 | |
Realized gain on equity method investment (4) | | 0.3 | |
Reclassification due to acquisition of investee (4) | | (0.5) | |
Equity in earnings of unconsolidated affiliates, net (1) (2) (3) | | (0.5) | |
| Foreign currency translation adjustments and other | | (6.4) | |
| Balance at December 31, 2022 | | $ | 93.0 | |
_______________
(1)Cryomotive: During the thirdsecond quarter of 2019,2021, we madecompleted an investment in Stabilis Energy, Inc.Cryomotive GmbH (“Stabilis”Cryomotive”) by converting $7.0in the amount of 6.8 million euros (equivalent to $8.2) for a note receivable from Stabilis into24.9% ownership interest. Our equity method investment in Cryomotive was $4.9 and $7.1 at December 31, 2022 and 2021, respectively. Equity in loss, net of this investment was $1.7 and $0.6 for the years ended December 31, 2022 and 2021, respectively, and is classified in equity in (loss) earnings of unconsolidated affiliates, net in the statement of income for both periods presented.
(2)HTEC: During the fourth quarter 2020, we completed an investment in their company stock. AsHTEC Hydrogen Technology & Energy Corporation (“HTEC”) in the amount of December 31, 2019,CAD 20.0 million (equivalent to $15.7) in exchange for 15.6% of HTEC’s common stock on a fully-diluted basis (the “Initial HTEC Investment”). On September 7, 2021 (the “Closing Date”), we completed an additional investment in HTEC in the valueamount of CAD 63.5 million (equivalent to $50.5), which increased our investment ownership to 25% of HTEC’s common stock on a fully-diluted basis. We recognized a gain of $20.7 upon remeasurement of the investmentInitial HTEC Investment due to an observable price change in an orderly transaction for similar instruments of the same issuer, which was $6.9, which reflects a $0.1recognized in unrealized (gain) loss upon conversion and subsequent mark-to-market. Gains and losses for this investmenton investments in equity securities were recorded in other expenses, net on the consolidated statement of income and comprehensive income duringfor the year ended December 31, 2019.
2021. We categorize our financial assetsreclassified the Initial HTEC Investment inclusive of the $20.7 gain and liabilities that are recordedforeign currency translation gains from investments in equity securities to equity method investments during 2021. Our equity method investment in HTEC was $80.8 and $86.4 at fair value into a hierarchy based on whetherDecember 31, 2022 and 2021, respectively. We recognized equity in (loss) earnings of this investment of $(0.4) and $0.2 for the inputs to valuation techniques are observable to unobservable. As definedyears ended December 31, 2022 and 2021, respectively, which is classified in our significant policies for fair value measurementsequity in Note 2, Level 2 inputs represent other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. The Stabilis investment is measured at fair value(loss) earnings of unconsolidated affiliates, net in the consolidated balance sheet asstatements of income for the years ended December 31, 2019 using Level 2 inputs.2022 and 2021.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Equity method accounting investments
(3)Hudson Products: Our equity investments accounted for under the equity method of accountinginvestments include a 50% ownership interest in a joint venture with Hudson Products de Mexico S.A. de C.V.,CV which totaled $2.9$4.0 and $2.8 for the years ended$3.3 at December 31, 20192022 and 2018,2021, respectively. This investment is operated and managed by our joint venture partner and as such, we do not have control over the joint venture and therefore it is not consolidated. OurWe recognized equity in earnings fromof this investment was $0.2, $0.6of $1.1, $0.5 and $0.3 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Additionally, we have a 25% ownership interestEquity in Liberty LNG which we investedearnings of this investment is classified in during the third quarter of 2019 which totaled $3.3 at December 31, 2019. Earnings for 2019 were not material.
NOTE 7 — Inventoriesequity
The following table summarizes the components of inventory:
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Raw materials and supplies | $ | 104.0 |
| | $ | 97.7 |
|
| Work in process | 47.5 |
| | 53.0 |
|
| Finished goods | 67.9 |
| | 82.4 |
|
| Total inventories, net | $ | 219.4 |
| | $ | 233.1 |
|
The allowance for excess and obsolete inventory balance at December 31, 2019 and 2018 was $10.8 and $9.0, respectively.
NOTE 8 — Property, Plant and Equipment
The following table summarizes the components of property, plant and equipment:
|
| | | | | | | | | | |
| | | | | December 31, |
| Classification | | Estimated Useful Life | | 2019 | | 2018 |
| Land and buildings | | 20-35 years | | $ | 329.7 |
| | $ | 287.0 |
|
| Machinery and equipment | | 3-12 years | | 208.2 |
| | 214.7 |
|
| Computer equipment, furniture and fixtures | | 3-7 years | | 47.7 |
| | 38.5 |
|
| Right-of-use assets | | | | 42.4 |
| | — |
|
| Construction in process | | | | 21.4 |
| | 30.9 |
|
| Total property, plant and equipment, gross | | | | 649.4 |
| | 571.1 |
|
| Less: accumulated depreciation | | | | (244.8 | ) | | (210.0 | ) |
| Total property, plant and equipment, net | | | | $ | 404.6 |
| | $ | 361.1 |
|
Depreciation expense was $39.0, $28.9 and $25.3 for the years ended December 31, 2019, 2018 and 2017, respectively.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
NOTE 9 — GoodwillLiberty LNG: Additionally, we have a 25% ownership interest in Liberty LNG, which totaled $2.9 and Intangible Assets$2.4 at December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, equity in (loss) earnings of this investment was $0.5, $0.3 and $(1.0), respectively. Equity in (loss) earnings of this investment is classified in equity in (loss) earnings of unconsolidated affiliates, net in the statements of income for the years ended December 31, 2022 and 2021, and unrealized (gain) loss on investment in equity securities in the statement of income for the year ended December 31, 2020.
Goodwill(4)AdEdge India: In connection with our acquisition of AdEdge Holdings, LLC (“AdEdge”), we recorded a 50% ownership interest in a joint venture in AdEdge India at a fair value of $0.5. On May 4, 2022, we completed the acquisition of the remaining 50% of the shares of our joint venture in AdEdge India for $0.4 in cash (subject to certain customary adjustments) or $0.3 net of $0.1 cash acquired. On the acquisition date, we recognized a gain of $0.3 from the remeasurement of our initial 50% of the shares in the joint venture, which is classified as realized gain on equity method investment in the consolidated statement of income for the year ended December 31, 2022. See Note 14, “Business Combinations” for further information regarding the AdEdge India acquisition.
We have another immaterial investment in an unconsolidated affiliate of $0.4 for all periods presented.
Investments in equity securities
The following table represents the changesactivity in goodwill by segment:investments in equity securities:
| | | | | | | | | | | | | | | | | | | | | | | |
| Investment in Equity Securities, Level 1 (1) | | Investment in Equity Securities, Level 2 (1) | | Investments in Equity Securities, All Others (2) | | Investments in Equity Securities Total |
| Balance at December 31, 2020 | $ | 53.8 | | | $ | 4.1 | | | $ | 15.7 | | | $ | 73.6 | |
New investments (2) (3) | — | | | — | | | 45.2 | | | 45.2 | |
Reclassification due to acquisition of investee (3) | — | | | — | | | (7.6) | | | (7.6) | |
Reclassification to equity method investments from investments in equity securities (4) | — | | | — | | | (36.8) | | | (36.8) | |
| (Decrease) increase in fair value of investments in equity securities | (19.7) | | | 2.2 | | | 20.7 | | | 3.2 | |
Realized gain on investment in equity securities (3) | — | | | — | | | 2.6 | | | 2.6 | |
| Foreign currency translation adjustments and other | (2.8) | | | (0.1) | | | 0.5 | | | (2.4) | |
| Balance at December 31, 2021 | $ | 31.3 | | | $ | 6.2 | | | $ | 40.3 | | | $ | 77.8 | |
New investments (5) | — | | | — | | | 9.4 | | | 9.4 | |
| | | | | | | |
| | | | | | | |
| (Decrease) increase in fair value of investments in equity securities | (11.8) | | | 1.6 | | | 23.3 | | | 13.1 | |
| | | | | | | |
| Foreign currency translation adjustments and other | (2.3) | | | — | | | (1.5) | | | (3.8) | |
| Balance at December 31, 2022 | $ | 17.2 | | | $ | 7.8 | | | $ | 71.5 | | | $ | 96.5 | |
_______________
(1)McPhy: Investment in equity securities Level 1 includes our investment in McPhy (Euronext Paris: MCPHY – ISIN; FR0011742329). McPhy’s common stock trades on the Euronext Paris stock exchange and therefore we measure our investment in McPhy using Level 1 fair value inputs. The fair value of our investment in McPhy was $17.2 and $31.3 at December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, we recognized an unrealized (loss) gain of $(11.8), $(19.7) and $17.0, respectively, in our investment in McPhy.
Stabilis: Investment in equity securities Level 2 includes our investment in Stabilis Energy, Inc. (NasdaqCM: SLNG) (“Stabilis”). Stabilis represents an instrument with quoted prices that trades less frequently than certain of our other exchange-traded instruments and therefore we measure our investment in Stabilis using Level 2 fair value inputs. The fair value of Stabilis was $7.8 and $6.2 at December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020 we recognized unrealized gains of $1.6 and $2.2 and an unrealized loss of $2.9, respectively, in our investment in Stabilis.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | D&S East | | D&S West | | E&C | | E&C Cryogenics | | E&C FinFans | | Consolidated |
| Balance at January 1, 2018 | $ | 37.3 |
| | $ | 147.3 |
| | $ | 275.1 |
| | $ | — |
| | $ | — |
| | $ | 459.7 |
|
| Foreign currency translation adjustments and other | 0.2 |
| | (0.7 | ) | | (1.1 | ) | | — |
| | — |
| | (1.6 | ) |
| Goodwill acquired during the year | 36.1 |
| | 4.7 |
| | 27.1 |
| | — |
| | — |
| | 67.9 |
|
Purchase price adjustments (1) | — |
| | — |
| | (5.3 | ) | | — |
| | — |
| | (5.3 | ) |
| Balance at December 31, 2018 | 73.6 |
| | 151.3 |
| | 295.8 |
| | — |
| | — |
| | 520.7 |
|
Reallocation (2) | — |
| | — |
| | (295.8 | ) | | 183.5 |
| | 112.3 |
| | — |
|
| Foreign currency translation adjustments and other | (0.9 | ) | | — |
| | — |
| | (0.6 | ) | | (0.2 | ) | | (1.7 | ) |
| Goodwill acquired during the year | — |
| | — |
| | — |
| | — |
| | 287.5 |
| | 287.5 |
|
Purchase price adjustments (3) | 44.3 |
| | 0.8 |
| | — |
| | (6.7 | ) | | — |
| | 38.4 |
|
| Balance at December 31, 2019 | $ | 117.0 |
| | $ | 152.1 |
| | $ | — |
| | $ | 176.2 |
| | $ | 399.6 |
| | $ | 844.9 |
|
| | | | | | | | | | | | |
| Accumulated goodwill impairment loss at December 31, 2018 and January 1, 2018 | $ | — |
| | $ | 82.5 |
| | $ | 64.6 |
| | $ | — |
| | $ | — |
| | $ | 147.1 |
|
| Accumulated goodwill impairment loss at December 31, 2019 | $ | — |
| | $ | 82.5 |
| | $ | — |
| | $ | 40.9 |
| | $ | 23.7 |
| | $ | 147.1 |
|
F-29
_______________ | |
(1)
| During 2018, we recorded purchase price adjustments the decrease goodwill by $5.3 related to the Hudson acquisition. For further information, see Note 13, “Business Combinations.” |
| |
(2)
| The prior E&C segment goodwill and accumulated goodwill impairment loss at December 31, 2018 was reallocated to the 2 new segments, E&C Cryogenics and E&C FinFans, based on their relative fair values as of July 1, 2019. |
| |
(3)
| During 2019, we recorded purchase price adjustments that increased goodwill by $38.4 (including, an increase of $44.3 in D&S East and a decrease of $6.7 in E&C Cryogenic) related to the VRV acquisition and an increase of $0.8 in D&S West related to the Skaff acquisition. For further information, see Note 13, “Business Combinations.”
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
(2)Transform: During the first quarter 2021, we completed an investment in Transform Materials LLC (“Transform Materials”) in the amount of $25.1, inclusive of legal fees, for approximately 5% of its equity. The fair value of our investment in Transform Materials was $25.1 at December 31, 2022 and 2021, respectively.
Svante: Also during the first quarter 2021, we completed an investment in Svante Inc. (“Svante”) in the amount of $15.1, inclusive of legal fees, for under 10% of its capital stock on a fully diluted basis. On December 15, 2022 we increased the fair value of our investment by $23.3 as the result of an observable price change in an orderly transaction, which is recorded as an unrealized gain on investment in equity securities in the consolidated statement of income for the year ended December 31, 2022. The fair value of our investment in Svante was $38.5 and $15.1 at December 31, 2022 and 2021, respectively.
(3)During the second quarter 2021, we completed an investment in Earthly Labs in the amount of $5.0 for approximately 15% of its equity. On December 14, 2021 we completed the acquisition of the remaining 85% of the shares of Earthly Labs. On the acquisition date, we recognized a gain of $2.6 from the remeasurement of our initial 15% investment in Earthly Labs, which is classified as realized gain on investment in equity securities in the consolidated statement of income for the year ended December 31, 2021. See Note 14, “Business Combinations” for further information regarding the Earthly Labs acquisition.
(4)We reclassified the Initial HTEC Investment inclusive of a $20.7 gain and foreign currency translation gains from investments in equity securities to equity method investments. Refer to the “Equity Method Investments” section above for further discussion.
(5)Hy24 (f/k/a FiveT Hydrogen Fund and Clean H2 Infra Fund): During the first quarter of 2022, we completed an investment in Hy24 in the amount of euro 2.2 million (equivalent to $2.4). Our investment in Hy24 is measured at fair value using the net asset value (“NAV”) per share practical expedient and is not classified in the fair value hierarchy. The fair value of our investment in Hy24 was euro 0.9 million (equivalent to $0.9) at December 31, 2022. See “Hy24 (f/k/a FiveT Hydrogen Fund and Clean H2 Infra Fund)” below for further information.
Cemvita Factory Inc., Gold Hydrogen LLC: During the first quarter of 2022, we completed an investment in Gold Hydrogen LLC (“Gold Hydrogen”) in the amount of $1.0. During the third quarter of 2022, we invested an additional $1.0 in Gold Hydrogen. This investment is measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and is included in the investments in equity securities, all others category in the table above. As of December 31, 2022, the value of the investment was $2.0. Gold Hydrogen is a subsidiary company established by Cemvita Factory, Inc. focused on commercializing viable technologies for the subsurface production of biohydrogen.
Avina: During the fourth quarter of 2022, we completed an investment in Avina Clean Hydrogen Inc. (“Avina”) in the amount of $5.0. This investment is measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and is included in the investments in equity securities, all others category in the table above. As of December 31, 2022, the value of the investment was $5.0. Avina is a pioneer in the green hydrogen and green fuels sector with an advanced portfolio of clean hydrogen plants under development and access to proprietary technology solutions. Avina has expertise in the green hydrogen sector and are developing proprietary solutions to integrate intermittent renewable power with commercially available hydrogen technologies.
Per the terms of the Avina stock purchase agreement, at any time prior to the one-year anniversary of Chart’s investment, Chart shall be obligated to purchase an additional 294,627 shares of series A preferred stock (the “Avina Second Tranche Put”) at a purchase price of $16.97 per share if Avina reaches the following milestones:
i.one material off-take agreement in connection with certain specified projects and
ii.either a debt financing loan agreement or a real property lease agreement for certain specified projects
We record the Avina Second Tranche Put at fair value and record any change in fair value through earnings at each reporting period. The fair value of the Avina Second Tranche was not material on the investment date or at December 31, 2022.
Our investments in Transform Materials, Svante, Gold Hydrogen and Avina represent equity instruments without a readily determinable fair value.
Co-Investment Agreement
On September 7, 2021, we entered into a Co-investment agreement with I Squared Capital (“ISQ”), an infrastructure-focused private equity firm (the “Co-Investment Agreement”), pursuant to which Chart and ISQ have agreed to the following:
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
•In the following circumstances, ISQ shall have the right but not the obligation to require Chart to purchase all (and not less than all) of the shares of HTEC common stock acquired as part of ISQ’s investment described above (the “Put Option”):
i.the third anniversary of the Closing Date,
ii.the date Chart undergoes a change of control (subject to certain exceptions),
iii.the date upon which Chart, during the period from the Closing Date through the third anniversary of the Closing Date, has made certain distributions to its shareholders (including cash or other dividends, or via a spin-off transaction), in excess of $900.0,
iv.the date, if any, upon which our leverage ratio exceeds certain thresholds and
v.the date, if any, of a bankruptcy event (including certain insolvency-related actions) involving Chart.
•In the event that ISQ exercises its Put Option, we shall pay to ISQ an amount in cash in exchange for the HTEC common stock then held by ISQ such that ISQ shall realize the greater of (i) an internal rate of return of 10% and (ii) a multiple on ISQ’s invested capital of 1.65x.
•Conversely, at any time after the third anniversary of the Closing Date, we shall have the right to purchase from ISQ up to 20% of the shares of HTEC common stock acquired as part of the ISQ Investment. In exchange for the common stock, we shall pay ISQ the greater of (i) an internal rate of return of 12.5% and (ii) a multiple on ISQ’s invested capital of 1.65x.
•In addition, we shall have (i) a right of first offer: if ISQ desires to transfer any of its HTEC common stock to any third party, we shall have the right to first offer provided that upon notice, we shall have the option to make a first offer to purchase the offered interest in cash exclusively and (ii) a right of first refusal: if ISQ desires to sell its HTEC common stock to any third party pursuant to a definitive agreement therewith, we shall have the right of first refusal provided that the purchase consideration paid by Chart to ISQ upon our exercise of such right of first refusal must be equal to 102% of the purchase consideration agreed to be paid by such third party.
•The Co-Investment Agreement shall terminate automatically upon the consummation of an initial public offering by HTEC of its common stock.
Accounting Treatment of Put and Call Options
We record the Put and Call Options (together “the Options”) at fair value and record any change in fair value through earnings at each reporting period. The fair value of the Options was not material on the Closing Date or at December 31, 2022.
Hy24 (f/k/a FiveT Hydrogen Fund and Clean H2 Infra Fund)
As previously announced on April 5, 2021, we were admitted as an anchor investor in Hy24 (the “Hydrogen Fund”). Hy24 is a joint venture between Ardian, Europe’s largest private investment house with managed assets of c. $114 billion, and FiveT Hydrogen, a new investment manager specialized purely on clean hydrogen investments. As discussed in the “Investments in Equity Securities” section above, our investment to date is euro 0.9 million making our unfunded commitment euro 49.1 million.
The fund manager of the Hydrogen Fund (the “Management Company”) has established a Limited Partners Advisory Committee (the “LPAC”), which met for the first time in January 2022, to consult with and help advise the Management Company with respect to certain key decisions governing the fund that the Management Company shall make. The LPAC is expected be comprised by up to fifteen (15) members, the majority of whom shall be chosen by certain industrial investors and who shall be (i) representatives of the anchor investors and (ii) subject to any remaining available seats, representatives of the non-anchor investors selected by the Management Company.
Class A1 Shares, which we hold, are entitled to the return of any associated paid-up capital contributions (excluding any subscription premium or default interest, if any), the Preferred Return calculated thereon as described below, and their share of the Hydrogen Fund’s capital gain beyond the Preferred Return in accordance with the order of distributions set forth in the by-laws of the Hydrogen Fund (in each case to the extent of available funds). The “Preferred Return” equals an annual interest rate of seven percent (7%) if fifteen percent (15%) of the Hydrogen Fund’s aggregate capital commitments from all investors is invested in strategic investments; provided, however, that such seven percent (7%) interest rate shall be reduced in a linear fashion to six and one-half percent (6.5%) if twenty percent (20%) of the Hydrogen Fund’s aggregate capital commitments
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
from all investors is invested in strategic investments. In October 2022, the Management Company closed the Hydrogen Fund at euro 2.0 billion of capital commitments, exceeding initial ambitions.
The Hydrogen Fund shall determine the net asset value of each class of its shares at the end of each quarter (including the Class A1 Shares that we hold), which will be used to record the fair value of our investment.
The Hydrogen Fund will have a term of twelve (12) years, commencing from December 16, 2021, subject to certain potential extensions. Investors cannot request the redemption of their shares by the Hydrogen Fund at any time prior to the final liquidation of the fund. Capital calls will be made by the Management Company in accordance with investment opportunities and the financing needs of the Hydrogen Fund’s activities.
The Management Company is required to send capital call requests to investors at least ten (10) business days prior to their deadline for payment. In the event that, following any capital call made by the Management Company, an investor of the Hydrogen Fund does not timely fund all or any portion of its capital commitment required thereby, such investor will be charged interest thereon equal to the Preferred Return plus one-half percent (0.5%), and shall not be entitled to receive distributions from the Hydrogen Fund until it is no longer delinquent.
NOTE 7 — Inventories
The following table summarizes the components of inventory:
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Raw materials and supplies | $ | 218.9 | | | $ | 178.8 | |
| Work in process | 57.8 | | | 64.4 | |
| Finished goods | 81.2 | | | 78.3 | |
| Total inventories, net | $ | 357.9 | | | $ | 321.5 | |
The allowance for excess and obsolete inventory balance at December 31, 2022 and 2021 was $8.2 and $10.9, respectively.
NOTE 8 — Property, Plant and Equipment
The following table summarizes the components of property, plant and equipment:
| | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, |
| Classification | | Estimated Useful Life | | 2022 | | 2021 |
| Land and buildings | | 20-35 years | | $ | 353.5 | | | $ | 355.6 | |
| Machinery and equipment | | 3-12 years | | 247.8 | | | 236.5 | |
| Computer equipment, furniture and fixtures | | 3-7 years | | 43.1 | | | 38.8 | |
| Right-of-use assets | | | | 46.9 | | | 48.3 | |
| Construction in process | | | | 66.5 | | | 28.7 | |
| Total property, plant and equipment, gross | | | | 757.8 | | | 707.9 | |
| Less: accumulated depreciation | | | | (327.8) | | | (291.9) | |
| Total property, plant and equipment, net | | | | $ | 430.0 | | | $ | 416.0 | |
Depreciation expense was $40.5, $41.7 and $38.8 for the years ended December 31, 2022, 2021 and 2020, respectively.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
NOTE 9 — Goodwill and Intangible Assets
Goodwill
The following table represents the activity in goodwill net of accumulated goodwill impairment loss (“goodwill, net”) and accumulated goodwill impairment loss by segment for 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Consolidated |
| Goodwill, net balance at December 31, 2021 | $ | 84.9 | | | $ | 433.6 | | | $ | 300.9 | | | $ | 175.2 | | | $ | 994.6 | |
Goodwill acquired during the period (1) (2) | — | | | — | | | 15.4 | | | 3.1 | | | 18.5 | |
| Foreign currency translation adjustments and other | (5.8) | | | (3.1) | | | (0.3) | | | 0.3 | | | (8.9) | |
Purchase price adjustments (3) | — | | | — | | | (12.0) | | | (0.2) | | | (12.2) | |
| Goodwill, net balance at December 31, 2022 | $ | 79.1 | | | $ | 430.5 | | | $ | 304.0 | | | $ | 178.4 | | | $ | 992.0 | |
| | | | | | | | | |
| Accumulated goodwill impairment loss at December 31, 2021 | $ | 23.5 | | | $ | 49.3 | | | $ | 35.8 | | | $ | 20.4 | | | $ | 129.0 | |
| | | | | | | | | |
| Accumulated goodwill impairment loss at December 31, 2022 | $ | 23.5 | | | $ | 49.3 | | | $ | 35.8 | | | $ | 20.4 | | | $ | 129.0 | |
_______________
(1)For further information regarding goodwill acquired and the purchase price adjustments during the period refer to Note 14, “Business Combinations.”
(2)Goodwill acquired during the period was $18.5. Goodwill acquired during the period for the Fronti and AdEdge India acquisitions of $14.3 and $1.1, respectively, was allocated to our Specialty Products segment. Goodwill acquired during the period for our CSC acquisition of $3.1 was allocated to our Repair, Service & Leasing segment.
(3)During the year ended December 31, 2022, we recorded purchase price adjustments that decreased goodwill by $12.0 in our Specialty Products segment related to the Earthly Labs, Inc., L.A. Turbine and AdEdge acquisitions and by $0.2 in our Repair, Service & Leasing segment. For further information regarding goodwill acquired and the purchase price adjustments during the period refer to Note 14, “Business Combinations.”
The following table represents the activity in goodwill net of accumulated goodwill impairment loss (“goodwill, net”) and accumulated goodwill impairment loss by segment for 2021 (1):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Consolidated |
| Goodwill, net balance at December 31, 2020 | $ | 93.2 | | | $ | 435.2 | | | $ | 172.4 | | | $ | 165.1 | | | $ | 865.9 | |
Goodwill acquired during the period (1) (2) | — | | | 2.9 | | | 127.1 | | | 10.1 | | | 140.1 | |
| Foreign currency translation adjustments and other | (8.3) | | | (4.5) | | | — | | | — | | | (12.8) | |
Purchase price adjustments (3) | — | | | — | | | 1.4 | | | — | | | 1.4 | |
| Goodwill, net balance at December 31, 2021 | $ | 84.9 | | | $ | 433.6 | | | $ | 300.9 | | | $ | 175.2 | | | $ | 994.6 | |
| | | | | | | | | |
| Accumulated goodwill impairment loss at December 31, 2020 | $ | 23.5 | | | $ | 49.3 | | | $ | 35.8 | | | $ | 20.4 | | | $ | 129.0 | |
| | | | | | | | | |
| Accumulated goodwill impairment loss at December 31, 2021 | $ | 23.5 | | | $ | 49.3 | | | $ | 35.8 | | | $ | 20.4 | | | $ | 129.0 | |
_______________
(1)For further information regarding goodwill acquired and the purchase price adjustments during the period refer to Note 14, “Business Combinations.”
(2)Goodwill acquired during the period for the L.A. Turbine acquisition of $42.1 was allocated to certain reporting units as follows: $29.1 - Specialty Products, $10.1 - Repair, Service & Leasing and $2.9 - Heat Transfer Systems. Goodwill acquired during the period for the Cryogenic Gas Technologies, Inc., AdEdge Holdings, LLC and Earthly Labs Inc. acquisitions was $34.9, $15.9 and $47.2, respectively and is included in the Specialty Products segment.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
(3)During the year ended December 31, 2021, we recorded purchase price adjustments that increased goodwill by $1.4 in Specialty Products related to the BlueInGreen, LLC acquisition.
Intangible Assets
The following table displays the gross carrying amount and accumulated amortization for finite-lived intangible assets and indefinite-lived intangible assets (exclusive of goodwill) (1):
|
| | | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| | Weighted-average Estimated Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Finite-lived intangible assets: | | | | | | | | | |
| Customer relationships | 14 years | | $ | 380.3 |
| | $ | (115.0 | ) | | $ | 254.0 |
| | $ | (92.0 | ) |
| Unpatented technology | 11 years | | 90.1 |
| | (13.0 | ) | | 39.4 |
| | (5.1 | ) |
| Patents and other | 6 years | | 20.9 |
| | (9.8 | ) | | 14.0 |
| | (1.5 | ) |
| Trademarks and trade names | 14 years | | 2.4 |
| | (1.2 | ) | | 13.5 |
| | (1.1 | ) |
| Land rights | 50 years | | 12.0 |
| | (1.5 | ) | | 12.2 |
| | (1.3 | ) |
| Total finite-lived intangible assets | 13 years | | $ | 505.7 |
| | $ | (140.5 | ) | | $ | 333.1 |
| | $ | (101.0 | ) |
| Indefinite-lived intangible assets: | | | | | | | | | |
| Trademarks and trade names | | | 163.9 |
| | — |
| | 98.3 |
| | — |
|
| Total intangible assets | | | $ | 669.6 |
| | $ | (140.5 | ) | | $ | 431.4 |
| | $ | (101.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | Weighted-average Estimated Useful Life | | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
| Finite-lived intangible assets: | | | | | | | | | |
| Customer relationships | 13 years | | $ | 311.5 | | | $ | (104.6) | | | $ | 312.1 | | | $ | (82.2) | |
| Unpatented technology | 14 years | | 202.5 | | | (44.8) | | | 184.6 | | | (30.1) | |
| Patents and other | 6 years | | 6.8 | | | (2.0) | | | 7.9 | | | (2.3) | |
| Trademarks and trade names | 16 years | | 2.5 | | | (1.7) | | | 3.5 | | | (1.8) | |
| Land use rights | 50 years | | 10.4 | | | (1.7) | | | 11.4 | | | (1.6) | |
| Total finite-lived intangible assets | 14 years | | $ | 533.7 | | | $ | (154.8) | | | $ | 519.5 | | | $ | (118.0) | |
| Indefinite-lived intangible assets: | | | | | | | | | |
Trademarks and trade names (2) | | | $ | 156.4 | | | $ | — | | | $ | 154.6 | | | $ | — | |
| Total intangible assets | | | $ | 690.1 | | | $ | (154.8) | | | $ | 674.1 | | | $ | (118.0) | |
_______________
| |
(1)(1)Amounts include the impact of foreign currency translation. Fully amortized or impaired amounts are written off. (2)Accumulated indefinite-lived intangible assets impairment loss was $16.0 at both December 31, 2022 and 2021. | Amounts include the impact of foreign currency translation. Fully amortized or impaired amounts are written off. |
Amortization expense for intangible assets subject to amortization was $39.8, $21.9$41.4, $38.9 and $12.2$45.7 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. We estimate amortization expense to be recognized during the next five years as follows:
|
| | | |
| For the Year Ending December 31, | |
| 2020 | $ | 49.2 |
|
| 2021 | 34.9 |
|
| 2022 | 34.7 |
|
| 2023 | 34.5 |
|
| 2024 | 34.3 |
|
| | | | | |
| For the Year Ending December 31, | |
| 2023 | $ | 42.4 | |
| 2024 | 41.2 | |
| 2025 | 40.2 | |
| 2026 | 39.7 | |
| 2027 | 36.2 | |
See Note 13,14, “Business Combinations,” for further information related to intangible assets acquired during 2019 and 2018.acquired.
Government Grants
During the fourth quarter 2021, we were selected by the U.S. Department of Energy (“DOE”) for funding of up to $5 million to engineer and build our Cryogenic Carbon CaptureTM system for a cement plant. During the project’s duration, the DOE shall reimburse us in cash for approved expenses we incur. This project began on February 1, 2022, at which point expenses incurred may be submitted for reimbursement. The agreement will be effective until April 30, 2025. We have not yet received any funding for this grant.
We received certain government grants related to land use rights for capacity expansion in China (“China Government Grants”). China Government Grants are generally recorded in other current liabilities and other long-term liabilities in the consolidated balance sheets and generally recognized into income over the useful life of the associated assets (10 to 50 years).
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
China Government Grants are presented in our consolidated balance sheets as follows:
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Current | $ | 0.5 |
| | $ | 0.5 |
|
| Long-term | 7.2 |
| | 7.7 |
|
| Total China Government Grants | $ | 7.7 |
| | $ | 8.2 |
|
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Current | $ | 0.5 | | | $ | 0.5 | |
| Long-term | 6.1 | | | 7.0 | |
| Total China Government Grants | $ | 6.6 | | | $ | 7.5 | |
We also received government grants from certain local jurisdictions within the United States, which are recorded in other assets in the consolidated balance sheets and were not significant for the periods presented.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
NOTE 10 — Debt and Credit Arrangements
Summary of Outstanding Borrowings
The following table represents the components of our borrowings:
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
Senior secured revolving credit facilities and term loan:
| | | |
Term loan due June 2024 (1) | $ | 447.2 |
| | $ | — |
|
Senior secured revolving credit facility due June 2024 (2) | 119.0 |
| | — |
|
| Senior secured revolving credit facility due November 2022 | — |
| | 329.3 |
|
| Unamortized debt issuance costs | (5.5 | ) | | — |
|
| Senior secured revolving credit facility and term loan, net of debt issuance costs | 560.7 |
| | 329.3 |
|
| | | | |
Convertible notes due November 2024:
| | | |
| Principal amount | 258.8 |
| | 258.8 |
|
| Unamortized discount | (42.8 | ) | | (50.4 | ) |
| Unamortized debt issuance costs | (3.8 | ) | | (4.5 | ) |
| Convertible notes due November 2024, net of unamortized discount and debt issuance costs | 212.2 |
| | 203.9 |
|
| | | | |
| Foreign facilities | 4.4 |
| | 11.2 |
|
| | | | |
| Total debt, net of unamortized discount and debt issuance costs | 777.3 |
| | 544.4 |
|
| Less: current maturities | 15.7 |
| | 11.2 |
|
| Less: current portion of unamortized debt issuance costs | 0.6 |
| | — |
|
| Long-term debt | $ | 761.0 |
| | $ | 533.2 |
|
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Senior secured and senior unsecured notes: | | | |
Principal amount, senior secured notes due 2030 (1) | $ | 1,460.0 | | | $ | — | |
Principal amount, senior unsecured notes due 2031 (1) | 510.0 | | | — | |
| Unamortized discount | (29.9) | | | — | |
| Unamortized debt issuance costs | (4.8) | | | — | |
| Senior secured and senior unsecured notes, net of unamortized discount and debt issuance costs | 1,935.3 | | | — | |
| | | |
| Senior secured revolving credit facilities: | | | |
Senior secured revolving credit facility due October 2026 (2) (3) | 104.5 | | | 600.8 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Convertible notes due November 2024: | | | |
| Principal amount | 258.8 | | | 258.8 | |
| | | |
| Unamortized debt issuance costs | (1.9) | | | (2.9) | |
| Convertible notes due November 2024, net of unamortized debt issuance costs | 256.9 | | | 255.9 | |
| | | |
| | | |
| | | |
| Total debt, net of debt issuance costs | 2,296.7 | | | 856.7 | |
Less: current maturities (4) | 256.9 | | | 255.9 | |
| Long-term debt | $ | 2,039.8 | | | $ | 600.8 | |
_______________ | |
(1)The senior secured notes due 2030 (the “Secured Notes”) and senior unsecured notes due 2031 (the “Unsecured Notes”) bear interest at rates of 7.500% and 9.500% per year, respectively. Interest is payable semi-annually on January 1 and July 1 of each year, commencing July 1, 2023. The Secured Notes mature on January 1, 2030, and the Unsecured Notes mature on January 1, 2031. (2)As of December 31, 2022, there was $104.5 outstanding under the senior secured revolving credit facility due October 2026 bearing a weighted-average interest rate of 3.4% and $89.1 in letters of credit and bank guarantees outstanding supported by the senior secured revolving credit facility due October 2026. As of December 31, 2022 the senior secured revolving credit facility due October 2026 had availability of $806.4. (3)All of our borrowings outstanding under our senior secured revolving credit facilities due October 2026 are denominated in euros (“EUR Revolver Borrowings”). EUR Revolver Borrowings outstanding were 98.0 million euros (equivalent to $104.5) at December 31, 2022. (4)Our convertible notes due November 2024, net of debt issuance costs, are included in current maturities for both periods presented. There are no scheduled principal payments for any of our debt instruments until November 2024. The $258.8 principal balance of the convertible notes due November 2024 will mature on November 15, 2024, yet the carrying amount of the convertible notes due November 2024 is treated as current for financial statement reporting purposes. | As of December 31, 2019, there was $447.2 in borrowings outstanding under the term loan bearing an interest rate of 3.99%. The term loan is repayable annually in quarterly installments of 2.5% of the loan amount over the first two years, 5.0% for the third year, 7.5% for the fourth year and 10.0% for the fifth and final year. |
| |
(2)
| The senior secured revolving credit facility due 2024 includes $100.0 sub limit for letters of credit, a $250.0 sub limit for discretionary letters of credit and a $50.0 sub-limit for swingline loans. As of December 31, 2019, there was $119.0 in borrowings outstanding under the senior secured revolving credit facility due 2024 bearing a weighted-average interest rate of 2.57% and $71.5 in letters of credit and bank guarantees outstanding supported by the senior secured revolving credit facility due 2024. As December 31, 2019, the senior secured revolving credit facility due 2024 had availability of $359.5. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Scheduled Annual Maturities | | | | | |
| For the Year Ending December 31, | |
| 2023 | $ | — | |
| 2024 | 258.8 | |
| 2025 | — | |
| 2026 | 104.5 | |
| 2027 | — | |
| Thereafter | 1,970.0 | |
| Total | $ | 2,333.3 | |
The scheduled annual maturities of debt at December 31, 2019, are as follows:
|
| | | |
| Year | Amount |
2020 (1) | $ | 15.7 |
|
| 2021 | 14.0 |
|
| 2022 | 25.3 |
|
| 2023 | 36.6 |
|
| 2024 | 737.8 |
|
| Total | $ | 829.4 |
|
_______________
| |
(1)
| Includes $4.4 current maturities related to foreign facilities. |
Cash paid for interest during the years ended December 31, 2019, 20182022, 2021 and 20172020 was $17.7, $15.9,$25.7, $11.7, and $9.3,$18.1, respectively.
Senior Secured and Unsecured Notes
On December 22, 2022, we completed the issuance and sale of (i) $1,460.0 aggregate principal amount of 7.500% Secured Notes at an issue price of 98.661% and (ii) $510.0 aggregate principal amount of 9.500% Unsecured Notes (together with the Secured Notes, the “Notes”), at an issue price of 97.949%. The Notes were issued to finance the proposed $4.4 billion acquisition by Chart of the business of Howden and its subsidiaries (the “Acquisition”). Chart has deposited the gross proceeds from the offering of each series of Notes into an escrow account (each, an “Escrow Account”). The funds are held in the respective Escrow Account until certain release conditions are met including the consummation of the Acquisition (the “Escrow Release Conditions”). As such, the proceeds have been presented separately from cash and cash equivalents as restricted cash in the December 31, 2022 balance sheet. If the Escrow Release Conditions are not satisfied on or prior to November 15, 2023, or upon Chart notifying the escrow agent and the trustee in writing that Chart will not pursue the consummation of the Acquisition and that the purchase agreement relating to the Acquisition has been terminated, the Notes will be subject to a special mandatory redemption (a “Special Mandatory Redemption”). The Special Mandatory Redemption price will be equal to 100% of the aggregate issue price of each series of the Notes, as applicable, plus accrued and unpaid interest from the most recent date to which interest has been paid or, if no interest has been paid, from their issuance date to, but not including, the payment date of such Special Mandatory Redemption.
The Notes are fully and unconditionally guaranteed by each of Chart’s wholly owned domestic restricted subsidiaries that is a borrower or a guarantor under Chart’s Fifth Amended and Restated Credit Agreement, dated as of October 18, 2021 (as amended, restated, supplemented, or otherwise modified from time to time). The Secured Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.
We may redeem either series of the Notes, in whole or in part, at any time on or after January 1, 2026, at the redemption prices set forth in the respective Indentures. We may also redeem up to 40% of the aggregate principal amount of each series of the Notes on or prior to January 1, 2026, in an amount not to exceed the net cash proceeds from certain equity offerings at the redemption prices set forth in the respective Indentures. Prior to January 1, 2026, we may redeem some or all of either series of the Notes at a price which includes the applicable “make-whole” premium set forth in the respective Indentures.
If Chart experiences a change of control (as defined in the respective Indentures), the Notes are able to be redeemed by the holders at 101%, plus accrued and unpaid interest, if any, to (but not including) the date the Notes are purchased.
We recorded $30.0 in debt discount and $4.8 in deferred debt issuance costs associated with the Notes, which are being amortized over the term of the Notes using the effective interest method. Financing costs amortization associated with the Notes was immaterial for the year ended December 31, 2022.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The following table summarizes the interest accretion of the Notes discount and contractual interest coupon associated with the Notes:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Notes, interest accretion of senior notes discount | $ | 0.1 | | | $ | — | | | $ | — | |
| Secured Notes, 7.5% contractual interest coupon | 3.0 | | | — | | | — | |
| Unsecured Notes, 9.5% contractual interest coupon | 1.3 | | | — | | | — | |
| Notes, total interest expense | $ | 4.4 | | | $ | — | | | $ | — | |
| | | | | |
| | | | | |
Senior Secured Revolving Credit Facilities and Term LoanFacility
On June 14, 2019,November 21, 2022, we entered into an amendment (“Amendment No. 1”) to our fifth amended and restated revolving credit agreement (the “SSRCF”), dated as of October 18, 2021 (the “Credit Agreement” and as amended by the FourthAmendment No. 1, the “Amended Credit Agreement”). The Amended and Restated Credit Agreement provides for a Senior Secured Revolving Credit Facility (the “Amended SSRCF”), which matures on October 19, 2026. Amendment No. 1 modifies certain provisions of the Credit Agreement to, among other things (i) permit the closing of the Acquisition and the related financing transactions, including the incurrence of up to $3.375 billion of indebtedness under a senior bridge facility (the “Bridge Facility”); (ii) permit the incurrence of additional indebtedness to replace or refinance the Bridge Facility (either within the existing facility, or outside the facility, in each case on a pari passu, junior or unsecured basis) as well as additional incremental indebtedness or other equivalent indebtedness outside of the Bridge Facility, subject to ratio incurrence tests and a customary starter basket; (iii) adjust the financial covenants in the Amended Credit Agreement following effectiveness of the Acquisition by (A) reducing the interest coverage ratio to (x) 2.00 to 1.00 until the last day of the sixth full fiscal quarter after the closing of the Acquisition, and (y) 2.50 to 1.00 thereafter (the “Minimum Interest Coverage Ratio Levels”); and (B) increasing the total net leverage ratio covenant to (x) 6.00 to 1.00 until the last day of the fourth full fiscal quarter ending after the closing of the Acquisition, (y) 5.00 to 1.00 until the last day of the sixth full fiscal quarter ending after the closing of the Acquisition and (z) 4.50 to 1.00 thereafter (the “Maximum Total Net Leverage Ratio Levels”); and (iv) make certain other changes, including with respect to the ability to borrow in certain foreign currencies, and other modifications to the negative covenants to accommodate the business and operations of the companies to be acquired in the Acquisition within the Amended Credit Agreement.
•The Amended SSRCF has a borrowing capacity of $1,000.0 and includes a senior secured revolvingsub limit for letters of credit facility (the “SSRCF”)that is the greater of (x) $350.00 and (y) $150.00 plus (1) the Dollar Amount (as of the Amended Closing Date) of the Assumed Letters of Credit plus (2) the Dollar Amount of any Letters of Credit issued on the Amendment Closing Date, a $200.0 sub limit for discretionary letters of credit, and a $100.0 sub-limit for swingline loans.
•We may, subject to the satisfaction of certain conditions, request one or more new commitments and/or increase in the amount of the Amended SSRCF. Each incremental term loan (together,commitment and incremental revolving commitment shall be in an aggregate principal amount that is not less than $10.0 and shall be in an increment of $1.0 to the “2019 Credit Facilities”). extent existing or new lenders agree to provide such increased or additional commitments, as applicable.
•The 2019 Credit Facilities matureAmended SSRCF bears interest at a base rate plus an applicable margin determined on June 14, 2024.a leveraged-based scale which (before giving effect to the sustainability pricing adjustments described below) ranges from 25 to 125 basis points for base rate loans and 125 to 225 basis points for LIBOR loans.
| |
• | The SSRCF has a borrowing capacity•The applicable margin described above is subject to further adjustments based on the reductions in the ratio between (i) the total greenhouse gas emissions, measured in metric tons CO2e, of Chart and its subsidiaries during such calendar year and (ii) the aggregate revenue, measured in U.S. Dollars, of Chart and its subsidiaries during such calendar year. These additional pricing adjustments range from an addition of 0.05% to a reduction of 0.05% in the applicable margin described above. •We are required to pay commitment fees on any unused commitments under the Amended SSRCF which, before giving effect to the sustainability fee adjustments (as described below), is determined on a leverage-based sliding scale ranging from 20 to 35 basis points. •The commitment fees described above are also subject to sustainability fee adjustments based on the aforementioned ratio. The sustainability fee adjustments range from an addition of 0.01% to a reduction of 0.01%. •$550.0. |
| |
• | The term loan has a borrowing capacity of $450.0.
|
| |
• | The 2019 Credit Facilities bear interest at a base rate margin determined on a leveraged-based scale which ranges from 25 to 125 basis points for alternative base rate loans and 125 to 225 basis points for LIBOR loans.
|
Interest and fees are payable on a quarterly basis (or if earlier, at the end of each interest period for LIBOR loans).
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Significant financial covenants for the 2019 Credit FacilitiesAmended SSRCF include financial maintenance covenants that, as of the last day of any fiscal quarter ending on and after JuneSeptember 30, 2019,2021, (i) require the ratio of the amount of Chart and its subsidiaries’ consolidated total net indebtedness to consolidated EBITDA to be less than specified maximum ratio levelsthe Maximum Total Net Leverage Ratio Levels and (ii) require the ratio of the amount of Chart and its subsidiaries’ consolidated EBITDA to consolidated cash interest expense to be greater than a specified minimum ratio level.the Minimum Interest Coverage Ratio Levels. The 2019 Credit Facilities includeAmended SSRCF includes a number of other customary covenants including, but not limited to, restrictions on our ability to incur additional indebtedness, create liens or other encumbrances, sell assets, enter into sale and lease-back transactions, make certain payments, investments, loans, advances or guarantees, make acquisitions and engage in mergers or consolidations and pay dividends or distributions. At December 31, 2019,2022, we were in compliance with all covenants.
The 2019 Credit FacilitiesAmended SSRCF also containcontains customary events of default. If such an event of default occurs, the lenders thereunder would be entitled to take various actions, including the acceleration of amounts due and all actions permitted to be taken by a secured creditor. The 2019 Credit Facilities areAmended SSRCF is guaranteed by Chart and substantially all of its U.S. subsidiaries, and secured by substantially all of the assets of Chart and ourits U.S. subsidiaries and 65% of the capital stock of our material non-U.S. subsidiaries (as defined byin the Fourth Amended and Restated Credit Agreement) that are owned by U.S. subsidiaries.
WeIn 2022, we recorded $6.1 in deferred debt issuance costs, which is included in long-term debt in the consolidated balance sheet at December 31, 2019, associated with the term loan, which is being amortized over its five-year term beginning in July 2019.
We paid $7.5$1.5 in deferred debt issuance costs, related to the amended SSCRFAmended SSRCF and included $2.5$7.1 of the unamortized debt issuance costs from the previous senior secured revolving credit facility,SSRCF which are presented in other assets in the consolidated balance sheet at December 31, 20192022 and are being amortized over the five-year term of the Amended SSRCF. At December 31, 2019,2022, unamortized debt issuance costs associated with the Amended SSRCF were $9.5. $8.4.
In conjunction with the amendment of our credit facilities, we wrote off $0.2 in$0.1 and $3.7 of the unamortized deferred debt issuance costs which related to theassociated with our previous senior secured revolving credit facility.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollarsfacility due June 2024 and sharesthe term loan due June 2024, respectively. In addition to these amounts, we also immediately expensed $0.3 in millions, except per share amounts)
The following table summarizes interest expense and financing costs amortization related to the 2019 Credit FacilitiesAmended SSRCF and our previous senior secured revolving credit facility:facilities:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Interest expense, term loan due June 2024 | $ | 8.4 |
| | $ | — |
| | $ | — |
|
| Interest expense, senior secured revolving credit facilities | 7.5 |
| | 11.8 |
| | 2.7 |
|
| Interest expense, senior secured revolving credit facilities and term loan due June 2024 | $ | 15.9 |
| | $ | 11.8 |
| | $ | 2.7 |
|
| | | | | | |
| Financing costs amortization, senior secured revolving credit facilities and term loan due 2024 | $ | 2.0 |
| | $ | 0.6 |
| | $ | 0.6 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Interest expense, senior secured revolving credit facilities due October 2026 | $ | 23.4 | | | $ | 2.5 | | | $ | — | |
| Interest expense, term loan due June 2024 | — | | | 1.8 | | | 4.8 | |
| Interest expense, senior secured revolving credit facilities due June 2024 | — | | | 4.7 | | | 2.2 | |
| Total interest expense | $ | 23.4 | | | $ | 9.0 | | | $ | 7.0 | |
| | | | | |
| Financing costs amortization, senior secured revolving credit facility due October 2026 | $ | 1.9 | | | $ | 0.4 | | | $ | — | |
| Financing costs amortization, senior secured revolving credit facility and term loan due June 2024, write off of unamortized deferred debt issuance costs | — | | | 3.8 | | | — | |
| Financing costs amortization, new debt issuance costs immediately charged to net income | — | | | 0.3 | | | — | |
| Financing costs amortization, senior secured revolving credit facility and term loan due June 2024 | — | | | 2.9 | | | 3.6 | |
| Total financing costs amortization | $ | 1.9 | | | $ | 7.4 | | | $ | 3.6 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
2024 Convertible Notes
On November 6, 2017, we issued 1.00% Convertible Senior Subordinated Notes due November 2024 (the “2024 Notes”) in the aggregate principal amount of $258.8, pursuant to an Indenture, dated as of such date (the “Indenture”). On December 31, 2020, we entered into the First Supplemental Indenture (the “Supplemental Indenture”) to the Indenture, between Chart and Wells Fargo Bank, National Association, as trustee, governing the 2024 Notes. Pursuant to the Supplemental Indenture, Chart irrevocably elected (i) to eliminate Chart’s option to elect Physical Settlement (as defined in the Indenture) on any conversion of 2024 Notes that occurs on or after the date of the Supplemental Indenture and (ii) that, with respect to any Combination
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Settlement (as defined in the Indenture) for a conversion of 2024 Notes, the Specified Dollar Amount (as defined in the Indenture) that will be settled in cash per $1,000 principal amount of the Notes shall be no lower than $1,000. The 2024 Notes bear interest at an annual rate of 1.00%, payable on May 15 and November 15 of each year, beginning on May 15, 2018, and will mature on November 15, 2024 unless earlier converted or repurchased.
The 2024 Notes are senior subordinated unsecured obligations of the Company and are not guaranteed by any of our subsidiaries. The 2024 Notes are senior in right of payment to our future subordinated debt, equal in right of payment with the Company’s future senior subordinated debt and are subordinated in right of payment to our existing and future senior indebtedness, including indebtedness under our existing credit agreement.
APrior to December 31, 2020, a conversion of the 2024 Notes may becould have been settled in cash, shares of our common stock or a combination of cash and shares of our common stock, at our election (subject to, and in accordance with, the settlement provisions of the Indenture). After December 31, 2020, a conversion of the 2024 Notes may be settled in either (1) cash or (2) cash for the principal amount of the 2024 Notes and any combination of cash and shares for the excess settlement amount above the principal amount of the 2024 Notes, at our election (subject to, and in accordance with, the settlement provisions of the Indenture and Supplemental Indenture).
The initial conversion rate for the 2024 Notes is 17.0285 shares of common stock (subject to adjustment as provided for in the Indenture) per $1,000 principal amount of the 2024 Notes, which is equal to an initial conversion price of approximately $58.725 per share, representing a conversion premium of approximately 35% above the closing price of our common stock of $43.50 per share on October 31, 2017. In addition, following certain corporate events that occur prior to the maturity date as described in the Indenture, we will pay a make-whole premium by increasing the conversion rate for a holder who elects to convert its 2024 Notes in connection with such a corporate event in certain circumstances. For purposes of calculating earnings per share, if the average market price of our common stock exceeds the applicable conversion price during the periods reported, shares contingently issuable under the 2024 Notes will have a dilutive effect with respect to our common stock. BecauseSince our closing common stock price of $67.49$115.23 at the end of the period exceeded the conversion price of $58.725, the if-converted value exceeded the principal amount of the 2024 Notes by approximately $38.6$249.0 at December 31, 2019.2022. As described below, we entered into convertible note hedge transactions, which are expected to reduce the potential dilution with respect to our common stock upon conversion of the 2024 Notes.
Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2024 only under the following circumstances: (1) during any fiscal quarter commencing after December 31, 2017 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per one thousand U.S. dollar principal amount of Notes for each trading day of such measurement period was less than 97% of the product of the last reported sale price of our common stock and the applicable conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events described in the Indenture.
On or after August 15, 2024 until the close of business on the second scheduled trading day immediately preceding November 15, 2024, holders may convert their 2024 Notes at the option of the holder regardless of the foregoing circumstances. Upon
As of January 1, 2023, the 2024 Notes continue to be convertible at the option of the shareholders. This conversion we may settleright, which will remain available until March 31, 2023, was triggered since the conversion by paying or delivering either sharesclosing price of our common stock solely cash,was greater than or a combinationequal to $76.3425 (130% of cash and sharesthe conversion price of our common stock,the 2024 Notes) for at our election. It is our intentionleast 20 trading days during the last 30 trading days ending on December 31, 2022. Since the holders of the 2024 Notes could potentially convert their 2024 Notes at their option during the three month period subsequent to settleDecember 31, 2022, the $258.8 principal amount of the 2024 Notes was classified as a current liability in cashthe consolidated balance sheet at December 31, 2022. We reassess the convertibility of the 2024 Notes and excess conversion value in sharesthe related balance sheet classification on a quarterly basis. There have been no conversions as of our common stock.the date of this filing.
After the adoption of ASU 2020-06, we recorded an adjustment to the debt issuance costs contra liability and equity (additional paid-in-capital) components as if debt issuance costs had always been treated as a contra liability only. We amortize the adjusted unamortized debt issuance costs balance over the term of the 2024 Notes using the effective interest method.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
We reassessRefer to Note 2 “Significant Accounting Policies” for further discussion regarding the convertibilitycumulative effect of the 2024 Notes and the relatedchanges to our consolidated balance sheet classification on a quarterly basis. As of December 31, 2019, events for early conversion were not met, and thus the 2024 Notes were not convertible as of and for the fiscal quarter beginning January 1, 2020. There have been no conversions as2021 from the adoption of the date of this filing.
We allocated the gross proceeds of the 2024 Notes between the liability and equity components of the 2024 Notes. The initial liability component of $200.1, which was recorded as long-term debt, represents the fair value of similar debt instruments that have no conversion rights. The initial equity component of $58.7, which was recorded as additional paid-in capital, represents the debt discount and was calculated as the difference between the fair value of the liability component and gross proceeds of the 2024 Notes. The liability component was recognized at the present value of its associated cash flows using a 4.8% straight-debt rate (as defined in Note 2) and is being accreted to interest expense over the term of the 2024 Notes.
We recorded $5.3 in deferred debt issuance costs associated with the 2024 Notes, which are being amortized over the term of the 2024 Notes using the effective interest method. We also recorded $1.5 in equity issuance costs, which was recorded as a reduction to additional paid-in capital in the December 31, 2017 consolidated balance sheet.ASU 2020-06.
The following table summarizes interest accretion of the 2024 Notes discount, 1.0% contractual interest coupon and financing costs amortization associated with the 2024 Notes:
|
| | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 |
| 2024 Notes, interest accretion of convertible notes discount | $ | 7.6 |
| | $ | 7.2 |
|
| 2024 Notes, 1.0% contractual interest coupon | 2.6 |
| | 2.6 |
|
| 2024 Notes, total interest expense | $ | 10.2 |
| | $ | 9.8 |
|
| | | | |
| 2024 Notes, financing costs amortization | $ | 0.7 |
| | $ | 0.6 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| 2024 Notes, interest accretion of convertible notes discount | $ | — | | | $ | — | | | $ | 8.0 | |
| 2024 Notes, 1.0% contractual interest coupon, 1.5% for 2022 | 4.0 | | | 2.6 | | | 2.6 | |
| 2024 Notes, total interest expense | $ | 4.0 | | | $ | 2.6 | | | $ | 10.6 | |
| | | | | |
| 2024 Notes, financing costs amortization | $ | 0.9 | | | $ | 0.9 | | | $ | 0.7 | |
Convertible Note Hedge and Warrant Transactions Associated with the 2024 Notes
In connection with the pricing of the 2024 Notes, we entered into convertible note hedge transactions (the “Note Hedge Transactions”) with certain parties, including the initial purchasers of the 2024 Notes (the “Option Counterparties”). The Note Hedge Transactions are expected generally to reduce the potential dilution upon any future conversion of the 2024 Notes. Payments for the Note Hedge Transactions totaled approximately $59.5 and were recorded as a reduction to additional paid-in capital in the December 31, 2017 consolidated balance sheet.
We also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with the Option Counterparties to acquire up to 4.41 shares of our common stock. Proceeds received from the issuance of the Warrant Transactions totaled approximately $46.0 and were recorded as an addition to additional paid-in capital in the December 31, 2017 consolidated balance sheet. The strike price of the Warrant Transactions will initially be $71.775 per share (subject to adjustment), which is approximately 65% above the last reported sale price of our common stock on October 31, 2017. The Warrant Transactions could have a dilutive effect to our stockholders to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Note Hedge Transactions and Warrant Transactions effectively increased the conversion price of the 2024 Notes. The net cost of the Note Hedge Transactions and Warrant Transactions was approximately $13.5.
2018 Convertible NotesCommitted Bridge Loan Facility
On August 1, 2018, our 2.00% ConvertibleNovember 8, 2022, in connection with the execution of the agreement to acquire Howden, the Company entered into a debt commitment letter with JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Subordinated Notes due August 2018Funding, Inc. (the “2018 Notes”“Commitment Parties”), pursuant to which, and subject to the terms and conditions, the Commitment Parties have agreed to provide approximately $3.375 billion in aggregate principal amount of senior bridge loans under a 364-day senior bridge loan credit facility. As of December 31, 2022, the remaining availability on the Bridge Facility was amended to $1,467.1. Additional Bridge Facility fees of $26.1 will be incurred upon successful closing of the Howden acquisition
As of December 31, 2022, we incurred $29.5 in expense in connection with the Bridge Facility commitment which is classified in acquisition related finance fees in the statement of income for the year ended December 31, 2022 and had no borrowings outstanding on the Bridge Facility. We do not intend to draw on the Bridge Facility as we have secured permanent financing.
Committed Term Loan B
On November 30, 2022, we entered into a debt commitment letter with JPMorgan Chase Bank, N.A. for a senior secured term loan facility (“Term Loan B”) matured. Thein an aggregate outstanding principal was $57.1 at August 1, 2018. Duringamount of up to $1,434.8. Term Loan B will mature on the nine months ended September 30, 2018, we settled upon maturitydate that is seven years after the 2018 Notesclosing date of the Acquisition (“Closing Date”). At the Closing Date, the proceeds of Term Loan B shall finance, in part, the cash and consideration payable in connection with the Acquisition and related transaction costs. Term Loan B is available in a single drawing on the Closing Date.
Chart can elect the interest rate for total cash considerationTerm Loan B equal to (i) Adjusted Term SOFR (Term SOFR plus a credit spread adjustment of $57.1. Additionally, $0.6 of interest, which had previously been accrued, was paid at settlement.0.10%; provided that Adjusted Term SOFR shall not be less than 0.50%) plus the Applicable Margin (3.75%), or
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The allowance of incremental facilities is substantially identical to those in the Amended SSRCF, except (i) to permit the incurrence of a standalone letter of credit facility and (ii) that if the yield of any incremental facility that is in a U.S. dollar denominated term loan facility that is secured by liens on the collateral that is incurred within twelve months after the Closing Date, the applicable margins for Term Loan B may increase under certain circumstances. Additionally, the refinancing facilities are substantially identical to those set forth in the Amended SSRCF.
Prepayments are mandatory only in the following table summarizes interest accretioncircumstances: (i) unless the net cash proceeds are reinvested (or committed to be reinvested) in the business within 12 months, and if so committed to be reinvested, are actually reinvested within 6 months after the initial 12-month period, after certain non-ordinary course asset sales or other non-ordinary course dispositions of property occur, (ii) 50% of excess cash flow of Chart and its subsidiaries shall be used to prepay Term Loan B, and (iii) 100% of the 2018 Notes discount, 2.0% contractual interest coupon, loss on extinguishmentnet cash proceeds of issuances of debt obligations of Chart and financing costs amortization associatedour restricted subsidiaries after the Closing Date.
Chart may prepay Term Loan B in whole or in part at any time without penalty or premium, with the 2018 Notes:exception of a repricing event with respect to all or any portion of Term Loan B that occurs on or before the date that is six months after the Closing Date.
|
| | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 |
| 2018 Notes, interest accretion of convertible notes discount | $ | 1.9 |
| | $ | 11.8 |
|
| 2018 Notes, 2.0% contractual interest coupon | 1.0 |
| | 4.3 |
|
| 2018 Notes, total interest expense | $ | 2.9 |
| | $ | 16.1 |
|
| | | | |
| 2018 Notes, loss on extinguishment of debt, bond cost portion | — |
| | 4.3 |
|
| 2018 Notes, write off of unamortized debt issuance costs | — |
| | 0.4 |
|
2018 Notes, total loss on extinguishment of debt (1) | $ | — |
| | $ | 4.7 |
|
| | | | |
| 2018 Notes, financing costs amortization | $ | 0.1 |
| | $ | 0.6 |
|
______________
| |
(1)
| During the year ended December 31, 2017, we wrote off $0.2 of unamortized debt issuance costs related to our senior secured revolving credit facility. When combined with the total loss on extinguishment associated with the 2018 Notes, consolidated loss on extinguishment was $4.9. |
Convertible Note Hedge, Capped CallTerm Loan B will be equal in right of payment with any other senior indebtedness of Chart and, Warrant Transactions Associatedif needed, shall be subject to an equal intercreditor agreement with the 2018 Notes
The convertible note hedge and capped call transactions associated with the 2018 Notes expired in August 2018, with immaterial exercises. Approximately 90% of the separate warrants associated with the 2018 Notes expired without exercise. Priorrespect to the expiration dateAmended SSRCF.
Term Loan B is guaranteed by each wholly-owned domestic subsidiary that is also a guarantor under the Amended SSRCF.
Significant financial covenants and customary events of February 26, 2019, a portion ofdefault for Term Loan B are substantially identical to those in the separate warrants were exercised. These exercises were not material.Amended SSRCF.
Foreign Facilities
In various markets where we do business, we have local credit facilities to meet local working capital demands, fund letters of credit and bank guarantees, and support other short-term cash requirements. The facilities generally have variable interest rates and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. As of December 31, 20192022 and 2018, respectively, we had U.S. dollar (“USD”) equivalent $4.4 and $11.2 in borrowing2021 there were no borrowings outstanding under these facilitates, withfacilities. As of December 31, 2022 and 2021, we had additional capacity of USDU.S. dollar equivalent $23.1$72.5 and $65.6,$82.4, respectively. Chart hashad foreign letters of credit and bank guarantees totaling USDU.S. dollar equivalent $12.6$45.7 and $17.1$31.2 as of December 31, 20192022 and 2018,2021, respectively. The weighted-average interest rate on these borrowings was 1.3% and 4.8% as
Restricted Cash
As of December 31, 20192022, we had restricted cash of $1,941.7 from the proceeds of the Secured Notes and 2018, respectively.Unsecured Notes which will be used to fund the Howden Acquisition.
Letters of Credit
Chart Energy & Chemicals, Inc.,L.A. Turbine, a wholly-owned subsidiary of the Company, had $1.0$0.2 in deposits in a bank outside of the Amended SSRCF to secure letters of credit at both December 31, 2019 and 2018.2021. The deposits are treated as restricted cash and restricted cash equivalents in the consolidated balance sheetssheet ($1.00.2 in other current assets at both December 31, 2019 and 2018)2021).
Fair Value Disclosures
The fair value of the 2024 Notes was approximately 132%201% and 124%276% of their par value as of December 31, 20192022 and 2018,2021, respectively. The fair value of the 2018 Notes was approximately 99% of their par value as of December 31, 2018. The 2024 Notes are and the 2018 Notes were actively quoted instruments and, accordingly, the fair valuesvalue of the 2024 Notes and 2018 Notes werewas determined using Level 1 inputs.
NOTE 11 — Financial Instruments The fair value of the Secured Notes and Derivative Financial Instruments
Concentrations of Credit Risks: We sell our products to gas producers, distributorsUnsecured notes was approximately 101% and end-users across the industrial gas, hydrocarbon, chemical processing, respiratory therapy, and cryobiological storage industries in countries all over the world. Approximately 47%, 44%, and 44% of sales were to customers in foreign countries in 2019, 2018 and 2017, respectively.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
103%, respectively, of their par value as of December 31, 2022. The Secured Notes and Unsecured Notes are actively quoted instruments and, accordingly, the fair value of the 2024 Notes was determined using Level 1 inputs.
NOTE 11 — Shareholders' Equity
Series B Mandatory Convertible Preferred Stock
On December 13, 2022, we completed a preferred stock offering, through which Chart issued and sold 8.050 million depositary shares, each representing a 1/20th interest in a share of Chart’s 6.75% Series B Mandatory Convertible Preferred Stock, liquidation preference $1,000.00 per share, par value $0.01 per share (the “Mandatory Convertible Preferred Stock”). The amount issued included 1.050 million depositary shares issued pursuant to the exercise in full of the option granted to the underwriters to purchase additional depositary shares. We received gross proceeds of $402.5 from the issuance of shares less $14.4 of equity issuance costs. The proceeds will be used to fund our previously announced acquisition of Howden.
Dividends. Dividends on the Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared at an annual rate of 6.75% on the liquidation value of $1,000 per share. Chart may pay declared dividends in cash or, subject to certain limitations, in shares of common stock, or in any combination of cash and shares of common stock on March 15, June 15, September 15 and December 15 of each year, commencing on March 15, 2023 and ending on, and including, December 15, 2025. The accumulated but undeclared amount of dividends as of December 31, 2022 is $1.4 and was treated as a reduction to income attributable to common shareholders in the computation of earnings per share.
Mandatory Conversion. Unless earlier converted, each share of the Mandatory Convertible Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be December 15, 2025, into not less than 7.0520 and not more than 8.4620 shares of common stock per share of Mandatory Convertible Preferred Stock, depending on the applicable market value and subject to certain anti-dilution adjustments. Correspondingly, the conversion rate per depositary share will be not less than 0.3526 and not more than 0.4231 shares of common stock per depositary share. The conversion rate will be determined based on a preceding 20-day volume-weighted-average-price of common stock.
The following table illustrates the conversion rate per share of the Mandatory Convertible Preferred Stock, subject to certain anti-dilution adjustments, based on the applicable market value of the common stock:
| | | | | | | | |
| Applicable Market Value of Common Stock | | Conversion Rate per Share of Mandatory Convertible Preferred Stock |
| Greater than $141.8037 (threshold appreciation price) | | 7.0520 shares of common stock |
| Equal to or less than $141.8037 but greater than or equal to $118.1754 | | Between 7.0520 and 8.4620 shares of common stock, determined by dividing $1,000 by the applicable market value |
| Less than $118.1754 (initial price) | | 8.4620 shares of common stock |
The following table illustrates the conversion rate per depositary share, subject to certain anti-dilution adjustments, based on the applicable market value of the common stock:
| | | | | | | | |
| Applicable Market Value of Common Stock | | Conversion Rate per Depositary Share |
| Greater than $141.8037 (threshold appreciation price) | | 0.3526 shares of common stock |
| Equal to or less than $141.8037 but greater than or equal to $118.1754 | | Between 0.3526 and 0.4231 shares of common stock, determined by dividing $50 by the applicable market value |
| Less than $118.1754 (initial price) | | 0.4231 shares of common stock |
Optional Conversion of the Holder. Other than during a fundamental change conversion period, at any time prior to December 15, 2025, a holder of the Mandatory Convertible Preferred Stock may elect to convert such holder’s shares of Mandatory Convertible Preferred Stock, in whole or in part, at the Minimum Conversion Rate of 7.0520 shares of common stock per share of Mandatory Convertible Preferred Stock (equivalent to 0.3526 shares of common stock per depositary share), subject to certain anti-dilution and other adjustments. Because each depositary share represents a 1/20th fractional interest in a share of Mandatory Convertible Preferred Stock, a holder of depositary shares may convert its depositary shares only in lots of 20 depositary shares.
Fundamental Change Conversion. If a fundamental change occurs on or prior to December 15, 2025, holders of the Mandatory Convertible Preferred Stock will have the right to convert their shares of Mandatory Convertible Preferred Stock, in
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
whole or in part, into shares of common stock at the fundamental change conversion rate during the period beginning on, and including, the effective date of such fundamental change and ending on, and including, the earlier of (a) the date that is 20 calendar days after such effective date (or, if later, the date that is 20 calendar days after holders receive notice of such fundamental change) and (b) December 15, 2025. Holders who convert shares of the Mandatory Convertible Preferred Stock during that period will also receive a make-whole dividend amount comprised of a fundamental change dividend make-whole amount, and to the extent there is any, the accumulated dividend amount. Because each depositary share represents a 1/20th fractional interest in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares upon a fundamental change only in lots of 20 depositary shares.
Ranking. The Mandatory Convertible Preferred Stock, with respect to anticipated dividends and distributions upon Chart’s liquidation or dissolution, or winding-up of Chart’s affairs, ranks or will rank:
•senior to our common stock and each other class or series of capital stock issued after the initial issue date of the Mandatory Convertible Preferred Stock, the terms of which do not expressly provide that such capital stock ranks either senior to the Mandatory Convertible Preferred Stock or on a parity with Mandatory Convertible Preferred Stock;
•equal with any class or series of capital stock issued after the initial issue date the terms of which expressly provide that such capital stock will rank equal with the Mandatory Convertible Preferred Stock:
•junior to the Series A Preferred Stock, if issued, and each other class or series of capital stock issued after the initial issue date that is expressly made senior to the Mandatory Convertible Preferred Stock;
•junior to our existing and future indebtedness; and
•structurally subordinated to any existing and future indebtedness of our subsidiaries as well as the capital stock of our subsidiaries held by third parties.
Voting Rights. Holders of Mandatory Convertible Preferred Stock generally will not have voting rights. Whenever dividends on shares of Mandatory Convertible Preferred Stock have not been declared and paid for six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date and ending on, but excluding, March 15, 2023), whether or not for consecutive dividend periods, the holders of such shares of Mandatory Convertible Preferred Stock, voting together as a single class with holders of all other series of voting preferred stock of equal rank, then outstanding, will be entitled at our next annual or special meeting of stockholders to vote for the election of a total of two additional members of our board of directors, subject to certain limitations. This right will terminate if and when all accumulated and unpaid dividends have been paid in full, or declared and a sum sufficient for such payment shall have been set aside. Upon such termination, the term of office of each preferred stock director so elected will terminate at such time and the number of directors on our board of directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.
Embedded Derivatives. There are no material embedded derivatives that meet the criteria for bifurcation and separate accounting pursuant to ASC 815-15, Embedded Derivatives.
Common Stock
On December 13, 2022, we completed a public offering (the “2022 Equity Offering”), through which Chart issued and sold 5.924 million shares of common stock, $0.01 par value per share. We received gross proceeds of $700.0 from the issuance of shares less $24.9 of equity issuance costs. The proceeds will be used to fund our previously announced acquisition of Howden.
NOTE 12 — Financial Instruments and Derivative Financial Instruments
Concentrations of Credit Risks: We sell our products primarily to gas producers, distributors, and end-users across energy, industrial, power, HVAC and refining applications in countries throughout the world. Approximately 42%, 56%, and 51% of sales were to customers in foreign countries in 2022, 2021 and 2020, respectively.
In 2019, no single customer accounted for more than 10% of consolidated sales. Sales to Praxair2022, 2021 and Linde, which combined in 2018, exceeded 10% of consolidated sales in 2018 on a combined basis and represented approximately $121.6 or 11.2% of consolidated sales in 2018 (attributable to all of our segments). In 2017,2020, no single customer accounted for more than 10% of consolidated sales. Sales to our top ten customers accounted for 32%38%, 39% and 38%42% of consolidated sales in 2019, 20182022, 2021 and 2017,2020, respectively. Our sales to particular
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
customers fluctuate from period to period, but theour large industrial gas producer and distributor customers of ours tend to be a consistently largesubstantial source of revenue for us.
We are subject to concentrations of credit risk with respect to our cash and cash equivalents, restricted cash and restricted cash equivalents and forward foreign currency exchange contracts. To minimize credit risk from these financial instruments, we enter into arrangements with major banks and other quality financial institutions and invest only in high-quality instruments. We do not expect any counterparties to fail to meet their obligations.
Changes in the fair value of our foreign currency forward contracts are recorded in the consolidated statements of income as foreign currency gains or losses. The changes in fair value with respect to our foreign currency forward contracts generated a net gaingains of $0.7$1.4, $1.1, $1.3 for the yearyears ended December 31, 2019,2022, 2021 and 2020, respectively.
Derivatives and Hedging
We utilize a combination of cross-currency swaps and foreign exchange collars (together the “Foreign Exchange Contracts”) as a net investment hedge of a portion of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. On April 1, 2022 we entered into a pay-fixed rate, receive-fixed rate cross-currency swap that provided for an exchange of principal on a notional amount of $110.2 swapped to euro 100.0 million on its March 31, 2025 maturity and receipt of U.S. dollar interest from our swap counterparties at a fixed rate of 1.8% per annum. We terminated this cross-currency swap on June 7, 2022, and a total settlement of $3.6 cash was received from the counterparties. The settlement amount, which represents the fair value of the contract at the time of termination, was recorded as a reduction in other assets during the second quarter of 2022 and remains classified in accumulated other comprehensive loss on the consolidated balance sheet.
On June 7, 2022, immediately following the termination of $0.8the aforementioned cross-currency swap, we entered into a pay-fixed rate, receive-fixed rate cross-currency swap that provides for an exchange of principal on a notional amount of $106.7 swapped to euro 100.0 million on its May 31, 2025 maturity and receipt of U.S. dollar interest from our swap counterparties at a fixed rate of 1.6% per annum. We terminated this cross-currency swap on July 8, 2022, and a total settlement of $4.0 cash was received from the counterparties. The settlement amount, which represents the fair value of the contract at the time of termination, was recorded as a reduction in other assets during the third quarter of 2022 and remains classified in accumulated other comprehensive loss on the consolidated balance sheet.
On July 8, 2022, immediately following the termination of the aforementioned cross-currency swap, we entered into a pay-fixed rate, receive-fixed rate cross-currency swap that provides for an exchange of principal on a notional amount of $101.6 swapped to euro 100.0 million on its June 30, 2025 maturity and receipt of U.S. dollar interest from our swap counterparties at a fixed rate of 1.8% per annum. We terminated this cross-currency swap on September 16, 2022, and a total settlement of $1.8 cash was received from the counterparties. The settlement amount, which represents the fair value of the contract at the time of termination, was recorded as a reduction in other assets during the third quarter of 2022 and remains classified in accumulated other comprehensive loss on the consolidated balance sheet.
On September 16, 2022, immediately following the termination of the aforementioned cross-currency swap, we entered into a pay-fixed rate, receive-fixed rate cross-currency swap that provides for an exchange of principal on a notional amount of $99.8 swapped to euro 100.0 million on its June 30, 2025 maturity and receipt of U.S. dollar interest from our swap counterparties at a fixed rate of 1.6% per annum (the “September 16 Swap”). Concurrent to entering into the September 16 Swap, we also entered into a separate zero cost foreign exchange collar contract (the “Collar Contract”) with the same counterparties, notional amount and expiration date as the September 16 Swap. Under the Collar Contract, we sold a put option with a lower strike price and purchased a call option with an upper strike price to manage final settlement of the September 16 Swap.
Our Foreign Exchange Contracts are measured at fair value with changes in fair value recorded as foreign currency translation adjustments within accumulated other comprehensive loss. Our Foreign Exchange Contracts are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. We believe the credit risks with respect to the counterparties, and the foreign currency risks that would not be hedged if the counterparties fail to fulfill their obligations under the contract, are not material in view of our understanding of the financial strength of the counterparties. The Foreign Exchange Contracts are not exchange traded instruments and their fair value is determined using the cash flows of the contracts, discount rates to account for the yearpassage of time, implied volatility, current foreign exchange
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
market data and credit risk, which are all based on inputs readily available in public markets and categorized as Level 2 fair value hierarchy measurements.
The following table represents the fair value of asset and liability derivatives and their respective locations on our consolidated balance sheet as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| Derivatives designated as net investment hedge | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Foreign Exchange Contracts (1) | | Other assets | | $ | — | | | Other long-term liabilities | | $ | 2.7 | |
The following table represents the net effect derivative instruments designated in hedging relationships had on accumulated other comprehensive loss on the consolidated statements of income and comprehensive income:
| | | | | | | | | | | | | | |
| | Unrealized gain recognized in accumulated other comprehensive loss on derivatives, net of taxes |
| | Year Ended December 31, | | Year Ended December 31, |
| Derivatives designated as net investment hedge | | 2022 | | 2021 |
Foreign Exchange Contracts (1) (2) | | $ | 5.2 | | | $ | — | |
_______________
(1)Our designated derivative instruments are highly effective. As such, there were no gains or losses recognized immediately in income related to hedge ineffectiveness during the years ended December 31, 2018 and a net gain of $0.5 for the year ended2022 or December 31, 2017.
(2)Represents foreign exchange swaps and foreign exchange options.
The following table represents interest income, included within interest expense, net on the consolidated statements of income related to amounts excluded from the assessment of hedge effectiveness for derivative instruments designated as net investment hedges:
| | | | | | | | | | | | | | |
| | Amount of gain recognized in income on derivative (amount excluded from effectiveness testing) |
| | Year Ended December 31, | | Year Ended December 31, |
| Derivatives designated as net investment hedge | | 2022 | | 2021 |
Foreign Exchange Contracts (1) (2) | | $ | 1.3 | | | $ | — | |
_______________
(1) Represents amount excluded from effectiveness testing. Our Foreign Exchange Contracts are designated with terms based on the spot rate of the euro. Future changes in the components related to the spot change on the notional will be recorded in other comprehensive income and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are classified in interest expense, net in the consolidated statements of income, and the initial value of excluded components currently recorded in accumulated other comprehensive loss as a foreign currency translation adjustment are amortized to interest expense, net over the remaining term of the Foreign Exchange Contract.
(2) Represents foreign exchange swaps and foreign exchange options.
NOTE 1213 — Product Warranties
We provide product warranties with varying terms and durations for the majority of our products. We estimate our warranty reserve by considering historical and projected warranty claims, historical and projected cost-per-claim, and knowledge of specific product issues that are outside our typical experience. We record warranty expense in cost of sales in the consolidated statements of income. Product warranty claims not expected to occur within one year are included as part of other long-term liabilities in the consolidated balance sheets.
The following table represents changes in our consolidated warranty reserve:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 8.9 |
| | $ | 11.6 |
| | $ | 11.6 |
|
| Issued - warranty expense | 7.8 |
| | 5.1 |
| | 3.1 |
|
| Acquired - warranty reserve | — |
| | — |
| | 0.9 |
|
| Change in estimate - warranty expense | — |
| | (1.6 | ) | | 1.5 |
|
| Warranty usage | (5.0 | ) | | (6.2 | ) | | (5.5 | ) |
| Ending balance | $ | 11.7 |
| | $ | 8.9 |
| | $ | 11.6 |
|
During the second quarter of 2018, we established a reserve related to a recall notice issued for certain aluminum cryobiological tanks in our D&S West segment manufactured in our New Prague, Minnesota facility during a limited time period. See Note 20, “Commitments and Contingencies,” for additional information.
NOTE 13 — Business Combinations
Air-X-Changers Acquisition
On July 1, 2019, we completed the acquisition of AXC pursuant to the previously disclosed Asset Purchase Agreement dated as of May 8, 2019 (the “AXC acquisition”). The purchase price for AXC was $599.7, including post-closing purchase price adjustments with respect to working capital. We paid $592.0 of the purchase price at closing and the final working capital adjustment of $7.7 was paid during the third quarter of 2019. We financed the purchase price for the AXC acquisition with proceeds from borrowings under the 2019 Credit Facilities and a public offering of Chart’s common stock in 2019. See Note 10, “Debt and Credit Arrangements” and Note 14 “Equity and Accumulated Other Comprehensive Loss” for further information.
AXC is a leading supplier of custom engineered and manufactured ACHX for the natural gas compression and processing industry and refining and petrochemical industry in the United States. The ACHX offered by AXC is used in conditioning natural gas during recovery, compression and transportation from underground reserves through major pipeline distribution channels. In addition to natural gas compression and processing, AXC’s products are also used in the turbine lube oil cooling, landfill gas compression and liquids cooling industries. AXC’s end markets include process industries, power generation and refineries. AXC was combined with Chart’s Hudson Products and Chart Cooler Service businesses from the prior E&C segment to create a new
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
segment called E&C FinFans. The E&C FinFans segment is focused on our unique and broad product offering and capabilities in ACHX and fans.
As definedfollowing table represents changes in our significant policies for fair value measurements in Note 2,consolidated warranty reserve:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Beginning balance | $ | 10.5 | | | $ | 11.9 | | | $ | 11.5 | |
| Issued – warranty expense | 1.5 | | | 5.0 | | | 6.6 | |
| | | | | |
| | | | | |
| Warranty usage | (7.9) | | | (6.4) | | | (6.2) | |
| Ending balance | $ | 4.1 | | | $ | 10.5 | | | $ | 11.9 | |
NOTE 14 — Business Combinations
Fronti Fabrications, Inc. Acquisition
On May 31, 2022, we preliminarily allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as100% of the acquisition date.equity interests of Fronti Fabrications, Inc. (“Fronti”) for $20.6 in cash or $20.4 net of $0.2 cash acquired. Fronti is a specialist in engineering, machining and welding for the cryogenic and gas industries, and also supplies new build pressure vessels and cold boxes, and performs repairs with certification to American Society of Mechanical Engineers (ASME) code. The preliminary estimated fair value of the total net assets acquired tangible andincludes goodwill, identifiable intangible assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also based on estimates and assumptions made by managementother net assets at the timedate of acquisition in the acquisition. As such, this was classified as Level 3 fair value hierarchy measurementsamounts of $14.3, $5.3 and disclosures.
We estimated the preliminary fair value of acquired unpatented technology$1.0, respectively. Goodwill and trademarks and trade names using the relief from royalty method. The preliminary fair values of acquired customer backlog and customer relationships were estimated using the multi-period excess earnings method. Under both the relief from royalty and multi-period excess earnings methods, the fair value models incorporated 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. The preliminary estimated useful lives of identifiable finite-lived intangible assets range from one to 14 years.
The excess of the purchase price over the estimated fair values is assigned to goodwill. The preliminary estimated goodwill was established due to benefits including the combination of strong engineering and manufacturing cultures which will continue to further develop full service solutions for our worldwide customer base, as well as the benefits derived from the anticipated synergies of AXC integrating with our E&C FinFans segment. Goodwill recorded for the AXCFronti acquisition isare expected to be deductible for tax purposes.
The acquisition consideration allocation below has been updated based on this valuation but remains preliminary. As additional information becomes available,CSC Cryogenic Service Center AB Acquisition
On May 16, 2022, we may further revise the preliminary acquisition consideration allocation during the remainderacquired 100% of the measurement period, which shall not exceed twelve months from the closingequity interests of the acquisition. Areas that are subject to change include finalizing the evaluation of the income tax accounting considerations. We do not believe such revisions or changes will be material.
CSC Cryogenic Service Center AB (“CSC”) for $3.8 in cash. The following table summarizes the preliminary estimated fair valuesvalue of the total net assets acquired include goodwill and other net assets at the date of acquisition in the amounts of $3.1 and $0.7. Goodwill recorded for the CSC acquisition is not expected to be deductible for tax purposes. CSC brings a strong service footprint in the Nordic region with many overlapping customers to Chart, allowing us to broaden our service and repair presence geographically.
Earthly Labs Inc. Acquisition
On December 14, 2021, we acquired the remaining 85% of Earthly Labs, Inc. (“Earthly Labs).” The acquisition was completed for cash and stock for a previously disclosed purchase price of $63.1. During the first quarter of 2022, we adjusted the value of the stock consideration to reflect a common stock price of $160.63 per share, which lowered the purchase price to $61.9 or $58.4 net of $3.5 cash acquired. In connection with the Earthly Labs acquisition, Chart shall pay to the sellers a royalty on sales of a carbon capture unit for residential use launched for sale to the public by Chart, which has not yet been developed. Refer to the “Contingent Consideration” section below for further discussion. Earthly Labs is a leading provider of small-scale carbon capture systems offering an affordable, small footprint technology platform called “CiCi ®” to capture, recycle, reuse, track and sell CO2. Earthly Labs’ proprietary approach includes hardware, software and services to address existing carbon dioxide emissions from industrial sources while converting molecules to value.
The fair value of the total net assets acquired includes goodwill, identifiable intangible assets and other net liabilities at the date of acquisition in the amounts of $34.3, $45.5 and $9.8, respectively (as previously reported: $47.2, $27.0 and $11.1, respectively). Amounts previously reported were preliminary and based on provisional fair values. During 2022, we received and analyzed new information about certain assets acquired and liabilities assumedsubsequently adjusted their fair values accordingly. Intangible assets consists of unpatented technology, trade names, customer relationships and backlog. Goodwill and intangible assets recorded for the Earthly Labs acquisition are not expected to be deductible for tax purposes. During the fourth quarter of 2022 the Earthly Labs purchase price allocation was finalized.
AdEdge Acquisition
On August 27, 2021, we acquired 100% of the equity interests of AdEdge Holdings, LLC (“AdEdge”) for $37.5 in cash, net of $1.4 of cash acquired and a final net working capital adjustment of $0.8 finalized during the first quarter of 2022. AdEdge is a water treatment technology and solution provider specializing in the AXC acquisition asdesign, development, fabrication and supply of water treatment solutions, specialty medias, legacy and innovative technologies that remove a wide range of contaminants from water. The fair value of the total net assets acquired includes goodwill, identifiable intangible assets and other net assets at the date of acquisition date:in the amounts of $16.4, $19.0 and $3.5, respectively. During 2022, we increased goodwill by $0.5,
|
| | | |
| | Preliminary Estimated Fair Value |
| Net assets acquired: | |
| Identifiable intangible assets | $ | 256.4 |
|
| Goodwill | 287.5 |
|
| Property, plant and equipment | 34.2 |
|
| Other assets | 53.1 |
|
| Liabilities | (31.5 | ) |
| Net assets acquired | $ | 599.7 |
|
F-47
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Information regarding preliminaryAs discussed in Note 6, “Investments,” we previously held a 50% ownership interest in a joint venture in AdEdge India. On May 4, 2022, we acquired the remaining 50% of the shares for $0.4 in cash (subject to certain customary adjustments) or $0.3 net of $0.1 cash acquired. AdEdge India focuses on water and wastewater treatment and surface water bodies rejuvenation in the South Asian markets.
L.A. Turbine Acquisition
On July 1, 2021, we acquired 100% of the equity interests of L.A. Turbine (“LAT”) for approximately $76.6 in cash (subject to certain customary adjustments), net of $1.4 of cash acquired. LAT is a global leader in turboexpander design, engineering, manufacturing, assembly and testing process for new and aftermarket equipment, with significant in-house engineering expertise.
The estimated useful lives of identifiable finite-lived intangible assets range from less than one year to 15 years. The excess of the purchase price over the fair values is assigned to goodwill. LAT complements our Heat Transfer Systems and Specialty Products segments with the addition of its application-specific, highly engineered turboexpanders which further differentiates Chart’s end market diversity especially in hydrogen and helium liquefaction in addition to industrial gas, natural gas processing, power generation and petrochemical applications. Goodwill was established due to the benefits outlined above, as well as the benefits derived from the synergies of LAT integrating with our Heat Transfer Systems, Specialty Products and Repair, Service & Leasing segments. Goodwill recorded for the LAT acquisition is not expected to be deductible for tax purposes. During the third quarter of 2022 the LAT purchase price allocation was finalized.
The following table summarizes the fair value of the assets acquired in the AXCL.A. Turbine acquisition is presented below:at the acquisition date:
|
| | | | | |
| | Weighted-average Estimated Useful Life | | Preliminary Estimated Asset Fair Value |
| Finite-lived intangible assets: | | | |
| Customer relationships | 14.0 years | | $ | 139.1 |
|
| Unpatented technology | 10.0 years | | 42.1 |
|
Backlog (1) | 1.0 year | | 19.2 |
|
Other identifiable intangible assets (1) | 4.0 years | | 1.0 |
|
| Total finite-lived intangible assets acquired | 11.0 years | | 201.4 |
|
| Indefinite-lived intangible assets: | | | |
| Trademarks and trade names | | | 55.0 |
|
| Total identifiable intangible assets acquired | | | $ | 256.4 |
|
| | | | | |
| Net assets acquired: | |
| Identifiable intangible assets | $ | 43.7 | |
Goodwill (1) | Backlog42.3 |
Other assets (1) | 4.2 |
Property, plant and other identifiable intangibleequipment | 2.6 |
| Cash and cash equivalents | 1.4 |
Liabilities (1) | (16.2) | |
Net assets is included in “Patents and other” in Note 9, “Goodwill and Intangible Assets.”acquired | $ | 78.0 | |
For_______________
(1)As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019, net sales, operating income2021, we reported goodwill, other assets and intangible assets amortization expense attributed to the acquired AXC operations was $103.1,liabilities of $42.1, $4.6 and $16.8,$16.4, respectively. During the year ended December 31, 2019,2022, we incurred $5.4 in transaction related costs related to the AXC acquisition which were recorded in selling, generalpurchase price adjustments that increased goodwill by $0.2, decreased other assets by $0.4 and administrative expenses in Corporate in the consolidated statements of income.
Unaudited Supplemental Pro Forma Information
The following unaudited supplemental pro forma financial information is based on our historical consolidated financial statements and AXC’s historical consolidated financial statements as adjusted to give effect to the July 1, 2019 AXC acquisition. The unaudited supplemental pro forma financial information for the periods presented gives effect to the acquisition as if it had occurred on January 1, 2017.
The following adjustments are reflected in the pro forma financial table below:
Adjustment for depreciation related to the step-up in basis of the acquired property, plant and equipment and change in estimated useful lives.
Adjustment for amortization of acquired intangible assets.
Adjustment for the change from last in, first out (LIFO) to weighted-average cost for the acquired inventory and the associated reduction of cost of sales.
Adjustment to reflect an increase in interest expense resulting from interest on the term loan under the 2019 Credit Facilities to finance the AXC acquisition and amortization of related debt issuance costs.
Adjustment to reflect the change in the estimated income tax rate for federal and state purposes.
Adjustment to reflect the increase in weighted-average shares in connection with the equity issuance.
This unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the periods presented. In addition, the unaudited pro forma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.decreased liabilities by $0.2.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The following table presents pro forma sales, net income attributable to Chart Industries, Inc., and net income attributable to Chart Industries, Inc. per common share data assuming AXC was acquired at the beginning of the 2017 fiscal year:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Pro forma sales | $ | 1,447.9 |
| | $ | 1,291.5 |
| | $ | 987.8 |
|
| Pro forma net income attributable to Chart Industries, Inc. | 56.3 |
| | 72.0 |
| | (2.5 | ) |
| | | | | | |
| Pro forma net income attributable to Chart Industries, Inc. per common share, basic | $ | 1.66 |
| | $ | 2.05 |
| | $ | (0.07 | ) |
| Pro forma net income attributable to Chart Industries, Inc. per common share, diluted | 1.60 |
| | 1.99 |
| | (0.07 | ) |
VRV Acquisition
On November 15, 2018, Chart completed the previously announced acquisition VRV pursuant to the terms of the Amended and Restated Share Purchase Agreement (the “Amendment”) with the original parties as well as VRV that replaces in full the original Purchase Agreement. Immediately thereafter, we assigned all of our rights and obligations under the Amendment to VRV Holdings S.r.l. (“Holdings”), a newly formed Italian subsidiary of Chart. The Amendment provides for a revised transaction structure pursuant to which Holdings acquired VRV Technoservice S.r.l. (“VRV Technoservice”), a newly formed Italian company wholly owned by VRV (the “VRV acquisition”). Prior to the VRV acquisition, as contemplated in the Amendment, VRV contributed substantially all of its business to VRV Technoservice. VRV Technoservice changed its name to VRV S.r.l. following the VRV acquisition.
The VRV acquisition purchase price was euro 191.1 million (equivalent to $216.1), net of cash assumed of 1.3 million euros (equivalent to $1.4), is inclusive of the base purchase price of euro 125.0 million (equivalent to $141.3) in cash and assumed indebtedness of VRV, which was paid off immediately at closing or shortly thereafter, of euro 63.7 million (equivalent to $72.0), and net working capital and other agreed-upon purchase price adjustments finalized during the first half of 2019 of 3.7 million euros (equivalent to $4.2) which was settled early in the second quarter of 2019. Additional indebtedness of VRV of euro 4.4 million (equivalent to $4.9) was assumed at the acquisition date and was paid off during the first and second quarters of 2019. All U.S. dollar equivalent dollar amounts are based on the exchange rate as of the acquisition date. We funded the VRV acquisition, including the subsequent payoff of assumed indebtedness, with borrowings of euro 140.0 million (equivalent to $160.3) from our senior secured revolving credit facility and the remainder with cash on hand.
VRV, which has operations in Italy, France and India, is a diversified multinational corporation with highly automated, purpose-built facilities for the design and manufacture of pressure equipment serving the cryogenic and energy & petrochemical end markets. VRV’s results are included in our E&C Cryogenics and D&S East segments from the date of VRV acquisition.
We allocated the acquisition consideration to tangible andInformation regarding identifiable intangible assets acquired in the LAT acquisition is presented below:
| | | | | | | | | | | |
| Weighted-average Estimated Useful Life | | Fair Value |
| Finite-lived intangible assets acquired: | | | |
| Unpatented technology | 14.5 years | | $ | 33.4 | |
| Customer relationships | 14.5 years | | 1.5 |
| Backlog | 2.5 years | | 0.7 |
Other identifiable intangible assets (1) | 3.4 years | | 0.2 |
| Total finite-lived intangible assets acquired | 14.2 years | | 35.8 |
| Indefinite-lived intangible assets acquired: | | | |
| Trademarks and trade names | | | 7.9 |
| Total intangible assets acquired | | | $ | 43.7 | |
_______________
(1)Other identifiable intangible assets is included in “Patents and liabilities assumed based on their estimated fair values asother” in Note 9, “Goodwill and Intangible Assets.”
Cryogenic Gas Technologies, Inc. Acquisition
On February 16, 2021, we acquired 100% of the acquisition date.equity interests of Cryogenic Gas Technologies, Inc. (“Cryo Technologies”) for approximately $55.0 in cash (subject to certain customary adjustments), net of $0.6 cash acquired. 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. The fair value of the total net assets acquired tangible andincludes goodwill, identifiable intangible assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also based on estimates and assumptions made by managementother net assets at the timedate of acquisition in the acquisition. As such, this was classified as Level 3 fair value hierarchy measurementsamounts of $34.9, $19.5 and disclosures.
We estimated the fair value$1.2, respectively. Intangible assets consists of acquiredcustomer relationships, unpatented technology, and trademarks and trade names, using the relief from royalty method. The fair values of acquired customer backlog and customer relationships were estimated using the multi-period excess earnings method. Under both the relief from royaltynon-compete agreements. Goodwill and multi-period excess earnings methods, 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. The estimated useful lives of identifiable finite-lived intangible assets range from 2 to 12 years.
The excess of the purchase price over the estimated fair values is assigned to goodwill. The estimated goodwill was established due to benefits including the combination of strong engineering and manufacturing cultures which will continue to further develop full service solutions for our worldwide customer base, as well as the benefits derived from the anticipated synergies of VRV integrating with Chart’s E&C Cryogenics and D&S East segments. Goodwill recorded for the VRVCryo Technologies acquisition is notare expected to be deductible for tax purposes. During the first quarter of 2022, the Cryo Technologies purchase price allocation was finalized.
Preliminary Purchase Price Allocations
The purchase price allocations of Fronti and CSC are preliminary and are based on provisional fair values and subject to revision as we finalize third-party valuations and other analyses. Final determination of the fair values may result in further adjustments to the value of net assets acquired.
Contingent Consideration
The estimated fair value of contingent consideration was $16.9 for our Sustainable Energy Solutions, Inc. business (“SES”) and $3.2 for our BlueInGreen, LLC business (“BIG”) at the date of acquisitions and was valued according to a discounted cash flow approach, which included assumptions regarding the probability of achieving certain targets and a discount rate applied to the potential payments. Potential payments are measured between the period commencing January 1, 2023 and ending on December 31, 2028 based on the attainment of certain earnings targets. The potential payments related to both SES and BIG contingent consideration on a combined basis is between $0.0 and $31.0. For the year ended December 31, 2022, the estimated fair value of contingent consideration related to SES decreased by $2.8 while the estimated fair value of contingent consideration related to BIG decreased by $1.1. For the year ended December 31, 2021, the estimated fair value of contingent consideration related to SES increased by $2.2 while the estimated fair value of contingent consideration related to BIG decreased by $1.1.
In connection with the Earthly Labs acquisition, Chart shall pay to the sellers a royalty on sales of a carbon capture unit for residential use launched for sale to the public by Chart in an amount equal to 4% of such sales. Potential royalty payments shall be paid to the sellers during the three year period following Chart’s launch of this product. This product has not yet been developed and as such, the fair value of the contingent consideration liability that arises from this arrangement was insignificant as of both December 31, 2022 and 2021.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The purchase price allocation reported at December 31, 2018 was preliminaryValuations are performed using Level 3 inputs as defined in Note 2, “Significant Accounting Policies” and wasare evaluated on a quarterly basis based on provisional fair values. During 2019 (and prior to November 15, 2019), we receivedforecasted sales and analyzed new information about certain assets andearnings targets. Contingent consideration liabilities primarily related to identifiable intangible assets,are classified as other net assets and property, plant and equipment as of the November 15, 2018 acquisition date and subsequently decreased identifiable intangible assets by $16.0, other net assets by $15.3 and property, plant and equipment by $3.0. Net assets acquired, including goodwill, was also adjusted to reflect the net working capitalcurrent liabilities and other agreed-upon purchase price adjustments of $4.2 negotiated during the year ended December 31, 2019.
The following table summarizes the estimated fair values of the assets acquired andlong-term liabilities assumed in the VRV acquisitionconsolidated balance sheets. Changes in the fair value of contingent consideration liabilities, including accretion, are recorded as selling, general and administrative expenses in the consolidated statements of income and comprehensive income. No cash consideration was transferred for contingent consideration as of the acquisition date:
|
| | | | | | | | | | | |
| | December 31, 2019 | | Adjustments | | As Previously Reported December 31, 2018 |
| Net assets acquired: | | | | | |
| Identifiable intangible assets | $ | 50.6 |
| | $ | (16.0 | ) | | $ | 66.6 |
|
| Property, plant and equipment | 67.5 |
| | (3.0 | ) | | 70.5 |
|
| Goodwill | 101.7 |
| | 38.5 |
| | 63.2 |
|
| Other net assets | 2.6 |
| | (15.3 | ) | | 17.9 |
|
| Debt | (4.9 | ) | | — |
| | (4.9 | ) |
Debt extinguished in close proximity to acquisition date (1) | (72.0 | ) | | — |
| | (72.0 | ) |
| Net assets acquired | $ | 145.5 |
| | $ | 4.2 |
| | $ | 141.3 |
|
_______________
| |
(1)
| As described above, we assumed indebtedness of VRV of euro 63.7 million (equivalent to $72.0), which was paid off immediately at closing or shortly thereafter. The fair value of the net assets acquired and liabilities assumed reflects this indebtedness and differs from the fair value of the consideration transferred due to the nature and timing of the debt extinguishment. |
Information regarding identifiable intangible assets acquireddates and as such, the arrangements represent a noncash investing activity in the VRV acquisition is presented below:
|
| | | | | |
| | Weighted-average Estimated Useful Life | | Estimated Asset Fair Value |
| Finite-lived intangible assets: | | | |
| Customer relationships | 12.0 years | | $ | 16.3 |
|
| Unpatented technology | 12.0 years | | 23.0 |
|
Other identifiable intangible assets (1) | 4.0 years | | 0.5 |
|
| Total finite-lived intangible assets acquired | 9.0 years | | 39.8 |
|
| Indefinite-lived intangible assets: | | | |
| Trademarks and trade names | | | 10.8 |
|
| Total identifiable intangible assets acquired | | | $ | 50.6 |
|
_______________
| |
(1)
| Other identifiable intangible assets is included in “Patents and other” in Note 9, “Goodwill and Intangible Assets.” |
The following unaudited supplemental pro forma sales are based on our historical consolidated financial statements and VRV’s historical consolidated financial statements as adjusted to give effect to the November 15, 2018 acquisitionstatement of VRV. The unaudited supplemental pro forma sales information for the periods presented gives effect to the VRV acquisition as if it had occurred on January 1, 2017. The unaudited supplemental pro forma salescash flows for the years ended December 31, 20182022 and 2017 for Chart Industries including VRV would have been approximately $1,200.0 and $950.0, respectively. It is impracticable to disclose the pro forma net income and pro forma net income per share information because of significant differences between Chart accounting policies following U.S. GAAP and those followed by VRV.2021.
The unaudited pro forma salesfollowing table represents the changes to our contingent consideration liabilities:
| | | | | | | | | | | | | | | | | |
| SES | | BIG | | Total |
| Balance at December 31, 2021 | $ | 19.1 | | | $ | 2.1 | | | $ | 21.2 | |
| Decrease in fair value of contingent consideration liabilities | (2.8) | | | (1.1) | | | (3.9) | |
| Balance at December 31, 2022 | $ | 16.3 | | | $ | 1.0 | | | $ | 17.3 | |
NOTE 15 — Accumulated Other Comprehensive (Loss) Income
Accumulated Other Comprehensive (Loss) Income
The components of accumulated other comprehensive (loss) income are as follows:
| | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Foreign currency translation adjustments (1) | | Pension liability adjustments, net of taxes | | Accumulated other comprehensive (loss) income |
| Beginning Balance | $ | (15.2) | | | $ | (6.5) | | | $ | (21.7) | |
| Other comprehensive loss | (35.3) | | | (1.5) | | | (36.8) | |
| Amounts reclassified from accumulated other comprehensive (loss) income, net of income taxes | — | | | 0.5 | | | 0.5 | |
| Net current-period other comprehensive (loss) income, net of taxes | (35.3) | | | (1.0) | | | (36.3) | |
| Ending Balance | $ | (50.5) | | | $ | (7.5) | | | $ | (58.0) | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Foreign currency translation adjustments | | Pension liability adjustments, net of taxes | | Accumulated other comprehensive income (loss) |
| Beginning Balance | $ | 13.8 | | | $ | (11.4) | | | $ | 2.4 | |
| Other comprehensive (loss) income | (29.0) | | | 3.9 | | | (25.1) | |
| Amounts reclassified from accumulated other comprehensive (loss) income, net of income taxes | — | | | 1.0 | | | 1.0 | |
| Net current-period other comprehensive (loss) income, net of taxes | (29.0) | | | 4.9 | | | (24.1) | |
| Ending Balance | $ | (15.2) | | | $ | (6.5) | | | $ | (21.7) | |
_______________
(1)Foreign currency translation adjustments includes translation adjustments and net investment hedge, net of taxes. See Note 12, “Financial Instruments and Derivative Financial Instruments,” for further information is presented for informational purposes only and is not necessarily indicative ofrelated to the results of operations that actually would have resulted had the VRV acquisition been in effect at the beginning of the periodsnet investment hedge.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
presented. In addition,The following table presents calculations of net income per share of common stock:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Amounts attributable to Chart common stockholders | | | | | |
| Income from continuing operations | $ | 81.6 | | | $ | 59.1 | | | $ | 68.9 | |
| Less: Mandatory convertible preferred stock dividend requirement | 1.4 | | | — | | | — | |
| Income from continuing operations attributable to Chart | 80.2 | | | 59.1 | | | 68.9 | |
| (Loss) income from discontinued operations, net of tax | (57.6) | | | — | | | 239.2 | |
| Net income attributable to Chart common stockholders | $ | 22.6 | | | $ | 59.1 | | | $ | 308.1 | |
| Earnings per common share – basic: | | | | | |
| Income from continuing operations | $ | 2.21 | | | $ | 1.66 | | | $ | 1.95 | |
| (Loss) income from discontinued operations | (1.59) | | | — | | | 6.76 | |
| Net income attributable to Chart Industries, Inc. | $ | 0.62 | | | $ | 1.66 | | | $ | 8.71 | |
| | | | | |
| Earnings per common share – diluted: | | | | | |
| Income from continuing operations | $ | 1.92 | | | $ | 1.44 | | | $ | 1.89 | |
| (Loss) income from discontinued operations | (1.38) | | | — | | | 6.56 | |
| Net income attributable to Chart Industries, Inc. | $ | 0.54 | | | $ | 1.44 | | | $ | 8.45 | |
| | | | | |
| Weighted average number of common shares outstanding – basic | 36.25 | | | 35.61 | | | 35.38 | |
| Incremental shares issuable upon assumed conversion and exercise of share-based awards | 0.26 | | | 0.34 | | | 0.26 | |
| Incremental shares issuable due to dilutive effect of the convertible notes | 2.81 | | | 2.76 | | | 0.53 | |
| Incremental shares issuable due to dilutive effect of warrants | 2.47 | | | 2.40 | | | 0.28 | |
| Incremental shares issuable due to dilutive effect of the underwriters common shares option | 0.01 | | | — | | | — | |
| Weighted average number of common shares outstanding – diluted | 41.80 | | | 41.11 | | | 36.45 | |
Diluted earnings per share does not consider the unaudited pro forma sales resultsfollowing cumulative preferred stock dividends and potential common shares as the effect would be anti-dilutive:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Numerator | | | | | |
Mandatory convertible preferred stock dividend requirement (1) | $ | 1.4 | | | $ | — | | | $ | — | |
| Denominator | | | | | |
| Anti-dilutive shares, Share-based awards | 0.06 | | | 0.03 | | | 0.27 | |
Anti-dilutive shares, Convertible note hedge and capped call transactions (2) | 2.81 | | | 2.76 | | | 0.53 | |
| | | | | |
Anti-dilutive shares, Mandatory convertible preferred stock (1) | 0.17 | | | — | | | — | |
| Total anti-dilutive securities | 3.04 | | | 2.79 | | | 0.80 | |
_______________
(1)We calculate the basic and diluted earnings per share based on net income, which approximates income available to common shareholders for each period. Earnings per share is calculated using the two-class method, which is an earnings allocation formula that determines the earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series B Mandatory Convertible Preferred Stock and the 2024 Convertible Notes are participating securities. Undistributed earnings are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.
Skaff Acquisition
On January 2, 2018, we acquired 100% of the equity interests of Skaff Cryogenics and Cryo-Lease, LLC (together “Skaff”) for an approximate purchase price of $12.5, net of cash acquired. Skaff provides quality repair service and re-manufacturing of cryogenic and liquefied natural gas storage tanks and trailers and also maintains a portfolio of cryogenic storage equipment that is leased to customers for temporary and permanent needs. Skaff is headquartered in Brentwood, New Hampshire and provides services and equipment to customers in North America. Skaff’s results are included in the D&S West operating segment. During the first quarter of 2019, the Skaff purchase price was finalized which resulted in an adjustmentallocated to the opening balance sheet increasing long-term deferred tax liabilities and goodwill each by $0.8.
Additional information related to the Skaff acquisition has not been presentedparticipating securities because the impact on our consolidated results of income and financial position isparticipation features are discretionary. Net losses are not material.
Contingent Consideration
The estimated fair value of contingent consideration relatedallocated to our D&S West segment’s 2015 Thermax acquisition, was $1.8 at the date of acquisition and was valued according to a discounted cash flow approach, which included assumptions regarding the probability of achieving certain earnings targets and a discount rate applied to the potential payments. Potential payments were due to be paid before July 1, 2019 based on the attainment of certain earnings targets. The earnings targets for Thermax were below the minimum threshold so no contingent consideration was paid for the final year of the four year earn-out period.
NOTE 14 — Equity and Accumulated Other Comprehensive Loss
Public Stock Offering
On June 14, 2019, we completed a public offering (the “2019 Equity Offering”), through which Chart issued and sold 4.025 shares of common stock, $0.01 par value per share, which included the full exercise of the underwriters’ option to purchase additional shares, at a price of $73.50 per share, before underwriting discounts and commissions. We received proceeds of $295.8 from the issuance of shares and incurred $9.5 of equity issuance costs. A portion of the proceeds from the 2019 Equity Offering was used to retire existing debt.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
|
| | | | | | | | | | | |
| | December 31, 2019 |
| | Foreign currency translation adjustments | | Pension liability adjustments, net of taxes | | Accumulated other comprehensive loss |
| Beginning Balance | $ | (17.5 | ) | | $ | (12.4 | ) | | $ | (29.9 | ) |
| Other comprehensive (loss) income | (7.5 | ) | | 1.1 |
| | (6.4 | ) |
| Amounts reclassified from accumulated other comprehensive loss, net of income taxes | — |
| | 0.4 |
| | 0.4 |
|
| Net current-period other comprehensive loss, net of taxes | (7.5 | ) | | 1.5 |
| | (6.0 | ) |
| Ending Balance | $ | (25.0 | ) | | $ | (10.9 | ) | | $ | (35.9 | ) |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
|
| | | | | | | | | | | |
| | December 31, 2018 |
| | Foreign currency translation adjustments | | Pension liability adjustments, net of taxes | | Accumulated other comprehensive loss |
| Beginning Balance | $ | 2.2 |
| | $ | (10.3 | ) | | $ | (8.1 | ) |
| Other comprehensive loss | (21.6 | ) | | (3.0 | ) | | (24.6 | ) |
Amounts reclassified from accumulated other comprehensive loss, net of income taxes (1) | 1.9 |
| | 0.9 |
| | 2.8 |
|
| Net current-period other comprehensive loss, net of taxes | (19.7 | ) | | (2.1 | ) | | (21.8 | ) |
| Ending Balance | $ | (17.5 | ) | | $ | (12.4 | ) | | $ | (29.9 | ) |
_______________ | |
(1)
| For the year ended December 31, 2018, $1.9 was reclassified from accumulated other comprehensive loss to foreign currency loss in the consolidated statements of income related to the Divestiture. This reclassification reduced the gain on sale of CAIRE. Refer to Note 3, “Discontinued Operations,” for further discussion. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and sharesthe Series B Mandatory Convertible Preferred Stock, as it does not have a contractual obligation to share in millions, except per share amounts)
NOTE 15 — Earnings Per Share
The following table presents calculationsthe losses of Chart. Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common stock:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Net income attributable to Chart Industries, Inc. | | | | | |
| Income from continuing operations | $ | 46.4 |
| | $ | 53.6 |
| | $ | 26.2 |
|
| Income from discontinued operations | — |
| | 34.4 |
| | 1.8 |
|
| Net income attributable to Chart Industries, Inc. | $ | 46.4 |
| | $ | 88.0 |
| | $ | 28.0 |
|
| Earnings per common share – basic: | | | | | |
| Income from continuing operations | $ | 1.37 |
| | $ | 1.73 |
| | $ | 0.85 |
|
| Income from discontinued operations | — |
| | 1.10 |
| | 0.06 |
|
| Net income attributable to Chart Industries, Inc. | $ | 1.37 |
| | $ | 2.83 |
| | $ | 0.91 |
|
| | | | | | |
| Earnings per common share – diluted: | | | | | |
| Income from continuing operations | $ | 1.32 |
| | $ | 1.67 |
| | $ | 0.84 |
|
| Income from discontinued operations | — |
| | 1.06 |
| | 0.05 |
|
| Net income attributable to Chart Industries, Inc. | $ | 1.32 |
| | $ | 2.73 |
| | $ | 0.89 |
|
| | | | | | |
| Weighted average number of common shares outstanding — basic | 33.91 |
| | 31.05 |
| | 30.74 |
|
| Incremental shares issuable upon assumed conversion and exercise of share-based awards | 0.42 |
| | 0.77 |
| | 0.60 |
|
| Incremental shares issuable due to dilutive effect of the Convertible Notes | 0.82 |
| | 0.38 |
| | — |
|
| Incremental shares issuable due to dilutive effect of warrants | 0.02 |
| | — |
| | — |
|
| Weighted average number of common shares outstanding — diluted | 35.17 |
| | 32.20 |
| | 31.34 |
|
shares outstanding for the period. Diluted earningsnet income per common share does not consideris computed by dividing net income available to common shareholders by the following potentialsum of the weighted average number of common shares asoutstanding and any dilutive non-participating securities for the effect would be anti-dilutive:period.
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Share-based awards | 0.15 |
| | 0.22 |
| | 0.40 |
|
Convertible note hedge and capped call transactions (1) | 0.82 |
| | 0.38 |
| | — |
|
| Warrants | — |
| | 5.18 |
| | 5.18 |
|
| Total anti-dilutive securities | 0.97 |
| | 5.78 |
| | 5.58 |
|
_______________
| |
(1)
| The convertible note hedge offsets any dilution upon actual conversion of the 2024 Notes up to a common stock price of $71.775 per share. For further information, refer to Note 10, “Debt and Credit Arrangements.” |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
NOTE 1617 — Income Taxes
Income from Continuing Operations Before Income Taxes
Income from continuing operations before income taxes consists of the following:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| United States | $ | 39.4 |
| | $ | 32.0 |
| | $ | 5.5 |
|
| Foreign | 13.4 |
| | 37.0 |
| | 5.6 |
|
| Income before from continuing operations before income taxes | $ | 52.8 |
| | $ | 69.0 |
| | $ | 11.1 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| United States | $ | 31.1 | | | $ | 25.9 | | | $ | 48.0 | |
| Foreign | 67.8 | | | 48.2 | | | 37.2 | |
| Income from continuing operations before income taxes | $ | 98.9 | | | $ | 74.1 | | | $ | 85.2 | |
Provision
Significant components of income tax expense (benefit), net are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Current: | | | | | |
| Federal | $ | (1.3) | | | $ | 1.7 | | | $ | (0.2) | |
| State and local | 3.5 | | | 3.2 | | | 1.9 | |
| Foreign | 15.4 | | | 16.5 | | | 12.2 | |
| Total current | 17.6 | | | 21.4 | | | 13.9 | |
| Deferred: | | | | | |
| Federal | (5.6) | | | (5.8) | | | 7.5 | |
| State and local | 1.9 | | | 1.1 | | | (2.9) | |
| Foreign | 2.0 | | | (3.2) | | | (3.6) | |
| Total deferred | (1.7) | | | (7.9) | | | 1.0 | |
| Total income tax expense, net | $ | 15.9 | | | $ | 13.5 | | | $ | 14.9 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Current: | | | | | |
| Federal | $ | 6.9 |
| | $ | 1.5 |
| | $ | 8.7 |
|
| State and local | 3.0 |
| | 0.5 |
| | 0.2 |
|
| Foreign | 12.3 |
| | 6.4 |
| | 5.9 |
|
| Total current | 22.2 |
| | 8.4 |
| | 14.8 |
|
| Deferred: | | | | | |
| Federal | (2.0 | ) | | 3.8 |
| | (30.7 | ) |
| State and local | (5.5 | ) | | 1.5 |
| | (0.2 | ) |
| Foreign | (8.7 | ) | | (0.3 | ) | | (0.5 | ) |
| Total deferred | (16.2 | ) | | 5.0 |
| | (31.4 | ) |
| Total income tax expense (benefit), net | $ | 6.0 |
| | $ | 13.4 |
| | $ | (16.6 | ) |
F-52
Effective Tax Rate Reconciliation
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense (benefit) is as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Income tax expense at U.S. statutory rate | $ | 11.2 |
| | $ | 14.1 |
| | $ | 3.6 |
|
| State income taxes, net of federal tax benefit | (2.1 | ) | | 1.7 |
| | 0.2 |
|
| Foreign income, net of credit on foreign taxes | (2.3 | ) | | 0.7 |
| | 8.5 |
|
| Effective tax rate differential of earnings outside of U.S. | 0.1 |
| | 2.6 |
| | (0.3 | ) |
| Change in valuation allowance | 1.0 |
| | 38.4 |
| | 7.6 |
|
| Research & experimentation credits | (0.9 | ) | | (0.9 | ) | | (0.5 | ) |
| Foreign derived intangible income | (0.9 | ) | | (0.8 | ) | | — |
|
| Net non-deductible items | 2.3 |
| | 1.2 |
| | 0.7 |
|
| Change in uncertain tax positions | — |
| | 0.2 |
| | 0.1 |
|
| Share-based compensation | (3.0 | ) | | (3.3 | ) | | — |
|
| Domestic production activities deduction | — |
| | — |
| | (0.4 | ) |
| Capital loss carryover | — |
| | (29.7 | ) | | — |
|
| Tax effect of 2017 tax reform federal rate change | — |
| | (11.3 | ) | | (26.7 | ) |
| Tax effect of carryforward foreign tax credits | — |
| | (0.6 | ) | | (9.4 | ) |
| Other items | 0.6 |
| | 1.1 |
| | — |
|
| Income tax expense (benefit) | $ | 6.0 |
| | $ | 13.4 |
| | $ | (16.6 | ) |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Effective Tax Rate Reconciliation
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Income tax expense at U.S. statutory rate | $ | 20.8 | | | $ | 15.6 | | | $ | 17.9 | |
| State income taxes, net of federal tax benefit | 1.5 | | | 3.1 | | | (0.9) | |
| | | | | |
| U.S. taxation of international operations | 1.4 | | | 1.3 | | | (0.2) | |
| Effective tax rate differential of earnings outside of U.S. | 1.9 | | | 1.8 | | | 2.4 | |
| Change in valuation allowance | (11.6) | | | (5.9) | | | (4.2) | |
| Research & experimentation | (2.9) | | | (1.0) | | | (1.0) | |
| | | | | |
| Provision to return | 5.0 | | | 0.3 | | | (0.1) | |
| Net non-deductible items | 0.4 | | | 2.4 | | | 1.2 | |
| Change in uncertain tax positions | (0.3) | | | (0.2) | | | (0.6) | |
| Share-based compensation | (1.1) | | | (4.1) | | | (1.7) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Tax effect of 2017 tax reform federal rate change | — | | | — | | | (0.2) | |
| | | | | |
| Other items | 0.8 | | | 0.2 | | | 2.3 | |
| Income tax expense | $ | 15.9 | | | $ | 13.5 | | | $ | 14.9 | |
We reorganized the line items of the effective tax rate reconciliation for year ended December 31, 2020 and December 31, 2021 to correspond with the year ended December 31, 2022.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Deferred Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Deferred tax assets: | | | |
| Accruals and reserves | $ | 19.4 |
| | $ | 15.9 |
|
| Pensions | 2.9 |
| | 3.3 |
|
| Inventory | 2.3 |
| | 2.2 |
|
| Share-based compensation | 5.3 |
| | 6.5 |
|
| Tax credit carryforwards | 15.5 |
| | 16.2 |
|
| Foreign net operating loss carryforwards | 24.4 |
| | 11.2 |
|
| State net operating loss carryforwards | 0.3 |
| | 0.6 |
|
| Capital loss carryover | 29.4 |
| | 29.7 |
|
| Convertible notes | 0.7 |
| | 0.4 |
|
| Other – net | 5.5 |
| | 13.5 |
|
| Total deferred tax assets before valuation allowances | 105.7 |
| | 99.5 |
|
| Valuation allowances | (68.2 | ) | | (65.2 | ) |
| Total deferred tax assets, net of valuation allowances | $ | 37.5 |
| | $ | 34.3 |
|
| Deferred tax liabilities: | | | |
| Property, plant and equipment | $ | 13.7 |
| | $ | 15.4 |
|
| Goodwill and intangible assets | 74.9 |
| | 88.9 |
|
| Other – net | 1.0 |
| | 1.6 |
|
| Total deferred tax liabilities | $ | 89.6 |
| | $ | 105.9 |
|
| Net deferred tax liabilities | $ | 52.1 |
| | $ | 71.6 |
|
| The net deferred tax liability is classified as follows: | | | |
| Other assets | $ | — |
| | $ | (4.8 | ) |
| Long-term deferred tax liabilities | 52.1 |
| | 76.4 |
|
| Net deferred tax liabilities | $ | 52.1 |
| | $ | 71.6 |
|
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Deferred tax assets (“DTA”): | | | |
| Accruals and reserves | $ | 5.1 | | | $ | 13.7 | |
| Loss contingency | 70.3 | | | 3.1 | |
| Pensions | 0.2 | | | 0.5 | |
| Inventory | 78.1 | | | 42.3 | |
| Share-based compensation | 2.3 | | | 4.5 | |
| R&D Amortization | 7.4 | | | 3.6 | |
| Tax credit carryforwards | 8.2 | | | 14.1 | |
| Interest limitation carryover | 5.5 | | | 2.4 | |
| Foreign net operating loss carryforwards | 8.7 | | | 16.3 | |
| State net operating loss carryforwards | 2.1 | | | 2.3 | |
| | | |
| Convertible notes | 4.3 | | | 6.3 | |
| Property, plant and equipment – net DTA | 5.2 | | | 7.5 | |
| Other – net DTA | 2.9 | | | 12.4 | |
| Total deferred tax assets before valuation allowances | 200.3 | | | 129.0 | |
| Valuation allowances | (5.4) | | | (21.6) | |
| Total deferred tax assets, net of valuation allowances | $ | 194.9 | | | $ | 107.4 | |
| Deferred tax liabilities (“DTL”): | | | |
| Property, plant and equipment – net DTL | $ | 26.0 | | | $ | 37.9 | |
| Goodwill and intangible assets | 77.0 | | | 82.2 | |
| Insurance receivable | 53.5 | | | 3.1 | |
| Other – net DTL | 3.1 | | | 0.6 | |
| Investments | 4.5 | | | 3.8 | |
| Deferred revenue | 72.0 | | | 37.9 | |
| Total deferred tax liabilities | $ | 236.1 | | | $ | 165.5 | |
| Net deferred tax liabilities | $ | 41.2 | | | $ | 58.1 | |
| The net deferred tax liability is classified as follows: | | | |
| Other assets | $ | (4.9) | | | $ | (1.7) | |
| Long-term deferred tax liabilities | 46.1 | | | 59.8 | |
| Net deferred tax liabilities | $ | 41.2 | | | $ | 58.1 | |
As of December 31, 2019,2022, we have $104.5$94.6 of state and foreign net operating losses, of which approximately $61.9$14.3 expire between 20202022 and 2029. Additionally, we have a U.S. capital loss carryforward of $140.3, which expires in 2023.2030.
We routinely review valuation allowances recorded against deferred tax assets on a more likely than not basis as to whether we have the ability to realize the deferred tax assets. As of December 31, 2019,2022, we have valuation allowances totaling $68.2$5.4 consisting primarily of $30.0 related to U.S. capital loss carryforwards and $27.1 associated with our operations in Italy and China.
Other Tax Information
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. 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 created a new limitation on deductible interest expense. Consequently, we recorded a $22.5 net favorable tax benefit during the year ended December 31, 2017 primarily due to the remeasurement of deferred tax assets to the 21% federal corporate tax rate. In accordance with SAB 118, we recorded an additional tax benefit $1.8 during the year ended December 31, 2018 primarily related to the remeasurement of deferred tax assets to the 21% federal corporate tax rate based on the completion of our analysis to determine the effect of the Tax Act.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. We have analyzed our global working capital and cash requirements as of December 31, 20192022 and have determined that we do not plan to repatriate any earnings at this time.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Cash paid for income taxes during the years ended December 31, 2019, 20182022, 2021 and 20172020 was $16.8, $13.2,$27.0, $57.2, and $15.4,$12.5, respectively.
Unrecognized Income Tax Benefits
The reconciliation of beginning to ending unrecognized tax benefits is as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Unrecognized tax benefits at beginning of the year | $ | 2.3 |
| | $ | 0.8 |
| | $ | 0.8 |
|
| Additions for tax positions of prior years | (0.1 | ) | | 0.9 |
| | 0.1 |
|
| Additions for tax positions acquired | 0.2 |
| | 1.4 |
| | — |
|
| Reductions for tax positions of prior years | — |
| | (0.8 | ) | | (0.1 | ) |
| Unrecognized tax benefits at end of the year | $ | 2.4 |
| | $ | 2.3 |
| | $ | 0.8 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Unrecognized tax benefits at beginning of the year | $ | 1.7 | | | $ | 1.9 | | | $ | 2.4 | |
| | | | | |
| Additions (reductions) for tax positions taken during the prior period | — | | | 0.4 | | | (0.6) | |
| Additions for tax positions taken during the current period | — | | | — | | | 0.2 | |
| Reductions relating to settlements with taxing authorities | (0.3) | | | — | | | (0.1) | |
| Lapse of statutes of limitation | (0.7) | | | (0.6) | | | — | |
| Unrecognized tax benefits at end of the year | $ | 0.7 | | | $ | 1.7 | | | $ | 1.9 | |
Included in the balance of unrecognized tax benefits at December 31, 20192022 and 2018 were $1.72021 was $0.5 and $0.1$1.2, respectively of income tax (benefit)/expenses, respectively, which, if ultimately recognized, would impact our annual effective tax rate.
We accrued approximately $0.4$0.1 and $0.1$0.3 of interest and penalties at December 31, 20192022 and 2018,2021, respectively. Due to the expiration of various statutes of limitation, it is reasonably possible our unrecognized tax benefits at December 31, 20192022 may decrease within the next twelve months by $0.4.$0.2. We are subject to income taxes in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2014.2018.
NOTE 1718 — Employee Benefit Plans
Defined Benefit Plan
We have a defined benefit pension plan which is frozen, that covers certain U.S. hourly and salary employees.employees (the “Chart Plan”). The defined benefit plan provides benefits based primarily on the participants’ years of service and compensation. The Retirement Plan for Union Employees of Smithco Engineering Inc. (the “Hudson Plan”) merged into the Chart Plan as of February 28, 2021 (the “Hudson Plan merger”).
The components of net periodic pension expense (income)income are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Interest cost | $ | 1.7 | | | $ | 1.7 | | | $ | 1.8 | |
| Expected return on plan assets | (4.3) | | | (3.8) | | | (3.3) | |
| Amortization of net loss | 0.5 | | | 1.0 | | | 1.2 | |
| Total net periodic pension income | $ | (2.1) | | | $ | (1.1) | | | $ | (0.3) | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Interest cost | $ | 2.2 |
| | $ | 2.1 |
| | $ | 2.2 |
|
| Expected return on plan assets | (2.9 | ) | | (3.3 | ) | | (2.8 | ) |
| Amortization of net loss | 1.3 |
| | 0.9 |
| | 1.2 |
|
| Total net periodic pension expense (income) | $ | 0.6 |
| | $ | (0.3 | ) | | $ | 0.6 |
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The changes in the projected benefit obligation and plan assets, the funded status of the plans and the amounts recognized in the consolidated balance sheets are as follows:
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Change in projected benefit obligation: | | | |
| Projected benefit obligation at beginning of year | $ | 53.6 |
| | $ | 57.0 |
|
| Interest cost | 2.2 |
| | 2.1 |
|
| Assumption changes | 5.4 |
| | — |
|
| Benefits paid | (2.5 | ) | | (2.4 | ) |
| Actuarial gains | (0.2 | ) | | (3.1 | ) |
| Projected benefit obligation at year end | $ | 58.5 |
| | $ | 53.6 |
|
| Change in plan assets: | | | |
| Fair value of plan assets at beginning of year | $ | 42.8 |
| | $ | 48.5 |
|
| Actual return | 8.4 |
| | (3.3 | ) |
| Employer contributions | 0.4 |
| | — |
|
| Benefits paid | (2.5 | ) | | (2.4 | ) |
| Fair value of plan assets at year end | $ | 49.1 |
| | $ | 42.8 |
|
Funded status (Accrued pension liabilities) (1) | $ | (9.4 | ) | | $ | (10.8 | ) |
| | | | |
| Unrecognized actuarial loss recognized in accumulated other comprehensive loss | $ | 14.2 |
| | $ | 15.8 |
|
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Change in projected benefit obligation: | | | |
| Projected benefit obligation at beginning of year | $ | 63.5 | | | $ | 62.5 | |
| Interest cost | 1.7 | | | 1.7 | |
| Assumption changes | (12.4) | | | (1.9) | |
Acquisition of Hudson Plan (1) | — | | | 3.1 | |
| Benefits paid | (3.0) | | | (2.8) | |
| Actuarial losses | 0.2 | | | 0.9 | |
| Projected benefit obligation at year end | 50.0 | | | 63.5 | |
| Change in plan assets: | | | |
| Fair value of plan assets at beginning of year | 61.9 | | | 53.9 | |
| Actual return | (9.8) | | | 8.3 | |
Acquisition of Hudson Plan (1) | — | | | 2.4 | |
| Employer contributions | — | | | 0.1 | |
| Benefits paid | (3.0) | | | (2.8) | |
| Fair value of plan assets at year end | 49.1 | | | 61.9 | |
| Funded status (Accrued pension asset (liability)) | $ | (0.9) | | | $ | (1.6) | |
| | | |
| Unrecognized actuarial loss recognized in accumulated other comprehensive loss | $ | 10.3 | | | $ | 8.0 | |
_______________
| |
(1)(1)The 2021 changes in the projected benefit obligation and plan assets reflect the effect of the Hudson Plan merger. | Accrued pension liabilities on the the consolidated balance sheets for both December 31, 2019 and 2018 were $0.8, respectively, related to Hudson, which is not included in the table above. |
The estimated net periodic pension income for the defined benefit pension plan that will be amortized from accumulated other comprehensive loss over the next fiscal year is $0.3.$0.1.
The actuarial assumptions used in determining pension plan information are as follows:
|
| | | | | | | | |
| | December 31, |
| | 2019 | | 2018 | | 2017 |
| Assumptions used to determine benefit obligation at year end: | | | | | |
| Discount rate | 3.2 | % | | 4.2 | % | | 3.7 | % |
| Assumptions used to determine net periodic benefit cost: | | | | | |
| Discount rate | 4.2 | % | | 3.7 | % | | 4.0 | % |
| Expected long-term weighted-average rate of return on plan assets | 7.0 | % | | 7.0 | % | | 7.0 | % |
| | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
| Assumptions used to determine benefit obligation at year end: | | | | | |
| Discount rate | 4.9 | % | | 2.7 | % | | 2.4 | % |
| Assumptions used to determine net periodic benefit cost: | | | | | |
| Discount rate | 2.7 | % | | 2.4 | % | | 3.2 | % |
| Expected long-term weighted-average rate of return on plan assets | 7.0 | % | | 7.0 | % | | 7.0 | % |
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at year end. In estimating this rate, we look to rates of return on high quality, fixed-income investments that receive one of the two highest ratings given by a recognized rating agency and the expected timing of benefit payments under the plan.
The expected return assumptions were developed using an averaging formula based upon the plans’ investment guidelines, mix of asset classes, historical returns of equities and bonds, and expected future returns. We employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of short and long-term plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
growth, value, and small and large capitalizations. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The target allocations by asset category and fair values of the plan assets by asset class at December 31 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Target Allocations by Asset Category | | Fair Value |
| | | Total | | Level 2 | | Level 3 |
| Plan Assets: | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| Equity funds | 60% – 70% | | $ | 36.0 |
| | $ | 30.0 |
| | $ | 36.0 |
| | $ | 30.0 |
| | $ | — |
| | $ | — |
|
| Fixed income funds | 26% – 30% | | 12.8 |
| | 12.6 |
| | 12.8 |
| | 12.6 |
| | — |
| | — |
|
| Other investments | 3% – 6% | | 0.3 |
| | 0.2 |
| | — |
| | — |
| | 0.3 |
| | 0.2 |
|
| Total | | | $ | 49.1 |
| | $ | 42.8 |
| | $ | 48.8 |
| | $ | 42.6 |
| | $ | 0.3 |
| | $ | 0.2 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Target Allocations by Asset Category | | Fair Value |
| | Total | | Level 2 | | Level 3 |
| Plan Assets: | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Equity funds | 68% | | $ | 35.0 | | | $ | 43.9 | | | $ | 35.0 | | | $ | 43.9 | | | $ | — | | | $ | — | |
| Fixed income funds | 27% | | 13.0 | | | 16.0 | | | 13.0 | | | 16.0 | | | — | | | — | |
| Other investments | 5% | | 1.1 | | | 2.0 | | | — | | | — | | | 1.1 | | | 2.0 | |
| Total | | | $ | 49.1 | | | $ | 61.9 | | | $ | 48.0 | | | $ | 59.9 | | | $ | 1.1 | | | $ | 2.0 | |
The plan assets are primarily invested in pooled separate funds. The fair values of equity securities and fixed income securities held in pooled separate funds are based on net asset value of the units of the funds as determined by the fund manager. These funds are similar in nature to retail mutual funds, but are typically more efficient for institutional investors. The fair value of pooled funds is determined by the value of the underlying assets held by the fund and the units outstanding. The value of the pooled funds is not directly observable, but is based on observable inputs. As such, these plan assets are valued using Level 2 inputs. Certain plan assets in the other investments asset category are invested in a general investment account where the fair value is derived from the liquidation value based on an actuarial formula as defined under terms of the investment contract. These plan assets were valued using unobservable inputs and, accordingly, the valuation was performed using Level 3 inputs.
The following table represents changes in the fair value of plan assets categorized as Level 3 from the preceding table:
|
| | | |
| Balance at January 1, 2018 | $ | 2.9 |
|
| Purchases, sales and settlements, net | (2.8 | ) |
| Transfers, net | 0.1 |
|
| Balance at December 31, 2018 | $ | 0.2 |
|
| Purchases, sales and settlements, net | (3.1 | ) |
| Transfers, net | 3.2 |
|
| Balance at December 31, 2019 | $ | 0.3 |
|
| | | | | |
| Balance at December 31, 2020 | $ | 1.8 | |
| Purchases, sales and settlements, net | (3.0) | |
| Transfers, net | 3.2 | |
| Balance at December 31, 2021 | 2.0 | |
| Purchases, sales and settlements, net | (3.4) | |
| Transfers, net | 2.5 | |
| Balance at December 31, 2022 | $ | 1.1 | |
Our funding policy is to contribute at least the minimum funding amounts required by law. Based upon current actuarial estimates, we do not expect to contribute to our defined benefit pension plan until 2020.in the next five years. The following benefit payments are expected to be paid by the plan in each of the next five years and in the aggregate for the subsequent five years:
| | | 2020 | $ | 3.0 |
| |
| 2021 | 3.1 |
| |
| 2022 | 3.2 |
| |
| 2023 | 3.3 |
| 2023 | $ | 3.5 | |
| 2024 | 3.3 |
| 2024 | 3.5 | |
| 2025 | | 2025 | 3.6 | |
| 2026 | | 2026 | 3.6 | |
| 2027 | | 2027 | 3.7 | |
| In aggregate during five years thereafter | 17.2 |
| In aggregate during five years thereafter | 17.9 | |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Hudson Defined Benefit Plan
As part of the Hudson acquisition (see Note 13, “Business Combinations”) we acquired a noncontributory defined benefit plan (the “Hudson Plan”) covering certain employees at a Hudson subsidiary who meet the plan’s eligibility requirements. The Hudson Plan is closed to new participants. Our funding policy is to make the minimum annual contribution that is required by applicable regulations, plus such amounts as we may determine to be appropriate from time to time. At December 31, 2019 and 2018, the projected benefit obligation of the Hudson Plan was $2.9 and $2.5, respectively, and the fair value of plan assets was $2.0 and $1.7, respectively. Consequently, at both December 31, 2019 and 2018, a liability of $0.8 was included in accrued pension liabilities on the consolidated balance sheets for the underfunded status of the Hudson Plan. Pension expense in 2019 and 2018 was not significant.
Multi-Employer Plan
We contribute to a multi-employer plan for certain collective bargaining U.S. employees. The risks of participating in this multi-employer plan are different from a single employer plan in the following aspects:
| |
(a) | Assets contributed to the multi-employer by one employer may be used to provide benefits to employees of other participating employers. |
| |
(b) | If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers. |
| |
(c) | If we choose to stop participating in the multi-employer plan, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
(a) Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
(b) If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
(c) If we choose to stop participating in the multi-employer plan, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
We have assessed and determined that the multi-employer plan to which we contribute is not significant to our financial statements. We do not expect to incur a withdrawal liability or expect to significantly increase our contribution over the remainder of the current contract period, which ends in February 2023.2026. We made contributions to the bargaining unit supported multi-employer pension plan resulting in expense of $0.6 for the year ended December 31, 2022 and $0.5 $0.4, and $0.3 for both of the years ended December 31, 2019, 20182021 and 2017, respectively. The reduction in contributions is due to fewer employees participating in this plan.2020.
Defined Contribution Savings Plan
We have a defined contribution savings plan that covers most of our U.S. employees. Company contributions to the plan are based on employee contributions, and include a Company match and discretionary contributions. Expenses under the plan totaled $9.2, $8.7,$6.8, $5.7, and $8.2$4.9 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
Voluntary Deferred Income Plan
We provide additional retirement plan benefits to certain members of management under the Amended and Restated Chart Industries, Inc. Voluntary Deferred Income Plan. This is an unfunded plan. We recorded $0.3, $0.4,$0.1, and $0.5$0.3 of expense associated with this plan for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
NOTE 1819 — Share-based Compensation
Under the 2017 Omnibus Equity Plan (the “2017 Omnibus Equity Plan”) officers and employees (including our principal executive officer, principal financial officer and other “named executive officers”) are eligible to be granted stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares and common shares. The maximum number of shares available for issuance is 1.70, which may be treasury shares or unissued shares. As of December 31, 2019, 0.202022, 0.23 stock options, 0.190.11 shares of restricted stock and RSUs, and 0.030.07 performance units were outstanding under the 2017 Omnibus Equity Plan.
Under the Amended and Restated 2009 Omnibus Equity Plan (“2009 Omnibus Equity Plan”) which was originally approved by our shareholders in May 2009 and re-approved by shareholders in May 2012 as amended and restated, we could grant stock options, SARs, RSUs, restricted stock, performance shares, leveraged restricted shares, and common shares to employees and directors. The maximum number of shares available for issuance is 3.35, which could be treasury shares or unissued shares. As of December 31, 2019, 0.442022, 0.04 stock options 0.04 shares of restricted stock and RSUs, and 0.01 performance units were outstanding under the 2009 Omnibus Equity Plan.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
We recognized share-based compensation expense of $9.0, $4.9,$10.6, $11.2, and $10.6$8.6 for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. This expense is included in selling, general and administrative expenses in the consolidated statements of income. The tax benefit related to share-based compensation, which was recorded in net income in the consolidated statement of income during the yearyears ended December 31, 20192022, 2021 and 20182020 was $2.8$1.4, $2.2 and $1.3,$1.6 respectively, which was recorded in net income in the consolidated statements of income (the tax benefit for 2017 was insignificant).income. As of December 31, 2019,2022, total share-based compensation expense of $9.5$12.2 is expected to be recognized over the remaining weighted-average period of approximately 1.92.1 years.
Stock Options
We use a Black-Scholes option pricing model to estimate the fair value of stock options. The expected volatility is based on historical information. The risk-free rate is based on the U.S. Treasury yield in effect at the time of the grant. Weighted-average grant-date fair values of stock options and the assumptions used in estimating the fair values are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Weighted-average grant-date fair value per share | $ | 67.58 | | | $ | 52.19 | | | $ | 28.53 | |
| Expected term (years) | 4.7 | | 4.7 | | 4.8 |
| Risk-free interest rate | 1.32 | % | | 0.33 | % | | 1.66 | % |
| Expected volatility | 51.24 | % | | 53.10 | % | | 46.60 | % |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Weighted-average grant-date fair value per share | $ | 30.66 |
| | $ | 26.67 |
| | $ | 20.11 |
|
| Expected term (years) | 5.0 |
| | 5.5 |
| | 5.4 |
|
| Risk-free interest rate | 2.24 | % | | 2.30 | % | | 2.00 | % |
| Expected volatility | 50.94 | % | | 59.41 | % | | 60.31 | % |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Stock options generally have a four-year graded vesting period, an exercise price equal to the fair market value of a share of common stock on the date of grant, and a contractual term of 10 years. The following table summarizes our stock option activity from continuing operations:
|
| | | | | | | | | | | | |
| | December 31, 2019 |
| | Number of Shares | | Weighted-average Exercise Price | | Aggregate Intrinsic Value | | Weighted- average Remaining Contractual Term |
| Outstanding at beginning of year | 0.79 |
| | $ | 38.46 |
| | | | |
| Granted | 0.13 |
| | 66.50 |
| | | | |
| Exercised | (0.26 | ) | | 32.09 |
| | | | |
| Forfeited / Cancelled | (0.03 | ) | | 54.90 |
| | | | |
| Outstanding at end of year | 0.63 |
| | $ | 46.01 |
| | $ | 15.0 |
| | 5.2 years |
| Vested and expected to vest at end of year | 0.62 |
| | $ | 45.71 |
| | $ | 6.9 |
| | 5.1 years |
| Exercisable at end of year | 0.28 |
| | $ | 47.12 |
| | $ | 14.9 |
| | 3.3 years |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Number
of Shares | | Weighted-average
Exercise
Price | | Aggregate Intrinsic Value | | Weighted- average Remaining Contractual Term |
| Outstanding at beginning of year | 0.28 | | | $ | 71.38 | | | | | |
| Granted | 0.04 | | | 153.81 | | | | | |
| Exercised | (0.03) | | | 67.90 | | | | | |
| Forfeited / Cancelled | (0.02) | | | 102.10 | | | | | |
| Outstanding at end of year | 0.27 | | | $ | 79.91 | | | $ | 10.8 | | | 6.1 years |
| Vested and expected to vest at end of year | 0.27 | | | $ | 78.82 | | | $ | 8.5 | | | 6.0 years |
| Exercisable at end of year | 0.15 | | | $ | 59.91 | | | $ | 10.8 | | | 5.0 years |
As of December 31, 2019,2022, total unrecognized compensation cost related to stock options expected to be recognized over the weighted-average period of approximately 2.32.2 years is $2.7.$2.2.
The total intrinsic value of options exercised during the years ended December 31, 2019, 20182022, 2021 and 20172020 was $13.1, $18.8,$3.5, $10.3, and $1.2,$13.2, respectively. The total fair value of stock options vested during the years ended December 31, 2019, 20182022, 2021 and 20172020 was $3.1, $3.7,$2.3, $2.6, and $3.3,$3.5, respectively.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Restricted Stock and RSUs
Restricted stock and RSUs generally vest ratably over a three-year period and are valued based on our market price on the date of grant. The following table summarizes our unvested restricted stock and RSUs activity from continuing operations:
|
| | | | | | |
| | December 31, 2019 |
| | Number of Shares | | Weighted-Average Grant-Date Fair Value |
| Unvested at beginning of year | 0.27 |
| | $ | 41.01 |
|
| Granted | 0.09 |
| | 67.64 |
|
| Forfeited | (0.02 | ) | | 61.42 |
|
| Vested | (0.12 | ) | | 30.05 |
|
| Unvested at end of year | 0.22 |
| | $ | 55.46 |
|
| | | | | | | | | | | |
| | December 31, 2022 |
| | Number
of Shares | | Weighted-Average
Grant-Date Fair Value |
| Unvested at beginning of year | 0.11 | | | $ | 87.74 | |
| Granted | 0.07 | | | 155.02 | |
| Forfeited | (0.01) | | | 117.18 | |
| Vested | (0.06) | | | 84.09 | |
| Unvested at end of year | 0.11 | | | $ | 125.14 | |
As of December 31, 2019,2022, total unrecognized compensation cost related to unvested restricted stock and RSUs expected to be recognized over the weighted-average period of approximately 1.72.4 years is $5.4.$7.2.
The weighted-average grant-date fair value of restricted stock and RSUs granted during the years ended December 31, 2019, 2018,2022, 2021, and 20172020 was $67.64, $51.99,$155.02, $124.32, and $37.14,$63.32, respectively. The total fair value of restricted stock and RSUs that vested during the years ended December 31, 2019, 2018,2022, 2021, and 20172020 was $7.7, $7.3,$10.0, $17.4, and $4.6,$6.8, respectively.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Performance Units
Performance units are earned over a three-year period. Based on the attainment of pre-determined performance condition targets as determined by the Compensation Committee of the Board of Directors, performance units earned may be in the range of between 0% and 200%. The following table, which is stated at a 100% earned percentage, summarizes our performance units activity from continuing operations:
|
| | | | | | |
| | December 31, 2019 |
| | Number of Shares | | Weighted-Average Grant-Date Fair Value |
| Unvested at beginning of year | 0.04 |
| | $ | 27.49 |
|
| Granted | 0.03 |
| | 69.53 |
|
| Vested | (0.02 | ) | | 18.62 |
|
| Forfeited | (0.01 | ) | | 73.30 |
|
| Unvested at end of year | 0.04 |
| | $ | 61.71 |
|
| | | | | | | | | | | |
| | December 31, 2022 |
| | Number
of Shares | | Weighted-Average
Grant-Date Fair Value |
| Unvested at beginning of year | 0.09 | | | $ | 84.44 | |
| Granted | 0.01 | | | 153.81 | |
| Vested | (0.02) | | | 68.30 | |
| Forfeited | (0.01) | | | 71.59 | |
| Unvested at end of year | 0.07 | | | $ | 103.66 | |
As of December 31, 2019,2022, total unrecognized compensation cost related to performance units expected to be recognized over a weighted-average period of approximately 1.91.5 years is $1.4.$2.8.
The weighted-average grant-date fair value of performance units granted during the years ended December 31, 2019, 2018,2022, 2021, and 20172020 was $69.53, $49.38,$153.81, $118.41, and $37.34,$67.50, respectively. The total fair value of performance units that vested during the years ended December 31, 2019, 2018,2022, 2021, and 20172020 was $1.1, $0.1,$2.6, $0.9, and $0.8,$0.3, respectively.
Directors’ Stock Grants
In 2019, 20182022, 2021 and 2017,2020, we granted the non-employee directors stock awards covering 0.01 0.01, and 0.02 shares of common stock respectively,for each of those years, which had fair values of $0.7, $0.6, $0.7, and $0.7,$1.3, respectively. These stock awards were fully vested on the grant date. Likewise, the fair values were recognized immediately on the grant date.
NOTE 20 — Leases
Lessee Accounting
NOTE 19 — Leases
As of December 31, 2019,2022 and 2021, operating ROU assets and lease liabilities were $34.0$21.1 and $34.1$21.0 ($6.35.4 of which was current), and $27.3 and $27.2 ($5.8 of which was current), respectively. The weighted-average remaining term for lease contracts was 6.74.4 years at December 31, 2019,2022, with maturity dates ranging from May 2020January 2023 to February 2029.June 2031. The weighted-average discount rate was 4.7%3.4% at December 31, 2019.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars2022. ROU assets are classified as property, plant and sharesequipment, net in millions, except per share amounts)
We incurred $11.1, $8.0,$16.9, $12.1, and $9.3$11.1 of rental expense under operating leases for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Certain operating leases contain rent escalation clauses and lease concessions that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a straight-line basis over the minimum lease term. Adjustments for straight-line rental expense for the respective periods was not material and as such, the majority of expense recognized was reflected in cash used in operating activities for the respective periods. This expense consisted primarily of payments for base rent on building and equipment leases. Payments related to short-term lease costs and taxes and variable service charges on leased properties were immaterial. In addition, we have the right, but no obligation, to renew certain leases for various renewal terms.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The following table summarizes future minimum lease payments for non-cancelable operating leases as of December 31, 2019:2022:
| | | 2020 | $ | 7.8 |
| |
| 2021 | 6.4 |
| |
| 2022 | 6.1 |
| |
| 2023 | 5.6 |
| 2023 | $ | 6.6 | |
| 2024 | 5.3 |
| 2024 | 6.0 | |
| 2025 | | 2025 | 5.0 | |
| 2026 | | 2026 | 2.8 | |
| 2027 | | 2027 | 0.7 | |
Thereafter (1) | 7.9 |
| Thereafter (1) | 0.7 | |
| Total future minimum lease payments | $ | 39.1 |
| Total future minimum lease payments | $ | 21.8 | |
_______________
| |
(1)(1)As of December 31, 2022, future minimum lease payments for non-cancelable operating leases for periods subsequent to 2027 relate to four leased facilities. | As of December 31, 2019, future minimum lease payments for non-cancelable operating leases for period subsequent to 2024 relate to 7 leased facilities. |
Lessor Accounting
We lease equipment manufactured by Chart primarily through our Cryo-Lease program as sales-type and operating leases. As of December 31, 2022 and 2021, our short-term net investment in sales-type leases was $14.5 and $9.3, respectively and is included in other current assets in our consolidated balance sheets. Our long-term net investment in sales-type leases was $44.3 and $31.9 as of December 31, 2022 and 2021, respectively, and is included in other assets in our consolidated balance sheets. For sales-type leases, interest income was $2.4, $0.9 and $0.1 in the consolidated statements of income for the years ended December 31, 2022, 2021 and 2020, respectively.
Operating leases offered by Chart may include early termination options. At the end of a lease, a lessee generally has the option to either extend the lease, purchase the underlying equipment for a fixed price or return it to Chart. The lease agreements clearly define applicable return conditions and remedies for non-compliance to ensure that leased equipment will be in good operating condition upon return.
The following table represents sales from sales-type and operating leases:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Sales-type leases | $ | 28.1 | | | $ | 46.5 | |
| Operating leases | 4.1 | | | 2.4 | |
| Total sales from leases | $ | 32.2 | | | $ | 48.9 | |
The following table represents scheduled payments for sales-type leases:
| | | | | |
| December 31, 2022 |
| 2023 | $ | 15.1 | |
| 2024 | 15.1 | |
| 2025 | 15.0 | |
| 2026 | 12.0 | |
| 2027 | 5.6 | |
| Thereafter | 40.8 | |
| Total | 103.6 | |
| |
| |
| Less: unearned income | 44.8 | |
| Total | $ | 58.8 | |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The following table represents the cost of equipment leased to others:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Equipment leased to others, cost | $ | 17.3 | | | $ | 13.6 | |
| Less: accumulated depreciation | 3.1 | | | 2.1 | |
| Equipment leased to others, net | $ | 14.2 | | | $ | 11.5 | |
The following table represents payments due for operating leases:
| | | | | |
| December 31, 2022 |
| 2023 | $ | 0.5 | |
| 2024 | 0.1 | |
| 2025 | 0.1 | |
| 2026 | 0.1 | |
| 2027 | 0.1 | |
| Thereafter | — | |
| Total | $ | 0.9 | |
NOTE 2021 — Commitments and Contingencies
Environmental
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, believesbelieve we are currently in substantial compliance with all known environmental regulations. AtUndiscounted accrued reserves at December 31, 20192022 and 2018, we had undiscounted accrued environmental reserves of $0.6 and $1.3, respectively. We accrue for certain environmental remediation-related activities for which commitments or remediation plans have been developed and for which costs can be reasonably estimated. These estimates are determined based upon currently available facts and circumstances 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.
Although we believe we have adequately provided for the cost of all known environmental conditions, the applicable regulatory agencies could insist upon different and more costly remediation than those we believe are adequate or required by existing law or third parties may seek to impose environmental liabilities on us. We believe that any additional liability in excess of amounts accrued which may result from the resolution of such matters will2021 were not have a material adverse effect on our financial position, liquidity, cash flows or results of operations.material.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Aluminum Cryobiological Tank Recall
In April 2018, we received several customer inquiries regarding the performance of certain aluminum cryobiological tanks (in the D&S West segment) manufactured at our New Prague, Minnesota facility. An investigation has determined that certain aluminum tanks manufactured at the facility during a limited certain period should be repaired or replaced. As such, on April 23, 2018, we issued a recall notice for the impacted product lines. Our D&S West segment recorded an expense of $4.0 to cost of sales during 2018 related to the estimated costs of the recall. As of December 31, 2019, there is no remaining liability related to the tank recall.
Legal Proceedings
Stainless SteelIn connection with our divestiture of our Cryobiological Tank Legal Proceedings
business, Chart retained certain potential liabilities, including claims in connection with our following litigation. During the second quarter of 2018, Chart was named in lawsuits (including a class action lawsuitlawsuits 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. In May and June of 2021, the first five of the federal lawsuits went to trial, and on June 10, 2021, the jury reached a verdict against Chart in favor of the plaintiffs in those lawsuits in the amount of $14.9 million, of which 90% ($13.5 million) is attributable to Chart. Subsequent to the initial verdict, the Company filed various post-trial motions and appeals based on various factors, including the Company’s belief that the allocation of fault was not supported by the record, the award of emotional distress damages, the exclusion of certain evidence of trial, and our contention that plaintiffs failed to present sufficient evidence to prove each element of their claim.
In the second quarter 2021, we recorded a loss contingency accrual and corresponding charge to net income for $13.5 million in the amount of the jury verdict attributable to Chart, with an offsetting $13.5 million loss recovery receivable for anticipated insurance proceeds, with a corresponding credit to net income.
On June 13, 2022, Starr Indemnity & Liability Company (“Starr”) filed a complaint for declaratory relief and reimbursement in the U.S. District Court for the Northern District of California seeking a determination of what obligation, if any, Starr has to indemnify Chart in connection with the Pacific Fertility Center actions. On June 14, 2022, Chart filed its own declaratory judgment action against Starr in the U.S. District Court for the Northern District of Georgia seeking a determination that Starr has a duty to indemnify the Company in connection with the Pacific Fertility Center actions.
As previously disclosed, the Company has been engaged in ongoing discussions in an effort to establish a settlement framework for the various lawsuits (both in the U.S. District Court for the Northern District of California, as well as the San
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
Francisco Superior Court) associated with the Pacific Fertility Center. After substantial discussions with the various constituent parties, the Company reached a preliminary settlement in late January 2023 to resolve these 217 cases. This preliminary settlement will resolve the prior verdict for the initially tried cases, which is on appeal, as well as the previously disclosed Starr insurance dispute, and remains subject to the satisfaction of certain conditions, which the Company currently anticipates occurring as early as March 2023. The Company has taken a loss contingency accrual of $305.6 million and a related loss receivable of $231.9 million from insurance proceeds from these combined cases which are recognized in our consolidated balance sheet. The net loss of approximately $73.0 million is recognized in discontinued operations and represents the expected out-of-pocket, payments in connection with these settlements. We continue to evaluate the merits of such claimsthe sole remaining lawsuit that is not included in the preliminary settlement in light of the information available to date regarding use, maintenance and operationavailable. Based on the status of the tank which has been outthat lawsuit, a current estimate of our custody for the past six years when it was sold to the Pacific Fertility Center through an independent distributor. Accordingly, an accrual related to any damagesreasonably possible losses in that may result from the lawsuits has not been recorded because a potential loss is not currently probable or estimable.
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 has been named in a purported class action lawsuits filed in the Ontario Superior Court of Justice againstcase cannot be made; however, the Company does not anticipate the potential exposure to be material. This preliminary settlement and other defendantsthe expected net out-of-pocket payments does not reflect third party recoveries which the Company will aggressively pursue 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 Medicineunderlying facts in Etobicoke, Ontario. We have confirmed thatthese cases, and which the tankCompany currently anticipates will result in question was partrecoveries approximating one-quarter or more of the aluminum cryobiological tank recall commenced on April 23, 2018. 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.out-of-pocket, net payments.
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, including the Pacific Fertility Center cases described above, will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations.operations, except that our results of operations for any particular reporting period may be adversely affected by any potential or actual loss that is accrued in such period. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect.
NOTE 2122 — Restructuring Activities
Restructuring credits of $1.0 for the year ended December 31, 2022, were primarily related to reversal of prior restructuring accruals for employee retention at our Houston, Texas facility, and offset restructuring related costs in the segment in 2022.
Restructuring costs of $3.5 for the year ended December 31, 2021, were primarily related to moving and employee severance costs. During the third quarter of 2021, we announced our intention to transfer our Houston, Texas repair and service operations to our Beasley, Texas location.
During 2019,2020, we implemented certain cost reduction or avoidance actions including facility consolidations in D&S West, E&C Cryogenicsacross all segments and E&C FinFans, and a streamlining of the commercial activities surroundingcorporate to appropriately size our Lifecycle business in E&C Cryogenics, geographic realignment of our manufacturing capacity and a facility closure in D&S East,workforce with demand as well as departmental restructuring, includingeliminate redundant work. Costs were primarily related to headcount reductions in each of these segments.reductions. These actions resulted in total restructuring costs of $15.6,$13.6 for the year ended December 31, 2020, consisting of mainly employee severance costs disposals of property, plant$10.1. We also transferred operations of our heat exchanger leased facility in Tulsa, Oklahoma to our Beasley, Texas location at which we own 260 acres of land and equipmentrepurposed our Tulsa, Oklahoma facility as a flexible manufacturing, engineering and other costs. Restructuringresearch and development site serving multiple applications across our operating segments. We incurred costs of $2.7 in 2020 related to this project, which is included in total restructuring costs for 2019 reflect a $1.6 creditthe year ended December 31, 2020.
We closely monitor our end markets and order rates and continue to E&C Cryogenics 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 the year.
During 2018, we implemented certain cost reduction or avoidancetake appropriate and timely actions primarily related to departmental restructuring, including headcount reductions resulting in associated severance costs. We executed a strategic realignment of our segment structure, which resulted in severance charges during 2018.
During 2017, we implemented a number of cost reduction or avoidance actions, including headcount reductions and facility closures and relocations primarily relating to the consolidation of certain of our facilities in China and relocation of the corporate headquarters. All of these actions were completed in the first half of 2018.as necessary.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
The following table is a summary of thesummarizes severance and other restructuring (credits) and costs, which includedincludes employee-related costs, facility rent and exit costs, relocation, recruiting, travel and other, for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Severance: | | | | | | |
| Cost of sales | | $ | 2.9 |
| | $ | — |
| | $ | 0.4 |
|
| Selling, general, and administrative expenses | | 1.4 |
| | 3.2 |
| | 3.2 |
|
| Total severance costs | | $ | 4.3 |
| | $ | 3.2 |
| | $ | 3.6 |
|
| Other restructuring: | |
|
| |
|
| |
|
|
| Cost of sales | | $ | 9.3 |
| | $ | 0.8 |
| | $ | 2.3 |
|
| Selling, general, and administrative expenses | | 2.0 |
| | 0.4 |
| | 5.3 |
|
| Total other restructuring costs | | $ | 11.3 |
| | $ | 1.2 |
| | $ | 7.6 |
|
| | | | | | | |
| Total restructuring costs | | $ | 15.6 |
| | $ | 4.4 |
| | $ | 11.2 |
|
We are closely monitoring our end markets and order rates and will continue to take appropriate and timely actions as necessary. | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Severance: | | | | | |
| Cost of sales | $ | — | | | $ | 0.4 | | | $ | 4.6 | |
| Selling, general, and administrative expenses | — | | | 0.8 | | | 5.5 | |
| Total severance costs | — | | | 1.2 | | | 10.1 | |
| Other restructuring: | | | | | |
| Cost of sales | (1.0) | | | 2.2 | | | 1.1 | |
| Selling, general, and administrative expenses | — | | | 0.1 | | | 2.4 | |
| Total other restructuring (credits) costs | (1.0) | | | 2.3 | | | 3.5 | |
| | | | | |
| Total restructuring (credits) costs | $ | (1.0) | | | $ | 3.5 | | | $ | 13.6 | |
The following tables represent changes insummarize our consolidated restructuring reserve:accrual activities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Corporate | | Total |
| Balance as of December 31, 2021 | $ | 0.4 | | | $ | 0.5 | | | $ | — | | | $ | 1.4 | | | $ | — | | | $ | 2.3 | |
| Restructuring charges | 0.1 | | | 0.3 | | | — | | | (1.4) | | | — | | | (1.0) | |
| Cash payments and other | (0.4) | | | (0.8) | | | 0.1 | | | — | | | — | | | (1.1) | |
| Balance as of December 31, 2022 | $ | 0.1 | | | $ | — | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 0.2 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | D&S East |
| D&S West | | E&C Cryogenics |
| E&C FinFans |
| Corporate | | Consolidated |
| Balance as of December 31, 2018 | $ | 0.8 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.1 |
| | $ | 0.9 |
|
| Restructuring charges | 8.5 |
| | 0.9 |
| | 2.5 |
| | 3.5 |
| | 0.2 |
| | 15.6 |
|
| Property, plant and equipment impairment | (4.0 | ) | | — |
| | (1.6 | ) | | — |
| | — |
| | (5.6 | ) |
| Cash payments and other | (4.9 | ) | | (0.8 | ) | | (0.7 | ) | | (3.5 | ) | | (0.1 | ) | | (10.0 | ) |
| Balance as of December 31, 2019 | $ | 0.4 |
| | $ | 0.1 |
| | $ | 0.2 |
| | $ | — |
| | $ | 0.2 |
| | $ | 0.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Corporate | | Total |
| Balance as of December 31, 2020 | $ | 0.5 | | | $ | 0.2 | | | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 0.8 | |
| Restructuring charges | 0.3 | | | 1.7 | | | — | | | 1.5 | | | — | | | 3.5 | |
| | | | | | | | | | | |
| Cash payments and other | (0.4) | | | (1.4) | | | — | | | (0.1) | | | (0.1) | | | (2.0) | |
| Balance as of December 31, 2021 | $ | 0.4 | | | $ | 0.5 | | | $ | — | | | $ | 1.4 | | | $ | — | | | $ | 2.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Cryo Tank Solutions | | Heat Transfer Systems | | Specialty Products | | Repair, Service & Leasing | | Corporate | | Total |
| Balance as of December 31, 2019 | $ | 0.5 | | | $ | 0.2 | | | $ | — | | | $ | — | | | $ | 0.2 | | | $ | 0.9 | |
| Restructuring charges | 2.7 | | | 7.4 | | | 0.7 | | | 0.2 | | | 2.6 | | | 13.6 | |
| | | | | | | | | | | |
| Cash payments and other | (2.7) | | | (7.4) | | | (0.7) | | | (0.2) | | | (2.7) | | | (13.7) | |
| Balance as of December 31, 2020 | $ | 0.5 | | | $ | 0.2 | | | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 0.8 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Corporate | | Consolidated |
| Balance as of December 31, 2017 | $ | 0.2 |
| | $ | 1.2 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 1.1 |
| | $ | 2.7 |
|
| Restructuring charges | 1.4 |
| | — |
| | 0.6 |
| | 0.1 |
| | 2.3 |
| | 4.4 |
|
| Cash payments and other | (0.8 | ) | | (1.2 | ) | | (0.7 | ) | | (0.2 | ) | | (3.3 | ) | | (6.2 | ) |
| Balance as of December 31, 2018 | $ | 0.8 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.1 |
| | $ | 0.9 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | D&S East | | D&S West | | E&C Cryogenics | | E&C FinFans | | Corporate | | Consolidated |
| Balance as of December 31, 2016 | $ | — |
| | $ | 3.2 |
| | $ | 0.1 |
| | $ | — |
| | $ | 3.0 |
| | $ | 6.3 |
|
| Restructuring charges | 1.7 |
| | 1.1 |
| | 2.1 |
| | 0.3 |
| | 6.0 |
| | 11.2 |
|
| Cash payments and other | (1.5 | ) | | (3.1 | ) | | (2.1 | ) | | (0.2 | ) | | (7.9 | ) | | (14.8 | ) |
| Balance as of December 31, 2017 | $ | 0.2 |
| | $ | 1.2 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 1.1 |
| | $ | 2.7 |
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
NOTE 22 — Quarterly Data (Unaudited)
Selected quarterly data for the years ended December 31, 2019 and 2018 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
Sales | $ | 289.3 |
| | $ | 309.6 |
| | $ | 357.8 |
| | $ | 342.4 |
| | $ | 1,299.1 |
|
| Gross profit | 67.1 |
| | 82.8 |
| | 101.2 |
| | 85.7 |
| | 336.8 |
|
Operating income (1) | 4.6 |
| | 25.3 |
| | 29.9 |
| | 21.1 |
| | 80.9 |
|
| Net income | 1.0 |
| | 14.6 |
| | 18.7 |
| | 12.5 |
| | 46.8 |
|
Net income attributable to Chart Industries, Inc. (5) | 0.9 |
| | 14.4 |
| | 18.7 |
| | 12.4 |
| | 46.4 |
|
Net income attributable to Chart Industries, Inc. — basic (2) | $ | 0.03 |
| | $ | 0.44 |
| | $ | 0.52 |
| | $ | 0.35 |
| | $ | 1.37 |
|
Net income attributable to Chart Industries, Inc. — diluted (2) | $ | 0.03 |
| | $ | 0.41 |
| | $ | 0.51 |
| | $ | 0.34 |
| | $ | 1.32 |
|
_______________
| |
(1)
| Includes transaction-related costs of $5.4 for the year ended December 31, 2019, which were mainly related to the AXC acquisition. Includes integration costs of $1.6 related to the AXC acquisition for the year ended December 31, 2019. |
| |
(2)
| Basic and diluted earnings per share are computed independently for each of the quarters presented. As such, the sum of quarterly basic and diluted earnings per share may not equal reported annual basic and diluted earnings per share. |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| Sales | $ | 244.1 |
| | $ | 277.9 |
| | $ | 272.2 |
| | $ | 290.1 |
| | $ | 1,084.3 |
|
| Gross profit | 66.9 |
| | 72.8 |
| | 82.3 |
| | 73.9 |
| | 295.9 |
|
Operating income (1) (2) | 15.0 |
| | 19.3 |
| | 31.5 |
| | 26.3 |
| | 92.1 |
|
| | | | | | | | | | |
| Income from continuing operations | $ | 4.2 |
| | $ | 9.9 |
| | $ | 21.5 |
| | $ | 18.0 |
| | $ | 53.6 |
|
| Income from discontinued operations | 1.6 |
| | 2.4 |
| | 0.7 |
| | 29.7 |
| | 34.4 |
|
Net income attributable to Chart Industries, Inc. (3) (4) | $ | 5.8 |
| | $ | 12.3 |
| | $ | 22.2 |
| | $ | 47.7 |
| | $ | 88.0 |
|
Basic earnings per common share attributable to Chart Industries, Inc. (5) (6) | | | | | | | | | |
| Income from continuing operations | $ | 0.14 |
| | $ | 0.32 |
| | $ | 0.69 |
| | $ | 0.58 |
| | $ | 1.73 |
|
| Income from discontinued operations | 0.05 |
| | 0.08 |
| | 0.03 |
| | 0.94 |
| | 1.10 |
|
| Net income attributable to Chart Industries, Inc. | $ | 0.19 |
| | $ | 0.40 |
| | $ | 0.72 |
| | $ | 1.52 |
| | $ | 2.83 |
|
Diluted earnings per common share attributable to Chart Industries, Inc. (5) (6) | | | | | | | | | |
| Income from continuing operations | $ | 0.13 |
| | $ | 0.31 |
| | $ | 0.65 |
| | $ | 0.56 |
| | $ | 1.67 |
|
| Income from discontinued operations | 0.05 |
| | 0.07 |
| | 0.02 |
| | 0.91 |
| | 1.06 |
|
| Net income attributable to Chart Industries, Inc. | $ | 0.18 |
| | $ | 0.38 |
| | $ | 0.67 |
| | $ | 1.47 |
| | $ | 2.73 |
|
_______________ | |
(1)
| Includes an expense of $3.8 recorded to the cost of sales related to the estimated costs of the aluminum cryobiological tank recall for the second quarter of 2018 and an additional expense of $0.2 recorded to the cost of sales for the fourth quarter of 2018. |
| |
(2)
| During the year ended December 31, 2018, we recorded net severance costs of $2.3 primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 in payroll severance costs partially offset by a $0.9 credit due to related share-based compensation forfeitures for the third quarter of 2018. Includes net severance |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars and shares in millions, except per share amounts)
costs of $1.4 related to the departure of our former CEO, which includes $3.2 in payroll severance costs partially offset by a $1.8 credit due to related share-based compensation forfeitures for the second quarter of 2018.
| |
(3)
| Includes transaction-related costs of $2.1 for the year ended December 31, 2018, which were mainly related to the VRV acquisition. Includes integration costs of $0.8 related to the VRV acquisition for the fourth quarter of 2018. |
| |
(4)
| Includes gain on sale of the CAIRE business of $34.3 for the fourth quarter of 2018. |
| |
(5)
| We have completed our analysis to determine the effect of the Tax Cuts and Jobs Act, and as such, we have recorded an additional tax benefit of $1.8. |
| |
(6)
| Basic and diluted earnings per share are computed independently for each of the quarters presented. As such, the sum of quarterly basic and diluted earnings per share may not equal reported annual basic and diluted earnings per share. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
| | | | | | | | | | | | | | | | | | | | Additions | |
| | | | Additions | | | | | | | | Balance at
beginning
of period | | Charged to
costs and
expenses | | Charged
to other
accounts | | Deductions | | Translations | | Balance
at end of
period |
| | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts | | Deductions | | Translations | | Balance at end of period | |
| Year Ended December 31, 2019 | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2022 | | | | | | | | | | | |
| Allowance for doubtful accounts | $ | 8.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.3 |
| | $ | 8.8 |
| Allowance for doubtful accounts | $ | 6.0 | | | $ | 0.5 | | | $ | — | | | $ | (2.6) | | (1) | | $ | 0.6 | | | $ | 4.5 | |
| Allowance for excess and obsolete inventory | 9.0 |
| | 7.8 |
| | — |
| | (5.6 | ) | (3) | | (0.4 | ) | | 10.8 |
| Allowance for excess and obsolete inventory | 10.9 | | | 1.8 | | | — | | | (4.1) | | (2) | | (0.4) | | | 8.2 | |
| Deferred tax assets valuation allowance | 65.2 |
| | 5.4 |
| | 5.3 |
| (1) | | (5.9 | ) | (4) | | (1.8 | ) | | 68.2 |
| Deferred tax assets valuation allowance | 21.6 | | | 0.4 | | | — | | | (14.8) | | | (1.8) | | | 5.4 | |
| Year Ended December 31, 2018 | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2021 | |
| Allowance for doubtful accounts | $ | 9.1 |
| | $ | — |
| | $ | — |
| | $ | (0.8 | ) | (2) | | $ | 0.2 |
| | $ | 8.5 |
| Allowance for doubtful accounts | $ | 8.4 | | | $ | 1.2 | | | $ | — | | | $ | (1.1) | | | $ | (2.5) | | | $ | 6.0 | |
| Allowance for excess and obsolete inventory | 7.1 |
| | 4.8 |
| | — |
| | (3.5 | ) | (3) | | 0.6 |
| | 9.0 |
| Allowance for excess and obsolete inventory | 9.7 | | | 11.4 | | | — | | | (9.8) | | (2) | | (0.4) | | | 10.9 | |
| Deferred tax assets valuation allowance | 26.8 |
| | 38.7 |
| | — |
| | — |
| | (0.3 | ) | | 65.2 |
| Deferred tax assets valuation allowance | 33.9 | | | 0.3 | | | — | | | (12.7) | | | 0.1 | | | 21.6 | |
| Year Ended December 31, 2017 | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2020 | |
| Allowance for doubtful accounts | $ | 9.0 |
| | $ | 0.5 |
| | $ | — |
| | $ | (0.9 | ) | (2) | | $ | 0.5 |
| | $ | 9.1 |
| Allowance for doubtful accounts | $ | 8.5 | | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | (0.5) | | | $ | 8.4 | |
| Allowance for excess and obsolete inventory | 9.1 |
| | 4.2 |
| | — |
| | (6.3 | ) | (3) | | 0.1 |
| | 7.1 |
| Allowance for excess and obsolete inventory | 10.6 | | | 0.4 | | | — | | | (0.5) | | (2) | | (0.8) | | | 9.7 | |
| Deferred tax assets valuation allowance | 14.9 |
| | 10.9 |
| | — |
| | — |
| | 1.0 |
| | 26.8 |
| Deferred tax assets valuation allowance | 68.2 | | | 0.3 | | | — | | | (36.6) | | (3) | | 2.0 | | | 33.9 | |
_______________
| |
(1)(1)Reversal of amounts previously recorded as bad debt and uncollectible accounts written off. (2)Inventory items written off against the allowance. (3)Deductions to the deferred tax assets valuation allowance relate to decreased deferred tax assets and the release of the valuation allowance. During the year ended December 31, 2020, we reduced our deferred tax assets relative to the Cryobiological Divestiture and as such also reduced the related valuation allowance by $32.4.
| Deferred tax assets valuation allowance related to the VRV acquisition. |
| |
(2)
| Reversal of amounts previously recorded as bad debt and uncollectible accounts written off. |
| |
(3)
| Inventory items written off against the allowance. |
| |
(4)
| Deductions to the deferred tax assets valuation allowance relate to decreased deferred tax assets and the release of the valuation allowance. |
INDEX TO EXHIBITS
| | | | | | | | |
| | |
| Exhibit No. | | Description |
Exhibit No. | | Description |
| 2.1 | |
2.1 | | Agreement and Plan of Merger, among Chart Industries, Inc., Chart Sully Corporation, RCHPH Holdings, Inc., and R/C Hudson Holdings, L.P., solely in its capacity as the Initial Holder Representative under the Merger Agreement, dated as of June 30, 2017 (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission (“SEC”) on June 30, 2017 (File No. 001-11442)).** |
| | |
| 2.1.1 | | Amendment No. 1, dated September 19, 2017, to Agreement and Plan of Merger, among Chart Industries, Inc., Chart Sully Corporation, RCHPH Holdings, Inc., and R/C Hudson Holdings, L.P., solely in its capacity as the Initial Holder Representative under the Merger Agreement, dated as of June 30, 2017 (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 21, 2017 (File No. 001-11442)).** |
| | |
| 2.2 | | |
| | |
| 2.2.1 | | |
| | |
| 2.3 | | |
| | |
| 2.4 | | |
| | |
| 2.5 | | |
| | |
3.12.6 | | Equity Purchase Agreement, dated as of November 8, 2022, by and among Granite Holdings I B.V., Granite Holdings II B.V., Granite US Holdings GP, LLC, Granite US Holdings LP, Granite Acquisition GmbH, Granite Canada Holdings Acquisition Corp., HowMex Holdings, S. de R.L. de C.V. and Chart Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 9, 2022 (File No. 001-11442)). ** |
| | |
| 2.7 | | Letter Agreement, dated December 7, 2022, by and among Granite Holdings I B.V., Granite Holdings II B.V., Granite US Holdings GP, LLC, Granite US Holdings LP, Granite Acquisition GmbH, Granite Canada Holdings Acquisition Corp., HowMex Holdings, S. de R.L. de C.V. and Chart Industries, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on December 9, 2022 (File No. 001-11442)). |
| | |
| 3.1 | | |
| |
| 3.2 | | |
| |
| 4.1 | | |
| | |
| 4.2 | | |
| | |
4.3 | | |
| | |
10.14.2.1 | | |
| | |
| 4.3 | | |
| | |
| | | | | | | | |
| 4.4 | | |
| | |
| 4.5 | | |
| | |
| 4.6 | | Deposit Agreement, dated as of December 13, 2022, among Chart Industries, Inc., Computershare Inc. and Computershare Trust Company, N.A., acting jointly as Depositary, and the holders from time to time of the depositary receipts described therein (incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K, filed with the SEC on December 13, 2022 (File No. 001-11442)). |
| | |
| 4.7 | | |
| | |
| 4.8 | | |
| | |
| 4.9 | | |
| | |
| 4.10 | | |
| | |
| 4.11 | | |
| | |
| 10.1 | | |
10.1.1 | | |
| 10.1.1 | | |
| |
10.1.2 | | |
| |
10.1.3 | | |
| |
10.1.4 | | |
| | |
|
| | |
10.1.510.1.2 | | |
| | |
10.1.6 | | |
| | |
10.1.7 | | |
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10.1.8 | | |
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10.1.9 | | |
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10.1.10 | | |
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10.1.11 | | |
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10.1.1210.1.3 | | |
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10.1.13 | | |
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10.1.14 | | |
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10.1.1510.1.4 | | |
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10.1.16 | | |
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10.1.17 | | |
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10.1.1810.1.5 | | |
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10.1.19 | | |
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10.1.20 | | |
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10.1.21 | | |
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10.1.22 | | |
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| 10.2 | | |
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| 10.2.1 | | |
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| 10.2.2 | | |
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| 10.2.3 | | |
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| 10.2.4 | | |
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| 10.2.5 | | |
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| 10.2.6 | | |
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| 10.2.7 | | |
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| 10.2.8 | | |
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| 10.2.9 | | |
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| 10.2.10 | | |
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| 10.2.11 | | |
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| 10.2.12 | | |
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10.310.2.13 | | |
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| 10.2.14 | | |
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| 10.2.15 | | |
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| 10.2.16 | | |
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| 10.2.17 | | |
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| 10.2.18 | | |
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| 10.2.19 | | |
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| 10.2.20 | | |
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| 10.3 | | |
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| 10.3.1 | | |
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| 10.3.2 | | |
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| 10.7 | | |
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| 10.8 | | |
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| 10.9 | | |
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10.10.110.10 | | Employment Retention Agreement, dated effective January 14,December 23, 2019, by and between Chart Industries,Energy & Chemicals, Inc. and Jeffrey LassDouglas Ducote, Jr. (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentQuarterly Report on Form 8-K, filed with10-Q for the Securities and Exchange Commission on March 29, 2019quarter ended June 30, 2022 (File No. 001-11442)).* |
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10.10.210.11 | | |
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10.1110.12 | | |
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10.1210.13 | | |
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10.13.110.14.1 | | |
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10.13.210.14.2 | | |
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10.13.310.14.3 | | |
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10.13.410.14.4 | | |
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10.13.510.14.5 | | |
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10.13.610.14.6 | | |
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10.13.710.14.7 | | |
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10.13.810.14.8 | | |
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10.13.910.14.9 | | |
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10.13.10 | | | | | | | | |
| 10.14.10 | | |
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10.13.1110.14.11 | | |
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10.1410.15 | | FourthFifth Amended and Restated Credit Agreement, dated June 14, 2019,as of October 18, 2021, by and among Chart Industries, Inc., Chart Industries Luxembourg S.à.r.l, r.l., Chart Asia Investment Company Limited, the other foreign borrowers from time to time party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., Fifth Third Bank, National Association, HSBC Bank USA, National Association, PNC Bank, National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, and BMO Harris Bank, N.A., Capital One, N.A., Citizens Bank, N.A., MUFG Union Bank, N.A. and Regions Bank, as Co-Documentation Agents (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on October 21, 2021 (File No. 001-11442)). |
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| 10.16 | | Amendment No. 1, dated as of November 21, 2022, to the Credit Agreement, dated as of October 18, 2021, by and among Chart Industries, Inc., the subsidiaries of Chart Industries, Inc. designated as borrowers from time to time thereunder, the lenders named therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., Fifth Third Bank, National Association, HSBC Bank USA, National Association, PNC Bank, National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, and BMO Harris Bank, N.A., Capital One, N.A., Citizens Bank, N.A., MUFG Union Bank, N.A. and Regions Bank, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange CommissionSEC on June 18, 2019November 22, 2022 (File No. 001-11442)). |
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21.110.17 | | |
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| 10.18 | | |
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| 10.19 | | Intercreditor Agreement, dated as of December 22, 2022, by and among Chart Industries, Inc., the subsidiary guarantors party thereto, U.S. Bank Trust Company, National Association, as collateral agent for the secured notes, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent under the credit agreement (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed with the SEC on December 22, 2022 (File No. 001-11442)). |
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| 21.1 | | |
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| 23.1 | | |
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23.231.1 | | |
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31.1 | | |
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32.131.2 | | |
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| 32.1 | | |
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101.INS32.2 | | |
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| 101.INS | | XBRL Instance Document (x) |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document (x) |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (x) |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document (x) |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (x) |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (x) |
_______________
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* | Management contract or compensatory plan or arrangement. |
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** | Certain exhibits and schedules have been omitted and Chart agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits and schedules upon request. |
(xx) Furnished herewith.
* Management contract or compensatory plan or arrangement.
** Certain exhibits and schedules have been omitted and Chart agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits and schedules upon request.
