Edgar Filing: CHART INDUSTRIES INC

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Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2018



o	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.

(Exact Name of Registrant as Specified in its Charter)



Delaware		34-1712937
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)



3055 Torrington Drive,
Ball Ground, Georgia		30107
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code:

(770) 721-8800

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01		The NASDAQ Stock Market LLC

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 x No o

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 o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 (Check one):

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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price of $61.68 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 $1,909,931,501.

As of February 18, 2019, there were 31,597,161 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 22, 2019 (the “2019 Proxy Statement”).

Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of December 31, 2018.

CHART INDUSTRIES, INC.

TABLE OF CONTENTS




PART I	Page

Item 1. Business	3

Item 1A. Risk Factors	10

Item 1B. Unresolved Staff Comments	22

Item 2. Properties	22

Item 3. Legal Proceedings	23

Item 4. Mine Safety Disclosures	23

Item 4A. Executive Officers of the Registrant	23

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25

Item 6. Selected Financial Data	27

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	30

Item 7A. Quantitative and Qualitative Disclosures About Market Risk	51

Item 8. Financial Statements and Supplementary Data	52

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	52

Item 9A. Controls and Procedures	52

Item 9B. Other Information	52

PART III

Item 10. Directors, Executive Officers and Corporate Governance	53

Item 11. Executive Compensation	54

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54

Item 13. Certain Relationships and Related Transactions, and Director Independence	54

Item 14. Principal Accounting Fees and Services	54

PART IV

Item 15. Exhibits and Financial Statement Schedules	55

Item 16. Form 10–K Summary	55

SIGNATURES	56

INDEX TO FINANCIAL STATEMENTS	57

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	F-1

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS	F-58

INDEX TO EXHIBITS	E-1

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 diversified global manufacturer of highly engineered equipment, packaged solutions, and value-add services used throughout the gas to liquid cycle in all industries that require gases as cryogenic liquids or alternative equipment for gas generation, generally for the industrial gas and energy industries. Our equipment 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, and ambient temperature fans.

Our primary customers are large, multinational producers and distributors of hydrocarbon and industrial gases and their end-users. We sell our products and services to more than 2,000 customers worldwide. We have developed long-standing relationships with leading companies in the gas production, gas distribution, gas processing, liquefied natural gas or LNG, petroleum refining, chemical and industrial gas industries, including Air Products, Praxair, Air Liquide, Bechtel Corporation, ExxonMobil, British Petroleum or BP, ConocoPhillips, PetroChina, CB&I, Toyo, JGC, Samsung, UOP, and Shell, some of whom have been purchasing our products for over 20 years.

We have attained this position by capitalizing on our technical expertise and know-how, broad product offering, reputation for quality, low-cost global manufacturing footprint, and by focusing on attractive, growing markets. We have an established sales and customer support presence across the globe and manufacturing operations in the United States, Central Europe, China and India. For the years ended December 31, 2018, 2017 and 2016, we generated sales of $1,084.3 million, $842.9 million, and $722.0 million, respectively.

On November 15, 2018, we completed the acquisition of VRV S.r.l. and its subsidiaries (collectively “VRV”). VRV is a diversified multinational corporation with highly automated, purpose-built facilities for the design and manufacture of pressure equipment serving the industrial gas and energy end markets. VRV’s results are included in our E&C and D&S East segments from the date of acquisition. For further discussion refer to “Note 12, Business Combinations,” to our consolidated financial statements included elsewhere in this report.

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 business related to cryogenic technological expertise (the “Cryobiological Business”) was excluded from the CAIRE Divestiture. Our disclosure in “Item 1 – Business” reflects the CAIRE Divestiture and is presented on a continuing operations basis.

Segments, Applications and Products

To support the VRV acquisition as well as our expanded focus on geographic expansion outside of North America, we executed a strategic realignment of our segment structure during the third quarter and divided our Distribution & Storage segment into two segments: Distribution & Storage Western Hemisphere (“D&S West”) and Distribution & Storage Eastern Hemisphere (“D&S East”). Likewise, the former BioMedical segment was eliminated in connection with the CAIRE Divestiture, with the remaining Cryobiological Business now managed by and part of D&S West. We believe this strategic realignment of our segment structure will facilitate our growth strategies, better align with our customer needs, and provide improved transparency of business results to our shareholders. As a result of these changes, we now operate in two major end-market applications: Energy and Industrial Gas, through our three business segments: (i) Energy & Chemicals (“E&C”), (ii) D&S East, and (iii) D&S West. While each segment manufactures and markets different cryogenic and gas processing equipment and systems to distinct end-users, they all share a reliance on our heat transfer, vacuum insulation, low temperature storage, and gas processing know-how and expertise. Each of our segments manufacture products used primarily in energy-related and industrial applications, such as the separation, liquefaction, distribution, and storage of hydrocarbon and industrial gases. The recent VRV acquisition was complementary to our D&S East and E&C end markets and technologies, while expanding our presence in Europe and India and expanding our end market into the “warm” side of energy and petrochemical processing. Further information about these segments is located in Note 4 of our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

The following charts show the proportion 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, 2018:

Energy & Chemicals Segment

E&C (36% of sales for the year ended December 31, 2018) facilitates major natural gas, petrochemical processing, petroleum refining, power generation and industrial gas companies in the production of their products. E&C 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, petroleum refining and industrial gas applications. Our principal products include brazed aluminum heat exchangers, Core-in-Kettle^® heat exchangers, air cooled heat exchangers, cold boxes, shell & tube heat exchangers, reactors and process systems as well as axial cooling fans for power, HVAC, and refining end user applications. Brazed aluminum heat exchangers accounted for 6.1%, 6.3%, and 9.4% of consolidated sales for the years ended December 31, 2018, 2017 and 2016, respectively. Process systems accounted for 3.1%, 3.6%, and 6.9% of consolidated sales for the years ended December 31, 2018, 2017 and 2016, respectively.

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 24.2%, 18.1%, and 14.6% of consolidated sales for the years ended December 31, 2018, 2017, and 2016, respectively. Primary products used in these applications include brazed aluminum heat exchangers, cold boxes and air cooled heat exchangers. Our brazed aluminum heat exchangers allow producers to obtain purified hydrocarbon by-products, such as methane, ethane, propane, and ethylene, which are commercially marketable for various industrial or residential uses. Our cold boxes are highly engineered systems that incorporate brazed aluminum heat exchangers, pressure vessels, and interconnecting piping used to significantly reduce the temperature of gas mixtures to liquefy component gases so that they can be separated and purified for further use in multiple energy, industrial, scientific, and commercial applications. 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 a number of competitors for our heat exchangers and cold boxes, 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, and independent mission critical equipment for the liquefaction of LNG, including small to mid-scale facilities, floating LNG applications, and large base-load export facilities, which accounted for 3.7%, 3.5%, and 5.3% of consolidated sales for the years ended December 31, 2018, 2017, and 2016, respectively. 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 brazed aluminum heat exchangers, Core-in-Kettle^® heat exchangers, cold boxes, pressure vessels, pipe work, and 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. Our proprietary IPSMR^® (Integrated Pre-cooled Single Mixed Refrigerant) liquefaction process technology offers lower capital expenditure rates than competing processes per ton of LNG produced and 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 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, 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 Gas Applications

For industrial gas applications, our brazed aluminum heat exchangers (BAHX) 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 BAHX 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.

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 crude and gas resulting in high utilization and increased investment. Our ACHX products are used in each phase of refining processing to condense and cool fluids. Worldwide power use is projected to grow 48% through 2040, with growth steady in the United States and Europe, while additional growth comes from emerging economies.

After Market Services

To support the products and solutions we sell, our Lifecycle 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. Lifecycle 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, air cooled heat exchangers, fans, cold boxes, etc.

D&S West

D&S West (42% of sales for the year ended December 31, 2018) 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. On a product line basis, cryogenic bulk storage systems, which include LNG cryogenic systems and after market services, accounted for 35.6% of D&S West segment sales in 2018, and represented 15.0%, 18.8% and 24.1% of consolidated sales for the years ended December 31, 2018, 2017 and 2016, respectively. Cryogenic packaged gas systems, which include LNG cryogenic systems and after market services, accounted for 46.4% of D&S West segment sales in 2018, and represented 19.5%, 19.6% and 18.4% of consolidated sales for the years ended December 31, 2018, 2017 and 2016, respectively. We service industrial gas and LNG applications as follows:

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 27.8%, 31.5%, and 36.2% of consolidated sales for the years ended December 31, 2018, 2017, and 2016, 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. 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 offer cryogenic components, including vacuum insulated pipe (“VIP”), engineered bulk gas installations, specialty liquid nitrogen, or LN2, end-use equipment, and cryogenic flow meters. Principal customers for industrial applications are global industrial gas producers and distributors.

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 are able to supply a broad range of systems on a worldwide basis. We also compete with several suppliers owned by the global industrial gas producers. From a technology perspective, we tend to 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, which accounted for 6.6%, 6.9%, and 6.4% of consolidated sales for the years ended December 31, 2018, 2017, and 2016, respectively. LNG may be utilized as an alternative to other fossil fuels such as diesel, propane, or fuel oil in transportation or off pipeline applications. Examples include heavy duty truck and transit bus transportation, locomotive propulsion, marine, and power generation in remote areas that often occurs in oil and gas drilling. We refer to our LNG distribution products as a “Virtual Pipeline,” as the traditional natural gas pipeline is replaced with cryogenic distribution to deliver the gas to the end-user. We supply cryogenic trailers, ISO containers, 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 West and D&S East 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 business.

Demand for LNG applications is driven by the spread in price between oil and gas, diesel displacement initiatives, environmental and energy security initiatives, and the associated cost of equipment. Our competitors tend to be regionally focused or product-specific, while we are able to supply a broad range of solutions required by LNG applications. We compete with compressed natural gas (or CNG) or field gas in several of these applications and LNG is most highly valued where its energy density and purity are beneficial to the end-user.

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 our competitors primarily in North America. We provide services for storage vessels, VIP, reconfigurations, relocation, trailers, ISO containers, vaporizers, and other

gas to liquid equipment. With the acquisition of Skaff on January 2, 2018, we expanded our direct regional presence for service and aftermarket support in the Northeast United States. Skaff provides quality repair service and remanufacturing 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.

Cryobiological Storage

Our cryobiological storage products, which were part of our former BioMedical segment, 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 significant competitors for cryobiological storage products include a number of 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.

D&S East

D&S East (22% of sales for the year ended December 31, 2018) designs, manufactures, and services cryogenic solutions for the storage and delivery of cryogenic liquids used in industrial gas and LNG applications. D&S East includes distribution and storage operations in Europe and Asia and primarily serves the geographic regions of Europe, the Middle East, Africa and Asia (including China and India). The distribution and storage portion of the recent VRV acquisition is included in this segment. With the exception of Cryobiological Storage, which is contained solely within D&S West, D&S East utilizes the same technologies and product lines as those employed by and disclosed with respect to D&S West, except for a valves business acquired as part of the VRV acquisition. Product lines within D&S East which represent significant consolidated sales in any of the three years ending December 31, 2018 are as follows:


•	Cryogenic bulk storage systems (including LNG cryogenic systems and after market services) accounted for 16.4%, 18.0% and 19.6% of consolidated sales for the years ended December 31, 2018, 2017 and 2016 respectively.


•	Cryogenic packaged gas systems (including LNG cryogenic systems and after market services) accounted for 6.3%, 9.5% and 7.8% of consolidated sales for the years ended December 31, 2018, 2017 and 2016 respectively.

Within Industrial Gas Applications


•	Bulk and packaged gas cryogenic solutions for the storage, distribution, vaporization and application of industrial gases accounted for 16.7%, 18.0% and 18.1% of consolidated sales for the years ended December 31, 2018, 2017 and 2016 respectively.

Within LNG Applications


•	Cryogenic solutions for the storage, distribution, regasification and use of LNG accounted for 6.0%, 9.5% and 9.3% of consolidated sales for the years ended December 31, 2018, 2017 and 2016 respectively.

After Market Services

D&S East operates multiple service locations in Europe and Asia. The recent VRV acquisition expanded the service and repair access and offerings in these regions. 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.

Engineering and Product Development

Our engineering and product development activities are focused primarily on developing new and improved solutions and equipment for the users of cryogenic liquids and hydrocarbon and industrial gases across all industries served. Our engineering, technical and marketing employees actively assist customers in specifying their needs and in determining appropriate products to meet those needs. Portions of our engineering expenditures typically are charged to customers, either as separate items or as components of product cost.

Competition

We believe we can compete effectively around the world and that we are a leading competitor in the industries we serve. Competition is based primarily on performance and the ability to provide the design, engineering, and manufacturing capabilities required in a timely and cost-efficient manner. Contracts are usually awarded on a competitive bid basis. Quality, technical

expertise, and timeliness of delivery are the principal competitive factors within the industries we serve. Price and terms of sale are also important competitive factors. 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, although we believe we rank among the leaders in each of the markets we serve. We base our statements about industry and market positions on our reviews of annual reports and published investor presentations of our competitors and augment this data with information received by marketing consultants conducting competition interviews and our sales force and field contacts. For information concerning competition within a specific segment of our business, see the descriptions provided under segment captions in this Annual Report on Form 10-K.

Marketing

We market our products and services in each of our segments throughout the world primarily through direct sales personnel and independent sales representatives and distributors. The technical and custom design nature of our products requires a professional, highly trained sales force. We use independent sales representatives and distributors to market our products and services in certain foreign countries and in certain North American regions. These independent sales representatives supplement our direct sales force in dealing with language and cultural matters. Our domestic and foreign independent sales representatives earn commissions on sales, which vary by product type.

Backlog

The dollar amount of our backlog as of December 31, 2018, 2017 and 2016 was $568.2 million, $446.4 million, and $326.2 million, respectively. Backlog as of December 31, 2018 included $81.6 million related to our November 15, 2018 acquisition of VRV. Backlog as of December 31, 2017 included $65.8 million related to our September 20, 2017 acquisition of RCHPH Holdings, Inc. (“Hudson”). We expect to recognize revenue on approximately 91.8% of the remaining performance obligations over the next 12 months and 0.4% 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 segment, and the amount of backlog at December 31, 2018 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, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Customers

We sell our products primarily to gas producers, distributors, and end-users across energy, industrial, cryobiological storage, power, HVAC and refining applications in countries throughout the world. Sales to our top ten customers accounted for 39%, 38%, and 41% of consolidated sales in 2018, 2017 and 2016, 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 and E&C segments. Sales to Air Liquide, exceeded 10% of consolidated sales in 2016, and represented approximately $90.6 million or 12.5% of consolidated sales in 2016 and is primarily attributable to the D&S West segment, along with the D&S East and E&C segments.

Our sales to particular customers fluctuate from period to period, but the global producers and distributors of hydrocarbon and industrial gases and their suppliers tend to be a consistently large source of revenue for us. Our supply contracts are generally contracts for “requirements” only. While our customers may be obligated to purchase a certain percentage of their supplies from us, there are generally no minimum requirements. Also, many of our contracts may be canceled at any time, subject to possible cancellation charges. To minimize credit risk from trade receivables, we review the financial condition of potential customers in relation to established credit requirements before sales credit is extended and we monitor the financial condition of customers to help ensure timely collections and to minimize losses. In addition, for certain domestic and foreign customers, we require advance payments, letters of credit, bankers’ acceptances, and other such guarantees of payment. Certain customers also require us to issue letters of credit or performance bonds, particularly in instances where advance payments are involved, as a condition to placing the order. We believe our relationships with our customers are generally good.

Intellectual Property

Although we have a number of patents, trademarks, and licenses related to our business, no one of them or related group of them is considered by us to be of such importance that its expiration or termination would have a material adverse effect on our business. In general, we depend upon technological capabilities, manufacturing quality control, and application of know-how, rather than patents or other proprietary rights, in the conduct of our business.

Raw Materials and Suppliers

We manufacture most of the products we sell. The raw materials used in manufacturing include aluminum products (including sheets, bars, plate, and piping), stainless steel products (including sheets, plates, heads, and piping), palladium oxide, carbon steel products (including sheets, plates, and heads), valves and gauges, and fabricated metal components. Most raw materials are available from multiple sources of supply. We have long-term relationships with our raw material suppliers and other vendors. Commodity components of our raw material (stainless steel and carbon steel) could experience some level of volatility during 2019 and may have a relational impact on raw material pricing. Subject to certain risks related to our suppliers as discussed under Item 1A. “Risk Factors,” we foresee no acute shortages of any raw materials that would have a material adverse effect on our operations.

Employees

As of January 31, 2019, we had 4,605 employees, including 2,244 domestic employees and 2,361 international employees.

We are party to one collective bargaining agreement with the International Association of Machinists and Aerospace Workers (“IAM”) covering 238 employees at our La Crosse, Wisconsin heat exchanger facility. Effective February 3, 2018, we entered into a three-year agreement with the IAM which expires on February 6, 2021.

Environmental Matters

Our operations have historically included and currently include the handling and use of hazardous and other regulated substances, such as various cleaning fluids used to remove grease from metal, that are subject to federal, state, local, and foreign environmental laws and regulations. These regulations impose limitations on the discharge of pollutants into the soil, air, and water and establish standards for their handling, management, use, storage, and disposal. We monitor and review our procedures and policies for compliance with environmental laws and regulations. Our management is familiar with these regulations and supports an ongoing program to maintain our adherence to required standards.

We are involved with environmental compliance, investigation, monitoring, and remediation activities at certain of our owned or formerly owned manufacturing facilities and at one owned facility that is leased to a third party. We believe that we are currently in substantial compliance with all known environmental regulations. We accrue for certain environmental remediation-related activities for which commitments or remediation plans have been developed or for which costs can be reasonably estimated. These estimates are determined based upon currently available facts regarding each facility. Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. Future expenditures relating to these environmental remediation efforts are expected to be made over the next 7 years as ongoing costs of remediation programs. We do not believe that these regulatory requirements have had a material effect upon our capital expenditures, earnings, or competitive position. We are not anticipating any material capital expenditures in 2019 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.


Item 1A.	Risk Factors

Investing in our common stock involves risk. You should carefully consider the risks described below, as well as the other information contained in this Annual Report on Form 10-K in evaluating your investment in us. If any of the following risks actually occur, our business, financial condition, operating results, or cash flows could be harmed materially. Additional risks, uncertainties, and other factors that are not currently known to us or that we believe are not currently material may also adversely affect our business, financial condition, operating results or cash flows. In any of these cases, you may lose all or part of your investment in us.

Risks Related to Our Business

The markets we serve are subject to cyclical demand and vulnerable to economic downturn, which could harm our business and make it difficult to project long-term performance.

Demand for our products depends in large part upon the level of capital and maintenance expenditures by many of our customers and end-users, in particular those customers in the global hydrocarbon and industrial gas markets. These customers’ expenditures historically have been cyclical in nature and vulnerable to economic downturns. Decreased capital and maintenance spending by these customers could have a material adverse effect on the demand for our products and our business, financial condition, and results of operations. In addition, this historically cyclical demand limits our ability to make accurate long-term predictions about the performance of our company. Even if demand improves, it is difficult to predict whether any improvement represents a long-term improving trend or the extent or timing of improvement. There can be no assurance that historically improving cycles are representative of actual future demand.

The loss of, or significant reduction or delay in, purchases by our largest customers could reduce our sales and profitability.

Sales to our top ten customers accounted for 39%, 38%, and 41% of consolidated sales in 2018, 2017 and 2016, respectively, with sales to one customer of approximately 11.2% of consolidated sales in 2018 and one customer of approximately 12.5% of consolidated sales in 2016. We expect that a limited number of customers will continue to represent a substantial portion of our sales for the foreseeable future. While our sales to particular customers fluctuate from period to period, the global producers and distributors of hydrocarbon and industrial gases and their suppliers tend to be a consistently large source of our sales.

The loss of any of our major customers, consolidation of our customers, or a decrease or delay in orders or anticipated spending by such customers could materially reduce our sales and profitability. Although order activity in 2018 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.

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 challenging economic environment. For example, we have invested or plan to invest approximately $35 to $40 million in new capital expenditures in 2019. 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. For example, while we invested in the expansion of D&S East in China in recent years, we have experienced significant delays in some of the related orders anticipated to support that expansion, which has resulted in the underutilization of our capacity in China. In addition, we have completed a $24 million capital expansion for additional capacity in our Brazed Aluminum Heat Exchanger facility in La Crosse, Wisconsin as of October

1, 2018, allowing us to handle expected 2019 larger LNG related equipment orders; if, however, those anticipated orders do not materialize, we could experience underutilization of our capacity in La Crosse, Wisconsin.

Decreases in energy prices, or a decrease in the cost of oil relative to natural gas, may decrease demand for some of our products and cause downward pressure on the prices we charge, which could harm our business, financial condition, and results of operations.

A significant amount of our sales is to customers in the energy production and supply industry. We estimate that 47% of our sales for the year ended December 31, 2018 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. For example, the sharp decline in oil prices since the fourth quarter of 2014 has had a negative impact on demand for some of our products. Although prices have recovered somewhat from these lows, any further 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 continued or further downturn in the energy production and supply industry, including a decline in the cost of oil relative to natural gas, our business, financial condition, and results of operations could be adversely affected.

We carry goodwill and indefinite-lived intangible assets on our balance sheet, which are subject to impairment testing and could subject us to significant non-cash charges to earnings in the future if impairment occurs.

As of December 31, 2018, we had goodwill and indefinite-lived intangible assets of $619.0 million, which represented approximately 32.6% 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. 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.

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, 2018 was $568.2 million. Our backlog can be significantly affected by the timing of orders for large projects, particularly in our E&C segment, and the amount of our backlog at December 31, 2018 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 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 backlog is approximately $40 million related to the previously announced Magnolia LNG order where production release is delayed into late 2019. We did not have any significant cancellations in 2018, 2017 and 2016.

We may fail to successfully integrate companies that provide complementary products or technologies, including the Hudson acquisition and the recent VRV acquisition.

A component of our business strategy is 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.

For example, we acquired Hudson on September 30, 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). Furthermore, we recently acquired VRV on November 15, 2018 for a purchase price of euro 125.0 million, or approximately $141.3 million. The benefits that are expected to result from the VRV and Hudson acquisitions will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies from the acquisitions. There can be no assurance that we successfully or cost-effectively integrate Hudson and VRV into our business and realize these expected benefits. The failure to do so could have a material adverse effect on our business, financial condition and results of operations.

From time to time, we may have acquisition discussions with other potential target companies both domestically and internationally. If a large acquisition opportunity arises and we proceed, a substantial portion of our cash and surplus borrowing capacity could be used for the acquisition or we may seek additional debt or equity financing.

Potential acquisition opportunities become available to us from time to time, and we periodically engage in discussions or negotiations relating to potential acquisitions, including acquisitions that may be material in size or scope to our business. Any acquisition may or may not occur and, if an acquisition does occur, it may not be successful in enhancing our business for one or more of the following reasons:


•	Any business acquired may not be integrated successfully and may not prove profitable;


•	The price we pay for any business acquired may overstate the value of that business or otherwise be too high;


•	Liabilities we take on through the acquisition may prove to be higher than we expected;


•	We may fail to achieve acquisition synergies; or


•	The focus on the integration of operations of acquired entities may divert management’s attention from the day-to-day operation of our businesses.

Inherent in any future acquisition is the risk of transitioning company cultures and facilities. The failure to efficiently and effectively achieve such transitions could increase our costs and decrease our profitability.

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 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. We have been subject to claims from time to time, some of which were substantial. For example, during 2018 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 purported class action lawsuits 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 is adequate for existing product liability claims and for the continued operation of our business, it includes customary exclusions and conditions, it may not cover certain specialized applications such as aerospace-related applications, and it generally does not cover warranty claims. Additionally, such insurance may become difficult to obtain or be unobtainable in the future on terms acceptable to us. A successful product liability claim or series of claims against us, including one or more consumer claims purporting to constitute class actions or claims resulting from extraordinary loss events, in excess of or outside our insurance coverage, or a significant warranty claim or series of claims against us, could materially decrease our liquidity, impair our financial condition, and adversely affect our results of operations.

Governmental energy policies could change or expected changes could fail to materialize which could adversely affect our business or prospects.

Energy policy can develop rapidly in the markets we serve, including the United States, Asia, Australia, Europe, and Latin America. Within the last few years, significant developments have taken place, primarily in international markets that we serve with respect to energy policy and related regulations. We anticipate that energy policy will continue to be an important regulatory priority globally, as well as on a national, state, and local level. As energy policy continues to evolve, the existing rules and incentives that impact the energy-related segments of our business may change. It is difficult, if not impossible, to predict whether changes in energy policy might occur in the future and the timing of potential changes and their impact on our business. The

elimination or reduction of favorable policies for our energy-related business, or the failure to adopt expected policies that would benefit our business, could negatively impact our sales and profitability.

Our exposure to fixed-price contracts, including exposure to fixed pricing on long-term customer contracts and performance guarantees, could negatively impact our financial results.

A substantial portion of our sales has historically been derived from fixed-price contracts for large system projects which may involve long-term fixed price commitments to customers or guarantees of equipment or process performance and which are sometimes difficult to execute. To the extent that any of our fixed-price contracts are delayed, we fail to satisfy a performance guarantee, our subcontractors fail to perform, contract counterparties successfully assert claims against us, the original cost estimates in these or other contracts prove to be inaccurate or the contracts do not permit us to pass increased costs on to our customers, profitability from a particular contract may decrease or project losses may be incurred, which, in turn, could decrease our sales and overall profitability. The uncertainties associated with our fixed-price contracts make it more difficult to predict our future results and exacerbate the risk that our results will not match expectations, which has happened in the past.

We depend on the availability of certain key suppliers; if we experience difficulty with a supplier, we may have difficulty finding alternative sources of supply.

The cost, quality, and availability of raw materials, certain specialty metals and specialized components used to manufacture our products are critical to our success. The materials and components we use to manufacture our products are sometimes custom made and may be available only from a few suppliers, and the lead times required to obtain these materials and components can often be significant. We rely on sole suppliers or a limited number of suppliers for some of these materials, including special grades of aluminum used in our brazed aluminum heat exchangers and compressors included in some of our product offerings. While we have not historically encountered problems with availability, this does not mean that we will continue to have timely access to adequate supplies of essential materials and components in the future or that supplies of these materials and components will be available on satisfactory terms when needed. If our vendors for these materials and components are unable to meet our requirements, fail to make shipments in a timely manner, or ship defective materials or components, we could experience a shortage or delay in supply or fail to meet our contractual requirements, which would adversely affect our results of operations and negatively impact our cash flow and profitability.

Fluctuations in currency exchange or interest rates may adversely affect our financial condition and operating results.

A significant portion of our revenue and expense is incurred outside of the United States. We must translate revenues, income and expenses, as well as assets and liabilities into U.S. dollars using exchange rates during or at the end of each period. Fluctuations in currency exchange rates have had, and will continue to have an impact on our financial condition, operating results, and cash flow. While we monitor and manage our foreign currency exposure with limited use of derivative financial instruments to mitigate these exposures, fluctuations in currency exchange rates may materially impact our financial and operational results.

In addition, we are exposed to changes in interest rates. While our convertible notes have a fixed cash coupon, other instruments, primarily borrowings under our senior secured revolving credit facility, are exposed to a variable interest rate. The impact of a 100 basis point increase in interest rates to our senior secured revolving credit facility is discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section of this report.

As a 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 2018, 2017 and 2016, 44%, 44%, and 48%, respectively, of our sales occurred in international markets. Our future results could be harmed by a variety of factors, including:


•	changes in foreign currency exchange rates;


•	exchange controls and currency restrictions;


•	changes in a specific country’s or region’s political, social or economic conditions, particularly in emerging markets;


•	civil unrest, turmoil or outbreak of disease in any of the countries in which we operate or sell our products;


•	tariffs, other trade protection measures, as discussed in more detail below, and import or export licensing requirements;


•	potential adverse changes in trade agreements between the United States and foreign countries, including the proposed United States-Mexico-Canada Agreement (USMCA), among the United States, Canada and Mexico;


•	uncertainty and potentially negative consequences relating to the United Kingdom’s vote 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, Europe, and Latin America, may cause us difficulty due to greater regulatory barriers than in the United States, the necessity of adapting to new regulatory systems, problems related to entering new markets with different economic, social and political systems and conditions, and significant competition from the primary participants in these markets, some of which may have substantially greater resources than us. In addition, unstable political conditions or civil unrest, including political instability in Eastern Europe, the Middle East or elsewhere, could negatively impact our order levels and sales in a region or our ability to collect receivables from customers or operate or execute projects in a region.

Changes in U.S. trade policy, tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.

Our international operations and transactions also depend upon favorable trade relations between the United States and the foreign countries in which our customers and suppliers have operations. Changes in U.S. or international social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our business, as well as any negative sentiment toward the U.S. as a result of such changes, could adversely affect our business. The current U.S. presidential administration has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the U.S. and other countries where we conduct our business. It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.

As a result of recent policy changes of the U.S. presidential administration and recent U.S. government proposals, there may be greater restrictions and economic disincentives on international trade. The new tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. We do a significant amount of business that would be impacted by changes to the trade policies of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products. We may not succeed in developing and implementing policies and strategies to counter the foregoing factors effectively in each location where we do business and the foregoing factors may cause a reduction in our sales, profitability or cash flows, or cause an increase in our liabilities.

Data privacy and data security considerations could impact our business.

The interpretation and application of data protection laws, including but not limited to the General Data Protection Regulation (the “GDPR”) in Europe, are uncertain and evolving. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data security practices. Complying with these various laws is difficult and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Further, although we are implementing internal controls and procedures designed to ensure compliance with the GDPR and other privacy-related laws, rules and regulations (collectively, the “Data Protection Laws”), there can be no assurance that our controls and procedures will enable us to fully comply with all Data Protection Laws.

Despite our efforts to protect sensitive information and confidential and personal data, comply with applicable laws, rules and regulations and implement data security measures, our facilities and systems may be vulnerable to security breaches and other data loss, including cyber-attacks. In addition, it is not possible to predict the impact on our business of the future loss, alteration or misappropriation of information in our possession related to us, our employees, former employees, customers, suppliers or others. This could lead to negative publicity, legal claims, theft, modification or destruction of proprietary information or key information, damage to or inaccessibility of critical systems, manufacture of defective products, production downtimes, operational disruptions and other significant costs, which could adversely affect our reputation, financial condition and results of operations.

We are subject to potential insolvency or financial distress of third parties.

We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices or on other terms that are less favorable to us or we may have to write off receivables in the case of customer failures to pay. If this happens, whether as a result of the insolvency or financial distress of a third party or otherwise, we may incur losses, or our results of operations, financial position or liquidity could otherwise be adversely affected.

Failure to protect our intellectual property and know-how could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant.

We rely on a combination of internal procedures, nondisclosure agreements and intellectual property rights assignment agreements, as well as licenses, patents, trademarks and copyright law to protect our intellectual property and know-how. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. For example, we frequently explore and evaluate potential relationships and projects with other parties, which often require that we provide the potential partner with confidential technical information. While confidentiality agreements are typically put in place,

there is a risk the potential partner could violate the confidentiality agreement and use our technical information for its own benefit or the benefit of others or compromise the confidentiality. In addition, the laws of certain foreign countries in which our products may be sold or manufactured do not protect our intellectual property rights to the same extent as the laws of the United States. In addition, the United States has transitioned from a “first-to-invent” to a “first-to-file” patent system, which means that between two identical, pending patent applications, the first inventor no longer receives priority on the patent to the invention. As a result, the Leahy-Smith America Invents Act may require us to incur significant additional expense and effort to protect our intellectual property. Failure or inability to protect our proprietary information could result in a decrease in our sales or profitability.

We have obtained and applied for some U.S. and foreign trademark and patent registrations and will continue to evaluate the registration of additional trademarks and patents, as appropriate. We cannot guarantee that any of our pending applications will be approved. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge them. A failure to obtain registrations in the United States or elsewhere could limit our ability to protect our trademarks and technologies and could impede our business. Further, the protection of our intellectual property may require expensive investment in protracted litigation and the investment of substantial management time and there is no assurance we ultimately would prevail or that a successful outcome would lead to an economic benefit that is greater than the investment in the litigation. The patents in our patent portfolio are scheduled to expire from 2019 to 2039.

In addition, we may be unable to prevent third parties from using our intellectual property rights and know-how without our authorization or from independently developing intellectual property that is the same as or similar to ours, particularly in those countries where the laws do not protect our intellectual property rights as fully as in the United States. We compete in a number of industries (e.g., heat exchangers and cryogenic storage) that are small or specialized, which makes it easier for a competitor to monitor our activities and increases the risk that ideas will be stolen. The unauthorized use of our know-how by third parties could reduce or eliminate any competitive advantage we have developed, cause us to lose sales or otherwise harm our business or increase our expenses as we attempt to enforce our rights.

We may be required to make expenditures in order to comply with environmental, health and safety laws and climate change regulations, or incur additional liabilities under these laws and regulations.

We are subject to numerous environmental, health and safety laws and regulations that impose various environmental controls on us or otherwise relate to environmental protection and various health and safety matters, including the discharge of pollutants in the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous materials and wastes, the investigation and remediation of soil and groundwater affected by hazardous substances and the requirement to obtain and maintain permits and licenses. These laws and regulations often impose strict, retroactive and joint and several liability for the costs and damages resulting from cleaning up our or our predecessors’ facilities and third party disposal sites. Compliance with these laws generally increases the costs of transportation and storage of raw materials and finished products, as well as the costs of storing and disposing waste, and could decrease our liquidity and profitability and increase our liabilities. Health and safety and other laws in the jurisdictions in which we operate impose various requirements on us including state licensing requirements that may benefit our customers. If we are found to have violated any of these laws, we may become subject to corrective action orders and fines or penalties, and incur substantial costs, including substantial remediation costs and commercial liability to our customers. Further, we also could be subject to future liability resulting from conditions that are currently unknown to us that could be discovered in the future.

We are currently remediating or developing work plans for remediation of environmental conditions involving certain current or former facilities. For example, the discovery of contamination arising from historical industrial operations at our Clarksville, Arkansas property, which is currently being leased to a third party business, has exposed us, and in the future may continue to expose us, to remediation obligations. We have also been subject to environmental liabilities for other sites where we formerly operated or at locations where we or our predecessors did or are alleged to have operated. To date, our environmental remediation expenditures and costs for otherwise complying with environmental laws and regulations have not been material, but the uncertainties associated with the investigation and remediation of contamination and the fact that such laws or regulations change frequently makes predicting the cost or impact of such laws and regulations on our future operations uncertain. Stricter environmental, safety and health laws, regulations or enforcement policies could result in substantial costs and liabilities to us and could subject us to more rigorous scrutiny. Consequently, compliance with these laws could result in significant expenditures, as well as other costs and liabilities that could decrease our liquidity and profitability and increase our liabilities.

There is a growing political and scientific belief 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, 2018, the projected benefit obligation under our pension plan was approximately $53.6 million, and the value of the assets of the plan was approximately $42.8 million, resulting in our pension plan being underfunded by approximately $10.8 million.

As part of the Hudson acquisition we acquired a noncontributory defined benefit plan covering certain employees of a Hudson subsidiary. This plan is closed to new participants. As of December 31, 2018, the projected benefit obligation of the plan was $2.5 million, and the fair value of plan assets were $1.7 million, resulting in the pension plan being underfunded by approximately $0.8 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 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, and in September 2017, our employees in Beasley, Texas and in the Houston area were impacted by the flooding and damage from Hurricane Harvey. Future hurricanes or other severe weather may cause production or delivery delays as a result of the physical damage to the facilities, the unavailability of employees and temporary workers, the shortage of or delay in receiving certain raw materials or manufacturing supplies and the diminished availability or delay of transportation for customer shipments, any of which may have an adverse effect on our sales and profitability. Additionally, the potential physical impact of theorized climate change could include more frequent and intense storms, which would heighten the risk to our operations in areas that are susceptible to hurricanes and other severe weather. Although we maintain insurance subject to certain deductibles, which may cover some of our losses, that insurance may become unavailable or prove to be inadequate.

We are subject to regulations governing the export of our products.

Due to our significant foreign sales, our export activities are subject to regulation, including the U.S. Treasury Department’s Office of Foreign Assets Control’s regulations. We believe we are in compliance with these regulations and maintain robust

programs intended to maintain compliance. However, unintentional lapses in our compliance or uncertainties associated with changing regulatory requirements could result in future violations (or alleged violations) of these regulations. Any violations may subject us to government scrutiny, investigation and civil and criminal penalties and may limit our ability to export our products.

As a provider of products to the U.S. government, we are subject to federal rules, regulations, audits and investigations, the violation or failure of which could adversely affect our business.

We sell certain of our products to the U.S. government; and, therefore, we must comply with and are affected by laws and regulations governing purchases by the U.S. government. Government contract laws and regulations affect how we do business with our government customers and, in some instances, impose added costs on our business. For example, a violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts. In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions.

Current economic and political conditions make tax rules in jurisdictions subject to significant change, and unanticipated changes in our effective tax rate could adversely affect our future results.

Our future results of operations could be affected by changes in the effective tax rate as a result of changes in tax laws, regulations and judicial rulings. In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law in the United States, which among other things, lowered the federal corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of foreign subsidiaries. Although our effective tax rate decreased during 2018, there can be no assurances that any expected benefit from the Tax Cuts and Jobs Act will be maintained long-term given political and other uncertainties.

Also, further changes in the tax laws of foreign jurisdictions could arise, including as a result of the base erosion and profit shifting (BEPS) project undertaken by the Organisation for Economic Cooperation and Development (OECD). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes, to the extent adopted by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

Our effective tax rate could also be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses arising from share-based compensation, the valuation of deferred tax assets and liabilities and changes in accounting principles. In addition, we are subject to income tax audits by many tax jurisdictions throughout the world. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Risks Related to Our Leverage

Our leverage and future debt service obligations could adversely affect our financial condition, limit our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, impact the way we operate our business, expose us to interest rate risk to the extent of our variable rate debt and prevent us from fulfilling our debt service obligations.

We are leveraged and have future debt service obligations. Our financial performance could be affected by our leverage. As of December 31, 2018, our total indebtedness was $599.3 million. In addition, at that date, under our senior secured revolving credit facility, we had $47.6 million of letters of credit and bank guarantees outstanding and borrowing capacity of approximately $173.1 million. Through separate facilities, our subsidiaries had $11.4 million in bank guarantees outstanding at December 31, 2018.

Our level of indebtedness could have important negative consequences, including:


•	difficulty in generating sufficient cash flow and reduced availability of cash for our operations and other business activities;


•	difficulty in obtaining financing in the future;


•	exposure to risk of increased interest rates due to variable rates of interest under our senior secured revolving credit facility;


•	vulnerability to general economic downturns and adverse industry conditions;


•	increased competitive disadvantage due to our debt service obligations;


•	adverse customer reaction to our debt levels;


•	inability to comply with covenants in, and potential for default under, our debt instruments; and


•	failure to refinance any of our debt. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. We may be unable to consummate those asset sales to raise capital or sell assets at prices that we believe are fair and proceeds that we do receive may be inadequate to meet any debt service obligations then due.

We may still be able to incur substantially more debt. This could further exacerbate the risks that we face.

We may be able to incur substantial additional indebtedness in the future. The terms of our debt instruments do not fully prohibit us from doing so. Our senior secured revolving credit facility provides commitments of up to $550.0 million, approximately $173.1 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, 2018. 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 $225.0 million in additional borrowings, subject to certain conditions, or we could refinance with higher borrowing limits. If new debt is added to our current debt levels, the related risks that we now face could intensify.

The senior secured revolving credit facility contains a number of restrictive covenants which limit our ability to finance future operations or capital needs or engage in other business activities that may be in our interest.

The senior secured revolving credit facility imposes, 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 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;


•	sell or transfer certain kinds of assets;


•	enter into certain types of transactions with affiliates; and


•	effect mergers or consolidations.

The senior secured revolving credit facility also requires us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control.

The restrictions contained in the senior secured revolving credit facility could:


•	limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans; and


•	adversely affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would be in our interest.

A breach of any of these covenants or our inability to comply with the required financial ratios could result in a default under our senior secured revolving credit facility. If an event of default occurs under our senior secured revolving credit facility, which includes an event of default under the indenture governing our 1.00% Convertible Senior Subordinated Notes due November 2024, the lenders could elect to:


•	declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable; or


•	require us to apply all of our available cash to repay the borrowings,

either of which could result in an event of default under our convertible notes or prevent us from making payments on the convertible notes when due in 2024, as the case may be. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further financing.

If we were unable to repay or otherwise refinance these borrowings when due, our lenders could sell the collateral securing the senior secured revolving credit facility, which constitutes substantially all of our and our domestic wholly-owned subsidiaries’ assets.

Our 1.00% Convertible Senior Subordinated Notes due November 2024 have certain fundamental change and conditional conversion features which, if triggered, may adversely affect our financial condition.

If a fundamental change occurs under our 1.00% Convertible Senior Subordinated Notes due November 2024, the holders of the convertible notes may require us to purchase for cash any or all of the convertible notes. However, there can be no assurance that we will have sufficient funds at the time of the fundamental change to purchase all of the convertible notes delivered for purchase, and we may not be able to arrange necessary financing on acceptable terms, if at all. Likewise, if one of the conversion contingencies of our convertible notes is triggered, holders of convertible notes will be entitled to convert the convertible notes at any time during specified periods.

We are subject to counterparty risk with respect to the convertible note hedge and capped call transactions associated with our 1.00% Convertible Senior Subordinated Notes due November 2024.

The option counterparties for our convertible note hedging arrangements are financial institutions, and we will be subject to the risk that any or all of them might default under the convertible note hedge and capped call transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Global economic conditions during the 2008-2009 economic downturn resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the convertible note hedge and capped call transactions with that option counterparty. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

Risks Related to the Trading Market for Our Common Stock

Our common stock has experienced, and may continue to experience, price volatility.

Our common stock has at times experienced substantial price volatility as a result of many factors, including the general volatility of stock market prices and volumes, changes in securities analysts’ estimates of our financial performance, variations between our actual and anticipated financial results, fluctuations in order or backlog levels, fluctuations in energy prices, or uncertainty about current global economic conditions. For these reasons, among others, the price of our stock may continue to fluctuate.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and other agreements and in Delaware law may discourage a takeover attempt.

Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire us. Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our amended and restated certificate of incorporation authorizes our board of directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. Therefore, our board of directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. These rights may have the effect of delaying or deterring a change of control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

In addition, the terms of our 1.00% Convertible Senior Subordinated Notes due November 2024 may require us to purchase these convertible notes for cash in the event of a takeover of our Company. The indentures governing the convertible notes also prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertible notes. These and other provisions applicable to the convertible notes may have the effect of increasing the cost of acquiring us or otherwise discourage a third party from acquiring us.

The issuance of common stock upon conversion of our 1.00% Convertible Senior Subordinated Notes due November 2024 could cause dilution to the interests of our existing stockholders.

As of December 31, 2018, 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. We currently intend to settle conversions of 1.00% convertible notes through a combination of the payment of cash and issuance of shares, with payments of cash up to the aggregate principal amount of the convertible notes to be converted and delivering shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. The number of shares issued could be significant and such an issuance could cause significant dilution to the interests of the existing stockholders.


Item 1B.	Unresolved Staff Comments

Not applicable.


Item 2.	Properties

We occupy 47 facilities totaling approximately 5.5 million square feet, including the locations listed below, with the majority devoted to manufacturing, assembly, and storage. Of these facilities, approximately 4.3 million square feet are owned and 1.2 million square feet are occupied under operating leases. One of our owned facilities, a 0.1 million square foot facility in Clarksville, Arkansas, is leased to a third party. We currently lease approximately 20 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 senior secured revolving credit facility.

The following table summarizes information about our principal plants and other materially important physical properties as of January 31, 2019:



Location	Segment	Ownership	Use
Ball Ground, Georgia, U.S.	Corporate	Leased	Office
Luxembourg, Luxembourg	Corporate	Leased	Office
Chennai, India	D&S East	Owned	Manufacturing/Office
Decin, Czech Republic	D&S East	Owned	Manufacturing/Office
Goch, Germany	D&S East	Owned	Manufacturing/Office
Kuala Lumpur, Malaysia	D&S East	Leased	Marketing & Sales/Office
Lery, France	D&S East and D&S West	Owned	Manufacturing/Office
Changzhou, China	D&S East and Energy & Chemicals	Leased/Owned	Manufacturing/Office
Milan, Italy	D&S East and Energy & Chemicals	Leased/Owned	Manufacturing/Office
Ball Ground, 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 West	Leased/Owned	Manufacturing/Office/Service
Owatonna, Minnesota, U.S.	D&S West	Leased	Manufacturing/Office
Houston, Texas, U.S.	D&S West and Energy & Chemicals	Leased/Owned	Manufacturing/Office/Service
Beasley, Texas, U.S.	Energy & Chemicals	Owned	Manufacturing/Office
Franklin, Indiana, U.S.	Energy & Chemicals	Leased	Manufacturing/Office/Service
La Crosse, Wisconsin, U.S.	Energy & Chemicals	Leased/Owned	Manufacturing/Office
Monterey, Mexico	Energy & Chemicals	Owned	Manufacturing/Office
New Iberia, Louisiana, U.S.	Energy & Chemicals	Leased	Manufacturing
Pombia, Italy	Energy & Chemicals	Leased	Manufacturing/Office
The Woodlands, Texas, U.S.	Energy & Chemicals	Leased	Office
Tulsa, Oklahoma, U.S.	Energy & Chemicals	Leased/Owned	Manufacturing/Office

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 2019 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.


Item 3.	Legal Proceedings

Stainless Steel Cryobiological Tank Legal Proceedings

During the second quarter of 2018, Chart was named in lawsuits (including a class action lawsuit 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. No monetary damages related to the alleged failure have been specified or communicated to Chart at this point, and we are evaluating the merits of such claims in light of the limited information available to date regarding use, maintenance and operation of the tank which has been out 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 damages 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 purported class action lawsuits filed during the second quarter of 2018 in the Ontario Superior Court of Justice against the Company and other defendants with respect to the alleged failure of an aluminum cryobiological storage tank (model FNL XC 47/11-6 W/11) at The Toronto Institute for Reproductive Medicine in Etobicoke, Ontario. We have confirmed that the tank in question was part of the aluminum cryobiological tank recall commenced on April 23, 2018. We have asserted various defenses against the claims in the lawsuits and are in the early stages of litigation. Accordingly, an accrual related to any damages that may result from the lawsuit has not been recorded because a potential loss is not currently probable or estimable.

We are occasionally subject to various legal claims related to performance under contracts, product liability, environmental liability, taxes, employment, 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.”

Item 4. Mine Safety Disclosures

Not applicable.


Item 4A.	Executive Officers of the Registrant*

The name, age and positions of each Executive Officer of the Company as of February 15, 2019 are as follows:



Name	Age	Position
Jillian C. (Jill) Evanko	41	Chief Executive Officer and President
Jeffrey R. (Jeff) Lass	49	Vice President and Chief Financial Officer
Gerald F. (Gerry) Vinci	53	Vice President, Chief Human Resources 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. 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 which 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.

Jeffrey R. (Jeff) Lass was appointed Vice President and Chief Financial Officer on January 14, 2019. Prior to joining Chart, Mr. Lass served as Vice President of Finance & Operations and Chief Financial Officer of CognitiveScale, an artificial intelligence software development company, since May 2018. Prior to that, he served as Vice President and Chief Financial Officer of Dover Fueling Solutions, a manufacturer of advanced fuel dispensing equipment, from December 2016 to May 2018, and previously served in various executive roles for Wayne Fueling Systems, a global fuel dispenser manufacturer for retail and fleet applications

(both as part of its ownership by General Electric and Riverstone Holdings after its separation from General Electric in 2014), from February 2011 through December 2016. Mr. Lass also previously held Finance roles at Dresser, Inc., Pavilion Technologies, Trilogy Software, Inc. Applied Materials, Inc. and Pricewaterhouse LLP.

Gerald F. (Gerry) Vinci was appointed our Vice President and Chief Human Resources Officer and has served in that capacity since December 5, 2016, when he joined Chart. Mr. Vinci was designated an executive officer of Chart on August 23, 2017. Prior to joining Chart, Mr. Vinci held various executive Human Resources roles at Dover Corporation, a diversified global manufacturer, from February 2013 to November 2016, including Vice President, Human Resources for Dover Engineered Systems and Dover Refrigeration and Food Equipment Segments. From 1997 to 2013, Mr. Vinci served in numerous Human Resources executive roles and as Senior Counsel for Harsco Corporation. Prior to that, Mr. Vinci was an attorney for Sunoco, Inc.

PART II


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 Market under the symbol “GTLS.” As of February 1, 2019, there were 169 holders of record of our common stock. Since many holders hold shares in “street name,” we believe that there are a significantly larger number of beneficial owners of our common stock than the number of record holders.

We do not currently intend to pay any cash dividends on our common stock, and instead intend to retain earnings, if any, for future operations, debt reduction and potential acquisitions. The amounts available to us to pay future cash dividends may be restricted by our senior secured revolving credit facility 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, 2013, including reinvestment of dividends, if any.



	December 31,
	2013		2014		2015		2016		2017		2018
Chart Industries, Inc.	$	100.00	$	35.76	$	18.78	$	37.66	$	49.00	$	67.99
S&P SmallCap 600 Index	100.00		105.76		103.67		131.20		148.56		135.96
Peer Group Index	100.00		97.01		86.99		113.64		135.14		110.98

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 2017 Peer Group Index was comprised of Acuity Brands, Inc., Barnes Group Inc., Circor International, Inc., Colfax Corp., Enpro Industries Inc., Esco Technologies Inc., Graco Inc., Harsco Corporation, Idex Corp., Nordson Corporation, SPX Corporation and Worthington Industries, Inc.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the fourth quarter of 2018, 5,645 shares of common stock were surrendered to us by participants under our share-based compensation plans to satisfy tax withholding obligations relating to the vesting or payment of equity awards for an aggregate purchase price of approximately $332,900. The total number of shares repurchased represents the net shares issued to satisfy tax withholdings. All such repurchased shares were subsequently retired during the three months ended December 31, 2018.



	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, 2018	114	$	74.65	—	$	—
November 1 — 30, 2018	—	—		—	—
December 1 — 31, 2018	5,531	58.65		—	—
Total	5,645	$	58.97	—	$	—


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, 2018, 2017 and 2016 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 Ernst & Young LLP. We selected historical financial consolidated data as of and for the years ended December 31, 2015 and 2014 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’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (all dollar amounts in millions, except per share data):



	Year Ended December 31,
	2018		2017			2016			2015			2014
Statements of Operations Data:
Sales ^{(1) (2)}	$	1,084.3	$	842.9		$	722.0		$	883.2		$	1,032.8
Cost of sales ⁽³⁾	788.4		611.3			512.3			631.1			721.7
Gross profit	295.9		231.6			209.7			252.1			311.1
Operating expenses ^{(4) (5) (6) (7) (8) (9)}	203.8		193.1			167.5			174.8			172.0
Asset impairments	—		—			1.2			151.8			—
Operating income (loss) ^{(1) (2)}	92.1		38.5			41.0			(74.5		)	139.1
Interest expense, net (including deferred financing costs amortization)	22.7		18.6			16.4			13.9			14.4
Loss on extinguishment of debt ⁽¹⁰⁾	—		4.9			—			—			—
Foreign currency loss	0.4		3.9			0.5			2.0			0.5
Other expenses, net	23.1		27.4			16.9			15.9			14.9
Income (loss) before income taxes	69.0		11.1			24.1			(90.4		)	124.2
Income tax expense (benefit), net ⁽¹¹⁾	13.4		(16.6		)	10.6			8.3			40.3
Net income (loss) from continuing operations	55.6		27.7			13.5			(98.7		)	83.9
Income (loss) from discontinued operations, net of tax ⁽¹²⁾	34.4		1.8			11.2			(105.8		)	(0.8		)
Net income (loss)	90.0		29.5			24.7			(204.5		)	83.1
Less: Income (loss) attributable to noncontrolling interests, net of taxes	2.0		1.5			(3.5		)	(1.5		)	1.2
Net income (loss) attributable to Chart Industries, Inc.	$	88.0	$	28.0		$	28.2		$	(203.0	)	$	81.9



	Year Ended December 31,
	2018			2017			2016			2015			2014
Earnings Per Share Data:
Basic earnings (loss) per common share attributable to Chart Industries, Inc.
Income (loss) from continuing operations	$	1.73		$	0.85		$	0.55		$	(3.19	)	$	2.72
Income (loss) from discontinued operations	1.10			0.06			0.37			(3.47		)	(0.03		)
Net Income (loss) attributable to Chart Industries, Inc.	$	2.83		$	0.91		$	0.92		$	(6.66	)	$	2.69
Diluted earnings (loss) per common share attributable to Chart Industries, Inc. ⁽¹³⁾
Income (loss) from continuing operations	$	1.67		$	0.84		$	0.55		$	(3.19	)	$	2.70
Income (loss) from discontinued operations	1.06			0.05			0.36			(3.47		)	(0.03		)
Net Income (loss) attributable to Chart Industries, Inc.	$	2.73		$	0.89		$	0.91		$	(6.66	)	$	2.67

Weighted-average shares — basic	31.05			30.74			30.58			30.49			30.38
Weighted-average shares — diluted ⁽¹³⁾	32.20			31.34			30.98			30.49			30.67

Cash Flow Data:
Cash provided by operating activities	$	119.0		$	44.3		$	169.3		$	98.4		$	124.3
Cash used in investing activities	(260.6		)	(477.8		)	(17.0		)	(70.2		)	(70.1		)
Cash provided by (used in) financing activities	38.2			275.2			7.7			0.4			(70.8		)
Cash provided by (used in) discontinued operations	102.5			0.5			0.4			(0.7		)	(8.0		)

Other Financial Data:
Depreciation and amortization, including deferred financing costs amortization ⁽¹⁴⁾	$	52.1		$	38.9		$	34.4		$	36.2		$	32.3



	As of December 31,
	2018		2017		2016		2015		2014
Balance Sheet Data:
Cash and cash equivalents	$	118.1	$	122.6	$	282.0	$	123.7	$	103.7
Working capital ⁽¹⁵⁾	177.0		73.0		60.4		139.1		157.6
Goodwill ^{(16) (17)}	520.7		459.7		208.9		209.3		347.7
Identifiable intangible assets, net ⁽¹⁶⁾ ⁽¹⁷⁾	330.4		286.4		74.5		84.8		94.6
Total assets ^{(16) (17)}	1,897.7		1,724.7		1,233.0		1,200.1		1,459.5
Long-term debt ⁽¹⁸⁾	533.2		439.2		233.7		213.8		201.6
Total debt ⁽¹⁸⁾	544.4		498.1		240.2		220.0		206.5
Chart Industries, Inc. shareholders’ equity	884.5		802.2		697.2		670.6		879.9

_______________


⁽¹⁾	Includes sales and operating loss for VRV, included in the E&C and D&S East segments results since the acquisition date, November 15, 2018 as follows:


•	Sales were $14.1 (E&C: $3.8, D&S East: $10.3) for the year ended December 31, 2018, and


•	Operating (loss) income was $(2.0) (E&C: $(2.2), D&S East: $0.2) 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.


⁽²⁾	Includes sales and operating income for Hudson, included in the E&C segment results since the acquisition date, September 20, 2017 as follows:


•	Sales were $180.3 and $58.0 for the year ended December 31, 2018 and 2017, respectively, and


•	Operating income was $19.0 and $6.4 for the year ended December 31, 2018 and 2017, respectively.


⁽³⁾	Cost of sales includes restructuring costs of $0.8 million, $2.7 million, $3.5 million and $2.9 million for the years ended December 31, 2018, 2017, 2016 and 2015, respectively.


⁽⁴⁾	Operating expenses include selling, general and administrative expenses and amortization expense. Amortization expense related to intangible assets for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 was $21.9 million, $12.2 million, $8.8 million, $9.2 million, and $8.1 million, respectively.


⁽⁵⁾	Includes an expense of $4.0 million recorded to cost of sales related to the estimated costs of the aluminum cryobiological tank recall for the year ended December 31, 2018.


⁽⁶⁾	Operating income (loss) includes restructuring costs of $4.4 million, $11.2 million, 9.5 million and $6.4 million for the years ended December 31, 2018, 2017, 2016 and 2015, respectively.


⁽⁷⁾	Includes transaction-related costs of $10.1 million, $0.4 million, $0.7 million, and $1.2 million for the years ended December 31, 2017, 2016, 2015 and 2014, respectively.


⁽⁸⁾	Includes transaction-related costs of $2.1 million for the year ended December 31, 2018, which were mainly related to the VRV acquisition. Includes integration costs of $0.8 million related to the VRV acquisition for the year ended December 31, 2018.

⁽⁹⁾

During the year ended December 31, 2018, we recorded net severance costs of $2.3 million primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 million in payroll severance costs partially offset by a $0.9 million credit due to related share-based compensation forfeitures for 2018. Includes net severance costs of $1.4 million related to the departure of our former CEO, which includes $3.2 million in payroll severance costs partially offset by a $1.8 million credit due to related share-based compensation forfeitures for 2018.


⁽¹⁰⁾	During the year ended December 31, 2017, we recorded a $4.9 million loss on extinguishment of debt associated with the repurchase of $192.9 million principal amount of our $250.0 million 2.00% convertible notes due August 2018 and refinance of our senior secured revolving credit facility.

⁽¹¹⁾

Includes 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. 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.


⁽¹²⁾	Includes gain on sale of the CAIRE business of $34.3 million, net of taxes of $2.6 million, for the year ended December 31, 2018.


⁽¹³⁾	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.


⁽¹⁴⁾	Includes deferred financing costs amortization of $1.3 million for each of the years ended December 31, 2018, 2017, 2016, and 2015 and $1.4 million for the year ended December 31, 2014.


⁽¹⁵⁾	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).


⁽¹⁶⁾	Total assets at December 31, 2017 included $572.8 million related to Hudson of which $238.3 million and $211.0 million represented acquired goodwill and identifiable intangible assets, net, respectively. For further information, see Note 12, “Business Combinations,” in the consolidated financial statements located elsewhere in this report.


⁽¹⁷⁾	Total assets at December 31, 2018 included $327.8 million related to VRV of which $64.0 million and $66.4 million represented acquired goodwill and identifiable intangible assets, net, respectively. For further information, see Note 12, “Business Combinations,” in the consolidated financial statements located elsewhere in this report.


⁽¹⁸⁾	Total debt at December 31, 2018 includes convertible notes, net of unamortized discounts and debt issuance costs of $203.9 million, $329.3 million outstanding borrowings on our senior secured revolving credit facility and $11.2 million in borrowings on our foreign facilities. Long-term debt represents total debt less current maturities. At December 31, 2018 current maturities were $11.2 million.


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 diversified global manufacturer of highly engineered equipment for the industrial gas, energy, and biomedical industries. 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 November 15, 2018, Chart completed the previously announced acquisition of VRV S.r.l. and its subsidiaries (collectively “VRV”). VRV is a diversified multinational corporation engaged in the design and manufacture of pressure equipment serving the cryogenic, as well as the energy and petrochemical end markets. The VRV acquisition purchase price, which is subject to a working capital adjustment expected in the first quarter of 2019, was euro 188.7 million (equivalent to $213.3 million), inclusive of the base purchase price of euro 125.0 million (equivalent to $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). Additional indebtedness of VRV of $4.9 million was assumed at the acquisition date and not paid off, although we expect to pay it off in early 2019. We funded the VRV acquisition, including the subsequent payoff of assumed indebtedness, with borrowings of euro 140.0 million (equivalent to $160.3 million) from our senior secured revolving credit facility and the remainder with cash on hand. All U.S. dollar equivalent dollar amounts are based on the exchange rate as of the acquisition date. VRV is expected to add annual net sales of $115 million in 2019, achieve significant cost synergies related to operational efficiencies and sourcing, and be accretive to earnings in our first full year of ownership. The VRV acquisition is further described in Note 12, “Business Combinations,” to our consolidated financial statements included elsewhere in this report.

To support this strategic acquisition as well as Chart’s expanded focus on geographic expansion outside of North America, we executed a strategic realignment of our segment structure during the third quarter and divided our Distribution & Storage segment into two segments: Distribution & Storage Western Hemisphere (“D&S West”) and Distribution & Storage Eastern Hemisphere (“D&S East”). We believe these changes will facilitate our growth strategies, better align with our customer needs, and provide increased improved transparency of business results to our shareholders.

Additionally, on December 20, 2018, we closed on the sale of all of the equity interests in our oxygen-related products business within our former BioMedical segment to NGK SPARK PLUG CO., LTD. (the “Buyer”) for $133.5 million (the “Divestiture”). 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.

As a result of the Divestiture, the asset group, which includes our respiratory and on-site generation systems businesses, met the criteria to be held for sale. Furthermore, we determined that the assets held for sale qualify for discontinued operations. As such, the financial results of the respiratory therapy and on-site generation systems businesses are reflected in our consolidated statements of income and comprehensive income as discontinued operations for all periods presented. Furthermore, current and non-current assets and liabilities of discontinued operations are reflected in the audited consolidated balance sheets as of December 31, 2017. For further information, refer to Note 3, “Discontinued Operations,” in the consolidated financial statements located elsewhere in this report. The remaining former BioMedical segment business, cryobiological storage systems, is now part of D&S West, and financial information is shown in all tables for D&S West.

The financial information presented and discussion of results that follows is presented on a continuing operations basis.

2018 Highlights

Orders in 2018 of $1,142.4 million increased 32.6% compared to 2017 (11.7% organically) with each segments’ orders increasing year-over-year. Fiscal year 2018 continued to reflect the strong demand seen in 2017 for natural gas liquids (“NGL”), petrochemical applications and bulk industrial gas applications.

Sales in 2018 of $1,084.3 million increased 28.6% compared to 2017 (13.4% organically), across all segments including double-digit increases in our Energy & Chemicals (“E&C”) segment and our D&S West segment. Sales for Hudson, included in the E&C segment results since the September 20, 2017 acquisition date, were $180.3 million and $58.0 million for the years ended December 31, 2018 and 2017, respectively. Sales for VRV, included in both the E&C and D&S East segment results since the

November 15, 2018 acquisition date, were $14.1 million for the year ended December 31, 2018. Selling, general and administrative (“SG&A”) expenses as a percentage of consolidated sales decreased from 21.5% in 2017 to 16.8% as a result of the improvement generated by our recent restructuring and cost-reduction initiatives. Operating income in 2018 of $92.1 million increased 139.2% compared to 2017 (134.0%, organically), across all segments.

Outlook

Our 2019 full year outlook reflects 2018 and 2019 organic year-to-date order growth in our segments and the positive contributions from both 2018 and 2017 acquisitions VRV, Skaff Cryogenics and Cryo-Lease (together “Skaff”), RCHPH Holdings, Inc. (“Hudson”), VCT Vogel GmbH (“VCT”) and Hetsco, Inc. We continue to anticipate that the forecasted global supply/demand LNG gas balance will be reached in 2022-2023, thereby driving LNG export facility orders in 2019 and 2020. 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 the previously announced Driftwood LNG project, may use Chart’s patented IPSMR^® technology as well as our brazed aluminum heat exchangers and cold boxes as the main liquefaction heat exchanger technology.

We continue to invest in our automation, process improvement, and productivity activities across the Company, with total anticipated 2019 capital investment of $35.0 million to $40.0 million. The total anticipated 2019 capital spend is inclusive of anticipated capital spending at VRV, potential investment in the LNG fuel systems production line in Europe and automation projects in our New Prague, Minnesota facility.

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, 2018, 2017 and 2016 (dollars in millions):



	2018		2017		2016
Sales	100.0	%	100.0	%	100.0	%
Cost of sales ^{(1) (2)}	72.7		72.5		71.0
Gross profit	27.3		27.5		29.0
Selling, general and administrative expenses^{(2) (3) (4) (5) (6) (7)}	16.8		21.5		22.0
Amortization expense	2.0		1.4		1.2
Asset impairments	—		—		0.2
Operating income	8.5		4.6		5.7
Interest expense, net ^{(8) (9)}	2.0		2.1		2.1
Loss on extinguishment of debt ⁽¹⁰⁾	—		0.6		—
Financing costs amortization	0.1		0.2		0.2
Foreign currency loss	—		0.5		0.1
Income tax expense (benefit), net ⁽¹¹⁾	1.2		(2.0	)	1.5
Net income from continuing operations	5.1		3.3		1.9
Income from discontinued operations, net of tax	3.2		0.2		1.6
Net income	8.3		3.5		3.4
Income (loss) attributable to noncontrolling interests, net of taxes	0.2		0.2		(0.5	)
Net income attributable to Chart Industries, Inc.	8.1		3.3		3.9

_______________


⁽¹⁾	Cost of sales includes restructuring costs of $0.8 million, $2.7 million and $3.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.


⁽²⁾	Includes an expense of $4.0 million 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 $3.6 million, $8.5 million and $6.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.


⁽⁴⁾	Includes transaction-related costs of $2.1 million for the year ended December 31, 2018, which were mainly related to the VRV acquisition. Includes integration costs of $0.8 million related to the VRV acquisition for the year ended December 31, 2018.


⁽⁵⁾	Includes transaction-related costs of $10.1 million and $0.4 million for the years ended December 31, 2017 and 2016, respectively.

⁽⁶⁾


⁽⁷⁾	Includes share-based compensation expense of $4.9 million, $10.6 million, and $10.1 million, representing 0.5%, 1.3%, and 1.4% of sales, for the years ended December 31, 2018, 2017 and 2016, respectively.


⁽⁸⁾	Includes $1.9 million, $11.8 million, and $12.5 million 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%, 1.4%, and 1.7% of sales, for the years ended December 31, 2018, 2017 and 2016, respectively.


⁽⁹⁾	Includes $7.2 million and $1.1 million of non-cash interest accretion expense related to the carrying amount of the 1.00% Convertible Senior Subordinated Notes due November 2024 (the “2024 Notes”), representing 0.7% and 0.1% of sales for the years ended December 31, 2018 and 2017, respectively.


⁽¹⁰⁾	During the year ended December 31, 2017, we recorded a $4.9 million loss on extinguishment of debt associated with the repurchase of $192.9 million principal amount of our 2018 Notes and refinance of our senior secured revolving credit facility.

⁽¹¹⁾

Consolidated Results for the Years Ended December 31, 2018, 2017 and 2016

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, 2018, 2017 and 2016 (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 elsewhere in this report.

Selected Segment Financial Information



	Year Ended December 31,
	2018			2017			2016
Sales
Energy & Chemicals	$	390.5		$	225.6		$	154.3
D&S West	455.5			400.6			378.1
D&S East	246.3			232.3			197.6
Intersegment eliminations	(8.0		)	(15.6		)	(8.0		)
Consolidated	$	1,084.3		$	842.9		$	722.0
Gross Profit
Energy & Chemicals	$	89.2		$	45.1		$	44.9
D&S West⁽¹⁾	156.8			141.8			132.5
D&S East	52.4			48.3			34.4
Intersegment eliminations	(2.5		)	(3.6		)	(2.1		)
Consolidated	$	295.9		$	231.6		$	209.7
Gross Profit Margin
Energy & Chemicals	22.8		%	20.0		%	29.1		%
D&S West	34.4		%	35.4		%	35.0		%
D&S East	21.3		%	20.8		%	17.4		%
Consolidated	27.3		%	27.5		%	29.0		%
SG&A Expenses
Energy & Chemicals	$	48.1		$	34.3		$	29.4
D&S West	51.0			52.0			51.5
D&S East	31.6			33.0			31.9
Corporate	51.2			61.6			45.9
Consolidated	$	181.9		$	180.9		$	158.7
SG&A Expenses (% of Sales)
Energy & Chemicals	12.3		%	15.2		%	19.1		%
D&S West	11.2		%	13.0		%	13.6		%
D&S East	12.8		%	14.2		%	16.1		%
Consolidated	16.8		%	21.5		%	22.0		%
Operating Income (Loss) ^{(1) (2) (3)}
Energy & Chemicals	$	25.5		$	5.1		$	13.3
D&S West	101.2			85.2			75.6
D&S East	19.3			14.2			0.3
Corporate^{(4) (5)}	(51.4		)	(62.4		)	(46.1		)
Intersegment eliminations	(2.5		)	(3.6		)	(2.1		)
Consolidated	$	92.1		$	38.5		$	41.0
Operating Margin
Energy & Chemicals	6.5		%	2.3		%	8.6		%
D&S West	22.2		%	21.3		%	20.0		%
D&S East	7.8		%	6.1		%	0.2		%
Consolidated	8.5		%	4.6		%	5.7		%

_______________


⁽¹⁾	Includes an expense of $4.0 million 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⁾	Includes restructuring costs of:


•	$4.4 million for the year ended December 31, 2018 ($0.7 million – E&C, $1.4 million D&S East, and $2.3 million – Corporate),


•	$11.2 million for the year ended December 31, 2017 ($2.4 million – E&C, $1.1 million – D&S West, $1.7 million D&S East, and $6.0 million – Corporate), and


•	$9.5 million for the year ended December 31, 2016 ($1.0 million – E&C, $3.5 million – D&S West, $0.8 million D&S East, and $4.2 million – Corporate).


⁽³⁾	Includes transaction-related costs of $2.1 million in Corporate for the year ended December 31, 2018, which were mainly related to the VRV acquisition. Includes integration costs of $0.8 million in Corporate related to the VRV acquisition for the year ended December 31, 2018.


⁽⁴⁾	Includes transaction-related costs in Corporate of $10.1 million and $0.4 million for the years ended December 31, 2017 and 2016, respectively.

⁽⁵⁾

During the year ended December 31, 2018, we recorded net severance costs of $2.3 million in Corporate primarily related to headcount reductions associated with the strategic realignment of our segment structure, which includes $1.8 million in payroll severance costs partially offset by a $0.9 million credit due to related share-based compensation forfeitures for 2018. Includes net severance costs of $1.4 million in Corporate related to the departure of our former CEO, which includes $3.2 million in payroll severance costs partially offset by a $1.8 million credit due to related share-based compensation forfeitures for 2018.

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 the E&C segment, especially in our air cooled heat exchangers product offering, as well as stronger sales in D&S West. Sales for Hudson, included in the E&C segment results since the September 20, 2017 acquisition date, were $180.3 million and $58.0 million for the years ended December 31, 2018 and 2017, respectively. Sales for VRV, included in both the E&C and D&S East segment results since the November 15, 2018 acquisition date, were $14.1 million for the year ended December 31, 2018.

Gross profit increased while 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 volume in our D&S West and D&S East segments and project mix in our E&C segment. 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 (Gain) Loss

For 2018 foreign currency gains were $0.4 million. We recorded foreign currency losses of $3.9 million for 2017. Gains increased by $3.5 million during 2018 due to exchange rate volatility, especially with respect to the euro and Chinese yuan.

Income Tax Expense (Benefit)

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 incurred with the acquisition of Hudson, a portion of which were non-deductible for U.S. federal income tax purposes. 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.

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.

Discontinued Operations

The results from our oxygen-related products business formerly reported in our BioMedical segment, prior to the strategic realignment in the third quarter of 2018, discussed further in Note 4, “Segment and Geographic Information”, are reflected in our consolidated financial statements as discontinued operations for all periods presented. For further information, refer to Note 3, “Discontinued Operations.”

Results of Operations for the Years Ended December 31, 2017 and 2016

Sales in 2017 increased compared to 2016 by $120.9 million or 16.7%, with increases in all of our segments. Sales for Hudson, included in the E&C segment results since the September 20, 2017 acquisition date were $58.0 million for 2017, and incremental sales for Lifecycle were $44.6 million, which includes the Hetsco acquisition. D&S East sales increased by $34.7 million during 2017 primarily due to increased sales in LNG and bulk industrial gas applications. D&S West sales increased by $22.5 million during 2017 primarily due to increased sales in packaged industrial gas applications.

Gross profit increased $21.9 million, while the related margin decreased from 29.0% to 27.5% during 2017 compared to 2016. The decrease was primarily due to several high margin short-lead time replacement equipment sales and contract expiration fees in our E&C segment that did not recur in 2017. The increase in gross profit was primarily a result of the $15.4 million in incremental gross profit added from the Hudson acquisition within our E&C segment. Gross profit further increased as a result of higher volume in our D&S East and D&S West segments.

SG&A expenses for 2017 were $180.9 million, or 21.5% of sales, compared to $158.7 million, or 22.0% of sales, for 2016, representing an increase of $22.2 million. The increase in SG&A expenses is due to Hudson and Lifecycle incremental expenses of $5.7 million and $2.5 million, respectively. Additionally, Corporate incurred $10.1 million in transaction-related costs. Restructuring expenses classified as SG&A expenses increased $2.5 million over 2016 as further discussed below.

Restructuring costs of $11.2 million in 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. Restructuring costs of $9.5 million in 2016 were recorded in cost of sales ($3.5 million) and SG&A ($6.0 million).

Interest Expense, Net and Financing Costs Amortization

Net interest expense for 2017 and 2016 was $17.3 million and $15.1 million, respectively. Interest expense for 2017 included $4.3 million of 2.0% cash interest and $11.8 million of non-cash interest accretion expense related to the carrying value of the 2018 Notes and $0.4 million of 1.0% cash interest and $1.1 million of non-cash interest accretion expense related to the carrying value of the 2024 Notes. Interest expense also included $2.7 million in interest related to borrowings on our senior secured revolving credit facility 2017. For 2017 and 2016, financing costs amortization was $1.3 million for both periods.

Loss on Extinguishment of Debt

On November 6, 2017, we repurchased $192.9 million principal of our $250.0 million 2018 Notes for total consideration of $195.9 million in cash, which included $1.0 million of accrued interest and $194.9 million for the notes. The amount by which total consideration exceeded the fair value of the 2018 Notes was recorded as a reduction of additional paid-in capital. The loss from early extinguishment of the 2018 Notes and refinance of our senior secured revolving credit facility was $4.9 million in 2017.

Foreign Currency Loss

For 2017 and 2016, foreign currency losses were $3.9 million and $0.5 million, respectively. Losses decreased by $3.4 million during 2017 due to reduced exchange rate volatility, especially with respect to the euro.

Income Tax (Benefit) Expense

Income tax benefit for 2017 was $16.6 million compared to income tax expense of $10.6 million for 2016 and represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of (149.5)% and 44.0%, respectively. The 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 effective income tax rate of 44.0% in 2016 differed from the federal corporate tax rate of 35% primarily due to valuation allowances recorded against current and accumulated operating losses incurred by certain of our foreign operations (primarily China) for which no benefit was recorded.

Net Income from Continuing Operations

As a result of the foregoing, net income from continuing operations attributable to Chart was $26.2 million and $17.0 million for 2017 and 2016, respectively.

Segment Results for the Years Ended December 31, 2018, 2017 and 2016

Our reportable and operational segments include: E&C, D&S West and D&S East. Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, and risk management. Corporate support functions are not currently allocated to the segments. For further information, refer to Note 4, “Segment and Geographic Information.” of our consolidated financial statements included elsewhere in this report. 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, 2018, 2017 and 2016 (dollars in millions):

Energy & Chemicals

Results of Operations for the Years Ended December 31, 2018 and 2017



	Year Ended December 31,						2018 vs. 2017
	2018			2017			Variance ($)		Variance (%)
Sales	$	390.5		$	225.6		$	164.9	73.1	%
Gross Profit	89.2			45.1			44.1		97.8	%
Gross Profit Margin	22.8		%	20.0		%
SG&A Expenses	$	48.1		$	34.3		$	13.8	40.2	%
SG&A Expenses (% of Sales)	12.3		%	15.2		%
Operating Income	$	25.5		$	5.1		$	20.4	400.0	%
Operating Margin	6.5		%	2.3		%

For the year 2018, E&C segment sales increased as compared to 2017. Sales for Hudson, included in the E&C segment results since the September 20, 2017 acquisition date were $180.3 million and $58.0 million for 2018 and 2017, respectively. Sales for VRV, included in E&C segment results since the November 15, 2018 acquisition date, were $3.8 million for the year ended December 31, 2018. Excluding the impact from Hudson and VRV, sales increased by $38.8 million, which was driven primarily by growth in air cooled heat exchangers within NGL and petrochemical applications.

Excluding the impact of the VRV and Hudson acquisitions, E&C segment gross profit increased by $11.0 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 2.8 percentage points (2.0 percentage points organically), primarily due to an increase in high margin short lead-time replacement equipment.

E&C segment 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). SG&A expenses for VRV were $0.7 million in 2018. Excluding the impact of the VRV and Hudson acquisitions, SG&A expenses increased by $0.3 million during 2018.

Results of Operations for the Years Ended December 31, 2017 and 2016



	Year Ended December 31,						2017 vs. 2016
	2017			2016			Variance ($)			Variance (%)
Sales	$	225.6		$	154.3		$	71.3		46.2	%
Gross Profit	45.1			44.9			0.2			0.4	%
Gross Profit Margin	20.0		%	29.1		%
SG&A Expenses	$	34.3		$	29.4		$	4.9		16.7	%
SG&A Expenses (% of Sales)	15.2		%	19.1		%
Operating Income	$	5.1		$	13.3		$	(8.2	)	(61.7	)%
Operating Margin	2.3		%	8.6		%

During 2017, E&C segment sales increased as compared to 2016. The increase was primarily driven by increases in U.S. shale and associated gas, which drove natural gas processing plant activity throughout 2017, the Hudson acquisition, which added $58.0 million of sales in 2017, and incremental sales increases in our Lifecycle business of $44.6 million, which included the Hetsco acquisition.

E&C gross profit increased slightly while the related margin decreased during 2017 as compared to 2016. The increase in gross profit was primarily driven by Hudson and growth in Lifecycle which added incremental gross profit of $15.4 million and $5.2 million, respectively, during 2017. Included in 2016 were several short lead-time orders and contract expiration fees which contributed approximately $38.7 million of gross profit in 2016 and improved the gross margin by 25.1 percentage points for the year.

E&C segment SG&A expenses increased mainly as a result of the Hudson acquisition which added $5.7 million to SG&A expenses during 2017 and incremental SG&A expenses from Lifecycle of $2.5 million during 2017.

D&S West

Results of Operations for the Years Ended December 31, 2018 and 2017



	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 West segment sales increased during the full year 2018 as compared to 2017 primarily due to an increase in sales within packaged gas industrial applications. As previously discussed, cryobiological storage is now included in the D&S West segment.

D&S West segment gross profit increased during the full year 2018 as compared to 2017 mainly driven by higher volume 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.

D&S West segment SG&A expenses decreased during the full year 2018 as compared to 2017 mainly due to cost based saving measures taken during the period as well as share-based compensation forfeiture credits related to the strategic realignment of 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.

Results of Operations for the Years Ended December 31, 2017 and 2016



	Year Ended December 31,						2017 vs. 2016
	2017			2016			Variance ($)		Variance (%)
Sales	$	400.6		$	378.1		$	22.5	6.0	%
Gross Profit	141.8			132.5			9.3		7.0	%
Gross Profit Margin	35.4		%	35.0		%
SG&A Expenses	$	52.0		$	51.5		$	0.5	1.0	%
SG&A Expenses (% of Sales)	13.0		%	13.6		%
Operating Income	$	85.2		$	75.6		$	9.6	12.7	%
Operating Margin	21.3		%	20.0		%

D&S West segment sales increased during 2017 as compared to 2016 by $22.5 million mainly attributable to higher sales within liquefied natural gas applications and packaged gas industrial applications and cryobiological storage, partially offset by lower sales within bulk industrial gas applications.

D&S West segment gross profit increased during 2017 as compared to 2016 mainly driven by higher volume in packaged gas industrial applications. The related margin increased mainly due to improved product mix.

D&S West segment SG&A expenses increased during the full year 2017 as compared to 2016 by $0.5 million due to higher employee-related costs.

D&S East

Results of Operations for the Years Ended December 31, 2018 and 2017



	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		%

During 2018, D&S East segment sales increased $14.0 million compared to 2017, which was primarily driven by the inclusion of VRV sales of $10.3 million for the six weeks of ownership, and the remaining increase driven by strength across all product applications.

During the full year 2018, D&S East segment gross profit increased $4.1 million as compared to 2017 primarily 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.

D&S East segment SG&A expenses decreased during the year 2018 as compared to 2017 by $1.4 million primarily due to the inclusion of additional commissions expense as a result of a litigation award in China, which are reflected in 2017 results.

Results of Operations for the Years Ended December 31, 2017 and 2016



	Year Ended December 31,						2017 vs. 2016
	2017			2016			Variance ($)		Variance (%)
Sales	$	232.3		$	197.6		$	34.7	17.6	%
Gross Profit	48.3			34.4			13.9		40.4	%
Gross Profit Margin	20.8		%	17.4		%
SG&A Expenses	$	33.0		$	31.9		$	1.1	3.4	%
SG&A Expenses (% of Sales)	14.2		%	16.1		%
Operating Income	$	14.2		$	0.3		$	13.9	4,633.3	%
Operating Margin	6.1		%	0.2		%

For the full year 2017, D&S East segment sales increased as compared to 2016, which was primarily driven by lower sales related to liquefied natural gas applications sales in Europe partially offset by increased sales in bulk industrial gas applications and vehicle tanks.

During the full year 2017, D&S East segment gross profit and the related margin percentage increased as compared to 2016 mainly due to higher volume, and the related margin increased, especially in China, primarily due to improved execution.

D&S East segment SG&A expenses during the full year 2017, increased by $1.1 million as compared to 2016 primarily due to additional commissions expense as a result of a litigation award in China in 2017 partially offset by lower bad debt expense in 2017 driven by successful accounts receivable collection activities in China.

Corporate

Corporate SG&A expenses decreased by $10.4 million during 2018 as compared 2017 primarily due to prior restructuring activities and lower transaction-related costs. Corporate SG&A expenses in 2018 included transaction-related 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 driven by the Hudson acquisition. The overall decrease in Corporate SG&A expenses was

also driven by a $5.7 million decrease in share-based compensation expense. Share-based compensation expense included the acceleration of expense based on retirement eligibility provisions as a greater mix of share-based awards satisfied these provisions during 2017 as compared to 2018. Furthermore, we incurred net severance costs of $1.4 million related to the departure of our former CEO, which includes $3.2 million in payroll severance costs partially offset by a $1.8 million credit due to related share-based compensation forfeitures for 2018.

Corporate SG&A expenses increased by $15.7 million during 2017 as compared 2016 primarily due to $10.1 million in transaction-related costs, and $6.0 million in corporate restructuring costs in 2017 compared to $4.2 million in 2016 attributable to the relocation of our corporate offices to Ball Ground, Georgia.

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, 2018, 2017 and 2016 was $568.2 million, $446.4 million and $326.2 million, respectively.

The tables below represent orders received and backlog by segment for the periods indicated (dollar amounts in millions):



	Year Ended December 31,
	2018		2017		2016
Orders
Energy & Chemicals	$	388.0	$	243.6	$	110.2
D&S West	477.4		407.1		374.3
D&S East	277.0		210.8		223.9
Consolidated	$	1,142.4	$	861.5	$	708.4

	As of December 31,
	2018		2017		2016
Backlog
Energy & Chemicals	$	253.0	$	210.9	$	99.8
D&S West	129.8		118.6		114.2
D&S East	185.4		116.9		112.2
Consolidated	$	568.2	$	446.4	$	326.2

Orders and Backlog for the Year Ended and As of December 31, 2018 Compared to the Year Ended and As of December 31, 2017

Orders for 2018 were $1,142.4 million compared to $861.5 million for 2017, representing an increase of $280.9 million, or 32.6% (11.7% organically), and set multiple annual order records. Consolidated orders include $11.2 million in orders related to VRV (E&C: $2.5 million, D&S East: $8.7 million) for the year ended December 31, 2018. Consolidated backlog includes $81.6 million in backlog related to VRV (E&C: $39.3 million, D&S East: $42.3 million) as of December 31, 2018.

E&C segment orders for 2018 were $388.0 million compared to $243.6 million for 2017, an increase of $144.4 million. E&C 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 well as orders related to VRV for 2018 as discussed above. Included in 2018 orders was a $28 million order for our Hudson Products air cooled heat exchangers on a large LNG project, as well as a $13 million order for equipment for a natural gas liquids fractionation project. These orders shipped partially in 2018, and the remainder will ship in 2019. Excluding Hudson and VRV, E&C orders decreased by $30.5 million, which was primarily driven by the inclusion of large equipment orders within our Systems business and Lifecycle Services work for a large plant, which were reflected in 2017 E&C segment orders. Order flow in the E&C segment is historically volatile due to project size and it is not unusual to see order intake change significantly year over year.

E&C segment backlog totaled $253.0 million at December 31, 2018, compared to $210.9 million as of December 31, 2017, an increase of $42.1 million. E&C segment backlog as of December 31, 2018 and December 31, 2017 includes $89.0 million and $65.8 million related to Hudson, respectively. E&C segment backlog as of December 31, 2018 also includes backlog related to VRV as discussed above. Also included in the E&C segment backlog is approximately $40 million related to the previously announced Magnolia LNG order where production release is delayed into late 2019.

D&S West segment orders for 2018 were $477.4 million compared to $407.1 million for 2017, an increase of $70.3 million. 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 million as of December 31, 2017, an increase of $11.2 million.

D&S East segment orders for 2018 were $277.0 million compared to $210.8 million for 2017, an increase of $66.2 million, and includes orders for 2018 related to VRV as discussed above. The increase in D&S East segment orders over the prior year was mainly driven by increases in bulk standard tanks within bulk industrial gas applications and cryogenic trailers, primarily in Europe as demand for LNG fueling stations in Europe is increasing and key customers continue to order LNG fuel systems for over the road trucking. Orders also increased in Asia, especially engineered tanks within bulk industrial gas applications. D&S East segment backlog totaled $185.4 million at December 31, 2018, compared to $116.9 million as of December 31, 2017, an increase of $68.5 million. D&S East segment backlog as of December 31, 2018 also includes backlog related to VRV as discussed above.

Orders and Backlog for the Year Ended and As of December 31, 2017 Compared to the Year Ended and As of December 31, 2016

Orders for 2017 were $861.5 million compared to $708.4 million for 2016, representing an increase of $153.1 million, or 21.6%.

E&C segment orders for 2017 were $243.6 million compared to $110.2 million for 2016, an increase of $133.4 million. E&C segment backlog totaled $210.9 million at December 31, 2017, compared to $99.8 million as of December 31, 2016, an increase of $111.1 million. The increases in orders and backlog were impacted by the inclusion of Hudson since we acquired them on September 20, 2017, the results include $31.3 million of Hudson orders in 2017 and $65.8 million of Hudson backlog. Even considering the impact of Hudson, both E&C’s orders and backlog have increased as natural gas demand, from Petrochemical and LNG export projects drove new gas transmission pipelines creating further opportunities for Chart’s projects. Included in the E&C segment backlog is approximately $40 million related to the previously announced Magnolia LNG order where production release is delayed into early 2019.

D&S West segment orders for 2017 were $407.1 million compared to $374.3 million for 2016, an increase of $32.8 million, or 8.8%. D&S West segment backlog totaled $118.6 million at December 31, 2017 compared to $114.2 million as of December 31, 2016. The increase in D&S West segment orders and backlog was primarily attributable to packaged gas applications and cryobiological storage.

D&S East segment orders for 2017 were $210.8 million compared to $223.9 million for 2016, a decrease of $13.1 million or 5.9%. The decrease in D&S East segment orders was primarily attributable to LNG applications partially offset by an increase in bulk industrial gas applications. D&S East segment backlog totaled $116.9 million at December 31, 2017, compared to $112.2 million as of December 31, 2016.

Liquidity and Capital Resources

Debt Instruments and Related Covenants

2024 Notes: On November 6, 2017, we issued 1.00% Convertible Senior Subordinated Notes due 2024 (the “2024 Notes”), the outstanding aggregate principal amount of such notes being $258.8 million at December 31, 2018. The 2024 Notes bear interest at a fixed rate of 1.0% per year, payable semiannually in arrears on May 15 and November 15 of each year, and will mature on November 15, 2024, unless converted or repurchased. The effective interest rate at issuance, under generally accepted accounting principles, was 4.8%. Upon conversion, it is our intention to settle the principal amount of the 2024 Notes in cash and excess conversion value in shares of our common stock. The initial conversion price of $58.725 per share represents a conversion premium of 35% over the last reported sale price of our common stock on October 31, 2017, the date of the 2024 Notes offering, which was $43.50 per share. The 2024 Notes are classified as long-term liabilities at December 31, 2018. At the end of the fourth quarter of 2018, 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, 2019. There have been no conversions as of the date of this filing. In the event that holders of 2024 Notes elect to convert, we expect to fund any cash settlement of any such conversion from cash balances or borrowings under our senior

secured revolving credit facility. As discussed in Note 9, “Debt and Credit Arrangements,” of our consolidated financial statements located elsewhere in this report, we entered into privately-negotiated convertible note hedge transactions related to the 2024 Notes, which are expected to reduce the potential dilution upon any future conversion of the 2024 Notes.

2018 Notes: On August 1, 2018, our 2.00% Convertible Senior Subordinated Notes due August 2018 (the “2018 Notes”) matured. The aggregate outstanding principal was $57.1 million at August 1, 2018, and during the year ended December 31, 2018, we settled upon maturity the 2018 Notes for total cash consideration of $57.1 million.

Senior Secured Revolving Credit Facility: On October 26, 2018, we amended our five-year senior secured revolving credit facility (the “SSRCF”), which matures on November 3, 2022, to among other things, increase the size of the facility from $450.0 million to $550.0 million. As so amended, the SSRCF includes a $25.0 million sub-limit for the issuance of swingline loans and a $100.0 million base sub-limit along with a $100.0 million discretionary sub-limit to be used for letters of credit. There is a foreign currency limit of $250.0 million under the SSRCF which can be used for foreign currency denominated letters of credit and borrowings in a foreign currency, in each case in currencies agreed upon with the lenders. In addition, the facility permits borrowings up to a $250.0 million sub-limit to be made by our wholly-owned subsidiaries, Chart Industries Luxembourg S.à r.l. (“Chart Luxembourg”) and Chart Asia Investment Company Limited (“Chart Asia”). The SSRCF also includes an expansion option permitting us to add up to an aggregate $225.0 million in term loans or revolving credit commitments from its lenders. Loans under the SSRCF bear interest at either (a) the Adjusted Base Rate, or (b) the Adjusted LIBOR (each as discussed in Note 9, “Debt and Credit Arrangements,” of our consolidated financial statements located elsewhere in this report), plus, in each case, a margin that varies with our leverage ratio. Significant financial covenants for the SSRCF include a leverage ratio and an interest coverage ratio. At December 31, 2018, there were $329.3 million in borrowings outstanding under the SSRCF, bearing interest at 4.1% on a weighted-average basis and $47.6 million in letters of credit and bank guarantees supported by the SSRCF. At December 31, 2018 the SSRCF had availability of $173.1 million. We were in compliance with all covenants, including its financial covenants, at December 31, 2018.

Foreign Facilities – China: Chart Cryogenic Engineering Systems (Changzhou) Company Limited (“CCESC”), a wholly-owned subsidiary of the Company, CAIRE Medical Technology (Chengdu) Co., Ltd. (formerly known as Chart BioMedical (Chengdu) Co., Ltd., a wholly-owned subsidiary of the Company, and Chart Cryogenic Distribution Equipment (Changzhou) Company Limited (“CCDEC”), a joint venture of Company, maintain joint banking facilities (the “China Facilities”) which include a revolving facility with 50.0 million Chinese yuan (equivalent to $7.3 million) in borrowing capacity which can be utilized for either revolving loans, bonds/guarantees, or bank draft acceptances. Any borrowings made by CCESC, CCDEC or Chengdu under the China Facilities are guaranteed by Company. At December 31, 2018, there were 33.5 million Chinese yuan (equivalent to $4.9 million) outstanding under this facility bearing interest at 5.00%.

Chart Cryogenic Distribution Equipment (Changzhou) Company Limited (“CCDEC”), a joint venture of Company maintained an unsecured credit facility whereby CCDEC was able to borrow up to 70.0 million Chinese yuan (equivalent to $10.2 million) for working capital purposes. This facility is effective until August 28, 2019. There were no borrowings under this facility during its term.

CCESC has a term loan that is secured by certain CCESC land use rights and allows for up to 86.6 million Chinese yuan (equivalent to $12.6 million) in borrowings. The loan has a term of eight years with semi-annual installment payments of at least 10.0 million Chinese yuan and a final maturity date of May 26, 2024. At December 31, 2018, there was 6.6 million Chinese yuan (equivalent to $1.0 million) outstanding on this loan, bearing interest at 5.39%.

CCESC and CCDEC, together, had a combined total of 13.0 million Chinese yuan (equivalent to $1.9 million), in bank guarantees at December 31, 2018 under the China Facilities, unsecured credit facility and term loan discussed above.

Foreign Facilities – India: VRV Asia Pacific Private Limited, a wholly-owned subsidiary of the Company, maintains a secured credit facility with capacity of up to 600.0 million Indian rupees (equivalent to $8.6 million), which can be utilized for overdraft facilities, working capital demand loans, bank guarantees, letters of credit, or export packing credits. At December 31, 2018, there was 368.9 million Indian rupees (equivalent to $5.3 million) outstanding as overdraft facilities, working capital demand loans, and export packing credits bearing interest at 8.24%. At December 31, 2018, there was 144.0 million Indian rupees (equivalent to $2.1 million) outstanding as letters of credit and bank guarantees which are not subject to interest charges.

Foreign Facilities – Europe: Chart Ferox, a.s. (“Ferox”), a wholly-owned subsidiary of the Company, maintains a secured credit facility with capacity of up to 135.0 million Czech koruna (equivalent to $6.0 million) and two secured credit facilities with capacity of up to 7.0 million euros (equivalent to $8.0 million). All three facilities (the “Ferox Credit Facilities”) allow Ferox to request bank guarantees and letters of credit. None of these facilities allow revolving credit borrowings. Under two of the facilities, Ferox must pay letter of credit and guarantee fees equal to 0.70% per annum on the face amount of each guarantee or letter of credit, and under one facility, Ferox must pay the letter of credit and guarantee fees equal to 0.50%. Ferox’s land, buildings, and

cash collateral secure the credit facilities. At December 31, 2018, there were bank guarantees of 166.3 million Czech koruna (equivalent to $7.4 million) supported by the Ferox Credit Facilities.

Chart Luxembourg maintains an overdraft facility with $5.0 million in borrowing capacity. There were no borrowings under the Chart Luxembourg facility as of December 31, 2018.

Our debt and related covenants are further described in Note 9, “Debt and Credit Arrangements,” of our consolidated financial statements included elsewhere in this report.

Sources and Uses of Cash

Our cash and cash equivalents totaled $118.1 million as of December 31, 2018, a decrease of $4.5 million from the balance at December 31, 2017. Our foreign subsidiaries held cash of approximately $71.4 million and $110.5 million at December 31, 2018 and December 31, 2017, respectively, to meet their liquidity needs. No material restrictions exist to accessing cash held by our foreign subsidiaries. We expect to meet our U.S. funding needs without repatriating non-U.S. cash and incurring incremental U.S. taxes. Cash equivalents are primarily invested in money market funds that invest in high quality, short-term instruments, such as U.S. government obligations, certificates of deposit, repurchase obligations, and commercial paper issued by corporations that have been highly rated by at least one nationally recognized rating organization, and in the case of cash equivalents in China, obligations of local banks. We believe that our existing cash and cash equivalents, funds available under our SSRCF or other financing alternatives, and cash provided by operations will be sufficient to meet our normal working capital needs and investments in properties, facilities, and equipment for the foreseeable future.

Years Ended December 31, 2018 and 2017

Cash provided by operating activities during 2018 was $119.0 million, an increase of $74.7 million from 2017, largely due to higher net income.

Cash used in investing activities was $260.6 million and $477.8 million during 2018 and 2017, respectively. During 2018, we used $225.8 million of cash for the VRV and Skaff acquisitions (euro 188.7 million or $213.3 million equivalent and $12.5, respectively) and $35.6 million for capital expenditures mainly related to the capacity expansion 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. See below for discussion regarding the composition of cash used in investing activities during 2017.

Cash provided by financing activities during 2018 and 2017 was $38.2 million and $275.2 million, respectively. During 2018, we borrowed $405.4 million on our SSRCF (euro 140.0 million or $160.3 million equivalent plus $245.1 million) mainly to fund the VRV and Skaff acquisitions, the settlement of the 2018 Notes and working capital needs. We repaid $315.1 million in SSRCF borrowings during 2018 (euro 55.0 million $63.0 million equivalent plus $252.1 million). We also borrowed 40.0 million Chinese yuan (equivalent to $6.3 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 the CCESC term loan. We received $10.8 million in proceeds from stock option exercises and used $2.7 million for the purchase of common stock which was surrendered to cover tax withholding elections during 2018. See below for discussion regarding the composition of cash provided by financing activities during 2017.

Years Ended December 31, 2017 and 2016

Cash provided by operating activities during 2017 was $44.3 million, a decrease of $125.0 million from 2016, largely due to increases in working capital, due to higher accounts receivables and inventory, driven by higher sales and increases in operations. Cash provided by operating activities during 2016 was $169.3 million, largely due to improvements in working capital, including greater cash collections during 2016, and reductions in inventory. Also, 2016 cash flows reflect the $16.7 million receipt of the representation and warranty insurance recovery proceeds.

Cash used in investing activities was $477.8 million and $17.0 million during 2017 and 2016, respectively. During 2017, we used $446.1 million of cash for the Hudson, Hetsco and VCT acquisitions ($419.5 million, $23.2 million and $3.4 million, respectively) and $33.0 million for capital expenditures, partially offset by $1.3 million of cash provided by the sale of assets and government grants. Cash used in investing activities in 2016 was primarily for capital expenditures.

Cash provided by financing activities during 2017 and 2016 was $275.2 million and $7.7 million, respectively. During 2017 we borrowed $236.1 million (net of repayments) from our revolving credit facilities. We received proceeds from the issuance of convertible notes and warrants of $304.8 million of which $194.9 million was used to repay a portion of the previously issued 2018 Notes and $59.5 million to purchase a bond hedge related to the 2024 Notes. We also made $8.2 million in payments for debt issuance costs related to the 2024 Notes and SSRCF. Also during 2017, we received $2.0 million in proceeds from stock option exercises, and we used $2.0 million for the purchase of common stock which was surrendered to cover tax withholdings

during 2017. During 2016, we borrowed 111.6 million Chinese yuan (equivalent to $17.0 million) and repaid 60.0 million Chinese yuan (equivalent to $9.0 million) on our China Facilities. Also during 2016, we received $0.4 million in proceeds from stock option exercises, and we used $0.7 million for the purchase of common stock which was surrendered to cover tax withholdings during 2016.

Inventories, net

Our inventories, net, balance was $233.1 million at December 31, 2018 compared to $173.7 million at December 31, 2017, representing an increase of $59.4 million. The VRV acquisition added $49.0 million to our inventories, net balance at December 31, 2018. The VRV acquisition is further described in Note 12, “Business Combinations,” to our consolidated financial statements included elsewhere in this report.

Cash Requirements

We do not currently anticipate any unusual cash requirements for working capital needs for the year ending December 31, 2019. 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 2019 to be in the range of $35.0 million to $40.0 million.

Contractual Obligations

Our known contractual obligations as of December 31, 2018 and cash requirements resulting from those obligations are as follows (all dollar amounts in millions):



	Payments Due by Period
	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years

Gross debt ⁽¹⁾	$	599.3	$	11.2	$	—	$	329.3	$	258.8
Contractual convertible notes interest	15.6		5.2		5.2		5.2		—
Operating leases	39.6		7.9		12.6		9.9		9.2
Pension obligations ⁽²⁾	6.0		0.4		2.3		3.3		—
Tax Cuts and Jobs Act tax liability	2.2		0.3		0.5		0.5		0.9
Total contractual cash obligations	$	662.7	$	25.0	$	20.6	$	348.2	$	268.9

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⁽¹⁾	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.

Not included in the table above are contingent consideration arrangements from prior acquisitions with a potential payout range of $0.0 million to $11.3 million.

Our commercial commitments as of December 31, 2018, which include standby letters of credit and bank guarantees, represent potential cash requirements resulting from contingent events that require performance by us or our subsidiaries pursuant to funding commitments, and are as follows (all dollar amounts in millions):



	Total		Expiring in 2019		Expiring in 2020 and beyond
Standby letters of credit	$	35.4	$	10.5	$	24.9
Bank guarantees	23.6		14.8		8.8
Total commercial commitments	$	59.0	$	25.3	$	33.7

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.