CHART INDUSTRIES, INC. The following discussion of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements. Actual results may differ materially from those discussed below. See "Forward-Looking Statements" at the end of this discussion and Item 1A. "Risk Factors" for a discussion of the uncertainties, risks and assumptions associated with this discussion. Overview We are a leading independent global manufacturer of highly engineered equipment servicing multiple applications in theClean Energy and Industrial Gas markets. Our unique product portfolio is used in every phase of the liquid gas supply chain, including upfront engineering, service and repair. Being at the forefront of the clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas and CO2 Capture amongst other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With over 25 global locations fromthe United States toAsia ,Australia ,India ,Europe andSouth America , we maintain accountability and transparency to our team members, suppliers, customers and communities. Covid-19 Update The outbreak and continued uncertainty associated with the coronavirus (Covid-19) did not have a material adverse effect on our reported results for the first three months of 2021, however, we continue to actively monitor the impact of the Covid-19 outbreak on our results of operations for the remainder of 2021 and beyond. The extent to which our operations will be impacted by the outbreak will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity, or reemergence, of the outbreak and actions by government authorities to contain the outbreak or treat its impact, among other things. First Quarter 2021 Highlights Orders of$417.2 million were the highest in our history (excluding big LNG), driven by broad based demand including a recovery in certain end markets, continued demand for our clean products supporting the strongest current macroeconomic trend of sustainability, and the combination of larger liquefaction orders for LNG and hydrogen. Total orders increased across three out of four of our segments during the first quarter 2021 as compared to the first quarter 2020. This continued record level order activity contributed to record ending total backlog as ofMarch 31, 2021 of$934.1 million compared to$723.3 million as ofMarch 31, 2020 and$810.0 million as ofDecember 31, 2020 , representing an increase of$210.8 million or 29.1% and$124.1 million or 15.3%, respectively. These increases were largely driven by record orders in our Specialty Products segment mainly driven by orders in hydrogen equipment, HLNG vehicle tanks, lasers and LNG regasification applications. Specialty Products segment backlog was$270.5 million as ofMarch 31, 2021 as compared to$130.3 million and$199.7 million as ofMarch 31, 2020 andDecember 31, 2020 , respectively. Although consolidated sales decreased to$288.5 million in the first quarter 2021 from$301.9 million in the first quarter 2020, which was mainly driven by volume softness in our Heat Transfer Systems segment and the timing of the recognition of certain orders into the second quarter, sales increased in the remaining three segments led by a$24.4 million or 46.1% increase in Specialty Products segment sales. Furthermore, first quarter 2021 gross margin as a percent of sales of 29.1% increased from 27.3% in the first quarter of 2020 and from 28.1% in the prior quarter. The increase in margin as a percent of sales in the current quarter over first quarter of 2020 was primarily driven by our Repair, Service & Leasing segment mainly on lower costs in our repair facilities. The improvement in gross margin as a percentage of sales compared to the prior quarter was primarily driven by favorable product mix in cannabis and space-related products within our Specialty products segment as well as favorable execution, especially inChina . Consolidated selling, general and administrative ("SG&A") expenses as a percentage of consolidated sales in the first quarter of 2021 increased by 2.9% as compared to the prior quarter primarily driven by ramp up in our Specialty Products business and decreased by 1.4% compared to the first quarter of 2020 based on the effect of cost reduction actions we took in 2020. Outlook Our 2021 full year outlook reflects execution on the clean energy transition including recovery in air cooled heat exchangers related to growth in CO2 Capture applications, small scale LNG opportunities and growth in our Specialty Products business, especially in water treatment, over the road trucking and hydrogen applications driven by strength in first quarter orders, including specific liquefaction projects and commercial opportunities increasing from our inorganic investments and acquisition completed in the past six months. 28
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Our 2021 sales outlook is inclusive of$6.4 million ofVenture Global's Calcasieu Pass revenue for the remainder of 2021 as well as$30 million of 2021 revenue from the acquisition of Cryo Technologies. There is no additional Big LNG revenue included in our outlook although we currently anticipate that at least one order will be received during the year. We continue to invest in our automation, process improvement, and productivity activities across Chart, with total anticipated 2021 capital expenditures spend of$40.0 million to$50.0 million . 29
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Consolidated Results for the Three Months EndedMarch 31, 2021 and 2020, andDecember 31, 2020 The following table includes key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the three months endedMarch 31, 2021 and 2020 andDecember 31, 2020 (dollars in millions). Financial data for the three months endedDecember 31, 2020 has been included to provide additional information regarding our business trends on a sequential quarter basis. Selected Financial Information Current Quarter vs. Current Quarter vs. Three Months Ended Prior Year Same Quarter Prior Sequential Quarter December 31, Variance Variance Variance Variance March 31, 2021 March 31, 2020 2020 ($) (%) ($) (%) Sales Cryo Tank Solutions$ 103.9 $ 98.0 $ 110.5 $ 5.9 6.0 %$ (6.6) (6.0) % Heat Transfer Systems 69.2 112.9 78.9 (43.7) (38.7) % (9.7) (12.3) % Specialty Products 77.3 52.9 85.1 24.4 46.1 % (7.8) (9.2) % Repair, Service & Leasing 41.4 40.7 41.0 0.7 1.7 % 0.4 1.0 % Intersegment eliminations (3.3) (2.6) (3.1) (0.7) 26.9 % (0.2) 6.5 % Consolidated$ 288.5 $ 301.9 $ 312.4 $ (13.4) (4.4) %$ (23.9) (7.7) % Gross Profit Cryo Tank Solutions$ 25.2 $ 24.1 $ 24.0 $ 1.1 4.6 %$ 1.2 5.0 % Heat Transfer Systems 15.8 26.1 19.5 (10.3) (39.5) % (3.7) (19.0) % Specialty Products 28.2 20.3 26.5 7.9 38.9 % 1.7 6.4 % Repair, Service & Leasing 14.7 11.8 17.9 2.9 24.6 % (3.2) (17.9) % Consolidated$ 83.9 $ 82.3 $ 87.9 $ 1.6 1.9 %$ (4.0) (4.6) % Gross Profit Margin Cryo Tank Solutions 24.3 % 24.6 % 21.7 % Heat Transfer Systems 22.8 % 23.1 % 24.7 % Specialty Products 36.5 % 38.4 % 31.1 % Repair, Service & Leasing 35.5 % 29.0 % 43.7 % Consolidated 29.1 % 27.3 % 28.1 % SG&A Expenses Cryo Tank Solutions $ 8.9$ 11.1 $ 11.6 $ (2.2) (19.8) %$ (2.7) (23.3) % Heat Transfer Systems 7.0 11.2 8.2 (4.2) (37.5) % (1.2) (14.6) % Specialty Products 9.1 6.1 6.4 3.0 49.2 % 2.7 42.2 % Repair, Service & Leasing 4.4 4.4 4.1 - - % 0.3 7.3 % Corporate 16.8 19.7 10.7 (2.9) (14.7) % 6.1 57.0 % Consolidated$ 46.2 $ 52.5 $ 41.0 $ (6.3) (12.0) %$ 5.2 12.7 % SG&A Expenses (% of Sales) Cryo Tank Solutions 8.6 % 11.3 % 10.5 % Heat Transfer Systems 10.1 % 9.9 % 10.4 % Specialty Products 11.8 % 11.5 % 7.5 % Repair, Service & Leasing 10.6 % 10.8 % 10.0 % Consolidated 16.0 % 17.4 % 13.1 % 30
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Current Quarter vs. Current Quarter vs.
Three Months Ended Prior Year Same Quarter Prior Sequential Quarter
December 31, Variance Variance Variance Variance
March 31, 2021 March 31, 2020 2020 ($) (%) ($) (%)
Operating Income (Loss) (1)
Cryo Tank Solutions $ 15.6 $ 11.6 $ 11.2 $ 4.0 34.5 % $ 4.4 39.3 %
Heat Transfer Systems (2) 3.9 5.5 (9.9) (1.6) (29.1) % 13.8 (139.4) %
Specialty Products (3) 17.9 13.8 19.9 4.1 29.7 % (2.0) (10.1) %
Repair, Service & Leasing 8.3 4.6 12.1 3.7 80.4 % (3.8) (31.4) %
Corporate (4) (5) (16.8) (19.7) (10.8) 2.9 (14.7) % (6.0) 55.6 %
Consolidated $ 28.9 $ 15.8 $ 22.5 $ 13.1 82.9 % $ 6.4 28.4 %
Operating Margin
Cryo Tank Solutions 15.0 % 11.8 % 10.1 %
Heat Transfer Systems 5.6 % 4.9 % (12.5) %
Specialty Products 23.2 % 26.1 % 23.4 %
Repair, Service & Leasing 20.0 % 11.3 % 29.5 %
Consolidated 10.0 % 5.2 % 7.2 %
_______________
(1)Restructuring costs (credits) for the three months ended:
•March 31, 2021 were $0.7 ($0.3 - Cryo Tank Solutions, $0.4 - Heat Transfer
Systems).
•March 31, 2020 were $5.2 ($1.8 - Cryo Tank Solutions, $2.8 - Heat Transfer
Systems, and $0.6 Corporate).
•December 31, 2020 were $0.9 ($0.1 - Cryo Tank Solutions, $0.6 - Heat Transfer
Systems, $0.3 - Specialty Products, and $(0.1) - Corporate).
(2)Includes $16.0 impairment of our trademarks and trade names indefinite-lived
intangible assets related to the AXC business in our Heat Transfer Systems
segment for the three months ended December 31, 2020 .
(3)Includes acquisition-related contingent consideration adjustments of $0.8 in
our Specialty Products segment for the three months ended March 31, 2021 .
(4)Includes transaction-related costs of $4.3 for the three months ended March
31, 2020 .
(5)Includes transaction-related costs of $2.6 for the three months ended
December 31, 2020 , which were mainly related to the Sustainable Energy
Solutions, Inc. , BlueInGreen, LLC and Alabama Trailers acquisitions.
Results of Operations for the Three Months Ended March 31, 2021 and 2020, and
December 31, 2020
Sales for the first quarter of 2021 compared to the same quarter in 2020
decreased $13.4 million , from $301.9 million to $288.5 million , or 4.4%. The
decrease in sales was primarily driven by the continued softness in demand for
midstream and upstream compression equipment within our Heat Transfer Systems
segment, partially offset by an increase in Specialty Products segment sales.
Furthermore, Cryo Tank Solutions sales increased in the first quarter of 2021 as
compared to the first quarter of 2020. First quarter 2020 Cryo Tank Solutions
sales were negatively impacted by the Covid-19 outbreak, particularly in Europe
and Asia due to temporary facility shutdowns.
Gross profit increased during the first quarter of 2021 compared to the first
quarter of 2020 by $1.6 million or 1.9%, and first quarter 2021 gross margin as
a percent of sales of 29.1% increased from 27.3% in the first quarter of 2020.
The increase in margin as a percent of sales in the current quarter over first
quarter of 2020 was primarily driven by higher margins associated with our
Repair, Service & Leasing segment mainly on lower costs in our repair facilities
and increasing mix of our higher margined Specialty Products and Repair, Service
& Leasing businesses. Restructuring costs recorded to cost of sales were $0.4
million and $2.3 million for the three months ended March 31, 2021 and 2020,
respectively.
Consolidated SG&A expenses decreased by $6.3 million or 12.0% during the first
quarter of 2021 compared to the same quarter in 2020. Consolidated selling,
general and administrative ("SG&A") expenses as a percentage of consolidated
sales in the first quarter of 2021 increased by 2.9% as compared to the prior
quarter primarily driven by ramp up in our Specialty Products business and
decreased by 1.4% compared to the first quarter of 2020 based on the effect of
cost reduction actions we took in 2020. Restructuring costs recorded to
consolidated SG&A expenses were $0.3 million and $2.9 million for the three
months ended March 31, 2021 and 2020, respectively.
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Interest Expense, Net and Financing Costs Amortization Interest expense, net for the three months endedMarch 31, 2021 and 2020 was$2.0 million and$7.2 million , respectively, representing a decrease of$5.2 million . The decrease in interest expense, net, is primarily due to lower borrowings outstanding on our term loan dueJune 2024 during the first quarter of 2021 as compared to the first quarter of 2020. Furthermore, we no longer recognize interest accretion of convertible notes discount due to a change in accounting principle adopted at the beginning of fiscal year 2021 whereas we recognized$1.9 million in interest accretion expense in the first quarter of 2020. For further information regarding the change in accounting principle, refer to Note 1, "Basis of Preparation" to our unaudited condensed consolidated financial statements included under Item 1, "Financial Statements" in this report. Interest expense for both the three months endedMarch 31, 2021 and 2020 included$0.6 million of 1.0% cash interest expense related to our convertible notes dueNovember 2024 and$1.3 million and$4.8 million , respectively, in interest related to borrowings on our senior secured revolving credit facility and term loan due 2024. Financing costs amortization was$1.2 million for the three months endedMarch 31, 2021 as compared to$1.0 million for the three months endedMarch 31, 2020 .Unrealized (Gain) Loss On Investments In Equity Securities During the first quarter of 2021, we recognized an unrealized gain on investments in equity securities of$3.3 million , which was driven by a$5.9 million unrealized gain on the mark-to-market adjustment of our investment in Stabilis, partially offset by a$2.6 million unrealized loss on the mark-to-market adjustment of our investment in McPhy. We recognized an unrealized loss on investments in equity securities of$4.8 million in the first quarter of 2020 which was driven by a$4.8 million unrealized loss on the mark-to-market adjustment of our investment in Stabilis. Foreign Currency (Gain) Loss and Other For the three months endedMarch 31, 2021 foreign currency gain was zero as compared to foreign currency gain of$0.3 million for the three months endedMarch 31, 2020 . The variance between periods was primarily driven by fluctuations in theU.S dollar as compared to the euro and Chinese yuan. Income Tax Expense Income tax expense of$3.1 million and$0.4 million for the three months endedMarch 31, 2021 and 2020, respectively, represents taxes on bothU.S. and foreign earnings at a combined effective income tax rate of 10.6% and 16.0%, respectively. The effective income tax rate of 10.6% for the three months endedMarch 31, 2021 differed from theU.S. federal statutory rate of 21% primarily due to losses incurred by some of our foreign operations for which no benefit was recorded, partially offset by the effect of income earned by our certain foreign entities being taxed at higher rates than theU.S. federal statutory rate and excess tax benefits associated with share-based compensation. The effective income tax rate of 16.0% for the three months endedMarch 31, 2020 differed from theU.S. federal statutory rate of 21% primarily due to losses incurred by certain of our foreign operations for which no benefit was recorded, partially offset by the effect of income earned by certain of our foreign entities being taxed at higher rates than theU.S. federal statutory rate and excess tax benefits associated with share-based compensation. Net Income from Continuing Operations As a result of the foregoing, net income attributable to Chart for the three months endedMarch 31, 2021 and 2020 was$25.6 million and$2.1 million , respectively. Discontinued Operations The results from our cryobiological related products business formerly reported in our Distribution & Storage Western Hemisphere segment are reflected in our condensed consolidated financial statements as discontinued operations for the three months endedMarch 31, 2020 . For further information, refer to Note 2, "Discontinued Operations" of our unaudited condensed consolidated financial statements included under Item 1, "Financial Statements" in this report. Segment Results for the Three Months EndedMarch 31, 2021 and 2020 Our reportable and operational segments include: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products, and Repair, Service & Leasing. Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, and risk management. Corporate support functions are not currently allocated to the segments. For further information, refer to Note 3, "Reportable Segments" note of our unaudited condensed consolidated financial statements included under Item 1, "Financial Statements" in this report. The following tables include key metrics used to evaluate our business and measure our performance and represents 32
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selected financial data for our operating segments for the three months endedMarch 31, 2021 and 2020 (dollars in millions): Cryo Tank Solutions Current Quarter vs. Three Months Ended Prior Year Same Quarter Variance Variance March 31, 2021 March 31, 2020 ($) (%) Sales$ 103.9 $ 98.0 $ 5.9 6.0 % Gross Profit 25.2 24.1 1.1 4.6 % Gross Profit Margin 24.3 % 24.6 % SG&A Expenses $ 8.9$ 11.1 $ (2.2) (19.8) % SG&A Expenses (% of Sales) 8.6 % 11.3 % Operating Income $ 15.6$ 11.6 $ 4.0 34.5 % Operating Margin 15.0 % 11.8 % For the first quarter of 2021, Cryo Tank Solutions sales increased by$5.9 million as compared to the same quarter in 2020 primarily due to higher volume in engineered systems globally and higher sales in storage equipment. Cryo Tank Solutions sales in the first quarter of 2020 were negatively impacted by the Covid-19 outbreak, particularly inEurope andAsia due to temporary facility shutdowns. During the first quarter of 2021, Cryo Tank Solutions segment gross profit increased by$1.1 million as compared to the same quarter in 2020. The increase in gross profit was mainly driven by volume. Cryo Tank Solutions segment SG&A expenses decreased by$2.2 million during the first quarter of 2021 as compared to the same quarter in 2020. Furthermore, Cryo Tank Solutions segment SG&A expenses as a percentage of Cryo Tank Solutions segment sales improved by 270 basis points in the first quarter of 2021 as compared to the same quarter in 2020 primarily driven by the effect of cost reduction efforts completed in 2020, lower severance costs and lower employee-related costs. Heat Transfer Systems Current Quarter vs. Three Months Ended Prior Year Same Quarter Variance Variance March 31, 2021 March 31, 2020 ($) (%) Sales$ 69.2 $ 112.9 $ (43.7) (38.7) % Gross Profit 15.8 26.1 (10.3) (39.5) % Gross Profit Margin 22.8 % 23.1 % SG&A Expenses$ 7.0 $ 11.2 $ (4.2) (37.5) % SG&A Expenses (% of Sales) 10.1 % 9.9 % Operating Income$ 3.9 $ 5.5$ (1.6) (29.1) % Operating Margin 5.6 % 4.9 % For the first quarter of 2021, Heat Transfer Systems segment sales decreased by$43.7 million as compared to the same quarter in 2020 primarily due to continued industry-wide softness in demand for midstream and upstream compression equipment that mainly impacted air cooled heat exchanger sales. Furthermore, during the first quarter of 2021 we recognized$14.7 million in sales relative to Venture Global's Calcasieu Pass LNG export terminal project ("Calcasieu Pass ") as compared to$22.9 million recognized during the first quarter of 2020. During the first quarter of 2021, Heat Transfer Systems segment gross profit decreased by$10.3 million as compared to the same quarter in 2020 mainly driven by lower volume partially offset by lower restructuring costs. Heat Transfer Systems segment gross profit as a percentage of Heat Transfer Systems segment sales was 22.8% in the first quarter of 2021 as compared to 23.1% in the first quarter of 2020, which is a decline of 30 basis points on a quarter over prior year quarter basis primarily due to theCalcasieu Pass volume mix which drove higher margins in the first quarter of 2020. Heat Transfer Systems segment SG&A expenses decreased during the first quarter of 2021 as compared to the same quarter in 2020 primarily driven by cost reduction efforts relative to the transfer of operations of our heat exchanger leased facility inTulsa, Oklahoma to ourBeasley, Texas location, lower restructuring costs and lower employee-related costs. 33
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Specialty Products
Current Quarter vs.
Three Months Ended Prior Year Same Quarter
Variance Variance
March 31, 2021 March 31, 2020 ($) (%)
Sales $ 77.3 $ 52.9 $ 24.4 46.1 %
Gross Profit 28.2 20.3 7.9 38.9 %
Gross Profit Margin 36.5 % 38.4 %
SG&A Expenses $ 9.1 $ 6.1 $ 3.0 49.2 %
SG&A Expenses (% of Sales) 11.8 % 11.5 %
Operating Income $ 17.9 $ 13.8 $ 4.1 29.7 %
Operating Margin 23.2 % 26.1 %
Specialty Products segment sales increased by $24.4 million during the first
quarter of 2021 as compared to the same quarter in 2020. This increase was
primarily driven by favorable sales in HLNG vehicle tanks, laser, cannabis and
hydrogen applications.
Specialty Products segment gross profit increased by $7.9 million during the
first quarter of 2021 as compared to the same quarter in 2020 primarily due to
higher volume. The related margin decreased driven by product mix.
Specialty Products segment SG&A expenses increased by $3.0 million during the
first quarter of 2021 as compared to the same quarter in 2020 primarily driven
by ramp up in the business. Furthermore, Specialty Products segment SG&A
expenses increased by $0.8 million relative to acquisition-related contingent
consideration adjustments recognized during the first quarter of 2021.
Repair, Service & Leasing
Current Quarter vs.
Three Months Ended Prior Year Same Quarter
Variance Variance
March 31, 2021 March 31, 2020 ($) (%)
Sales $ 41.4 $ 40.7 $ 0.7 1.7 %
Gross Profit 14.7 11.8 2.9 24.6 %
Gross Profit Margin 35.5 % 29.0 %
SG&A Expenses $ 4.4 $ 4.4 $ - - %
SG&A Expenses (% of Sales) 10.6 % 10.8 %
Operating Income $ 8.3 $ 4.6 $ 3.7 80.4 %
Operating Margin 20.0 % 11.3 %
For the first quarter of 2021, Repair, Service & Leasing segment sales increased
by $0.7 million as compared to the same quarter in 2020. This increase was
mainly driven by favorable sales in our Cryo-Lease and Lifecycle businesses
partially offset by lower sales in aftermarket air cooled heat exchangers and
fans.
During the first quarter of 2021, Repair, Service & Leasing segment gross profit
increased by $2.9 million as compared to the same quarter in 2020, and the
related margin percentage increased by 650 basis points mainly driven by lower
costs in our repair facilities.
Repair, Service & Leasing segment SG&A expenses were flat to the same quarter in
2020.
Corporate
Corporate SG&A expenses decreased in the first quarter of 2021 as compared to
the same quarter in 2020 by $2.9 million primarily due to lower employee-related
costs and restructuring costs.
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Liquidity and Capital Resources Debt Instruments and Related Covenants Our debt instruments and related covenants are described in Note 9, "Debt and Credit Arrangements" to our unaudited condensed consolidated financial statements included under Item 1, "Financial Statements" in this report. Sources and Uses of Cash Our cash and cash equivalents totaled$114.9 million atMarch 31, 2021 , a decrease of$10.2 million from the balance atDecember 31, 2020 . Our foreign subsidiaries held cash of approximately$102.0 million and$102.7 million , atMarch 31, 2021 , andDecember 31, 2020 , respectively, to meet their liquidity needs. No material restrictions exist to accessing cash held by our foreign subsidiaries. We expect to meet ourU.S. funding needs without repatriating non-U.S. cash and incurring incrementalU.S. taxes. Cash equivalents are primarily invested in money market funds that invest in high quality, short-term instruments, such asU.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 inChina , obligations of local banks. We believe that our existing cash and cash equivalents, funds available under our senior secured revolving credit facility dueJune 2024 ("SSRCF") or other financing alternatives, and cash provided by operations will be sufficient to meet our normal working capital needs, capital expenditures, investments and prioritize the pay down of debt for the foreseeable future. Cash provided by operating activities was$8.3 million for the three months endedMarch 31, 2021 , a decrease of$17.2 million compared to cash provided by operating activities of$25.5 million for the three months endedMarch 31, 2020 primarily due to a decrease in operating cash provided by working capital in the first three months of 2021. Cash used in investing activities was$106.3 million and$10.2 million for the three months endedMarch 31, 2021 and 2020, respectively. During the three months endedMarch 31, 2021 , we used approximately$55.0 million for the acquisition of Cryo Technologies and$40.0 million for investments in Svante and Transform Materials. During the three months endedMarch 31, 2021 , we paid approximately$11.5 million for capital expenditures as compared to$10.3 million for the three months endedMarch 31, 2020 . Cash provided by financing activities was$87.8 million for the three months endedMarch 31, 2021 compared to cash used in financing activities of$42.0 million for the three months endedMarch 31, 2020 . During the three months endedMarch 31, 2021 , we borrowed$187.7 million on credit facilities and repaid$102.5 million in borrowings on credit facilities primarily to fund the acquisition of Cryo Technologies and investments in Svante and Transform Materials. During the first quarter of 2020, we used$19.3 million to repurchase shares of Chart common stock related to our share purchase program during the three months endedMarch 31, 2020 . We suspended the program onMarch 20, 2020 (the "Suspension Date") in light of uncertainty resulting from the Covid-19 pandemic and the desire to conserve cash resources. OnMarch 11, 2021 , the share repurchase program expired with no further repurchases since the Suspension Date. Cash Requirements We do not currently anticipate any unusual cash requirements for working capital needs for the year endingDecember 31, 2021 . Management anticipates we will be able to satisfy cash requirements for our ongoing business for the foreseeable future with cash generated by operations, existing cash balances and available borrowings under our credit facilities. Capital expenditures for the remaining nine months of 2021 is expected to be in the range of$28.5 million to$38.5 million . Orders and Backlog We consider orders to be those for which we have received a firm signed purchase order or other written contractual commitments from the customer. Backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments from customers for which work has not been performed, or is partially completed, that we have not recognized as revenue and excludes unexercised contract options and potential orders. Our backlog as ofMarch 31, 2021 was$934.1 million , inclusive of$6.4 million of backlog remaining onCalcasieu Pass , compared to$723.3 million , inclusive of$93.0 million ofCalcasieu Pass backlog as ofMarch 31, 2020 and$810.0 million , inclusive of$21.0 million ofCalcasieu Pass backlog as ofDecember 31, 2020 . Excluding Calcasieu Pass, backlog increased by$297.4 million or 47.2% in the current quarter compared to the prior year same quarter and$138.7 million or 17.6% compared to the prior quarter. 35
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The tables below represent orders received and backlog by segment for the periods indicated (dollars in millions):
Three Months Ended
March 31, March 31, December 31,
2021 2020 2020
Orders
Cryo Tank Solutions $ 129.5 $ 100.9 $ 132.0
Heat Transfer Systems 104.9 91.6 139.9
Specialty Products 144.5 57.1 94.4
Repair, Service & Leasing 40.5 42.9 54.5
Intersegment eliminations (2.2) (6.7) (3.8)
Consolidated $ 417.2 $ 285.8 $ 417.0
As of
March 31, March 31, December 31,
2021 2020 2020
Backlog
Cryo Tank Solutions $ 245.8 $ 222.3 $ 222.6
Heat Transfer Systems 361.4 334.4 329.2
Specialty Products 270.5 130.3 199.7
Repair, Service & Leasing 57.4 39.9 63.1
Intersegment eliminations (1.0) (3.6) (4.6)
Consolidated $ 934.1 $ 723.3 $ 810.0
Cryo Tank Solutions segment orders for the three months ended March 31, 2021
were $129.5 million compared to $100.9 million for the three months ended March
31, 2020 and $132.0 million for the three months ended December 31, 2020 . The
increase in Cryo Tank Solutions segment orders during the three months ended
March 31, 2021 when compared to the same quarter last year was primarily driven
by strong order intake for mobile equipment, particularly in China . Cryo Tank
Solutions orders were negatively impacted in the first quarter of 2020 due to
Covid-19-related shut downs. Cryo Tank Solutions segment backlog at March 31,
2021 totaled $245.8 million and is a record high compared to $222.3 million as
of March 31, 2020 and $222.6 million as of December 31, 2020 .
Heat Transfer Systems segment orders for the three months ended March 31, 2021
were $104.9 million compared to $91.6 million for the three months ended March
31, 2020 , and $139.9 million for the three months ended December 31, 2020 . The
increase in Heat Transfer Systems segment orders during the three months ended
March 31, 2021 when compared to the same quarter last year was primarily driven
by large project orders for ethylene and natural gas liquefaction. Heat Transfer
Systems segment backlog at March 31, 2021 totaled $361.4 million , up 8.1% over
the first quarter of 2020 and 9.8% over the fourth quarter of 2020, which was
then a record. Excluding Calcasieu Pass, Heat Transfer Systems backlog increased
by $113.6 million or 47.1% in the current quarter compared to the prior year
same quarter and $46.8 million or 15.2% compared to the prior quarter. Included
in Heat Transfer Systems segment backlog for all periods presented is
approximately $40.0 million related to the previously announced Magnolia LNG
order where production release is delayed. As we previously reported, in
general, similar projects previously put on hold in the market are beginning to
move ahead as the clean energy infrastructure build out ramps up.
Specialty Products segment orders for the three months ended March 31, 2021 were
$144.5 million compared to $57.1 million for the three months ended March 31,
2020 and $94.4 million for the three months ended December 31, 2020 . The
increases over prior quarter and prior year same quarter were mainly driven by
strong orders in hydrogen equipment, HLNG vehicle tanks, lasers and LNG
regasification applications. Specialty Products segment backlog totaled $270.5
million as of March 31, 2021 , compared to $130.3 million as of March 31, 2020
and $199.7 million as of December 31, 2020 .
Repair, Service & Leasing segment orders for the three months ended March 31,
2021 were $40.5 million compared to $42.9 million for the three months ended
March 31, 2020 and $54.5 million for the three months ended December 31, 2020 .
The decrease in Repair, Service & Leasing segment orders during the three months
ended March 31, 2021 when compared to the prior year same quarter was primarily
due to ramp up in our Cryo-Lease business. Repair, Service & Leasing segment
backlog totaled $57.4 million as of March 31, 2021 , compared to $39.9 million as
of March 31, 2020 and $63.1 million as of December 31, 2020 .
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Off-Balance Sheet Arrangements We do not have any material off-balance sheet arrangements. Application of Critical Accounting Policies Our unaudited condensed consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles. As such, some accounting policies have a significant impact on amounts reported in these unaudited condensed consolidated financial statements. A summary of those significant accounting policies can be found in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . In particular, judgment is used in areas such as revenue from contracts with customers, goodwill, indefinite-lived intangibles, long-lived assets (including finite-lived intangible assets), product warranty costs, and pensions. There have been no significant changes to our critical accounting policies sinceDecember 31, 2020 . Forward-Looking Statements We are making this statement in order to satisfy the "safe harbor" provisions contained in the Private Securities Litigation Reform Act of 1995. This Quarterly Report on Form 10-Q includes "forward-looking statements." These forward-looking statements include statements concerning the Company's business plans, including statements regarding completed acquisitions, investments, cost synergies and efficiency savings, objectives, future orders, revenues, margins, earnings or performance, liquidity and cash flow, capital expenditures, business trends, clean energy market opportunities, governmental initiatives, including executive orders and other information that is not historical in nature. Forward-looking statements may be identified by terminology such as "may," "will," "should," "could," "expects," "anticipates," "believes," "projects," "forecasts," "outlook," "guidance," "continue," "target," or the negative of such terms or comparable terminology. Forward-looking statements contained herein (including future cash contractual obligations, liquidity, cash flow, orders, results of operations, projected revenues, margins, capital expenditures, industry and business trends, cost synergies and savings objectives, clean energy market opportunities and government initiatives, among other matters) or in other statements made by us are made based on management's expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause the Company's actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. These include: the other factors discussed in Item 1A. "Risk Factors" and the factors discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which should be reviewed carefully; risks relating to the recent outbreak and continued uncertainty associated with the coronavirus (Covid-19); Chart's ability to successfully integrate recent acquisitions, and achieve the anticipated revenue, earnings, accretion and other benefits from these acquisitions; slower than anticipated growth and market acceptance of new clean energy product offerings; estimated segment revenues, future revenue, earnings, cash flows and margin targets and run rates; our ability to remediate the material weaknesses identified during the preparation of the consolidated financial statements which are included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . These factors should not be construed as exhaustive and there may also be other risks that we are unable to predict at this time. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as the same may be updated from time to time. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the filing date of this document or to reflect the occurrence of unanticipated events, except as otherwise required by law. Item 3.Quantitative and Qualitative Disclosures About Market Risk In the normal course of business, our operations are exposed to fluctuations in interest rates and foreign currency values that can affect the cost of operating and financing. Accordingly, we address a portion of these risks through a program of risk management. Interest Rate Risk: Our primary interest rate risk exposure results from the SSRCF's various floating rate pricing mechanisms. If interest rates were to increase 100 basis points (1 percent) from the weighted-average interest rate of 1.8% atMarch 31, 2021 , and assuming no changes in the$204.7 million of borrowings outstanding under the SSRCF atMarch 31, 2021 , our additional annual expense would be approximately$2.0 million on a pre-tax basis. Foreign Currency Exchange Rate Risk: We operate inthe United States and other foreign countries, which creates exposure to foreign currency exchange fluctuations in the normal course of business, which can impact our financial position, 37
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results of operations, cash flows, and competitive position. The financial statements of foreign subsidiaries are translated into theirU.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income as reported in the unaudited condensed consolidated statements of income and comprehensive income. Translation exposure is primarily with the euro, the Czech koruna, the Chinese yuan, and the Indian rupee. During the first quarter of 2021, theU.S. dollar strengthened in relation to the Chinese yuan by 1%, the euro by 5%, the Czech koruna by 4% and the Japanese Yen by 7%. Additionally, the euro remained relatively flat in relation to the Czech koruna, weakening by less than 1%. AtMarch 31, 2021 , a hypothetical 10% weakening of theU.S. dollar would not materially affect our financial statements. Chart's primary transaction exchange rate exposures are with the euro, the Chinese yuan, the Czech koruna, the Indian rupee, the Australian dollar, the British pound, the Canadian dollar and the Japanese yen. Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the unaudited condensed consolidated statements of income and comprehensive income as a component of foreign currency (gain) loss and other. We enter into foreign exchange forward contracts to hedge anticipated and firmly committed foreign currency transactions. We do not use derivative financial instruments for speculative or trading purposes. The terms of the contracts are generally one year or less. AtMarch 31, 2021 , a hypothetical 10% weakening of theU.S. dollar would not materially affect our outstanding foreign exchange forward contracts. Additionally, assuming no changes in theEUR 71.5 million in EUR Revolver Borrowings outstanding under the SSRCF and an additional 100 basis points (1 percent) strengthening in theU.S dollar in relation to the euro as of the beginning of 2021, during the three months endedMarch 31, 2021 , our additional unrealized foreign currency gain would be approximately$0.9 million on a pre-tax basis. Market Price Sensitive Instruments In connection with the pricing of the 2024 Notes, we entered into privately-negotiated convertible note hedge transactions (the "Note Hedge Transactions") with certain parties, including affiliates of the initial purchasers of the 2024 Notes (the "Option Counterparties"). These Note Hedge Transactions are expected to reduce the potential dilution upon any future conversion of the 2024 Notes. We also entered into separate, privately-negotiated warrant transactions with the Option Counterparties to acquire up to 4.41 million shares of our common stock. The warrant transactions will have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock exceeds the strike price of the warrants unless we elect, subject to certain conditions, to settle the warrants in cash. The strike price of the warrant transactions related to the 2024 Notes was initially$71.775 per share. Further information is located in Note 9, "Debt and Credit Arrangements" to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Item 4.Controls and Procedures Evaluation of Disclosure Controls and Procedures We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") as ofMarch 31, 2021 . As a result of the material weaknesses described below, our Chief Executive Officer and Chief Financial Officer have concluded that as ofMarch 31, 2021 , our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission's rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management has assessed the effectiveness of its internal control over financial reporting as ofDecember 31, 2020 based on the framework established in Internal Control - Integrated Framework issued by theCommittee of Sponsoring Organizations of theTreadway Commission (2013 Framework) (the "COSO criteria"). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis. 38
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As a result of its review during the preparation of the consolidated financial statements which are included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , management concluded that we had material weaknesses in our internal control over financial reporting that were identified in connection with our annual goodwill and trademark impairment testing, consisting of the following: •Control Activities - The Company did not maintain effective control activities based on criteria established by the COSO framework as the control activities that involve more complex judgments did not adequately consider the competency of personnel assigned to perform the review. •Goodwill and Identifiable Intangible Assets, Net - As a result of the material weakness identified above, the Company failed to adequately design and implement internal controls over the review of its goodwill and indefinite-lived intangible assets for impairment. Based on the evaluation of our disclosure controls and procedures as ofDecember 31, 2020 , our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in the Company's internal control over financial reporting described above, as of such date, our disclosure controls and procedures were not effective. In response to the material weaknesses described above, during the three months endedMarch 31, 2021 , we began implementing, evaluating, and designing new controls and procedures. The following measures have been implemented effectiveMarch 31, 2021 : •Evaluated and re-assessed the design of our goodwill and intangible asset impairment process, including control activities associated with the review of data provided to third-party valuation specialists and evaluated the appropriateness of the assumptions and methodology used to measure fair value of reporting units and the reasonableness of the conclusions in the third-party valuation specialists' reports; •Evaluated the assignment of responsibilities associated with the accounting for goodwill and intangible asset impairment, including hiring additional resources and providing additional training to existing resources; and •In order to ensure the quality and consistency of accounting treatments and interpretation across the impairment analysis process and maintain effective control activities, designated one of our senior accounting personnel to provide enhanced oversight to monitor the process, provided guidance on accounting treatment and assumptions and ensured quality-control for the process. With respect to our annual impairment analysis, we plan to complete the formal review of the annual forecast by no later thanSeptember 30, 2021 . Our remediation of the identified material weaknesses and strengthening our internal control environment is ongoing. We will test the ongoing design and implementation and operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above. 39
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