Business Combinations

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Business Combinations

Business Combinations

Xinye Acquisition

On June 8, 2013, Chart Asia Investment Company Limited (“Chart Asia”), a wholly-owned subsidiary of the Company, acquired 80% of the shares of Nanjing Xinye Electric Engineering Co., Ltd. (“Xinye”) for an aggregate cash purchase price of 18.3 million Chinese yuan (equivalent to $2,965), net of cash acquired. The remaining 20% will be retained by one of the original shareholders. Xinye, located in Nanjing, Jiangsu Province, China, designs, manufactures and sells control systems and dispensers for the liquefied natural gas, compressed natural gas, and industrial gas industries. It also engages in the design and production of integrated circuit card systems and remote monitoring systems for natural gas mobile equipment. Xinye provides the Company localized dispensing and control technology and increases its penetration into the high growth natural gas markets in the Asian region. Xinye's results are included in the Company's Distribution & Storage business segment. The Company is in the process of finalizing certain analyses; thus, the provisional measurements of the net assets acquired and goodwill are subject to change.

AirSep Acquisition

On August 30, 2012, the Company acquired 100% of the equity interests of AirSep Corporation (“AirSep”) for an aggregate cash purchase price of $182,450 (including approximately $2,800 in acquisition-related tax benefits acquired and $10,000 of debt which was retired upon completion of the acquisition). AirSep, located in Amherst, New York, designs, manufactures, sells and services stationary, transportable, and portable oxygen concentrators and self-contained generators, standard generators, and packaged systems for industrial and medical oxygen generating systems. AirSep's results are included in the Company’s BioMedical segment.

The fair value of the net assets acquired and goodwill at the date of acquisition were $72,687 and $109,763, respectively. The allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed, and the related income tax impact of the acquisition adjustments. The acquisition was made and goodwill was established due to the benefits that will be derived from the expansion of the oxygen concentrator business in the U.S., Europe and Asia, and the growth potential for the Company's commercial oxygen generation systems business.

The following table summarizes the fair values of the assets acquired and liabilities assumed in the AirSep acquisition on August 30, 2012.

Net assets acquired:
Accounts receivable	$	24,280
Inventories	34,553
Prepaid expenses	615
Other current assets	3,837
Property, plant and equipment	5,342
Other assets	976
Accounts payable	(13,728		)
Customer advances and billings in excess of contract revenue	(4,782		)
Accrued salaries, wages and benefits	(1,837		)
Other current liabilities	(254		)
Current portion of warranty reserve	(10,562		)
Long-term portion of warranty reserve	(26,471		)
Net tangible assets acquired	11,969
Deferred income tax assets	9,262
Goodwill	109,763
Identifiable intangible assets	67,000
Long-term deferred tax liability	(15,544		)
Net assets acquired	$	182,450

AirSep provides warranties on certain of its products, generally for periods of five years or less. The warranty reserve is calculated considering historical warranty experience (general portion of the reserve) and specifically identified warranty issues (specific portion of the reserve). To calculate the general reserve, actual warranty claims are used to calculate an average experience rate to be applied against sales. This experience rate is used to record an estimated accrual at the time of the sale. The accrual is reviewed and adjusted periodically to reflect current information including costs to repair or replace the units. The Company reviews other factors to determine if there are any specific factors which could change the reserve. AirSep has experienced a significant number of warranty claims in one of its product lines. To calculate the specific reserve associated with this product line, the Company isolated the specific units which were being returned with identified warranty issues at significantly higher rates than normal. The entire population of these units was excluded from the general reserve and is considered in a specific reserve. The specific reserve considers the identified population, less units already returned, to estimate potential units that will be returned. Management then estimated the expected number of additional product returns based on historical returns experience for this product line. These expected future returns were multiplied by the estimated cost to replace the unit to establish a specific warranty reserve.

AirSep's identifiable intangible assets mainly include customer relationships and technology and are also comprised of product names, trademarks and trade names.

Incremental sales and operating income related to the AirSep acquisition were $14,174 and $20, respectively, in the three months ended September 30, 2013, the latter of which included $1,142 of intangible asset amortization expense and $522 in management retention expenses and severance costs.

Incremental sales and operating income related to the AirSep acquisition were $71,043 and $3,195, respectively, in the nine months ended September 30, 2013, the latter of which included $2,638 in cost of goods sold to amortize the remaining portion of the write-up of inventory to fair value, $4,570 of intangible asset amortization expense and $2,726 in management retention expenses and severance costs.

Pro-forma information related to the above acquisitions have not been presented because the impact on the Company’s consolidated results of operations is not material.

Contingent Consideration

The estimated fair value of total contingent consideration relating to acquisitions in prior years was valued using a discounted cash flow approach, which includes assumptions for the probabilities of achieving gross sales or gross profit targets and the discount rate applied to the projected payments. The valuation is performed using Level 3 inputs as defined in Note C. Changes in fair value of contingent consideration are recorded as selling, general and administrative expenses in the condensed consolidated statements of income and comprehensive income.

Potential payments may be paid between October 1, 2013 and March 31, 2016 based on the attainment of certain revenue targets. Based on achieving certain revenue targets, the remaining maximum potential payout related to total contingent consideration is $3,000.

	BioMedical
Balance at December 31, 2012	$	1,990
Increase in contingent consideration liabilities	216
Balance at September 30, 2013	$	2,206

For the three and nine months ended September 30, 2013, total contingent consideration related to the BioMedical segment increased by $81 and $216, respectively.

The fair value of total contingent consideration for the three months ended September 30, 2012 increased by $88 which included net gains of $73 and $15 related to prior BioMedical and Distribution & Storage acquisitions, respectively. For the nine months ended September 30, 2012, total contingent consideration decreased by $5,077, which included a net decrease of $4,236 related to prior BioMedical segment acquisitions offset by an increase of $459 related to a prior Distribution & Storage segment acquisition. During the nine months ended September 30, 2012, there was also a $1,300 payment related to a prior Distribution & Storage acquisition.