Business Combinations

VRV Acquisition

On November 15, 2018, Chart completed the previously announced acquisition VRV pursuant to the terms of the Amended and Restated Share Purchase Agreement (the “Amendment”) with the original parties as well as VRV that replaces in full the original Purchase Agreement. Immediately thereafter, we assigned all of our rights and obligations under the Amendment to VRV Holdings S.r.l. (“Holdings”), a newly formed Italian subsidiary of Chart. The Amendment provides for a revised transaction structure pursuant to which Holdings acquired VRV Technoservice S.r.l. (“VRV Technoservice”), a newly formed Italian company wholly owned by VRV (the “Acquisition”). Prior to the Acquisition, as contemplated in the Amendment, VRV contributed substantially all of its business to VRV Technoservice. VRV Technoservice changed its name to VRV S.r.l. following the Acquisition.

The 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), inclusive of the base purchase price of euro 125.0 million (equivalent to $141.3) in cash and assumed indebtedness of VRV, which was paid off immediately at closing or shortly thereafter, of euro 63.7 million (equivalent to $72.0). Additional indebtedness of VRV of euro 4.4 million (equivalent to $4.9) was assumed at the acquisition date and not paid off, although we expect to pay it off in early 2019. All U.S. dollar equivalent dollar amounts are based on the exchange rate as of the acquisition date. We funded the Acquisition, including the subsequent payoff of assumed indebtedness, with borrowings of euro 140.0 million (equivalent to $160.3) from our senior secured revolving credit facility and the remainder with cash on hand.

VRV, which has operations in Italy, France and India, is a diversified multinational corporation with highly automated, purpose-built facilities for the design and manufacture of pressure equipment serving the cryogenic and energy & petrochemical end markets. VRV’s results are included in our E&C and D&S East segments from the date of Acquisition.

As defined in our significant accounting policy for business combinations in Note 2, we preliminarily allocated the Acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the Acquisition date. The preliminary fair value of the acquired tangible and identifiable intangible assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also based on estimates and assumptions made by management at the time of the Acquisition. As such, this was classified as Level 3 fair value hierarchy measurements and disclosures.

The Acquisition consideration allocation below is preliminary, pending completion of the fair value analyses of acquired assets and liabilities as well as certain other analysis. Given the acquisition closed late in the fourth quarter, we expect significant adjustments in the purchase price allocation. Those areas that are subject to change, include the following:


•	researching and analyzing the differences between Chart accounting policies and those used by VRV,


•	finalizing the valuation of working capital accounts, including assessing collectibility of receivables and evaluation of saleability of inventory,


•	completing our review of VRV’s revenue recognition policies, including assessing estimates utilized for projects using the percentage of completion method,


•	gathering sufficient information to estimate the fair value of acquired intangible assets, including assessing projections and other assumptions used in our valuation models, and determining whether the intangible assets identified below represent a complete listing of acquired intangible assets, and


•	evaluating income tax accounting considerations, including income tax effects of the above matters.

Where we are still in process of completing our analysis, we used our best estimate based on currently available information and past experience.

The preliminary estimated useful lives of identifiable finite-lived intangible assets range from 2 to 12 years. The excess of the purchase price over the estimated fair values is assigned to goodwill. The preliminary estimated goodwill was established due to benefits including the combination of strong engineering and manufacturing cultures which will continue to further develop full service solutions for our worldwide customer base, as well as the benefits derived from the anticipated synergies of VRV integrating with Chart’s E&C and D&S East segments. Goodwill recorded for the VRV acquisition is not expected to be deductible for tax purposes.

As additional information becomes available, we will further revise the preliminary Acquisition consideration allocation during the remainder of the measurement period, which shall not exceed twelve months from the closing of the Acquisition, and we believe such revisions or changes may be material.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed in the VRV acquisition as of the acquisition date:



Net assets acquired:
Identifiable intangible assets	$	66.6
Property, plant and equipment	70.5
Goodwill	63.2
Other net assets	17.9
Debt	(4.9		)
Net assets acquired	$	213.3

Information regarding preliminary identifiable intangible assets acquired in the VRV acquisition is presented below:



	Weighted-average Estimated Useful Life	Preliminary Estimated Asset Fair Value
Finite-lived intangible assets:
Customer relationships	12.0 years	$	28.1
Unpatented technology	12.0 years	15.9
Other identifiable intangible assets ⁽¹⁾	4.0 years	11.8
Trademarks and trade names	14.0 years	10.8
Total finite-lived intangible assets acquired	9.0 years	$	66.6

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⁽¹⁾	Other identifiable intangible assets is included in “Patents and other” in Note 8, “Goodwill and Intangible Assets.”

The following unaudited supplemental pro forma sales are based on our historical consolidated financial statements and VRV’s historical consolidated financial statements as adjusted to give effect to the November 15, 2018 acquisition of VRV. The unaudited supplemental pro forma sales information for the periods presented gives effect to the Acquisition as if it had occurred on January 1, 2017. The unaudited supplemental pro forma sales for the years ended December 31, 2018 and 2017 for Chart Industries including VRV would have been approximately $1,200.0 and $950.0, respectively. It is impracticable to disclose the pro forma net income and pro forma net income per share information because of significant differences between Chart accounting policies following U.S. GAAP and those followed by VRV.

The unaudited pro forma sales information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the Acquisition been in effect at the beginning of the periods presented. In addition, the unaudited pro forma sales results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.

Skaff Acquisition

On January 2, 2018, we acquired 100% of the equity interests of Skaff for an approximate purchase price of $12.5, net of cash acquired. Skaff provides quality repair service and re-manufacturing of cryogenic and liquefied natural gas storage tanks and trailers and also maintains a portfolio of cryogenic storage equipment that is rented to customers for temporary and permanent needs. Skaff is headquartered in Brentwood, New Hampshire and provides services and equipment to customers in North America. Skaff’s results are included in the D&S West operating segment.

Additional information related to the Skaff acquisition has not been presented because the impact on our consolidated results of income and financial position is not material.

Hudson Acquisition

On September 20, 2017, we completed the acquisition of Hudson. The acquisition purchase price was $419.5, net of cash acquired. Approximately $300.0 of the purchase price was funded through borrowings under our senior secured revolving credit facility, and the remainder of the purchase price was funded with cash on hand.

Hudson, which has operations in the United States, China and Italy and a joint venture in Mexico, designs, manufactures, sells and services products used in refining, heating, ventilation and air conditioning (HVAC), petrochemical, natural gas, power generation, industrial and commercial end markets. Hudson is a North American leader in air-cooled heat exchangers and a global leader in axial flow cooling fans. Hudson’s results of operations are included in our E&C segment.

We allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also based on estimates and assumptions made by management at the time of the acquisition. As such, this was classified as Level 3 fair value hierarchy measurements and disclosures.

We estimated the fair value of acquired unpatented technology and trademarks and trade names using the relief from royalty method. The fair values of acquired customer backlog and customer relationships were estimated using the multi-period excess earnings method. Under both the relief from royalty and multi-period excess earnings methods, the fair value models incorporate estimates of future cash flows, estimates of allocations of certain assets and cash flows, estimates of future growth rates, and management’s judgment regarding the applicable discount rates to use to discount such estimates of cash flows. The estimated useful lives of identifiable finite-lived intangible assets range from 2 to 15 years.

Hudson complements our E&C segment with the addition of its Fin-Fan® brand and other air cooled heat exchangers which broaden E&C’s end market diversity from primarily liquefied natural gas, industrial and natural gas to include HVAC, petrochemical and power generation. The addition of Hudson’s fans business, known by the Tuf-Lite® and Cofimco® brands, allows E&C to offer a broader technology solution for our customers. Management anticipates the combination of strong engineering cultures will continue to further develop full service solutions for our customers. The estimated goodwill was established due to the benefits outlined above, as well as the benefits derived from the anticipated synergies of Hudson integrating with Chart’s E&C segment. Goodwill recorded for the Hudson acquisition is not expected to be deductible for tax purposes.

The excess of the acquisition consideration over the estimated fair values for the acquired assets and assumed liabilities is assigned to goodwill. The purchase price allocation reported at December 31, 2017 was preliminary and was based on provisional fair values. During 2018, we received and analyzed new information about certain assets and liabilities, primarily related to taxes, as of the September 20, 2017 acquisition date and subsequently decreased other assets by $0.2, decreased deferred tax liabilities by $7.6, increased other current liabilities by $0.6 and increased other long-term liabilities by $1.5 for post-closing adjustments, based on this information.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the Hudson acquisition, including the post-closing adjustments:



	December 31, 2018			Adjustments			As Previously Reported December 31, 2017
Net assets acquired:
Goodwill	$	233.0		$	(5.3	)	$	238.3
Identifiable intangible assets	211.0			—			211.0
Accounts receivable	34.6			—			34.6
Property, plant and equipment	29.4			—			29.4
Inventories	26.5			—			26.5
Other current assets ⁽¹⁾	8.1			—			8.1
Unbilled contract revenue	4.9			—			4.9
Other assets	2.7			(0.2		)	2.9
Prepaid expenses	0.9			—			0.9
Deferred tax liabilities	(80.0		)	7.6			(87.6		)
Accounts payable	(21.2		)	—			(21.2		)
Customer advances and billings in excess of contract revenue	(17.4		)	—			(17.4		)
Accrued salaries, wages and benefits	(4.4		)	—			(4.4		)
Other current liabilities	(4.4		)	(0.6		)	(3.8		)
Other long-term liabilities	(3.4		)	(1.5		)	(1.9		)
Current portion of warranty reserve	(0.8		)	—			(0.8		)
Net assets acquired	$	419.5		$	—		$	419.5

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⁽¹⁾

Pursuant to the provisions of the Merger Agreement, Hudson deposited $2.3 into a Rabbi Trust which represents amounts payable to eligible parties under Long-Term Incentive Agreements. This balance was treated as restricted cash and restricted cash equivalents in the December 31, 2017 consolidated balance sheets and was classified as other current assets. During 2018, the Rabbi Trust deposits were released to the eligible parties.

Information regarding identifiable intangible assets acquired in the Hudson acquisition is presented below:



	Weighted-average Estimated Useful Life	Preliminary Estimated Asset Fair Value
Finite-lived intangible assets:
Customer relationships	13 years	$	122.1
Unpatented technology	10 years	18.3
Customer backlog ⁽¹⁾	2 years	1.3
Total finite-lived intangible assets acquired	12 years	141.7
Indefinite-lived intangible assets:
Trademarks and trade names		69.3
Total identifiable intangible assets acquired		$	211.0

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⁽¹⁾	Customer backlog acquired is included in “Patents and other” in Note 8, “Goodwill and Intangible Assets.”

For the year ended December 31, 2018, net sales, operating income and intangible assets amortization expense attributed to the acquired Hudson operations was $180.3, $19.0, and $12.0, respectively.

For the year ended December 31, 2017, net sales attributed to the acquired Hudson operations were $58.0. For the same period, Hudson contributed $6.4 to operating income which included $3.3 of intangible asset amortization expense. During the year ended December 31, 2017, we incurred $9.0 in transaction related costs related to the Hudson acquisition which were recorded in Corporate selling, general and administrative expenses in the consolidated statements of income.

Unaudited Supplemental Pro Forma Information

The following supplemental pro forma financial information is based on our historical consolidated financial statements and Hudson’s historical consolidated financial statements as adjusted to give effect to the September 20, 2017 acquisition of Hudson. The supplemental pro forma financial information for the periods presented gives effect to the acquisition as if it had occurred on January 1, 2016.

The following adjustments are reflected in the unaudited pro forma financial table below:


•	the effect of decreased interest expense related to the repayment of the Hudson term loan and revolving credit facility, net of the additional borrowing on the Chart senior secured revolving credit facility,

•amortization of acquired intangible assets,

•step-up depreciation of acquired property, plant and equipment,

•inventory fair value step-up expense,


•	nonrecurring transaction related expenses incurred by Hudson directly attributable to the Hudson acquisition of $16.5 was adjusted out of the pro forma net income attributable to the Company for the year ended December 31, 2017, and


•	nonrecurring transaction related expenses incurred by Chart directly related to the Hudson acquisition of $9.0 was adjusted out of the pro forma net income attributable to the Company for the year ended December 31, 2017.

This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the periods presented. In addition, the unaudited pro forma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.

The following table presents pro forma sales, net income attributable to the Company, and net income attributable to the Company per common share data assuming Hudson was acquired at the beginning of the 2016 fiscal year, and assuming a 35% effective tax rate in both years:



	Year Ended December 31,
	2017		2016
Pro forma sales	$	984.1	$	891.8
Pro forma net income attributable to Chart Industries, Inc.	15.0		5.9

Pro forma net income attributable to Chart Industries, Inc. per common share, basic	$	0.49	$	0.19
Pro forma net income attributable to Chart Industries, Inc. per common share, diluted	$	0.48	$	0.19

VCT Vogel GmbH Acquisition

On August 31, 2017, Chart Germany GmbH, a wholly-owned subsidiary of the Company, acquired 100% of the equity interests of VCT Vogel GmbH (“VCT”) for a total purchase price of 3.6 million euros (equivalent to $4.2). VCT, located in Gablingen, Germany, services and repairs cryogenic and other mobile gas tank equipment and trucks. VCT also designs, manufactures and sells truck mounted drive and control systems for the operation of cryogenic pumps on trailers, rigid trucks and containers. VCT’s results are included in our D&S East segment.

Additional information related to the VCT acquisition has not been presented because the impact on our consolidated results of operations and financial position is not material.

Hetsco, Inc. Acquisition

On January 13, 2017, we acquired 100% of the equity interests in Hetsco, Inc. from Global Power Equipment Group, Inc. for a total purchase price of $22.8. Hetsco, Inc. is headquartered in Franklin, Indiana and provides emergency, specialty welding and construction services to natural gas processing, petrochemical, and air gas separation industries. Hetsco’s results are included in our E&C segment since the date of acquisition.

Additional information related to the Hetsco, Inc. acquisition has not been presented because the impact on our consolidated results of operations and financial position is not material.

Contingent Consideration

The estimated fair value of contingent consideration relating to the 2015 Thermax acquisition of our D&S West segment, was $1.8 at the date of acquisition and was valued according to a discounted cash flow approach, which includes assumptions regarding the probability of achieving certain earnings targets and a discount rate applied to the potential payments. Potential payments may be paid before July 1, 2019 based on the attainment of certain earnings targets. The potential payments related to Thermax contingent consideration are between $0.0 and $11.3.

Valuations are performed using Level 3 inputs and are evaluated on a quarterly basis based on forecasted sales and earnings targets. Contingent consideration liabilities are classified as other current liabilities and other long-term liabilities in the consolidated balance sheets. Changes in fair value of contingent consideration, including accretion, are recorded as selling, general, and administrative expenses in the consolidated statements of income.

For the year ended December 31, 2017, the fair value of contingent consideration decreased by $1.6, which was primarily driven by economic circumstances that significantly reduced the likelihood of achieving certain earnings targets for the duration of the remaining potential payout period. The fair value of contingent consideration liabilities was insignificant at both December 31, 2018 and December 31, 2017.