Business Combinations

VRV Acquisition

On September 26, 2018, we entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of VRV s.p.a., a company incorporated under the laws of the Italian Republic and having its registered office in Milan, Italy (VRV s.p.a., together with its affiliates, “VRV”). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth in the Purchase Agreement, we will acquire all of the issued and outstanding shares of VRV (the “VRV Acquisition”). 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 is euro 125 million (equivalent to $144.7 based on the exchange rate at September 30, 2018) in cash, subject to a working capital adjustment, and we will also assume the outstanding indebtedness of VRV (approximately euro 70 million, equivalent to $81.0 based on the exchange rate at September 30, 2018), subject to an indebtedness adjustment. We have sufficient liquidity to fund the VRV Acquisition and it is anticipated that the VRV Acquisition will be funded by some combination of our available cash on hand, debt under our SSRCF, or other financing alternatives.

The Purchase Agreement provides for customary representations, warranties, covenants and agreements, including, among others, that each of the parties to the Purchase Agreement will use commercially reasonable efforts to complete the VRV Acquisition, that VRV will conduct its business in the ordinary course consistent with past practice during the period between the execution of the Purchase Agreement and consummation of the VRV Acquisition, and that VRV will not engage in certain kinds of transactions during such period.

The Purchase Agreement also contains customary termination provisions, including a provision that the Purchase Agreement may be terminated by either Chart or VRV if the Acquisition has not been completed by December 31, 2018 (subject to a limited extension with respect to certain governmental proceedings); provided, however, that such right to terminate the Purchase Agreement is not available to any party whose breach of any provision of the Purchase Agreement results in the failure of the VRV Acquisition to be completed. The completion of the VRV Acquisition is subject to the satisfaction of certain customary closing conditions.

The VRV Acquisition is expected to be completed in the fourth quarter of 2018.

Skaff Acquisition

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

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

Hudson Acquisition

On September 20, 2017, we completed the acquisition of Hudson Products Corporation (“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 of the acquired assets and assumed liabilities is assigned to goodwill. The purchase price allocation reported at June 30, 2018 was preliminary and was based on provisional fair values. During the third quarter, and prior to September 20, 2018, we received and analyzed new information about certain assets and liabilities, primarily related to taxes, as of the September 30, 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:



	September 30, 2018				Adjustments			As previously reported June 30, 2018
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	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		f	$	—		$	419.5

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



	Weighted-average Estimated Useful Life	Estimated Asset Fair Value
Finite-lived intangible assets:
Customer relationships	13 years	$	122.1
Unpatented technology	10 years	18.3
Customer backlog	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

During the three and nine months ended September 30, 2018, net sales attributed to the acquired Hudson operations was $44.1 and $134.9, respectively. For the three and nine months ended September 30, 2018, Hudson contributed $4.3 and $14.6 to operating income, which included $3.0 and $9.0 of intangible asset amortization expense, respectively.

For the period September 20, 2017 to September 30, 2017, net sales attributed to the acquired Hudson operations was $6.1. For the same period, Hudson contributed $1.2 to operating income which included $0.4 of intangible asset amortization expense. During the three and nine months ended September 30, 2017, the Company incurred $7.3 and $8.1, respectively, in acquisition related costs related to the Hudson acquisition which were recorded in selling, general and administrative expenses in the unaudited condensed consolidated statement of operations.

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 assumes that we owned Hudson for the full 2017 fiscal year.

The following adjustments are reflected in the 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, and

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

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 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 before the beginning of the 2017 fiscal year, and assuming effective tax rates of 35%:



	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Pro forma sales	$	244.6	$	714.8
Pro forma net income attributable to Chart Industries, Inc.	3.6		4.5

Pro forma net income attributable to Chart Industries, Inc. per common share, basic	$	0.12	$	0.15
Pro forma net income attributable to Chart Industries, Inc. per common share, diluted	$	0.11	$	0.14

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 as defined in Note 10, “Fair Value Measurements” 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 unaudited condensed consolidated balance sheets. Changes in fair value of contingent consideration, including accretion, are recorded as selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income. The fair value of contingent consideration liabilities was insignificant at both September 30, 2018 and December 31, 2017.