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Business Combinations | 3 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
Business Combinations | Business Combinations Air-X-Changers Acquisition On July 1, 2019, we completed the acquisition of AXC pursuant to the previously disclosed Asset Purchase Agreement dated as of May 8, 2019 (the “AXC acquisition”). The purchase price for AXC was $599.7, including post-closing purchase price adjustments with respect to working capital. We paid $592.0 of the purchase price at closing and the final working capital adjustment of $7.7 was paid during the third quarter of 2019. We financed the purchase price for the AXC acquisition with proceeds from borrowings under the 2024 Credit Facilities and a public offering of Chart’s common stock in 2019. See Note 8, “Debt and Credit Arrangements” and Note 11 “Accumulated Other Comprehensive Loss” for more information. AXC is a leading supplier of custom engineered and manufactured ACHX for the natural gas compression and processing industry and refining and petrochemical industry. The ACHX offered by AXC is used in conditioning natural gas during recovery, compression and transportation from underground reserves through major pipeline distribution channels. In addition to natural gas compression and processing, AXC’s products are also used in the turbine lube oil cooling, landfill gas compression and liquids cooling industries. AXC’s end markets include process industries, power generation and refineries. AXC was combined with Chart’s Hudson Products and Chart Cooler Service businesses from the prior E&C segment to create a new segment called E&C FinFans. The E&C FinFans segment is focused on our unique and broad product offering and capabilities in ACHX and fans. As defined in our significant policies for fair value measurements in Note 1, 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. We estimated the preliminary fair value of acquired unpatented technology and trademarks and trade names using the relief from royalty method. The preliminary 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 incorporated 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 preliminary estimated useful lives of identifiable finite-lived intangible assets range from one to 14 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 AXC integrating with our E&C FinFans segment. Goodwill recorded for the AXC acquisition is expected to be deductible for tax purposes. The acquisition consideration allocation below has been updated based on this valuation but remains preliminary. As additional information becomes available, we may 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. We do not believe such revisions or changes will be material. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed in the AXC acquisition as of the acquisition date:
| Preliminary Estimated Fair Value
Net assets acquired: |
Identifiable intangible assets | $ | 256.4 |
Goodwill | 287.5 |
Property, plant and equipment | 34.2 |
Other assets | 53.1 |
Liabilities | (31.5 | )
Net assets acquired | $ | 599.7 |
Information regarding preliminary identifiable intangible assets acquired in the AXC acquisition is presented below:
| Weighted-average Estimated Useful Life |  | Preliminary Estimated Asset Fair Value
Finite-lived intangible assets: |  |  |
Customer relationships | 14.0 years |  | $ | 139.1 |
Unpatented technology | 10.0 years |  | 42.1 |
Backlog (1) | 1.0 year |  | 19.2 |
Other identifiable intangible assets (1) | 4.0 years |  | 1.0 |
Total finite-lived intangible assets acquired | 11.0 years |  | 201.4 |
Indefinite-lived intangible assets: |  |  |
Trademarks and trade names |  |  | 55.0 |
Total identifiable intangible assets acquired |  |  | $ | 256.4 |
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(1) | Backlog and other identifiable intangible assets are included in “Patents and other” in Note 7. “Goodwill and Intangible Assets.”
Unaudited Supplemental Pro Forma Information The following unaudited supplemental pro forma financial information is based on our historical consolidated financial statements and AXC’s historical consolidated financial statements as adjusted to give effect to the July 1, 2019 AXC acquisition. The unaudited supplemental pro forma financial information for the periods presented gives effect to the acquisition as if it had occurred on January 1, 2019. The following adjustments are reflected in the pro forma financial table below:
• | Adjustment for depreciation related to the step-up in basis of the acquired property, plant and equipment and change in estimated useful lives.
• | Adjustment for amortization of acquired intangible assets.
• | Adjustment for the change from last in, first out (LIFO) to weighted-average cost for the acquired inventory and the associated reduction of cost of sales.
• | Adjustment to reflect an increase in interest expense resulting from interest on the term loan under the 2024 Credit Facilities to finance the AXC acquisition and amortization of related debt issuance costs.
• | Adjustment to reflect the change in the estimated income tax rate for federal and state purposes.
• | Adjustment to reflect the increase in weighted-average shares in connection with the equity issuance.
This unaudited 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 Chart Industries, Inc., and net income attributable to Chart Industries, Inc. per common share data assuming AXC was acquired at the beginning of the 2019 fiscal year:
| Three Months Ended
| March 31, 2019
Pro forma sales | $ | 365.5 |
Pro forma net income attributable to Chart Industries, Inc. | 5.9 |
Pro forma net income attributable to Chart Industries, Inc. per common share, basic | $ | 0.17 |
Pro forma net income attributable to Chart Industries, Inc. per common share, diluted | 0.16 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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