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Business Combinations | 3 Months Ended
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Mar. 31, 2024
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | Business Combinations Howden Acquisition On March 17, 2023 we completed the Howden Acquisition pursuant to the previously disclosed Equity Purchase Agreement dated as of November 9, 2022. The acquisition purchase price was $4,387.4. We financed the purchase price for the Howden Acquisition with proceeds from borrowings under our SSRCF, Amendment No. 3 Term Loan, common and preferred stock issuance and a private offering of Secured Notes and Unsecured Notes. See Note 9, “Debt and Credit Arrangements,” for more information. The following table shows the purchase price in accordance with ASC 805:
Description |
Cash consideration to seller | $ | 2,788.3 |
Howden's debt settled at close | 1,529.0 |
Settlement of seller transaction costs | 67.2 |
Funds held in escrow | 20.4 |
Working capital adjustment | (17.5) |
Total ASC 805 purchase price | $ | 4,387.4 |
Howden is a leading global provider of mission critical air and gas handling products providing service and support to customers around the world in highly diversified end markets and geographies. The combination of Chart and Howden is complementary and furthers our global leadership position in highly engineered process technologies and products serving the Nexus of Clean™ – clean power, clean water, clean food and clean industrials. We estimated the fair value of acquired developed technology 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 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 excess of the purchase price over the estimated fair values is assigned to goodwill. The estimated goodwill was established due to expected cost synergies, anticipated growth of new customers, and expansion of equipment portfolio and process technology offerings. Goodwill recorded for the Howden Acquisition is not expected to be deductible for tax purposes. The estimated fair values of the assets acquired and liabilities assumed disclosed in this note are inclusive of businesses identified to be sold as of the acquisition date. On August 18, 2023, we completed the sale of our Roots business, which we acquired as part of the Howden Acquisition. We have categorized the assets and liabilities of these discontinued operations on separate lines in the table below. Refer to Note 2, “Discontinued Operations and Other Businesses Sold” for further information. The purchase price allocation reported at December 31, 2023 was preliminary and was based on provisional fair values. During the current quarter, and prior to March 31, 2024, we received and analyzed new information about certain assets and liabilities, as of the March 17, 2023 acquisition date and subsequently decreased current assets by $10.4, increased current liabilities by $40.1, and decreased long-term deferred tax liabilities by $8.2 for post-closing adjustments, based on this information. During the first quarter of 2024, we finalized the Howden purchase price allocation. The following table summarizes the fair values of the assets acquired and liabilities assumed in the Howden Acquisition as of the acquisition date:
| Fair Value
Net assets acquired: |
Cash and cash equivalents | $ | 62.5 |
Restricted cash | 2.6 |
Accounts receivable | 422.7 |
Inventories | 256.8 |
Unbilled contract revenue | 167.8 |
Prepaid expenses | 51.9 |
Other current assets | 101.4 |
Assets held for sale | 225.7 |
Property, plant and equipment | 325.1 |
Identifiable intangible assets | 2,434.5 |
Equity method investments | 12.0 |
Other assets | 117.3 |
Accounts payable | (385.7) |
Customer advances and billings in excess of contract revenue | (233.2) |
Accrued salaries, wages and benefits | (103.3) |
Accrued income taxes | (34.0) |
Current portion of warranty reserve | (38.5) |
Current portion of long-term debt | (1.4) |
Other current liabilities | (158.8) |
Liabilities held for sale | (43.9) |
Long-term deferred tax liabilities | (663.6) |
Operating lease liabilities | (52.3) |
Finance lease liabilities | (8.1) |
Accrued pension liabilities | (6.0) |
Other long-term liabilities | (45.7) |
Total identifiable net assets assumed | 2,405.8 |
Noncontrolling interest (1) | (146.3) |
Goodwill (2) | 2,127.9 |
Net assets acquired | $ | 4,387.4 |
Assets acquired net of cash, cash equivalents and restricted cash | $ | 4,322.3 |
_______________ (1)As part of the Howden Acquisition, we acquired 82% of Howden Hua Engineering Co., Ltd, an entity based in China. The noncontrolling interest was valued at $146.0. (2)Includes $102.2 and $49.7 allocated to the Roots and American Fan divestitures, respectively. The following table summarizes information regarding identifiable intangible assets acquired in the Howden Acquisition:
| Estimated Useful Lives |  | Fair Value
Finite-lived intangible assets acquired: |  |  |
Customer relationships | 18 years |  | $ | 1,533.0 |
Backlog | 3 years |  | 135.0 |
Technology | 5 to 14 years |  | 296.0 |
Total finite-lived intangible assets acquired |  |  | 1,964.0 |
Indefinite-lived intangible assets acquired: |  |  |
Trade names |  |  | 470.5 |
Total intangible assets acquired |  |  | $ | 2,434.5 |
Chart’s condensed consolidated financial statements include Howden’s sales and net income of $103.3 and $4.8, respectively, from date the of acquisition through March 31, 2023. We incurred $25.4 in transaction related costs during the first quarter of 2023 related to the Howden Acquisition which were recorded in selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss. No interest expense is allocated to Howden’s net income for our period of ownership. As part of the Howden Acquisition, we acquired defined benefit pension plans, which are predominately in Germany. As a result, we assumed pension assets of $38.7 and pension liabilities of $41.1, a net $2.4 liability. Unaudited Supplemental Pro Forma Information The following unaudited pro forma combined financial information for the three months ended March 31, 2023 gives effect to the Howden Acquisition, and the Roots and American Fan divestitures, as if each occurred on January 1, 2022. The unaudited pro forma information is not necessarily indicative of the results of operations that actually would have occurred under the ownership and management of the Company. In addition, the unaudited pro forma information is not intended to be a projection of future results and does not reflect any operating efficiencies or cost savings that might be achievable. The following adjustments are reflected in the unaudited pro forma financial table below: •the effect of increased interest expense related to the repayment of the Howden term loans, senior notes and revolving credit facility net of the additional borrowing on the Chart senior secured revolving credit facility and senior secured and unsecured notes, •amortization of acquired intangible assets, •an adjustment to reflect the change in the estimated income tax rate for federal and state purposes, •nonrecurring acquisition-related expenses incurred by Howden prior to the close of and directly attributable to the Howden Acquisition were adjusted out of the pro forma net loss attributable to Chart Industries, Inc. from continuing operations for the periods presented, and •nonrecurring acquisition-related expenses incurred by Chart and directly related to the Howden acquisition were adjusted out of the pro forma net loss attributable to Chart Industries, Inc. from continuing operations for the periods presented.
|  |  |  | Three Months Ended March 31, 2023
Pro forma sales from continuing operations |  |  |  |  |  |  | $ | 836.7 |
Pro forma net loss attributable to Chart Industries, Inc. from continuing operations |  |  |  |  |  |  | (73.1) |
As defined in Note 2, “Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2023, we allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible assets was determined based on inputs that are unobservable and significant to the overall fair value measurement. The fair value is based on estimates and assumptions made by management at the time of the acquisition. As such, the acquisitions are classified as Level 3 fair value hierarchy measurements and disclosures.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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