Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial statements are based on Chart Industries, Inc.’s (“Chart,” the “Company,” “we” or “our”) historical consolidated financial statements and RCHPH Holdings, Inc.’s (“Hudson”) historical consolidated financial statements as adjusted to give effect to the September 20, 2017 acquisition of Hudson. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2017 and the twelve months ended December 31, 2016 give effect to the acquisition of Hudson as if it had occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet as of June 30, 2017 gives effect to the acquisition of Hudson as if it had occurred on June 30, 2017. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined company’s results. The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial information was based on, and should be read in conjunction with, the historical consolidated financial statements of the Company, including the related notes, filed with the U.S. Securities and Exchange Commission (“SEC”) and the historical statements of Hudson as of and for the six months ended June 30, 2017 and as of and for the year ended December 31, 2016 included in this Form 8-K/A.
The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma condensed combined financial information has been prepared by the Company using the acquisition method of accounting in accordance with generally accepted accounting practices (“GAAP”). The Company has been treated as the acquirer in the merger. Acquisition accounting is dependent upon certain valuation and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The assets and liabilities of Hudson have been measured based on various preliminary estimates using assumptions that the Company believes are reasonable based on information that is currently available to it. Differences between these preliminary estimates and the final acquisition accounting may occur, and those differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position. The unaudited pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements prepared in accordance with the rules and regulations of the SEC.
The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2017
(Dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Chart | | Hudson | | Reclass- | | Adjusted Hudson | | Pro Forma | | | | Pro Forma |
| | Historical | | Historical | | ifications | | Historical | | Adjustments | | Notes | | Combined |
| Current Assets | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 234,427 |
| | $ | 43,643 |
| | $ | — |
| | $ | 43,643 |
| | $ | (163,037 | ) | | (a) | | $ | 115,033 |
|
| Accounts receivable, net | 154,319 |
| | 27,635 |
| | — |
| | 27,635 |
| | 7,034 |
| | (b) | | 188,988 |
|
| Inventories, net | 184,291 |
| | 22,329 |
| | — |
| | 22,329 |
| | 2,571 |
| | (c) | | 209,191 |
|
| Unbilled contract revenue | 28,963 |
| | 3,194 |
| | — |
| | 3,194 |
| | 1,395 |
| | (b) | | 33,552 |
|
| Prepaid expenses | 16,924 |
| | — |
| | 1,318 |
| | 1,318 |
| | (445 | ) | | (b) | | 17,797 |
|
| Other current assets | 16,760 |
| | 1,332 |
| | (1,111 | ) | | 221 |
| | 9,138 |
| | (d) | | 26,119 |
|
| Income taxes receivable, net | — |
| | 81 |
| | (81 | ) | | — |
| | — |
| | | | — |
|
| Assets held for sale | — |
| | 126 |
| | (126 | ) | | — |
| | — |
| | | | — |
|
| Total Current Assets | 635,684 |
| | 98,340 |
| | — |
| | 98,340 |
| | (143,344 | ) | | | | 590,680 |
|
| Property, plant, and equipment, net | 259,791 |
| | 22,485 |
| | — |
| | 22,485 |
| | 8,105 |
| | (e) | | 290,381 |
|
| Goodwill | 228,237 |
| | 164,288 |
| | — |
| | 164,288 |
| | 63,109 |
| | (f) | | 455,634 |
|
| Investments in joint ventures | — |
| | 2,822 |
| | (2,822 | ) | | — |
| | — |
| | | | — |
|
| Identifiable intangible assets, net | 97,106 |
| | 9,038 |
| | — |
| | 9,038 |
| | 192,962 |
| | (g) | | 299,106 |
|
| Other assets | 18,491 |
| | — |
| | 2,822 |
| | 2,822 |
| | 54 |
| | (b) | | 21,367 |
|
| TOTAL ASSETS | $ | 1,239,309 |
| | $ | 296,973 |
| | — |
| | $ | 296,973 |
| | $ | 120,886 |
| | | | $ | 1,657,168 |
|
| | | | | | | | | | | | | | |
| Current Liabilities | | | | | | | | | | | | | |
| Accounts payable | $ | 82,351 |
| | $ | 19,780 |
| | — |
| | $ | 19,780 |
| | $ | 1,466 |
| | (b) | | $ | 103,597 |
|
| Accrued expenses | — |
| | 6,758 |
| | (6,758 | ) | | — |
| | — |
| | | | — |
|
| Customer advances and billings in excess of contract revenue | 72,221 |
| | 15,292 |
| | — |
| | 15,292 |
| | 1,636 |
| | (b) | | 89,149 |
|
| Accrued salaries, wages, and benefits | 33,863 |
| | — |
| | 2,814 |
| | 2,814 |
| | 1,628 |
| | (b) | | 38,305 |
|
| Current portion of warranty reserve | 11,529 |
| | — |
| | 688 |
| | 688 |
| | 151 |
| | (b) | | 12,368 |
|
| Short-term debt and current portion of long-term debt | 6,642 |
| | 418 |
| | — |
| | 418 |
| | (418 | ) | | (h) | | 6,642 |
|
| Other current liabilities | 34,246 |
| | — |
| | 3,256 |
| | 3,256 |
| | 23,899 |
| | (b), (i) | | 61,401 |
|
| Total Current Liabilities | 240,852 |
| | 42,248 |
| | — |
| | 42,248 |
| | 28,362 |
| | | | 311,462 |
|
| Long-term debt | 237,894 |
| | 230,238 |
| | — |
| | 230,238 |
| | 69,762 |
| | (h) | | 537,894 |
|
| Long-term deferred tax liabilities | 4,585 |
| | 22,549 |
| | — |
| | 22,549 |
| | 46,010 |
| | (j) | | 73,144 |
|
| Long-term portion of warranty reserve | 2,893 |
| | — |
| | — |
| | — |
| | — |
| | | | 2,893 |
|
| Accrued pension liabilities | 14,051 |
| | — |
| | 1,022 |
| | 1,022 |
| | — |
| | | | 15,073 |
|
| Other long-term liabilities | 18,609 |
| | 8,022 |
| | (1,022 | ) | | 7,000 |
| | (6,161 | ) | | (k) | | 19,448 |
|
| Total Liabilities | 518,884 |
| | 303,057 |
| | — |
| | 303,057 |
| | 137,973 |
| | | | 959,914 |
|
| | | | | | | | | | | | | | |
| Equity (Deficit) | | | | | | | | | | | | | |
| Common stock | 307 |
| | 286,276 |
| | — |
| | 286,276 |
| | (286,276 | ) | | (l) | | 307 |
|
| Preferred stock | — |
| | 107,607 |
| | — |
| | 107,607 |
| | (107,607 | ) | | (l) | | — |
|
| Additional paid-in capital | 402,851 |
| | 3,342 |
| | — |
| | 3,342 |
| | (3,342 | ) | | (l) | | 402,851 |
|
| Retained earnings (deficit) | 336,199 |
| | (399,722 | ) | | — |
| | (399,722 | ) | | 376,551 |
| | (i), (l) | | 313,028 |
|
| Accumulated other comprehensive loss | (20,892 | ) | | (3,587 | ) | | — |
| | (3,587 | ) | | 3,587 |
| | (l) | | (20,892 | ) |
| Total Shareholders' Equity (Deficit) | 718,465 |
| | (6,084 | ) | | — |
| | (6,084 | ) | | (17,087 | ) | | | | 695,294 |
|
| Noncontrolling interests | 1,960 |
| | — |
| | — |
| | — |
| | — |
| | | | 1,960 |
|
| Total Equity (Deficit) | 720,425 |
| | (6,084 | ) | | — |
| | (6,084 | ) | | (17,087 | ) | | | | 697,254 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 1,239,309 |
| | $ | 296,973 |
| | $ | — |
| | $ | 296,973 |
| | $ | 120,886 |
| | | | $ | 1,657,168 |
|
| | | | | | | | | | | | | | |
See accompanying notes to the unaudited pro forma condensed combined financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2017
(Dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Chart | | Hudson | | Reclass- | | Adjusted Hudson | | Pro Forma | | | | Pro Forma |
| | Historical | | Historical | | ifications | | Historical | | Adjustments | | Notes | | Combined |
| Sales | $ | 442,308 |
| | $ | 99,326 |
| | $ | — |
| | $ | 99,326 |
| | $ | — |
| | | | $ | 541,634 |
|
| Cost of sales | 323,433 |
| | 70,797 |
| | (724 | ) | | 70,073 |
| | 390 |
| | (m) | | 393,896 |
|
| Gross profit | 118,875 |
| | 28,529 |
| | 724 |
| | 29,253 |
| | (390 | ) | | | | 147,738 |
|
| Selling, general, and administrative expenses | 102,632 |
| | 11,862 |
| | 1,123 |
| | 12,985 |
| | (1,256 | ) | | (m), (n) | | 114,361 |
|
| Amortization expense | 6,061 |
| | — |
| | 724 |
| | 724 |
| | 5,981 |
| | (g) | | 12,766 |
|
| Restructuring and other impairment | — |
| | 1,123 |
| | (1,123 | ) | | — |
| | — |
| | | | — |
|
| Asset impairments | — |
| | — |
| | — |
| | — |
| | — |
| | | | — |
|
| Operating expenses | 108,693 |
| | 12,985 |
| | 724 |
| | 13,709 |
| | 4,725 |
| | | | 127,127 |
|
| Operating income before equity in net income of joint venture investments | 10,182 |
| | 15,544 |
| | — |
| | 15,544 |
| | (5,115 | ) | | | | 20,611 |
|
| Equity in net income of joint venture investments | — |
| | 135 |
| | — |
| | 135 |
| | — |
| | | | 135 |
|
| Operating income | 10,182 |
| | 15,679 |
| | — |
| | 15,679 |
| | (5,115 | ) | | | | 20,746 |
|
| Other (income) expenses: | | | | | | | | | | | | | |
| Interest expense, net | 8,217 |
| | 7,122 |
| | — |
| | 7,122 |
| | (1,122 | ) | | (o) | | 14,217 |
|
| Other expense (income), net | — |
| | 1,155 |
| | (1,255 | ) | | (100 | ) | | (162 | ) | | (n) | | (262 | ) |
| Financing costs amortization | 642 |
| | — |
| | — |
| | — |
| | — |
| | | | 642 |
|
| Management fees | — |
| | 534 |
| | — |
| | 534 |
| | — |
| | | | 534 |
|
| Foreign currency loss | 504 |
| | — |
| | 1,255 |
| | 1,255 |
| | — |
| | | | 1,759 |
|
| Other expenses, net | 9,363 |
| | 8,811 |
| | — |
| | 8,811 |
| | (1,284 | ) | | | | 16,890 |
|
| Income before income taxes | 819 |
| | 6,868 |
| | — |
| | 6,868 |
| | (3,831 | ) | | | | 3,856 |
|
| Income tax expense | 439 |
| | 2,834 |
| | | | 2,834 |
| | (1,341 | ) | | (p) | | 1,932 |
|
| Net income | 380 |
| | 4,034 |
| | — |
| | 4,034 |
| | (2,490 | ) | | | | 1,924 |
|
| Income attributable to noncontrolling interests, net of taxes | 509 |
| | — |
| | — |
| | — |
| | — |
| | | | 509 |
|
| Net (loss) income attributable to Chart Industries, Inc. | $ | (129 | ) | | $ | 4,034 |
| | $ | — |
| | $ | 4,034 |
| | $ | (2,490 | ) | | | | $ | 1,415 |
|
| Net (loss) income attributable to Chart Industries, Inc. per share: | | | | | | | | | | | | | |
| Basic | — |
| | | | | | | | | | | | $ | 0.05 |
|
| Diluted | — |
| | | | | | | | | | | | $ | 0.05 |
|
| Weighted-average number of common shares outstanding: | | | | | | | | | | | | | |
| Basic | 30,711 |
| | | | | | | | | | | | 30,711 |
|
| Diluted | 30,711 |
| | | | | | | | | | | | 30,711 |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 2016
(Dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Chart | | Hudson | | Reclass- | | Adjusted Hudson | | Pro Forma | | | | Pro Forma |
| | Historical | | Historical | | ifications | | Historical | | Adjustments | | Notes | | Combined |
| Sales | $ | 859,154 |
| | $ | 169,823 |
| | $ | — |
| | $ | 169,823 |
| | $ | — |
| | | | $ | 1,028,977 |
|
| Cost of sales | 592,781 |
| | 111,796 |
| | (1,448 | ) | | 110,348 |
| | 875 |
| | (m) | | 704,004 |
|
| Gross profit | 266,373 |
| | 58,027 |
| | 1,448 |
| | 59,475 |
| | (875 | ) | | | | 324,973 |
|
| Selling, general, and administrative expenses | 195,911 |
| | 22,903 |
| | 1,549 |
| | 24,452 |
| | 154 |
| | (l) | | 220,517 |
|
| Amortization expense | 11,873 |
| | — |
| | 1,448 |
| | 1,448 |
| | 11,962 |
| | (f) | | 25,283 |
|
| Goodwill impairment | — |
| | 16,018 |
| | (16,018 | ) | | — |
| | — |
| | | | — |
|
| Restructuring and other impairment | — |
| | 1,643 |
| | (1,643 | ) | | — |
| | — |
| | | | — |
|
| Asset impairments | 1,217 |
| | — |
| | 16,112 |
| | 16,112 |
| | — |
| | | | 17,329 |
|
| Operating expenses | 209,001 |
| | 40,564 |
| | 1,448 |
| | 42,012 |
| | 12,116 |
| | | | 263,129 |
|
| Operating income before equity in net income of joint venture | 57,372 |
| | 17,463 |
| | — |
| | 17,463 |
| | (12,991 | ) | | | | 61,844 |
|
| Equity in net income of joint venture investments | — |
| | 341 |
| | — |
| | 341 |
| | — |
| | | | 341 |
|
| Operating income | 57,372 |
| | 17,804 |
| | — |
| | 17,804 |
| | (12,991 | ) | | | | 62,185 |
|
| Other (income) expenses: | | | | | | | | | | | | | |
| Interest expense, net | 17,338 |
| | 14,400 |
| | — |
| | 14,400 |
| | (2,400 | ) | | (o) | | 29,338 |
|
| Other (income) expense, net | — |
| | (1,033 | ) | | 1,143 |
| | 110 |
| | — |
| | | | 110 |
|
| Financing costs amortization | 1,284 |
| | — |
| | — |
| | — |
| | — |
| | | | 1,284 |
|
| Management fees | — |
| | 1,063 |
| | — |
| | 1,063 |
| | — |
| | | | 1,063 |
|
| Foreign currency loss (gain) | 351 |
| | — |
| | (1,143 | ) | | (1,143 | ) | | — |
| | | | (792 | ) |
| Other expenses, net | 18,973 |
| | 14,430 |
| | — |
| | 14,430 |
| | (2,400 | ) | | | | 31,003 |
|
| Income before income taxes | 38,399 |
| | 3,374 |
| | — |
| | 3,374 |
| | (10,591 | ) | | | | 31,182 |
|
| Income tax expense | 13,702 |
| | 8,559 |
| | | | 8,559 |
| | (3,707 | ) | | (p) | | 18,554 |
|
| Net income (loss) | 24,697 |
| | (5,185 | ) | | — |
| | (5,185 | ) | | (6,884 | ) | | | | 12,628 |
|
| Loss attributable to noncontrolling interests, net of taxes | (3,540 | ) | | — |
| | — |
| | — |
| | — |
| | | | (3,540 | ) |
| Net income (loss) attributable to Chart Industries, Inc. | $ | 28,237 |
| | $ | (5,185 | ) | | $ | — |
| | $ | (5,185 | ) | | $ | (6,884 | ) | | | | $ | 16,168 |
|
| Net income (loss) attributable to Chart Industries, Inc. per share: | | | | | | | | | | | | | |
| Basic | $ | 0.92 |
| | | | | | | | | | | | $ | 0.53 |
|
| Diluted | $ | 0.91 |
| | | | | | | | | | | | $ | 0.52 |
|
| Weighted-average number of common shares outstanding: | | | | | | | | | | | | | |
| Basic | 30,583 |
| | | | | | | | | | | | 30,583 |
|
| Diluted | 30,994 |
| | | | | | | | | | | | 30,994 |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts)
Note 1 – Basis of Presentation
The unaudited pro forma condensed combined financial statements are based on the Company’s and Hudson’s historical consolidated financial statements as adjusted to give effect to the acquisition of Hudson and the borrowings under Chart’s senior secured revolving credit facility necessary to finance a portion of the acquisition. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2017 and the twelve months ended December 31, 2016 give effect to the Hudson acquisition as if it had occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet as of June 30, 2017 gives effect to the Hudson acquisition as if it had occurred on June 30, 2017. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined company’s results.
We have accounted for the acquisition in the unaudited pro forma condensed combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed. Goodwill is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
The pro forma adjustments described below were based on management’s assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from Hudson based on preliminary estimates of fair value. The final purchase consideration and the allocation of the purchase consideration may differ from that reflected in the unaudited pro forma condensed combined financial information as the acquisition consideration allocation is preliminary, pending completion of the fair value analyses of acquired assets and liabilities as well as certain other analyses.
The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions, or other restructurings that could result from the acquisition.
Certain reclassifications have been made to the presentation of Hudson’s historical financial statements in order to conform to the Company’s presentation.
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts) - Continued
Note 2 – Estimated Consideration and Preliminary Purchase Price Allocation
On September 20, 2017, the Company acquired Hudson for total consideration of approximately $419,394, net of cash acquired, after an estimated net working capital adjustment amount of $5,894 and $3,500 in acquisition-related tax benefits acquired, as defined in the Merger Agreement. Approximately $300,000 of the purchase price was funded through borrowings under the Company’s senior secured revolving credit facility, and the remainder of the purchase price was funded with cash on hand. The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Hudson based on management’s best estimates of fair value at the acquisition date. The final purchase price allocation may vary based on final appraisals, valuations, and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.
The following table shows the preliminary allocation of the purchase price for Hudson to the acquired identifiable assets, assumed liabilities, and pro forma goodwill:
|
| | | |
| Net assets acquired: | |
| Goodwill | $ | 227,397 |
|
| Identifiable intangible assets | 202,000 |
|
| Accounts receivable | 34,669 |
|
| Property, plant and equipment | 30,590 |
|
| Inventories | 24,900 |
|
| Other current assets | 9,359 |
|
| Unbilled contract revenue | 4,589 |
|
| Other assets | 2,876 |
|
| Prepaid expenses | 873 |
|
| Deferred tax liabilities | (68,559 | ) |
| Accounts payable | (21,246 | ) |
| Customer advances and billings in excess of contract revenue | (16,928 | ) |
| Accrued salaries, wages and benefits | (4,442 | ) |
| Other current liabilities | (3,984 | ) |
| Other long-term liabilities | (1,861 | ) |
| Current portion of warranty reserve | (839 | ) |
| Net assets acquired | $ | 419,394 |
|
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts) - Continued
Note 3 – Unaudited Pro Forma Adjustments
| |
| (a) | Represents cash consideration paid for Hudson and the historical Hudson cash. |
| |
| (b) | Reflects the working capital and other adjustments based on the preliminary purchase price allocation as of the acquisition date as shown in Note 2. |
| |
| (c) | Represents the estimated step up and other adjustments to Hudson’s finished goods and work in process inventory to a fair value of approximately $24,900. The fair value calculation is preliminary and subject to change. The fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. After the acquisition, the step-up in inventory fair value will increase cost of sales as the inventory is sold. This increase is not reflected in the pro forma condensed combined statements of operations because it does not have a continuing impact. |
| |
| (d) | Reflects Hudson’s deposit of $2,343 into a Rabbi Trust for amounts payable to eligible parties under long-term incentive agreements, pursuant to the merger agreement, plus other working capital adjustments based on the preliminary purchase price allocation as of the acquisition date as shown in Note 2. |
| |
| (e) | Reflects the adjustment of Hudson’s historical tangible assets acquired by the Company to their estimated fair values of approximately $30,590, an increase of $8,105 from the carrying value. The fair value calculation is preliminary and subject to change. |
| |
| (f) | Reflects adjustment to remove Hudson’s historical goodwill of $164,288 and record goodwill resulting from the acquisition of $227,397. Goodwill is calculated as the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized. |
| |
| (g) | Reflects the adjustment of historical intangible assets acquired by the Company to their estimated fair values and the recognition of new intangible assets. As part of the preliminary valuation analysis, the Company identified intangible assets, including customer relationships, customer backlog, trademark and trade names, and unpatented technology. The Company 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 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. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts) - Continued
The following table summarizes the estimated fair values of Hudson’s identifiable intangible assets and their estimated useful lives and uses a straight line method of amortization:
|
| | | | | | | | | | | | | |
| | | | | | | | Pro Forma |
| | Pro Forma | | Weighted-average | | Pro Forma | | Six Months Ended |
| | Estimated | | Estimated Useful Life | | Annual 2016 | | June 30, 2017 |
| | Fair Value | | In years | | Amortization Expense | | Amortization Expense |
| Finite-lived intangible assets: | | | | | | | |
| Customer relationships | $ | 109,200 |
| | 10 | | $ | 10,920 |
| | $ | 5,460 |
|
| Unpatented technology - axial flow cooling fans | 11,200 |
| | 15 | | 747 |
| | 374 |
|
| Unpatented technology - air-cooled heat exchangers | 8,000 |
| | 7 | | 1,143 |
| | 571 |
|
| Customer backlog | 1,200 |
| | 2 | | 600 |
| | 300 |
|
| Indefinite-lived intangible assets: | | | | | | | |
| Trademark/Trade Names | 72,400 |
| | | | — |
| | — |
|
| Total identifiable intangible assets acquired | 202,000 |
| | | | 13,410 |
| | 6,705 |
|
| Historical Hudson intangibles | 9,038 |
| | | | 1,448 |
| | 724 |
|
| Pro forma adjustments | $ | 192,962 |
| | | | $ | 11,962 |
| | $ | 5,981 |
|
These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial statements.
| |
| (h) | As the Company did not assume the long-term debt of Hudson as part of the transaction, we have eliminated long-term debt (including current portion) of approximately $230,656 of Hudson and reflected the borrowings under our existing senior secured revolving credit facility of $300,000 incurred to finance the acquisition. |
|
| | | | | | | |
| | Current | | Long-Term |
| Decrease for extinguishment of existing Hudson debt | $ | (418 | ) | | $ | (230,238 | ) |
| Increase for draw on Chart's senior secured credit facility | — |
| | 300,000 |
|
| Pro forma adjustments to debt | $ | (418 | ) | | $ | 69,762 |
|
| |
| (i) | Represents the accrual of nonrecurring transaction costs of $7,254 incurred by Chart and $15,917 incurred by Hudson. Because these costs are required to be expensed as they are incurred, they have been charged to retained earnings as of June 30, 2017. No adjustment has been made to the unaudited pro forma condensed combined statements of operations for these costs as they are nonrecurring. |
| |
| (j) | Adjusts the deferred tax liabilities resulting from the acquisition. This calculation is based on the preliminary purchase allocation and is subject to change. |
| |
| (k) | Reflects the elimination of $5,492 of accrued management fees that were paid by the sellers from their proceeds received for completion of the transaction, as well as other adjustments to match the preliminary purchase price allocation as of the acquisition date as shown in Note 2. |
| |
| (l) | Represents the elimination of the historical equity of Hudson. |
| |
| (m) | Reflects the increase in depreciation expense associated with the increase of $8,105 in historical tangible assets to their estimated fair values. Depreciation expense was increased by $459 ($390 in cost of sales and $69 in selling, general, and administrative expenses ("SG&A")) to $2,036 for the six months ended June 30, 2017 and by $1,029 ($875 in cost of sales and $154 in SG&A) to $4,144 for the year ended December 31, 2016. |
CHART INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts) - Continued
| |
| (n) | Represents the elimination of nonrecurring transaction costs incurred during the six-month period ended June 30, 2017 that are directly related to the acquisition of Hudson in the amount of $875 for Chart and $612 for Hudson ($450 recorded in SG&A and $162 recorded in other expense (income), net). |
| |
| (o) | Represents the net decrease to interest expense resulting from interest on the borrowings on our existing credit facility to finance the acquisition of Hudson and eliminate Hudson’s long-term debt that was not assumed in the transaction, as well as the elimination of Hudson’s amortization of related debt issuance costs as follows: |
|
| | | | | | | |
| | Six months ended | | Year ended |
| | June 30, 2017 | | December 31, 2016 |
| Elimination of interest expense and amortization of debt issuance costs - outstanding Hudson debt | $ | (7,122 | ) | | $ | (14,400 | ) |
| Interest expense on draw on Chart's senior secured revolving credit facility at a 4% interest rate | 6,000 |
| | 12,000 |
|
| Pro forma adjustments | $ | (1,122 | ) | | $ | (2,400 | ) |
| |
| (p) | Reflects the income tax effect of pro forma adjustments based on the estimated blended federal and state tax rate of 35%. |
