UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of report: July 10, 2015 (Date of
earliest event reported: April 24, 2015)
RBC BEARINGS INCORPORATED
(Exact name of registrant
as specified in its charter)
Delaware |
333-124824 |
95-4372080 |
(State or other
jurisdiction
of incorporation) |
(Commission
File Number) |
(IRS Employer
Identification No.) |
One Tribology Center
Oxford, CT 06478
(Address of principal executive offices) (Zip
Code)
(203) 267-7001
(Registrant’s telephone
number, including area code)
N/A
(Former name or former address,
if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
This Amendment No. 1 to Current Report on Form
8-K/A is being filed to amend the Current Report on Form 8-K (the “Initial 8-K”) filed with the Securities and Exchange
Commission on April 28, 2015 by RBC Bearings Incorporated (the “Company”) to include the financial information referred
to in Item 9.01(a) and (b) with respect to the Company’s acquisition of the Sargent Aerospace and Defense (“SAD”)
business as substantially described in the Purchase Agreement on April 24, 2015. The Company hereby amends Item 9.01
of the Initial 8-K to provide in its entirety as follows:
Item 9.01. Financial Statements
and Exhibits.
(a) Financial statements of business acquired
The audited combined financial statements
of SAD as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 and the unaudited combined
financial statements of SAD as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 and the consent of
the independent auditors are filed as Exhibits 99.2 and 23.1 hereto, respectively, and are incorporated by reference
herein.
(b) Pro forma financial information
On April 24, 2015, the Company completed its
acquisition of SAD. The following pro forma financial information is filed as Exhibit 99.3 hereto and is incorporated
by reference herein:
1) Unaudited Pro Forma Condensed Combined Balance
Sheet as of March 28, 2015.
2) Unaudited Pro Forma Condensed Combined Statement
of Operations for the Fiscal Year Ended March 28, 2015.
3) Notes to the Unaudited Pro Forma Condensed
Combined Financial Information.
(c) Not Applicable
(d) Exhibits. The following are being filed herewith:
Exhibit 10.1 Credit Agreement, dated
April 24, 2015, among Roller Bearing Company of America, Inc. as Borrower, RBC Bearings Incorporated and various Lenders signatory
thereto.*
Exhibit 10.2 Guarantee, dated April
24, 2015, by and between RBC Bearings Incorporated, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association,
as Administrative Agent. *
Exhibit 10.3 Security Agreement, dated
April 24, 2015, by and between Roller Bearing Company of America, Incorporated, RBC Bearings Incorporated, the subsidiary grantors
party thereto and Wells Fargo Bank, National Association, as Collateral Agent for the benefit of the Secured Creditors. *
Exhibit 10.4 Pledge Agreement, dated April
24, 2015, by and between Roller Bearing Company of America, Incorporated, RBC Bearings Incorporated, the subsidiary pledgors party
thereto and Wells Fargo Bank, National Association, as Collateral Agent for the benefit of the Secured Creditors.*
Exhibit 23.1 Consent
of PricewaterhouseCoopers LLP, Independent
Auditors.
Exhibit 99.1 Company Press Release,
dated April 24, 2015. *
Exhibit 99.2 The audited combined financial
statements of SAD as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 and the unaudited combined
financial statements of SAD as of March 31, 2015 and for the three months ended March 31, 2015 and 2014.
Exhibit 99.3 Unaudited Pro Forma
Condensed Combined Financial Information.
*Previously filed
SIGNATURES
According to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Date: July 10, 2015
|
RBC BEARINGS INCORPORATED |
|
|
|
|
By: |
/s/ Thomas J. Williams |
|
|
Name: Thomas J. Williams |
|
|
Title: Corporate General Counsel & Secretary |
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-192164 and 333-129826) of RBC Bearings Inc. of our report dated June 30, 2015 relating to the financial
statements and financial statement schedule of Sargent Aerospace & Defense, which appears in this Current Report on Form 8-K
of RBC Bearings Inc. dated July 10, 2015.
/s/
PricewaterhouseCoopers LLP
Chicago, IL
July 10, 2015
Exhibit 99.2
Sargent Aerospace & Defense
Audited
Combined Financial Statements
As of
December 31, 2014 and 2013
and for
the years ended December 31, 2014, 2013 and 2012
Unaudited
Combined Financial Statements
As of
March 31, 2015
and for
the three months ended March 31, 2015 and 2014
SARGENT AEROSPACE & DEFENSE
INDEX TO COMBINED FINANCIAL STATEMENTS
|
Page |
Audited Combined Statements of Sargent Aerospace & Defense: |
|
Independent Auditor’s Report |
1 |
Combined Statements of Comprehensive Earnings for the years ended December 31, 2014, 2013, and 2012 |
2 |
Combined Balance Sheets at December 31, 2014 and 2013 |
3 |
Statements of Parent Company Equity for the years ended December 31, 2014, 2013, and 2012 |
4 |
Combined Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012 |
5 |
Notes to Combined Financial Statements |
6 |
Financial Statement Schedule - Schedule II, Valuation and Qualifying Accounts |
17 |
|
|
Unaudited Combined Statements of Sargent Aerospace & Defense: |
|
Combined Statements of Comprehensive Earnings for the three months ended March 31, 2015 and 2014 |
18 |
Combined Balance Sheets at March 31, 2015 and December 31, 2014 |
19 |
Statement of Parent Company Equity for the three months ended March 31, 2015 |
20 |
Combined Statements of Cash Flows for the three months ended March 31, 2015 and 2014 |
21 |
Notes to Combined Financial Statements |
22 |
Independent
Auditor's Report
To the Board of Directors of Dover Corporation:
We have audited the accompanying combined financial statements
and financial statement schedule of Sargent Defense & Aerospace, which comprise the combined balance
sheets as of December 31, 2014 and 2013, and the related combined statements of comprehensive
earnings, of parent company equity and of cash flows for the three years ended December 31, 2014.
Management's Responsibility for the Combined Financial
Statements
Management is responsible for the preparation and fair presentation
of the combined financial statements and financial statement schedule in accordance with accounting
principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of the combined financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the combined
financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the combined financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation
and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly,
we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the combined financial statements and financial
statement schedule referred to above present fairly, in all material respects, the financial position of Sargent Defense &
Aerospace at December 31, 2014 and 2013, and the results of its operations and its cash flows for the three years ended December
31, 2014 in accordance with accounting principles generally accepted in the United States of America.
/s/PricewaterhouseCoopers LLP
June 30, 2015
SARGENT AEROSPACE & DEFENSE
COMBINED STATEMENTS OF COMPREHENSIVE
EARNINGS
(in thousands)
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
Revenue | |
$ | 195,091 | | |
$ | 216,738 | | |
$ | 209,481 | |
Cost of goods and services | |
| 139,184 | | |
| 146,605 | | |
| 142,119 | |
Gross profit | |
| 55,907 | | |
| 70,133 | | |
| 67,362 | |
Selling and administrative expenses | |
| 29,439 | | |
| 30,711 | | |
| 29,961 | |
Operating earnings | |
| 26,468 | | |
| 39,422 | | |
| 37,401 | |
Interest expense, net | |
| 2,460 | | |
| 2,460 | | |
| 2,460 | |
Other income, net | |
| (262 | ) | |
| (125 | ) | |
| (213 | ) |
Earnings before income tax expense | |
| 24,270 | | |
| 37,087 | | |
| 35,154 | |
Income tax expense | |
| 7,695 | | |
| 12,000 | | |
| 11,774 | |
Net earnings | |
$ | 16,575 | | |
$ | 25,087 | | |
$ | 23,380 | |
| |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| (1,350 | ) | |
| (1,280 | ) | |
| (86 | ) |
Comprehensive earnings | |
$ | 15,225 | | |
$ | 23,807 | | |
$ | 23,294 | |
See Notes to Combined Financial Statements
SARGENT AEROSPACE & DEFENSE
COMBINED BALANCE SHEETS
(in thousands)
| |
December 31, 2014 | | |
December 31, 2013 | |
Current assets: | |
| | | |
| | |
Receivables, net of allowances of $30 and $1,070 | |
$ | 26,012 | | |
$ | 32,313 | |
Inventories | |
| 41,242 | | |
| 42,634 | |
Prepaid and other current assets | |
| 1,868 | | |
| 1,153 | |
Deferred tax asset | |
| 2,796 | | |
| 3,162 | |
Total current assets | |
| 71,918 | | |
| 79,262 | |
Property, plant, and equipment, net | |
| 26,645 | | |
| 25,713 | |
Goodwill | |
| 94,986 | | |
| 94,986 | |
Intangible assets, net | |
| 9,823 | | |
| 11,448 | |
Other assets and deferred charges | |
| 1,093 | | |
| 1,027 | |
Total assets | |
$ | 204,465 | | |
$ | 212,436 | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 15,073 | | |
$ | 14,132 | |
Accrued compensation and employee benefits | |
| 3,508 | | |
| 4,559 | |
Other accrued expenses | |
| 3,228 | | |
| 7,533 | |
Accrued income taxes | |
| — | | |
| 261 | |
Total current liabilities | |
| 21,809 | | |
| 26,485 | |
Notes payable to Parent | |
| 75,646 | | |
| 75,646 | |
Deferred income taxes | |
| 17,459 | | |
| 16,462 | |
Other liabilities | |
| 225 | | |
| 808 | |
Total Parent Company equity: | |
| | | |
| | |
Parent Company investment in Sargent Aerospace & Defense | |
| 92,235 | | |
| 94,594 | |
Accumulated other comprehensive loss | |
| (2,909 | ) | |
| (1,559 | ) |
Total Parent Company equity | |
| 89,326 | | |
| 93,035 | |
Total liabilities and divisional equity | |
$ | 204,465 | | |
$ | 212,436 | |
See Notes to Combined Financial Statements
SARGENT AEROSPACE & DEFENSE
STATEMENTS OF PARENT COMPANY EQUITY
(in thousands)
| |
Parent Company investment | | |
Accumulated other comprehensive loss | | |
Total Parent Company equity | |
Balance at January 1, 2012 | |
$ | 71,742 | | |
$ | (193 | ) | |
$ | 71,549 | |
Net earnings | |
| 23,380 | | |
| | | |
| 23,380 | |
Net transfers to Parent Company | |
| (13,261 | ) | |
| | | |
| (13,261 | ) |
Foreign currency translation adjustment | |
| — | | |
| (86 | ) | |
| (86 | ) |
Balance at December 31, 2012 | |
| 81,861 | | |
| (279 | ) | |
| 81,582 | |
Net earnings | |
| 25,087 | | |
| — | | |
| 25,087 | |
Net transfers to Parent Company | |
| (12,354 | ) | |
| — | | |
| (12,354 | ) |
Foreign currency translation adjustment | |
| — | | |
| (1,280 | ) | |
| (1,280 | ) |
Balance at December 31, 2013 | |
| 94,594 | | |
| (1,559 | ) | |
| 93,035 | |
Net earnings | |
| 16,575 | | |
| | | |
| 16,575 | |
Net transfers to Parent Company | |
| (18,934 | ) | |
| | | |
| (18,934 | ) |
Foreign currency translation adjustment | |
| — | | |
| (1,350 | ) | |
| (1,350 | ) |
Balance at December 31, 2014 | |
$ | 92,235 | | |
$ | (2,909 | ) | |
$ | 89,326 | |
See Notes to Combined Financial Statements
SARGENT AEROSPACE & DEFENSE
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
Operating Activities | |
| | | |
| | | |
| | |
Net earnings | |
$ | 16,575 | | |
$ | 25,087 | | |
$ | 23,380 | |
| |
| | | |
| | | |
| | |
Adjustments to reconcile net earnings to cash from operating activities: | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| 5,945 | | |
| 6,366 | | |
| 7,124 | |
Share-based compensation | |
| (312 | ) | |
| 271 | | |
| 442 | |
Dover overhead allocation | |
| 444 | | |
| 448 | | |
| 434 | |
Other, net | |
| (32 | ) | |
| (8 | ) | |
| (528 | ) |
Cash effect of changes in assets and liabilities | |
| | | |
| | | |
| | |
Accounts receivable | |
| 6,022 | | |
| (2,902 | ) | |
| 1,137 | |
Inventories | |
| 1,086 | | |
| (1,152 | ) | |
| (6,185 | ) |
Prepaid expenses and other assets | |
| (84 | ) | |
| 220 | | |
| 886 | |
Accounts payable | |
| 968 | | |
| (467 | ) | |
| 3,427 | |
Accrued compensation and employee benefits | |
| (1,417 | ) | |
| (2,608 | ) | |
| (42 | ) |
Accrued expenses and other liabilities | |
| (4,479 | ) | |
| (10,941 | ) | |
| (11,932 | ) |
Accrued and deferred taxes, net | |
| 389 | | |
| 2,047 | | |
| (623 | ) |
Net cash provided by operating activities | |
| 25,105 | | |
| 16,361 | | |
| 17,520 | |
| |
| | | |
| | | |
| | |
Investing Activities | |
| | | |
| | | |
| | |
Additions to property, plant and equipment | |
| (5,502 | ) | |
| (2,785 | ) | |
| (4,103 | ) |
Proceeds from the sale of property, plant and equipment | |
| 128 | | |
| 13 | | |
| 557 | |
Net cash used in investing activities | |
| (5,374 | ) | |
| (2,772 | ) | |
| (3,546 | ) |
| |
| | | |
| | | |
| | |
Financing Activities | |
| | | |
| | | |
| | |
Net transfers to Parent Company | |
| (19,731 | ) | |
| (13,596 | ) | |
| (13,977 | ) |
Net cash used in financing activities | |
| (19,731 | ) | |
| (13,596 | ) | |
| (13,977 | ) |
| |
| | | |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents | |
| — | | |
| 7 | | |
| 3 | |
| |
| | | |
| | | |
| | |
Net change in cash and cash equivalents | |
| — | | |
| — | | |
| — | |
Cash and cash equivalents at beginning of period | |
| — | | |
| — | | |
| — | |
Cash and cash equivalents at end of period | |
$ | — | | |
$ | — | | |
$ | — | |
See Notes to Combined Financial Statements
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
1. Description of Business and Basis of Presentation
Sargent Aerospace & Defense ("Sargent"
or the Company") is a global supplier of customized, high quality engineered products and service solutions to the aerospace
and defense industries. Sargent is composed of five entities, including Airtomic, Avborne Accessory Group, Inc., Sargent Aerospace
Canada, Inc., Sargent Controls & Aerospace, and Sonic Industries. On April 24, 2015, Sargent was purchased from Dover Corporation
("Dover") by RBC Bearings Incorporated.
The accompanying combined financial statements
have been prepared on a carve-out basis and are derived from Dover's consolidated financial statements and accounting records.
The combined financial statements represent Sargent's financial position, results of operations, and cash flows as its business
was operated as part of Dover prior to the sale, in conformity with U.S. generally accepted accounting principles.
All intercompany transactions between Sargent
entities have been eliminated. Transactions between Sargent and Dover, with the exception of intercompany notes payable, are reflected
in equity in the combined balance sheet as “Parent Company investment” and in the combined statement of cash flows
as a financing activity in “Net transfers to Parent Company.” See Note 3 for additional information regarding related
party transactions.
Management believes the assumptions underlying
the financial statements are reasonable. The financial statements included herein may not necessarily reflect Sargent’s results
of operations, financial position, and cash flows in the future or what its results of operations, financial position, and cash
flows would have been had Sargent been operated as a stand-alone entity during the periods presented.
2. Summary of Significant Accounting
Policies
Use of estimates - The preparation
of financial statements in conformity with accounting principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying disclosures.
These estimates may be adjusted due to changes in future economic, industry, or customer financial conditions, as well as changes
in technology or demand. Estimates are used in accounting for, among other items, allowances for doubtful accounts receivable,
net realizable value of inventories, warranty reserves, share-based compensation, useful lives for depreciation and amortization
of long-lived assets, future cash flows associated with impairment testing for goodwill, deferred tax assets, uncertain income
tax positions, and contingencies. Actual results may ultimately differ from estimates, although management does not believe such
differences would materially affect the financial statements in any individual year. Estimates and assumptions are periodically
reviewed and the effects of such revisions are reflected in the combined financial statements in the period that they are determined.
Concentrations of risk -
Sargent has one customer, Boeing Commercial, which comprised approximately 15%, 13%, and 14% of its 2014, 2013, and 2012 revenue,
respectively. Additionally, one customer, Newport News Shipbuilding, comprised approximately 11% and 12% of Sargent's 2013 and
2012 revenue, respectively.
Cash and cash equivalents -
Cash and cash equivalents include cash on hand, demand deposits, and short-term investments which are highly liquid in nature and
have original maturities at the time of purchase of three months or less. Operating cash balances were periodically swept to Dover
and are reflected in the Parent Company investment on the combined balance sheet.
Allowance for doubtful accounts
- Sargent maintains allowances for doubtful accounts for estimated losses as a result of customers’ inability to make required
payments. Management evaluates the aging of the accounts receivable balances, the financial condition of its customers, historical
trends, and the time outstanding of specific balances to estimate the amount of accounts receivable that may not be collected in
the future and records the appropriate provision.
Inventories - Inventories
for the majority of the Company’s subsidiaries are stated at the lower of cost, determined on the first-in, first-out (FIFO)
basis, or market. Other inventories are stated at cost, determined on the last-in, first-out (LIFO) basis, which is less than market
value.
Property, plant, and equipment
- Property, plant, and equipment includes the historic cost of land, buildings, equipment, and significant improvements to existing
plant and equipment. Expenditures for maintenance, repairs, and minor renewals are expensed as incurred. When property or equipment
is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the
gain or loss realized on disposition is reflected in earnings. Depreciation expense is recognized using the straight-line method
based on the following estimated useful lives: buildings and improvements 5 to 31.5 years; and machinery, equipment, and other
3 to 7 years. Depreciation expense totaled $4,320, $4,722, and $5,276 for the years ended December 31, 2014, 2013, and 2012,
respectively.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
Goodwill - Goodwill represents
the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not amortized, but instead
is reviewed for impairment at least annually or more frequently if indicators of impairment exist, such as a significant sustained
change in the business climate. Sargent conducted its annual impairment evaluation in the fourth quarter of each year.
Recoverability of goodwill is measured
at the reporting unit level and determined using a two-step process. Step one of the test compares the fair value of each reporting
unit, calculated using a discounted cash flow method, to its book value. This method uses Sargent’s own market assumptions
including projections of future cash flows, determinations of appropriate discount rates, and other assumptions which are considered
reasonable and inherent in the discounted cash flow analysis. The projections are based on historical performance and future estimated
results. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. If, in
step one, the book value of the reporting unit exceeds the fair value, the second step quantifies any impairment write-down by
comparing the current implied value of goodwill to the recorded goodwill balance.
Sargent is composed of two reporting units
that were assessed for impairment testing for all periods presented. As a result of the testing performed, Sargent recognized no
impairment in 2014, 2013, or 2012. See Note 6 for additional details on goodwill balances.
Other intangible assets -
Other intangible assets with determinable lives consist primarily of customer lists, trademarks, and software. These other intangibles
are amortized over their estimated useful lives, ranging from 5 to 20 years.
Revenue recognition - Revenue
is recognized when all of the following conditions are satisfied: a) persuasive evidence of an arrangement exists, b) price
is fixed or determinable, c) collectability is reasonably assured, and d) delivery has occurred or services have been
rendered. The majority of the Company’s revenue is generated through the manufacture and sale of a broad range of specialized
products and components, with revenue recognized upon transfer of title and risk of loss, which is generally upon shipment. Service
revenue is recognized as the services are performed.
In addition, certain transactions arise
whereby a customer agrees to purchase goods but the Company retains physical possession until the customer requests delivery. In
these instances, the Company recognizes revenue when the following conditions are met: a) risk of ownership has passed to the buyer,
b) the buyer has a fixed commitment to purchase the goods, c) the buyer has requested such a transaction in writing, d) there is
a fixed schedule for delivery of the goods, e) the Company retains no performance obligations to the customer, f) the goods have
been segregated from the Company's inventory, and g) the goods are ready for shipment.
Revenue is recognized net of customer discounts,
rebates, and returns. In limited cases, revenue arrangements with customers require delivery, installation, testing, certification,
or other acceptance provisions to be satisfied before revenue is recognized.
Shipping costs - Amounts
billed to customers for shipping costs are included within revenue. Expenses incurred related to the shipping and handling of products
are included within the cost of goods and services.
Share-based compensation
- Sargent’s employees participate in Dover’s stock-based compensation plan, which provides for awards of stock options,
stock appreciation rights ("SARs"), and restricted stock units ("RSUs"). Sargent recognizes the cost of employee
services received in exchange for awards of equity instruments based upon the grant date fair value of these awards. The value
of the portion of the award that is expected to ultimately vest is recognized as expense on a straight-line basis, generally over
the explicit service period of three years and is included in selling and administrative expense in the combined statements of
comprehensive earnings. See Note 8 for additional information related to Sargent’s stock-based compensation.
Income taxes - The income
tax expense in these financial statements has been determined on a separate return basis in accordance with Accounting Standards
Codification ("ASC") 740, Income Taxes, which requires the recognition of income taxes using the liability method. Under
this method, Sargent is assumed to have historically filed a separate return from Dover, reporting its taxable income or loss and
paying applicable tax based on its separate taxable income and associated tax attributes in each tax jurisdiction. Sargent operates
in certain foreign jurisdictions, where local country tax rates are below the 35% U. S. statutory rate. Sargent’s U.S. operating
results have historically been included in Dover’s consolidated U.S. federal tax return. Differences between Sargent’s
separate company income tax provision and amounts attributable to income taxes pursuant to the provisions of Dover’s tax
sharing arrangement have been recognized as capital contributions from, or return of capital to, Dover. The calculation of income
taxes on the separate return basis requires considerable judgment and the use of both estimates and allocations. As a result, Sargent’s
effective tax rate and deferred tax balances will differ significantly from those in Dover’s historic periods. Additionally,
the deferred tax balances as calculated on the separate return basis will differ from the deferred tax balances of Sargent, if
legally separated. For additional information on Sargent’s income taxes and unrecognized tax benefits, see Note 10.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
Research and development costs -
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $3,955,
$3,843, and $3,667 for the years ended December 31, 2014, 2013, and 2012, respectively. Research and development costs are recognized
within selling and administrative expenses.
Risk, retention, insurance - During
the periods presented herein, Sargent participated in Dover’s insurance programs that are maintained at the corporate level.
The costs of the insurance programs administered by Dover are charged to Sargent on the basis of historical trends and actual claims
filed that are specific to Sargent. Sargent accrues for claim exposures that are probable of occurrence and can be reasonably estimated.
Dover’s programs include self-insurance of its product and commercial general liability claims, its workers’ compensation
claims, and automobile liability claims. Third-party insurance provides primary level coverage in excess of the self-insured amounts
up to certain specified limits. In addition, Dover has excess liability insurance from third-party insurers on both an aggregate
and an individual occurrence basis well in excess of the limits of the primary coverage. A worldwide program of property insurance
covers Dover’s owned and leased property and any business interruptions that may occur due to an insured hazard affecting
those properties, subject to reasonable deductibles and aggregate limits. Dover generally maintains deductibles for claims and
liabilities related primarily to workers’ compensation, health and welfare claims, general commercial, product and automobile
liability and property damage, and business interruption resulting from certain events. As part of Dover’s risk management
program, insurance is maintained to transfer risk beyond the level of self-retention and provide protection on both an individual
claim and annual aggregate basis.
Recently issued accounting pronouncements
- In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-09, Revenue from Contracts with Customers, that introduces a new five-step revenue recognition model in which an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient
to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with
customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes
in judgments, and assets recognized from the costs to obtain or fulfill a contract. The original standard was effective for fiscal
years beginning after December 15, 2016; however, in April 2015, the FASB proposed a one-year deferral of this standard, with a
new effective date of December 15, 2017. The Company is currently evaluating the new guidance to determine the impact it will have
on its financial statements.
3. Related Party Transactions
Sargent operates substantially as a stand-alone
business and the majority of its operating expenses are reflected directly within its historical financial statements. However,
Sargent relied on Dover for certain administrative support relating to information technology, risk management, tax, and audit.
Costs for these shared functions have been allocated to Sargent based on an estimate of the utilization of the services provided
or the benefit received by Sargent during the periods presented. The cost allocations included within the financial statements
herein total $444, $448, and $434 for the years ended December 31, 2014, 2013, and 2012, respectively. The amounts recorded for
these transactions and allocations are not necessarily representative of the amounts that would have been reflected in the financial
statements had Sargent been an entity operated independently of Dover. These expense allocations are presented within "Selling
and administrative expenses" in the combined statements of comprehensive earnings and within "Net transfers to Parent
Company" in the combined statement of equity.
Transactions between Sargent and Dover,
with the exception of intercompany notes payable, are reflected in equity in the combined balance sheet as "Parent Company
investment in Sargent Aerospace & Defense" and in the combined statement of cash flows as a financing activity in "Net
transfers to Parent Company."
Sargent has outstanding notes payable with
Dover and its affiliates, which were put in place to fund the business over a defined period of time. Historically, these financing
arrangements were continually renewed with no intention to settle the obligations in cash; therefore, all notes have been classified
as long-term as "Notes payable to Parent" on the combined balance sheet.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
The balance of notes payable consisted
of the following notes due to Revod Corporation, an affiliate of Dover Corporation:
| |
December 31, 2014 | | |
December 31, 2013 | |
Avborne Accessory Group, Inc., 5-year notes due December 31, 2015
| |
$ | 3,795 | | |
$ | 3,795 | |
Sonic Industries, Inc., 5-year notes due December 31, 2015 | |
| 6,434 | | |
| 6,434 | |
Sonic Industries, Inc., 5-year notes due December 31, 2018 | |
| 29,417 | | |
| 29,417 | |
Avborne Accessory Group, Inc., 5-year notes due December 31, 2019
| |
| 36,000 | | |
| 36,000 | |
| |
$ | 75,646 | | |
$ | 75,646 | |
Interest on these notes accrues quarterly,
at a rate per annum equal to the prime rate of commercial loans with 90-day maturities. The annual interest rate on these notes
was 3.25% for the years ended December 31, 2014, 2013, and 2012. Interest expense on these notes totaled $2,460 for each of the
years ended December 31, 2014, 2013, and 2012, and is included in "interest expense, net" in the combined statement
of comprehensive earnings.
As discussed in Note 13 Subsequent Events,
Sargent was sold to RBC Bearings Incorporated on April 24, 2015, at which time these notes due to Revod Corporation were settled.
4. Inventories
The following table displays the components of inventory:
| |
December 31, 2014 | | |
December 31, 2013 | |
Raw materials | |
$ | 6,191 | | |
$ | 7,548 | |
Work in progress | |
| 20,066 | | |
| 18,006 | |
Finished goods | |
| 27,203 | | |
| 27,937 | |
Subtotal | |
| 53,460 | | |
| 53,491 | |
Inventory reserves | |
| (12,218 | ) | |
| (10,857 | ) |
Total | |
$ | 41,242 | | |
$ | 42,634 | |
At December 31, 2014 and 2013 approximately
35% of the Company's total inventories were accounted for using the LIFO method.
5. Property, Plant, and Equipment, net
The following table details the components of property, plant,
& equipment, net:
| |
December 31, 2014 | | |
December 31, 2013 | |
Land | |
$ | 2,542 | | |
$ | 2,565 | |
Buildings and improvements | |
| 15,170 | | |
| 15,495 | |
Machinery, equipment, and other | |
| 67,567 | | |
| 65,089 | |
Subtotal | |
| 85,279 | | |
| 83,149 | |
Accumulated depreciation | |
| (58,634 | ) | |
| (57,436 | ) |
Total | |
$ | 26,645 | | |
$ | 25,713 | |
6. Goodwill and Other Intangible Assets
The carrying value of goodwill for the
years ended December 31, 2014 and 2013 remained consistent at $94,986. The carrying value of goodwill also remained consistent
for the Engineered Products and Aftermarket Services segments at $35,048 and $59,938, respectively, for the years ended December
31, 2014 and 2013.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset:
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Gross Carrying Amount | | |
Accumulated Amortization | |
Customer intangibles | |
$ | 13,706 | | |
$ | 9,061 | | |
$ | 13,706 | | |
$ | 8,148 | |
Trademarks | |
| 8,361 | | |
| 5,163 | | |
| 8,361 | | |
| 4,674 | |
Software and licenses | |
| 4,860 | | |
| 2,880 | | |
| 4,860 | | |
| 2,657 | |
Other | |
| 48 | | |
| 48 | | |
| 48 | | |
| 48 | |
Totals | |
| 26,975 | | |
$ | 17,152 | | |
| 26,975 | | |
| 15,527 | |
| |
| | | |
| | | |
| | | |
| | |
Total intangible assets, net | |
$ | 9,823 | | |
| | | |
$ | 11,448 | | |
| | |
Total amortization expense for the years
ended December 31, 2014, 2013, and 2012 was $1,625, $1,644, and $1,848, respectively. Amortization expense for the next five years,
based on current intangible balances, is estimated to be as follows:
2015 | |
$ | 1,625 | |
2016 | |
| 1,625 | |
2017 | |
| 1,625 | |
2018 | |
| 1,625 | |
2019 | |
| 1,625 | |
7. Other Accrued Expenses and Other Liabilities
The following table details the major components of other accrued
expenses:
| |
December 31, 2014 | | |
December 31, 2013 | |
Warranty | |
$ | 140 | | |
$ | 119 | |
Unearned/deferred revenue | |
| 1,135 | | |
| 5,767 | |
Taxes other than income | |
| 156 | | |
| 165 | |
Accrued commissions (non-employee) | |
| 778 | | |
| 485 | |
Other | |
| 1,019 | | |
| 997 | |
| |
$ | 3,228 | | |
$ | 7,533 | |
The following details the major components of other liabilities
(non-current):
| |
December 31, 2014 | | |
December 31, 2013 | |
Deferred compensation | |
$ | — | | |
$ | 409 | |
Unearned/ deferred revenue | |
| 225 | | |
| 399 | |
| |
$ | 225 | | |
$ | 808 | |
Warranty Activity
Estimated warranty program claims are provided for at the time
of sale. Amounts provided for are based on historical costs and adjusted for new claims. The changes in the carrying amount of
product warranties are as follows:
| |
2014 | | |
2013 | |
Beginning Balance, January 1 | |
$ | 119 | | |
$ | 251 | |
Provision for warranties | |
| 30 | | |
| (86 | ) |
Settlements made | |
| (9 | ) | |
| (46 | ) |
Ending Balance, December 31 | |
$ | 140 | | |
$ | 119 | |
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
8. Share-based Compensation
Sargent has no separate employee stock-based
compensation plan; however, certain employees of Sargent participate in Dover’s Equity and Cash Incentive Plan. Under the
terms of this plan, officers and certain other employees may be granted stock options, stock-settled appreciation rights ("SARs"),
or restricted stock units ("RSUs"). Stock-based compensation expense totaled $(312), $271, and $442 for the years ended
December 31, 2014, 2013, and 2012, respectively. This expense reflects the value of the awards issued that are ultimately expected
to vest.
SARs and Stock Options
Stock options or SARs are granted at an
exercise price equal to the fair market value of Dover stock at the time the awards are granted. All stock options and SARs issued
under this plan vest after three years of service and expire at the end of ten years. In 2014, 2013, and 2012 Dover issued SARs
covering 9,817, 31,606, and 30,920 shares, respectively, to Sargent employees. The fair value of each grant was estimated on the
date of grant using a Black-Scholes option-pricing model with the following assumptions:
| |
2014 Grant | | |
2013 Grant | | |
2012 Grant | |
Risk-free interest rate | |
| 1.70 | % | |
| 1.39 | % | |
| 1.05 | % |
Dividend yield | |
| 1.98 | % | |
| 2.06 | % | |
| 2.03 | % |
Expected life (years) | |
| 5.3 | | |
| 7.1 | | |
| 5.7 | |
Volatility | |
| 30.81 | % | |
| 33.78 | % | |
| 36.41 | % |
Option grant price | |
$ | 82.51 | | |
$ | 63.33 | | |
$ | 57.62 | |
Fair value of options granted | |
$ | 19.84 | | |
$ | 18.17 | | |
$ | 16.31 | |
A summary of activity for SARs and stock options for the year
ended December 31, 2014 is as follows:
| |
SARs | | |
Stock Options | |
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Aggregate Intrinsic Value | | |
Weighted Average Remaining Contractual Term (Years) | | |
Number of Shares | | |
Weighted Average Exercise Price | | |
Aggregate Intrinsic Value | | |
Weighted Average Remaining Contractual Term (Years) | |
Outstanding at 1/1/2014 | |
| 81,574 | | |
$ | 62.11 | | |
| | | |
| | | |
| 1,950 | | |
$ | 39.28 | | |
| | | |
| | |
Granted | |
| 9,817 | | |
| 82.51 | | |
| | | |
| | | |
| — | | |
| — | | |
| | | |
| | |
Modified (1) | |
| 8,647 | | |
| — | | |
| | | |
| | | |
| 145 | | |
| — | | |
| | | |
| | |
Forfeit/expired | |
| (37,969 | ) | |
| 66.65 | | |
| | | |
| | | |
| (750 | ) | |
| 41.25 | | |
| | | |
| | |
Exercised | |
| (17,490 | ) | |
| 56.15 | | |
| | | |
| | | |
| (213 | ) | |
| 35.84 | | |
| | | |
| | |
Outstanding at 12/31/2014 | |
| 44,579 | | |
$ | 53.01 | | |
$ | 877 | | |
| 5.0 | | |
| 1,132 | | |
$ | 33.49 | | |
$ | 43 | | |
| 0.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exercisable at 12/31/2014 | |
| 29,610 | | |
$ | 45.64 | | |
$ | 772 | | |
| 3.4 | | |
| 1,132 | | |
$ | 33.49 | | |
$ | 43 | | |
| 0.1 | |
| (1) | In connection with the spin-off of a portion of Dover Corporation in 2014, the Company modified
its outstanding equity awards such that all individuals received an equivalent fair value both before and after the separation,
which resulted in additional shares issued and a lower exercise price for all outstanding equity awards at the time of modification. |
Unrecognized compensation expense at December
31, 2014 was $106, which will be recognized over a weighted average period of 1.7 years.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
Other information regarding the exercise of SARs and stock options
is listed below:
| |
2014 | | |
2013 | | |
2012 | |
SARs | |
| | | |
| | | |
| | |
Fair value of SARs that became exercisable | |
$ | 363 | | |
$ | 348 | | |
$ | 242 | |
Aggregate intrinsic value of SARs exercised | |
$ | 430 | | |
$ | 1,543 | | |
$ | 1,114 | |
| |
| | | |
| | | |
| | |
Stock options | |
| | | |
| | | |
| | |
Cash received by Dover for exercise of stock options | |
$ | 8 | | |
$ | 126 | | |
$ | 412 | |
Aggregate intrinsic value of options exercised | |
$ | 12 | | |
$ | 139 | | |
$ | 290 | |
Restricted Stock Awards
The Company also has restricted stock authorized
for grant (as part of the 2005 and 2012 Plans), under which common stock of the Company may be granted at no cost to certain officers
and key employees. In general, restrictions limit the sale or transfer of these shares during a two or three year period, and restrictions
lapse proportionately over the two or three year period. The Company granted 2,436 of restricted stock awards in 2014.
No restricted stock awards were issued in 2013 or 2012.
A summary of activity for restricted stock awards for the year
ended December 31, 2014 is as follows:
| |
Number of Shares | | |
Weighted- Average Grant-Date Fair Value | |
Unvested at January 1, 2014 | |
| — | | |
| | |
Granted | |
| 2,436 | | |
| 82.51 | |
Forfeit | |
| (970 | ) | |
| 82.51 | |
Unvested at December 31, 2014 | |
| 1,466 | | |
$ | 82.51 | |
Unrecognized compensation expense relating
to unvested restricted stock as of December 31, 2014 was $89, which will be recognized over a weighted average period of 1.2
years.
9. Employee Benefit Plans
Certain eligible Sargent employees participate
in a qualified defined benefit pension plan sponsored by Dover Corporation. The plan's benefits are based on years of service and
employee compensation. The expense recorded by the Company relating to this plan totaled $339, $371, and $356 for the years ended
December 31, 2014, 2013, and 2012, respectively.
This plan was closed to new entrants effective
January 1, 2014.
10. Income Taxes
For purposes of these financial statements,
income tax expense and deferred tax balances have been recorded as if Sargent had historically filed tax returns on a separate
return basis in each tax jurisdiction. These statements reflect tax loss and tax credits that may not reflect the tax positions
taken by Dover. In many cases tax losses and tax credits generated by Sargent have been available for use by Dover. Differences
between Sargent’s separate company income tax provisions and cash flows attributable to income taxes pursuant to the provisions
of Dover’s tax sharing arrangement have been recognized as capital contributions from, or dividends to, Dover.
Income taxes have been based on the following
income (loss) before income tax expense:
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
Domestic | |
$ | 24,265 | | |
$ | 37,799 | | |
$ | 35,279 | |
Foreign | |
| 5 | | |
| (712 | ) | |
| (125 | ) |
Total | |
$ | 24,270 | | |
$ | 37,087 | | |
$ | 35,154 | |
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data
and where otherwise indicated)
The following table details the components of the provision
for income taxes:
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
Current: | |
| | | |
| | | |
| | |
U.S. Federal | |
$ | 6,237 | | |
$ | 10,058 | | |
$ | 10,876 | |
State and local | |
| 136 | | |
| 210 | | |
| 282 | |
Foreign | |
| 25 | | |
| 131 | | |
| 18 | |
Total Current | |
| 6,398 | | |
| 10,399 | | |
| 11,176 | |
Deferred: | |
| | | |
| | | |
| | |
U.S. Federal | |
| 1,383 | | |
| 1,622 | | |
| 508 | |
State and local | |
| (61 | ) | |
| 110 | | |
| 25 | |
Foreign | |
| (25 | ) | |
| (131 | ) | |
| 65 | |
Total deferred | |
| 1,297 | | |
| 1,601 | | |
| 598 | |
Total expense | |
$ | 7,695 | | |
$ | 12,000 | | |
$ | 11,774 | |
Differences between the effective income tax rate and the U.S.
federal income statutory rate are as follows:
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
U.S. Federal income tax rate | |
| 35.0 | % | |
| 35.0 | % | |
| 35.0 | % |
State and local taxes, net of Federal income tax benefit | |
| 0.2 | | |
| 0.6 | | |
| 0.6 | |
Foreign operations tax effect | |
| — | | |
| 0.7 | | |
| 0.1 | |
Subtotal | |
| 35.2 | % | |
| 36.3 | % | |
| 35.7 | % |
R&E tax credits | |
| (0.8 | )% | |
| (1.2 | )% | |
| — | % |
Domestic manufacturing deduction | |
| (2.6 | )% | |
| (2.8 | )% | |
| (2.6 | )% |
Other, principally non-tax deductible items | |
| (0.1 | )% | |
| 0.1 | % | |
| 0.4 | % |
Effective tax rate | |
| 31.7 | % | |
| 32.4 | % | |
| 33.5 | % |
The deferred tax assets, related valuation
allowances, and deferred tax liabilities in these financial statements have been determined as if Sargent had historically filed
its own tax returns in each jurisdiction. Losses and tax credits generated by Sargent may have been available for use by Dover.
Differences between Sargent’s separate company income tax provision and and cash flows attributable to income taxes pursuant
to the provisions of Dover’s tax sharing arrangement have been recognized as capital contributions from, or dividends to
Dover.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
The tax effects of temporary differences that give rise to future
deferred tax assets and liabilities are as follows:
| |
December 31, 2014 | | |
December 31, 2013 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss and credit carryforwards | |
$ | 2,542 | | |
$ | 2,195 | |
Inventory | |
| 2,470 | | |
| 2,306 | |
Accrued compensation | |
| 660 | | |
| 738 | |
Accrued expenses | |
| 52 | | |
| 44 | |
Accounts receivable | |
| 11 | | |
| 380 | |
Total gross deferred tax assets | |
| 5,735 | | |
| 5,663 | |
Valuation allowance | |
| (1,610 | ) | |
| (1,323 | ) |
Total deferred tax assets | |
$ | 4,125 | | |
$ | 4,340 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Intangible assets | |
$ | (14,140 | ) | |
| (12,778 | ) |
Plant and equipment | |
| (3,555 | ) | |
| (3,835 | ) |
Total gross deferred tax liabilities | |
| (17,695 | ) | |
| (16,613 | ) |
Net deferred tax liability | |
$ | (13,570 | ) | |
$ | (12,273 | ) |
| |
| | | |
| | |
Classified as follows in the consolidated balance sheets: | |
| | | |
| | |
Current deferred tax asset | |
$ | 2,796 | | |
$ | 3,162 | |
Non-current deferred tax asset | |
| 1,093 | | |
| 1,027 | |
Non-current deferred tax liability | |
| (17,459 | ) | |
| (16,462 | ) |
| |
$ | (13,570 | ) | |
$ | (12,273 | ) |
The deferred tax assets, related valuation
allowances and deferred tax liabilities in these financial statements have been determined on a basis separate from Dover. The
assessment of the need for a valuation allowance requires considerable judgment on the part of management, with respect to benefits
that could be realized from future taxable income, as well as other positive and negative factors. Due to a lack of significant
positive evidence, a valuation allowance was established on all U.S. state and foreign losses.
The net operating losses at December 31, 2014
and 2013 are comprised of U.S. state losses of $25.6 million and $22.7 million, and foreign losses of $653 and $283, respectively.
The U.S. losses at December 31, 2014 begin to expire in 2018. The foreign losses begin to expire in 2032.
The Company has not provided for U.S. federal
income taxes or tax benefits on undistributed earnings of its international subsidiaries because such earnings are permanently
reinvested. It is not practicable to estimate the amount of tax net of foreign tax credits that might be payable if such earnings
were to be repatriated.
Sargent files U.S., state, local, and foreign
tax returns. The Company is routinely audited by the tax authorities in these jurisdictions, and a number of audits are currently
underway. The Company believes no provision is required for income tax uncertainties and therefore has not recorded unrecognized
tax benefits in these financial statements.
11. Commitments and Contingencies
Lease Commitments
Sargent leases certain facilities and equipment
under operating leases, some of which contain renewal options. Total rental expense for all operating leases was $2,118, $2,106,
and $2,196 for the years ended December 31, 2014, 2013, and 2012, respectively. Contingent rentals under operating leases
were not significant.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
The aggregate future minimum lease payments for operating leases
as of December 31, 2014 are as follows:
2015 | |
$ | 1,791 | |
2016 | |
| 1,826 | |
2017 | |
| 1,873 | |
2018 | |
| 1,861 | |
2019 | |
| 1,884 | |
2020 and thereafter | |
| 312 | |
Legal Matters
Sargent is party to legal proceedings incidental
to its operations. These proceedings primarily involve claims by private parties alleging injury arising out of use of Sargent’s
products, patent infringement, litigation and administrative proceedings involving employment matters and commercial disputes.
Management and legal counsel periodically review the probable outcome of such proceedings, the costs and expenses reasonably expected
to be incurred, the availability and extent of insurance coverage, and established reserves. While it is not possible at this time
to predict the outcome of these legal actions or any need for additional reserves, in the opinion of management, based on these
reviews, it is unlikely that the disposition of the lawsuits and the other matters mentioned above will have a material adverse
effect on the financial position, results of operations, cash flows or competitive position of Sargent.
12. Segment Information
For management reporting and performance evaluation
purposes, the Company categorizes its operating companies into two distinct reportable segments. These segments were determined
in accordance with ASC 280 - Segment Reporting and include:
| • | Engineered Products designs and manufactures advanced technologies for commercial, military, and
defense platforms, including aircraft, rotorcraft, submarines, and land vehicles. |
| • | Aftermarket Services offers solutions to help commercial and military aviation customers increase
fleet readiness, reduce total cost of ownership, and maximize reliability and performance over the life cycle. |
Segment financial information and a reconciliation
of segment result to consolidated results are as follows:
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
Revenue: | |
| | | |
| | | |
| | |
Engineered Products | |
$ | 159,915 | | |
$ | 171,073 | | |
$ | 163,477 | |
Aftermarket Services | |
| 36,264 | | |
| 47,114 | | |
| 48,259 | |
Eliminations | |
| (1,088 | ) | |
| (1,449 | ) | |
| (2,255 | ) |
Consolidated total | |
$ | 195,091 | | |
$ | 216,738 | | |
$ | 209,481 | |
| |
| | | |
| | | |
| | |
Earnings from operations: | |
| | | |
| | | |
| | |
Engineered Products | |
$ | 30,907 | | |
$ | 38,743 | | |
$ | 39,033 | |
Aftermarket Services | |
| (178 | ) | |
| 6,688 | | |
| 4,662 | |
Total segments | |
| 30,729 | | |
| 45,431 | | |
| 43,695 | |
Corporate expense | |
| 3,999 | | |
| 5,884 | | |
| 6,081 | |
Interest expense, net | |
| 2,460 | | |
| 2,460 | | |
| 2,460 | |
Earnings before income tax | |
| 24,270 | | |
| 37,087 | | |
| 35,154 | |
Income tax expense | |
| 7,695 | | |
| 12,000 | | |
| 11,774 | |
Net earnings | |
$ | 16,575 | | |
$ | 25,087 | | |
$ | 23,380 | |
| |
For the Years Ended December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
Depreciation and Amortization: | |
| | | |
| | | |
| | |
Engineered Products | |
$ | 4,047 | | |
$ | 4,389 | | |
$ | 5,041 | |
Aftermarket Services | |
| 1,898 | | |
| 1,977 | | |
| 2,083 | |
Combined total | |
$ | 5,945 | | |
$ | 6,366 | | |
$ | 7,124 | |
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
| |
2014 | | |
2013 | |
Total Assets at December 31, | |
| | |
| |
Engineered Products | |
$ | 116,017 | | |
$ | 120,159 | |
Aftermarket Services | |
| 88,720 | | |
| 92,424 | |
Eliminations | |
| (272 | ) | |
| (147 | ) |
Combined total | |
$ | 204,465 | | |
$ | 212,436 | |
| |
Revenue | | |
Long-Lived Assets | |
| |
For the Years Ended December 31, | | |
At December 31, | |
| |
2014 | | |
2013 | | |
2012 | | |
2014 | | |
2013 | |
United States | |
$ | 130,088 | | |
$ | 145,073 | | |
$ | 144,073 | | |
$ | 23,813 | | |
$ | 22,889 | |
Europe | |
| 25,886 | | |
| 25,025 | | |
| 26,293 | | |
| — | | |
| — | |
Other Americas | |
| 25,820 | | |
| 30,553 | | |
| 25,032 | | |
| 2,832 | | |
| 2,824 | |
Asia | |
| 10,426 | | |
| 13,271 | | |
| 10,626 | | |
| — | | |
| — | |
Other | |
| 2,871 | | |
| 2,816 | | |
| 3,457 | | |
| — | | |
| — | |
Combined total | |
$ | 195,091 | | |
$ | 216,738 | | |
$ | 209,481 | | |
$ | 26,645 | | |
$ | 25,713 | |
Revenue is attributed to regions based on the
location of the Company’s customer, which in some instances is an intermediary and not necessarily the end user. Long-lived
assets are comprised of net property, plant and equipment.
13. Subsequent Events
The Company assessed events occurring subsequent
to December 31, 2014 through June 30, 2015 for potential recognition and disclosure in the combined financial statements. No events
have occurred that would require adjustment to the combined financial statements.
Sale of Sargent
On April 24, 2015, Sargent Aerospace &
Defense was purchased from Dover Corporation by RBC Bearings Incorporated for a total purchase price of $500.0 million.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2014, 2013
and 2012
(In thousands)
Allowance for Doubtful Accounts | |
Balance at Beginning of Year | | |
Acquired by Purchase or Merger | | |
Charged to Cost and Expense (A) | | |
Accounts Written Off | | |
Other | | |
Balance at End of Year | |
Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for Doubtful Accounts | |
$ | 1,070 | | |
| — | | |
| (35 | ) | |
| (1,005 | ) | |
| — | | |
$ | 30 | |
Year Ended December 31, 2013 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for Doubtful Accounts | |
$ | 885 | | |
| — | | |
| 189 | | |
| (4 | ) | |
| — | | |
$ | 1,070 | |
Year Ended December 31, 2012 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for Doubtful Accounts | |
$ | 325 | | |
| — | | |
| 580 | | |
| (24 | ) | |
| 4 | | |
$ | 885 | |
(A) Net of recoveries on previously reserved or written-off balances.
Deferred Tax Valuation Allowance | |
Balance at Beginning of Year | | |
Acquired by Purchase or Merger | | |
Additions | | |
Reductions | | |
Other | | |
Balance at End of Year | |
Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deferred Tax Valuation Allowance | |
$ | 1,323 | | |
| — | | |
| 287 | | |
| — | | |
| — | | |
$ | 1,610 | |
Year Ended December 31, 2013 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deferred Tax Valuation Allowance | |
$ | 1,297 | | |
| — | | |
| 26 | | |
| — | | |
| — | | |
$ | 1,323 | |
Year Ended December 31, 2012 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deferred Tax Valuation Allowance | |
$ | 1,296 | | |
| — | | |
| 1 | | |
| — | | |
| — | | |
$ | 1,297 | |
LIFO Reserve | |
Balance at Beginning of Year | | |
Acquired by Purchase or Merger | | |
Charged to Cost and Expense | | |
Reductions | | |
Other | | |
Balance at End of Year | |
Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LIFO Reserve | |
$ | 4,393 | | |
| — | | |
| 728 | | |
| — | | |
| — | | |
$ | 5,121 | |
Year Ended December 31, 2013 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LIFO Reserve | |
$ | 3,032 | | |
| — | | |
| 1,361 | | |
| — | | |
| — | | |
$ | 4,393 | |
Year Ended December 31, 2012 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LIFO Reserve | |
$ | 2,018 | | |
| — | | |
| 1,014 | | |
| — | | |
| — | | |
$ | 3,032 | |
SARGENT AEROSPACE & DEFENSE
COMBINED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)(in thousands)
| |
Three months ended March 31, | |
| |
2015 | | |
2014 | |
Revenue | |
$ | 44,593 | | |
$ | 50,077 | |
Cost of goods and services | |
| 31,259 | | |
| 35,247 | |
Gross profit | |
| 13,334 | | |
| 14,830 | |
Selling and administrative expenses | |
| 7,475 | | |
| 7,872 | |
Operating earnings | |
| 5,859 | | |
| 6,958 | |
Interest expense, net | |
| 744 | | |
| 615 | |
Other expense (income), net | |
| 30 | | |
| (8 | ) |
Earnings before income tax expense | |
| 5,085 | | |
| 6,351 | |
Income tax expense | |
| 1,686 | | |
| 2,062 | |
Net earnings | |
$ | 3,399 | | |
$ | 4,289 | |
| |
| | | |
| | |
Foreign currency translation adjustment | |
| (1,065 | ) | |
| (734 | ) |
Comprehensive earnings | |
$ | 2,334 | | |
$ | 3,555 | |
See Notes to Combined Financial Statements
SARGENT AEROSPACE & DEFENSE
COMBINED BALANCE SHEETS
(unaudited)(in thousands)
| |
March 31, 2015 | | |
December 31, 2014 | |
Current assets: | |
| | | |
| | |
Receivables, net of allowances of $89 and $30 | |
$ | 28,178 | | |
$ | 26,012 | |
Inventories | |
| 41,682 | | |
| 41,242 | |
Prepaid and other current assets | |
| 1,930 | | |
| 1,868 | |
Deferred tax asset | |
| 3,065 | | |
| 2,796 | |
Total current assets | |
| 74,855 | | |
| 71,918 | |
Property, plant, and equipment, net | |
| 26,696 | | |
| 26,645 | |
Goodwill | |
| 94,986 | | |
| 94,986 | |
Intangible assets, net | |
| 9,417 | | |
| 9,823 | |
Other
assets and deferred charges | |
| 1,090 | | |
| 1,093 | |
Total assets | |
$ | 207,044 | | |
$ | 204,465 | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 15,686 | | |
$ | 15,073 | |
Accrued compensation and employee benefits | |
| 3,550 | | |
| 3,508 | |
Other accrued expenses | |
| 3,110 | | |
| 3,228 | |
Accrued income taxes | |
| — | | |
| — | |
Total current liabilities | |
| 22,346 | | |
| 21,809 | |
Notes payable to Parent | |
| 91,346 | | |
| 75,646 | |
Deferred income taxes | |
| 17,861 | | |
| 17,459 | |
Other liabilities | |
| 225 | | |
| 225 | |
Total Parent Company equity: | |
| | | |
| | |
Parent Company investment in Sargent Aerospace & Defense | |
| 79,240 | | |
| 92,235 | |
Accumulated other comprehensive loss | |
| (3,974 | ) | |
| (2,909 | ) |
Total Parent Company equity | |
| 75,266 | | |
| 89,326 | |
Total liabilities and divisional equity | |
$ | 207,044 | | |
$ | 204,465 | |
See Notes to Combined Financial Statements
SARGENT AEROSPACE & DEFENSE
STATEMENT OF PARENT COMPANY EQUITY
(unaudited)(in thousands)
| |
Parent
Company
investment | | |
Accumulated
other
comprehensive
loss | | |
Total Parent
Company
equity | |
Balance at December 31, 2014 | |
$ | 92,235 | | |
$ | (2,909 | ) | |
$ | 89,326 | |
Net earnings | |
| 3,399 | | |
| — | | |
| 3,399 | |
Net transfers to Parent Company | |
| (16,394 | ) | |
| — | | |
| (16,394 | ) |
Foreign currency translation adjustment | |
| — | | |
| (1,065 | ) | |
| (1,065 | ) |
Balance at March 31, 2015 | |
$ | 79,240 | | |
$ | (3,974 | ) | |
$ | 75,266 | |
See Notes to Combined Financial Statements
SARGENT AEROSPACE & DEFENSE
COMBINED STATEMENTS OF CASH FLOWS
(unaudited)(in thousands)
| |
Three months ended March 31, | |
| |
2015 | | |
2014 | |
Operating Activities | |
| | | |
| | |
Net earnings | |
$ | 3,399 | | |
$ | 4,289 | |
| |
| | | |
| | |
Adjustments to reconcile net earnings to cash from operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 1,455 | | |
| 1,534 | |
Share-based compensation | |
| 29 | | |
| (265 | ) |
Dover overhead allocation | |
| 129 | | |
| 111 | |
Other, net | |
| (4 | ) | |
| (33 | ) |
Cash effect of changes in assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (2,390 | ) | |
| 865 | |
Inventories | |
| (676 | ) | |
| 531 | |
Prepaid expenses and other assets | |
| (520 | ) | |
| 29 | |
Accounts payable | |
| 321 | | |
| 2,191 | |
Accrued compensation and employee benefits | |
| 79 | | |
| (55 | ) |
Accrued expenses and other liabilities | |
| (117 | ) | |
| (1,544 | ) |
Accrued and deferred taxes, net | |
| 578 | | |
| 366 | |
Net cash provided by operating activities | |
| 2,283 | | |
| 8,019 | |
| |
| | | |
| | |
Investing Activities | |
| | | |
| | |
Additions to property, plant and equipment | |
| (925 | ) | |
| (365 | ) |
Proceeds from the sale of property, plant and equipment | |
| 4 | | |
| 33 | |
Net cash used in investing activities | |
| (921 | ) | |
| (332 | ) |
| |
| | | |
| | |
Financing Activities | |
| | | |
| | |
Change in notes payable | |
| 15,700 | | |
| — | |
Net transfers to Parent Company | |
| (17,065 | ) | |
| (7,688 | ) |
Net cash used in financing activities | |
| (1,365 | ) | |
| (7,688 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents | |
| 3 | | |
| 1 | |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| — | | |
| — | |
Cash and cash equivalents at beginning of period | |
| — | | |
| — | |
Cash and cash equivalents at end of period | |
$ | — | | |
$ | — | |
See Notes to Combined Financial Statements
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
1. Basis of Presentation
The financial data presented herein is unaudited
and should be read in conjunction with the audited combined financial statements and accompanying notes as of December 31,
2014 and 2013 and for the three years ended December 31, 2014, 2013, and 2012. In the opinion of management, the financial
data presented includes all adjustments necessary to present fairly the financial position, results of operations, and cash flows
for the interim periods presented. Results for interim periods should not be considered indicative of results for the full year.
In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary
to a fair statement of the results for the interim periods.
The accompanying combined financial statements
have been prepared on a carve-out basis and are derived from Dover’s combined financial statements and accounting records.
The combined financial statements represent Sargent’s financial position, results of operations, and cash flows as its business
was operated as part of Dover, in conformity with U.S. generally accepted accounting principles.
All intercompany transactions between Sargent
entities have been eliminated. Transactions between Sargent and Dover, with the exception of intercompany notes payable, are reflected
in equity in the combined balance sheet as “Parent Company investment” and in the combined statement of cash flows
as a financing activity in “Net transfers to Parent Company.” See Note 2 for additional information regarding related
party transactions.
2. Related Party Transactions
Sargent operates substantially as a stand-alone
business and the majority of its operating expenses are reflected directly within its historical financial statements. However,
Sargent relied on Dover for certain administrative support relating to information technology, risk management, tax, and audit.
Costs for these shared functions have been allocated to Sargent based on an estimate of the utilization of the services provided
or the benefit received by Sargent during the periods presented. The cost allocations included within the financial statements
herein total $129 and $111 for the three months ended March 31, 2015 and 2014, respectively. The amounts recorded for these transactions
and allocations are not necessarily representative of the amounts that would have been reflected in the financial statements had
Sargent been an entity operated independently of Dover. These expense allocations are presented within "Selling and administrative
expenses" in the combined statements of comprehensive earnings and within "Net transfers to Parent Company" in the
combined statement of equity.
Transactions between Sargent and Dover, with
the exception of intercompany notes payable, are reflected in equity in the combined balance sheet as "Parent Company investment
in Sargent Aerospace & Defense" and in the combined statement of cash flows as a financing activity in "Net transfers
to Parent Company."
Sargent has outstanding intercompany notes
payable with Dover and its affiliates, which were put in place to fund the business over a defined period of time. Historically,
these financing arrangements were continually renewed with no intention to settle the obligations in cash; therefore, all notes
have been classified as long-term as "Notes payable to Parent" on the combined balance sheet and in the combined statement
of cash flows as a financing activity in “Change in notes payable.”
The balance of notes payable consisted of the
following notes due to Revod Corporation, an affiliate of Dover Corporation:
| |
March 31, 2015 | | |
December 31, 2014 | |
Avborne Accessory Group, Inc., 5-year notes due December 31, 2015 | |
$ | 3,795 | | |
$ | 3,795 | |
Sonic Industries, Inc., 5-year notes due December 31, 2015 | |
| 6,434 | | |
| 6,434 | |
Sonic Industries, Inc., 5-year notes due December 31, 2018 | |
| 29,417 | | |
| 29,417 | |
Avborne Accessory Group, Inc., 5-year notes due December 31, 2019 | |
| 36,000 | | |
| 36,000 | |
Sargent Aerospace & Defense, LLC 6-year notes due December 31, 2020 | |
| 15,700 | | |
| — | |
| |
$ | 91,346 | | |
$ | 75,646 | |
Interest on these notes accrues quarterly,
at a rate per annum equal to the prime rate of commercial loans with 90-day maturities. The annual interest rate on these notes
was 3.25% for the three months ended March 31, 2015 and 2014. Interest expense on these notes totaled $744 and $615 for the three
months ended March 31, 2015 and 2014, respectively, and is included in “interest expense, net” in the combined
statement of comprehensive earnings.
As discussed in Note 11 Subsequent Events,
Sargent was sold to RBC Bearings Incorporated on April 24, 2015, at which time these notes due to Revod Corporation were settled.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
3. Inventories
The following table displays the components of inventory:
| |
March 31, 2015 | | |
December 31, 2014 | |
Raw materials | |
$ | 7,478 | | |
$ | 6,191 | |
Work in progress | |
| 19,864 | | |
| 20,066 | |
Finished goods | |
| 27,601 | | |
| 27,203 | |
Subtotal | |
| 54,943 | | |
| 53,460 | |
Inventory reserves | |
| (13,261 | ) | |
| (12,218 | ) |
Total | |
$ | 41,682 | | |
$ | 41,242 | |
4. Property, Plant, and Equipment, net
The following table details the components of property, plant, &
equipment, net:
| |
March 31, 2015 | | |
December 31, 2014 | |
Land | |
$ | 2,524 | | |
$ | 2,542 | |
Buildings and improvements | |
| 15,191 | | |
| 15,170 | |
Machinery, equipment, and other | |
| 67,954 | | |
| 67,567 | |
Subtotal | |
| 85,669 | | |
| 85,279 | |
Accumulated depreciation | |
| (58,973 | ) | |
| (58,634 | ) |
Total | |
$ | 26,696 | | |
$ | 26,645 | |
5. Goodwill and Other Intangible Assets
The carrying value of goodwill at March 31, 2015 was $94,986, consistent
with the balance at December 31, 2014. The carrying value of goodwill for the Engineered Products and Aftermarket Services segments
also remained consistent with December 31, 2014 balances at $35,048 and $59,938, respectively.
The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Gross
Carrying
Amount | | |
Accumulated
Amortization | | |
Gross
Carrying
Amount | | |
Accumulated
Amortization | |
Customer intangibles | |
$ | 13,706 | | |
$ | 9,290 | | |
$ | 13,706 | | |
$ | 9,061 | |
Trademarks | |
| 8,361 | | |
| 5,285 | | |
| 8,361 | | |
| 5,163 | |
Software and licenses | |
| 4,860 | | |
| 2,935 | | |
| 4,860 | | |
| 2,880 | |
Other | |
| 48 | | |
| 48 | | |
| 48 | | |
| 48 | |
Totals | |
| 26,975 | | |
$ | 17,558 | | |
| 26,975 | | |
| 17,152 | |
| |
| | | |
| | | |
| | | |
| | |
Total intangible assets, net | |
$ | 9,417 | | |
| | | |
$ | 9,823 | | |
| | |
Total amortization expense was $406 for both
the three months ended March 31, 2015 and the three months ended March 31, 2014.
6. Share-based Compensation
Sargent has no separate employee stock-based
compensation plan; however, certain employees of Sargent participate in Dover’s Equity and Cash Incentive Plan. Under the
terms of this plan, officers and certain other employees may be granted stock options, stock settled appreciation rights (“SARs”),
or restricted stock units ("RSUs").
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
Dover did not issue any SARs or restricted
stock awards to Sargent employees in the first quarter of 2015. In 2014 Dover issued 9,817 SARs and 2,436 RSUs to Sargent employees.
The fair value of the 2014 SARs grant was estimated on the date of grant using the Black-Scholes option pricing model. The following
assumptions were used in determining the fair value of the SARs grant during 2014:
Risk-free interest rate | |
| 1.70 | % |
Dividend yield | |
| 1.98 | % |
Expected life (years) | |
| 5.3 | |
Volatility | |
| 30.81 | % |
Option grant price | |
$ | 82.51 | |
Fair value of options granted | |
$ | 19.84 | |
Stock-based compensation expense totaled $29 and $(265) for the
three months ended March 31, 2015 and 2014, respectively.
7. Employee Benefit Plans
Certain eligible Sargent employees participate
in a qualified defined benefit pension plan sponsored by Dover Corporation. The plan's benefits are based on years of service and
employee compensation. The expense recorded by the Company relating to this plan totaled $96 and $102 for the three months ended
March 31, 2015 and 2014, respectively.
This plan was closed to new entrants effective
January 1, 2014.
8. Income Taxes
The effective tax rate for operations was 33.2%
for the three months ended March 31, 2015 and 32.5% for the three months ended March 31, 2014. Sargent and its subsidiaries file
tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions. The Company believes adequate
provision has been made for all income tax uncertainties. Sargent is routinely audited by taxing authorities in its filing jurisdictions,
and a number of these audits are currently underway.
9. Commitments and Contingencies
Legal Matters
Sargent is party to legal proceedings incidental
to its operations. These proceedings primarily involve claims by private parties alleging injury arising out of use of Sargent’s
products, patent infringement, litigation and administrative proceedings involving employment matters and commercial disputes.
Management and legal counsel periodically review the probable outcome of such proceedings, the costs and expenses reasonably expected
to be incurred, the availability and extent of insurance coverage, and established reserves. While it is not possible at this time
to predict the outcome of these legal actions or any need for additional reserves, in the opinion of management, based on these
reviews, it is unlikely that the disposition of the lawsuits and the other matters mentioned above will have a material adverse
effect on the financial position, results of operations, cash flows or competitive position of Sargent.
Warranty Activity
Estimated warranty program claims are provided for at the time of
sale. Amounts provided for are based on historical costs and adjusted for new claims. The changes in the carrying amount of product
warranties are as follows:
| |
2015 | | |
2014 | |
Beginning Balance, January 1 | |
$ | 140 | | |
$ | 119 | |
Provision for warranties | |
| 3 | | |
| 32 | |
Settlements made | |
| — | | |
| (5 | ) |
Ending Balance, March 31 | |
$ | 143 | | |
$ | 146 | |
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share data and
where otherwise indicated)
10. Segment Information
For management reporting and performance evaluation
purposes, the Company categorizes its operating companies into two distinct reportable segments. Segment financial information
and a reconciliation of segment result to consolidated results are as follows:
| |
Three months ended March 31, | |
| |
2015 | | |
2014 | |
Revenue: | |
| | | |
| | |
Engineered Products | |
$ | 36,552 | | |
$ | 38,998 | |
Aftermarket Services | |
| 8,444 | | |
| 11,265 | |
Eliminations | |
| (403 | ) | |
| (186 | ) |
Combined total | |
$ | 44,593 | | |
$ | 50,077 | |
| |
| | | |
| | |
Earnings (loss) from Operations | |
| | | |
| | |
Engineered Products | |
$ | 7,332 | | |
$ | 7,066 | |
Aftermarket Services | |
| 240 | | |
| 1,139 | |
Total segments | |
| 7,572 | | |
| 8,205 | |
Corporate expense/other, net | |
| 1,743 | | |
| 1,239 | |
Interest expense, net | |
| 744 | | |
| 615 | |
Earnings before income tax | |
| 5,085 | | |
| 6,351 | |
Income tax expense | |
| 1,686 | | |
| 2,062 | |
Net earnings | |
$ | 3,399 | | |
$ | 4,289 | |
11. Subsequent Events
The Company assessed events occurring subsequent
to March 31, 2015 through June 30, 2015 for potential recognition and disclosure in the combined financial statements. No events
have occurred that would require adjustment to the combined financial statements.
Sale of Sargent
On April 24, 2015, Sargent Aerospace &
Defense was purchased from Dover Corporation by RBC Bearings Incorporated for a total purchase price of $500.0 million.
Exhibit 99.3
RBC BEARINGS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited
pro forma condensed combined financial information and related notes present the historical condensed combined financial information
of RBC Bearings Incorporated and its wholly owned subsidiaries (“RBC” or the “Company”) and the Sargent
Aerospace & Defense business of Dover Corporation (“Sargent Aerospace & Defense”) after giving effect to RBC’s
acquisition of Sargent Aerospace & Defense that was completed on April 24, 2015 (the “Acquisition Date”). The unaudited
pro forma condensed combined financial information gives effect to RBC’s acquisition of Sargent Aerospace & Defense based
on the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed
combined financial information.
The Company has a fiscal
year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31 or March 28, 2015 for the current fiscal year. Sargent
Aerospace & Defense’s year-end is December 31. As permitted by S-X Article 11, the ending date of the periods included
for Sargent Aerospace & Defense can differ from those of the Company by up to 93 days; therefore, the unaudited pro forma condensed
combined financial information for Sargent Aerospace & Defense is as of and for the year ended December 31, 2014.
The unaudited pro forma
condensed combined balance sheet as of March 28, 2015 is presented as if the acquisition of Sargent Aerospace & Defense had
occurred on March 28, 2015. The unaudited pro forma condensed combined statement of operations for the fiscal year ended March
28, 2015 is presented as if the acquisition occurred on March 30, 2014. The historical financial information is adjusted in the
unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable
to the acquisition, (2) factually supportable, and (3) with respect to the condensed combined statement of operations, expected
to have a continuing impact on the combined results.
The determination and
preliminary allocation of the purchase consideration used in the unaudited pro forma condensed combined financial information are
based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the Acquisition
Date) as RBC finalizes the valuations of the net tangible and intangible assets acquired.
The unaudited pro forma
adjustments are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction
been consummated as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company
in periods following the acquisition may differ significantly from those reflected in these unaudited pro forma condensed combined
financial information for a number of reasons, including cost savings synergies from operating efficiencies and the effect of the
incremental costs incurred to integrate the two companies.
The unaudited pro forma
condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed
combined financial information. In addition, the unaudited pro forma condensed combined financial information should be read in
conjunction with the audited historical consolidated financial statements and the notes thereto of the Company for the fiscal year
ended March 28, 2015 and the audited historical combined financial statements of Sargent Aerospace & Defense for the year ended
December 31, 2014. Included in this Form 8-K/A are the audited historical combined financial statements and notes thereto of Sargent
Aerospace & Defense for the years ended December 31, 2014, 2013 and 2012, and the unaudited combined financial statements and
notes thereto for the three months ended March 31, 2015 and 2014.
RBC BEARINGS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
AS OF MARCH 28, 2015
(in thousands)
|
|
Historical |
|
|
Historical |
|
|
|
|
|
|
|
|
|
|
RBC Bearings |
|
|
Sargent Aerospace |
|
|
Pro Forma |
|
|
|
Pro Forma |
|
|
|
Incorporated |
|
|
&Defense |
|
|
Adjustments |
|
|
|
Combined |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
125,455 |
|
|
$ |
- |
|
|
$ |
(87,371 |
) |
a |
|
$ |
38,084 |
|
Accounts receivable, net |
|
|
76,651 |
|
|
|
26,012 |
|
|
|
(1,154 |
) |
b |
|
|
101,509 |
|
Inventory, net |
|
|
206,158 |
|
|
|
41,242 |
|
|
|
5,170 |
|
b |
|
|
252,570 |
|
Deferred income taxes |
|
|
12,492 |
|
|
|
2,796 |
|
|
|
(1,379 |
) |
e |
|
|
13,909 |
|
Prepaid expenses and other current assets |
|
|
4,628 |
|
|
|
1,868 |
|
|
|
1,219 |
|
b |
|
|
7,715 |
|
Total current assets |
|
|
425,384 |
|
|
|
71,918 |
|
|
|
(83,515 |
) |
|
|
|
413,787 |
|
Property, plant and equipment, net |
|
|
141,649 |
|
|
|
26,645 |
|
|
|
15,054 |
|
b |
|
|
183,348 |
|
Goodwill |
|
|
43,439 |
|
|
|
94,986 |
|
|
|
114,951 |
|
c, d |
|
|
253,376 |
|
Intangible assets, net |
|
|
12,028 |
|
|
|
9,823 |
|
|
|
187,677 |
|
c, d |
|
|
209,528 |
|
Other assets |
|
|
9,573 |
|
|
|
1,093 |
|
|
|
6,029 |
|
e, f |
|
|
16,695 |
|
Total assets |
|
$ |
632,073 |
|
|
$ |
204,465 |
|
|
$ |
240,196 |
|
|
|
$ |
1,076,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
23,459 |
|
|
$ |
15,073 |
|
|
$ |
- |
|
|
|
$ |
38,532 |
|
Accrued expenses and other current liabilities |
|
|
17,326 |
|
|
|
6,736 |
|
|
|
(78 |
) |
b |
|
|
23,984 |
|
Current portion of long-term debt |
|
|
1,233 |
|
|
|
- |
|
|
|
7,500 |
|
f |
|
|
8,733 |
|
Total current liabilities |
|
|
42,018 |
|
|
|
21,809 |
|
|
|
7,422 |
|
|
|
|
71,249 |
|
Long-term debt, less current portion |
|
|
7,965 |
|
|
|
75,646 |
|
|
|
341,854 |
|
f, g |
|
|
425,465 |
|
Deferred income taxes |
|
|
10,126 |
|
|
|
17,459 |
|
|
|
(16,315 |
) |
h |
|
|
11,270 |
|
Other non-current liabilities |
|
|
22,531 |
|
|
|
225 |
|
|
|
- |
|
|
|
|
22,756 |
|
Total liabilities |
|
|
82,640 |
|
|
|
115,139 |
|
|
|
332,961 |
|
|
|
|
530,740 |
|
RBC Bearing Incorporated Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
Common stock |
|
|
238 |
|
|
|
- |
|
|
|
- |
|
|
|
|
238 |
|
Additional paid-in capital |
|
|
262,091 |
|
|
|
- |
|
|
|
- |
|
|
|
|
262,091 |
|
Accumulated other comprehensive income |
|
|
(7,770 |
) |
|
|
(2,909 |
) |
|
|
2,909 |
|
i |
|
|
(7,770 |
) |
Retained earnings |
|
|
314,176 |
|
|
|
92,235 |
|
|
|
(95,674 |
) |
j |
|
|
310,737 |
|
Treasury stock |
|
|
(19,302 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
(19,302 |
) |
Total RBC Bearings Incorporated stockholders' equity |
|
|
549,433 |
|
|
|
89,326 |
|
|
|
(92,765 |
) |
|
|
|
545,994 |
|
Total liabilities and stockholders' equity |
|
$ |
632,073 |
|
|
$ |
204,465 |
|
|
$ |
240,196 |
|
|
|
$ |
1,076,734 |
|
See notes to unaudited pro forma condensed
combined financial information
RBC BEARINGS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 28, 2015
(in thousands, except per share data)
|
|
Historical |
|
|
Historical |
|
|
|
|
|
|
|
|
|
|
RBC Bearings |
|
|
Sargent Aerospace |
|
|
Pro Forma |
|
|
|
Pro Forma |
|
|
|
Incorporated |
|
|
&Defense |
|
|
Adjustments |
|
|
|
Combined |
|
Net sales |
|
$ |
445,278 |
|
|
$ |
195,091 |
|
|
|
|
|
|
|
$ |
640,369 |
|
Cost of sales |
|
|
275,138 |
|
|
|
138,959 |
|
|
|
$ (500 |
) |
k |
|
|
413,597 |
|
Gross margin |
|
|
170,140 |
|
|
|
56,132 |
|
|
|
500 |
|
|
|
|
226,772 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
75,908 |
|
|
|
28,039 |
|
|
|
(100 |
) |
l |
|
|
103,847 |
|
Other, net |
|
|
5,802 |
|
|
|
1,625 |
|
|
|
6,583 |
|
m |
|
|
14,010 |
|
Total operating expenses |
|
|
81,710 |
|
|
|
29,664 |
|
|
|
6,483 |
|
|
|
|
117,857 |
|
Operating income |
|
|
88,430 |
|
|
|
26,468 |
|
|
|
(5,983 |
) |
|
|
|
108,915 |
|
Interest expense, net |
|
|
1,055 |
|
|
|
2,460 |
|
|
|
6,965 |
|
n |
|
|
10,480 |
|
Other non-operating expense (income) |
|
|
2,820 |
|
|
|
(262 |
) |
|
|
|
|
|
|
|
2,558 |
|
Income before income taxes |
|
|
84,555 |
|
|
|
24,270 |
|
|
|
(12,948 |
) |
|
|
|
95,877 |
|
Provision for income taxes |
|
|
26,307 |
|
|
|
7,695 |
|
|
|
(4,467 |
) |
o |
|
|
29,535 |
|
Net income |
|
$ |
58,248 |
|
|
$ |
16,575 |
|
|
$ |
(8,481 |
) |
|
|
$ |
66,342 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.52 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2.88 |
|
Diluted |
|
$ |
2.49 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2.84 |
|
Weigthed average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
23,073,940 |
|
|
|
|
|
|
|
|
|
|
|
|
23,073,940 |
|
Diluted |
|
|
23,385,061 |
|
|
|
|
|
|
|
|
|
|
|
|
23,385,061 |
|
Dividends per Share |
|
$ |
2.00 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2.00 |
|
See notes to unaudited pro forma condensed
combined financial information
RBC BEARINGS INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(dollars in thousands, except share and
per share amounts)
| 1. | BASIS OF PRO FORMA PRESENTATION |
On April
24, 2015, RBC acquired the Sargent Aerospace & Defense business of Dover Corporation for a total purchase price of $500,000
(the “Acquisition”).
The unaudited
pro forma condensed combined balance sheet as of March 28, 2015 combined RBC’s historical condensed consolidated balance
sheet with the historical condensed combined balance sheet of Sargent Aerospace & Defense and has been prepared as if the Company’s
acquisition of Sargent Aerospace & Defense had occurred on March 28, 2015. The unaudited pro forma condensed combined statement
of operations for the fiscal year ended March 28, 2015 combined RBC’s historical condensed consolidated statement of operations
with Sargent Aerospace & Defense’s historical condensed combined statement of operations and has been prepared as if
the acquisition had occurred on March 30, 2014. The historical financial information is adjusted in the unaudited pro forma condensed
combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition,
(2) factually supportable, and (3) with respect to the condensed combined statement of income, expected to have a continuing impact
on the combined results.
The Company
has a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31 or March 28, 2015 for the current fiscal
year. Sargent Aerospace & Defense’s year-end is December 31. As permitted by S-X Article 11, the ending date of the periods
included for Sargent Aerospace & Defense can differ from those of the Company by up to 93 days; therefore, the unaudited pro
forma condensed combined financial information for Sargent Aerospace & Defense is as of and for the year ended December 31,
2014.
RBC has
accounted for the acquisition in this 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, the Company uses its best estimates and assumptions to
assign fair value to the tangible and intangible assets acquired and liabilities assumed at the Acquisition Date. Goodwill as of
the Acquisition Date 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 developed based on RBC management’s assumptions and estimates, including assumptions
relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from Dover Corporation
for Sargent Aerospace & Defense based on preliminary estimates of fair value. The final purchase consideration and the allocation
of the purchase consideration will differ from that reflected in the audited pro forma condensed combined financial information
after final valuation procedures are performed and the amounts are finalized following the completion of the acquisition.
The unaudited
pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent
that the actual consolidated results of operations or the consolidated financial position of the combined company would have been
had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations
or financial position.
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.
The following
reclassification has been made to the presentation of Sargent Aerospace & Defense’s historical financial statements in
order to conform to RBC’s presentation:
| · | Sargent Aerospace & Defense’s
annual amortization of intangible assets aggregating $1,625 was reclassified from “costs of goods and services” ($225)
and “selling and administrative expense” ($1,400) to “other income, net.” |
| 2. | PRELIMINARY PURCHASE CONSIDERATION AND RELATED ALLOCATION |
A summary
of the sources and uses of proceeds for the Acquisition is as follows:
Sources of Funds: | |
| | |
Proceeds from new term loan facility | |
$ | 200,000 | |
Proceeds from new revolving credit facility | |
| 225,000 | |
Cash and cash equivalents | |
| 87,371 | |
Total sources of funds | |
$ | 512,371 | |
Uses of Funds: | |
| | |
Acquisition of Sargent Aerospace & Defense | |
$ | 500,000 | |
Debt issuance costs | |
| 7,122 | |
Transaction costs | |
| 5,249 | |
Total uses of funds | |
$ | 512,371 | |
The following
table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values on the assumed
acquisition date and the related estimated useful lives of the amortizable intangible assets acquired:
Accounts receivable, net | |
$ | 24,858 | |
Prepaid and other current assets | |
| 3,087 | |
Inventory | |
| 46,412 | |
Property, plant and equipment | |
| 41,699 | |
Finite-lived intangible assets: | |
| | |
Customer relationships | |
| 93,200 | |
Product approvals | |
| 50,500 | |
Trademarks and tradenames | |
| 18,000 | |
Domain name | |
| 4,600 | |
Repair station certifications | |
| 31,200 | |
Goodwill | |
| 209,937 | |
Accounts payable and other accrued expenses | |
| (21,956 | ) |
Deferred tax liability associated with purchase accounting adjustments | |
| (1,537 | ) |
Total | |
$ | 500,000 | |
The Company
believes the amount of goodwill resulting from the allocation of purchase consideration is primarily attributable to expected synergies
from future growth and from potential monetization opportunities. Goodwill is not expected to be deductible for tax purposes. In
accordance with ASC 805, goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently
if certain indicators of impairment are present. In the event that goodwill has become impaired, the Company will record an expense
for the amount impaired during the fiscal quarter in which the determination is made.
Upon completion
of the fair value assessment, it is anticipated that the final purchase price allocation will differ from the preliminary assessment
outlined above. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will
be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
The pro
forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:
| a) | To record the adjustments related to cash consideration paid is as follows: |
Cash and cash equivalents for acquisition | |
$ | 75,000 | |
Adjustment for cash payment of debt issuance costs subsequent to March 28, 2015 | |
| 7,122 | |
Adjustment for cash payment of non-recurring, direct, incremental transaction costs subsequent to March 28, 2015 | |
| 5,249 | |
| |
$ | 87,371 | |
| b) | To record preliminary fair value adjustments to acquired inventory; property, plant and equipment,
net; and other in connection with the Sargent Aerospace & Defense acquisition: |
| |
Preliminary
fair values | | |
Adjustment | | |
Preliminary
estimated useful life |
Property, plant and equipment: | |
| | | |
| | | |
|
Land | |
$ | 2,594 | | |
| | | |
|
Land improvements | |
| 465 | | |
| | | |
20 years |
Buildings | |
| 8,393 | | |
| | | |
30 years |
Leasehold improvements | |
| 779 | | |
| | | |
4 years |
Machinery & equipment | |
| 22,463 | | |
| | | |
10 years |
Transportation equipment | |
| 86 | | |
| | | |
5 years |
Furniture & fixtures | |
| 882 | | |
| | | |
10 years |
Office & computer equipment | |
| 1,534 | | |
| | | |
5 years |
Computer software | |
| 1,494 | | |
| | | |
5 years |
Construction in progress | |
| 3,009 | | |
| | | |
|
| |
$ | 41,699 | | |
$ | 15,054 | | |
|
| |
| | | |
| | | |
|
Inventory | |
$ | 46,412 | | |
$ | 5,170 | | |
|
| |
| | | |
| | | |
|
Other fair value adjustments: | |
| | | |
| | | |
|
Accounts receivable, net | |
| | | |
$ | (1,154 | ) | |
|
Prepaid expenses and other current assets | |
| | | |
$ | 1,219 | | |
|
Accrued expenses and other current liabilities | |
| | | |
$ | (78 | ) | |
|
Inventories
have been adjusted to their estimated fair market value. As this adjustment is directly attributable to the acquisition and will
not have a continuing impact, it is not reflected in the Pro Forma Statement of Operations. However, this inventory adjustment
will result in an expense to cost of sales in the periods subsequent to the consummation of the acquisition during which the related
inventories are sold. The estimated expense is approximately $5,170 (approximately $3,386 net of tax).
| c) | To record preliminary fair values of the intangible assets in connection with the Sargent Aerospace
& Defense acquisition and associated amortization expense: |
| |
Preliminary fair values | | |
Preliminary estimated useful life | |
Annual amortization based upon preliminary fair values | |
Customer relationships | |
$ | 93,200 | | |
25 years | |
$ | 3,728 | |
Product approvals | |
| 50,500 | | |
25 years | |
| 2,020 | |
Trademarks and tradename | |
| 18,000 | | |
10 years | |
| 1,800 | |
Domain name | |
| 4,600 | | |
7 years | |
| 660 | |
Repair station certifications | |
| 31,200 | | |
Indefinite | |
| | |
Goodwill | |
| 209,937 | | |
Indefinite | |
| | |
| |
$ | 407,437 | | |
| |
$ | 8,208 | |
| d) | To eliminate the carrying values of Sargent Aerospace & Defense’s historical intangible
assets at December 31, 2014 and associated amortization expense for the year ended December 31, 2014: |
| |
Balance at December 31, 2014 | | |
Annual amortization | |
Intangible assets, net of accumulated amortization | |
$ | 9,823 | | |
$ | 1,625 | |
Goodwill | |
| 94,986 | | |
| | |
| |
$ | 104,809 | | |
$ | 1,625 | |
| e) | Income tax related impacts incurred by the Company: |
| |
March 28, 2015 | |
Income tax effect on payment of acquisition costs directly related to the acquisition | |
$ | 1,810 | |
Elimination of Sargent Aerospace & Defense’s historical deferred income taxes (included in “deferred income taxes”) | |
| (2,796 | ) |
Deferred tax liability on inventory step-up adjustment | |
| (393 | ) |
Subtotal | |
$ | (1,379 | ) |
Elimination of Sargent Aerospace & Defense’s historical deferred income taxes (included in “other assets”) | |
| (1,093 | ) |
| |
$ | (2,472 | ) |
| f) | In connection with the Sargent Aerospace & Defense acquisition, the Company entered into a
Credit Agreement (the “Credit Agreement”) and related Guarantee, Pledge Agreement and Security Agreement with Wells
Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swingline Lender and Letter of Credit Issuer and the
other lenders party thereto and terminated the JP Morgan Credit Agreement. The Credit Agreement provides the Company, with (i)
a $200,000 term loan facility (the “Term Loan Facility”) and (ii) a $350,000 revolving credit facility (the “Revolving
Credit Facility” and together with the Term Loan Facility, the “Facilities”). |
Amounts outstanding under the
Facilities generally bear interest at (a) a base rate determined by reference to the higher of (1) Wells Fargo’s prime lending
rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one-month LIBOR rate plus 1% or (b) LIBOR rate plus a specified
margin, depending on the type of borrowing being made. The applicable margin is based on the Company’s consolidated ratio
of total net debt to consolidated EBITDA from time to time. Currently, the Company’s margin is 0.50% for base rate loans
and 1.50% for LIBOR rate loans.
Proceeds from the Term Loan Facility | |
$ | 200,000 | |
Proceeds from Revolving Credit Facility | |
| 225,000 | |
| |
| 425,000 | |
Less: current portion of long-term debt | |
| 7,500 | |
| |
$ | 417,500 | |
Borrowing costs incurred by the Company in connection with the Facilities | |
$ | 7,122 | |
| |
| | |
Annual interest expense on the Facilities | |
$ | 8,000 | |
Annual amortization of capitalized borrowing costs incurred by the Company in connection with the Facilities | |
| 1,425 | |
| |
$ | 9,425 | |
| g) | To eliminate Sargent Aerospace & Defense historical intercompany debt of $75,646 and associated
interest expense of $2,460 for the year ended December 31, 2014. |
| h) | Reflects the following: |
| |
March 28, 2015 | |
Deferred tax liability associated with purchase accounting adjustments | |
$ | 1,144 | |
Elimination of Sargent Aerospace & Defense’s historical deferred income taxes | |
| (17,459 | ) |
| |
$ | (16,315 | ) |
| i) | Elimination of Sargent Aerospace & Defense’s historical accumulated other comprehensive
loss. |
| j) | Reflects the following: |
| |
March 28, 2015 | |
Elimination of Sargent Aerospace & Defense’s historical retained earnings | |
$ | (92,235 | ) |
Costs directly related to the acquisition, net of tax, which will be expensed as incurred and are assumed to be incurred on the date of the acquisition | |
| (3,439 | ) |
| |
$ | (95,674 | ) |
| k) | Reflects the following adjustments to cost of sales: |
| |
For the year ended March 28, 2015 | |
Adjustment to Sargent Aerospace & Defense’s historical depreciation expense included in cost of sales based on the assigned fair value and estimated useful lives of net property, plant and equipment | |
$ | (500 | ) |
| l) | Reflects the following adjustments to selling, general and administrative: |
| |
For the year ended March 28, 2015 | |
Adjustment to Sargent Aerospace & Defense’s historical depreciation expense included in selling, general and administrative based on the assigned fair value and estimated useful lives of net property, plant and equipment | |
$ | (100 | ) |
| m) | Reflects the following adjustments to other, net: |
| |
For the year ended
March 28, 2015 | |
Adjustment to Sargent Aerospace and Defense's historical amortization of intangible assets based on the assigned fair value and estimated useful lives of such assets | |
$ | 6,583 | |
| n) | Reflects the following adjustments to interest expense, net: |
| |
For the year ended
March 28, 2015 | |
Annual interest expense on the Facilities | |
$ | 8,000 | |
Amortization of capitalized borrowing costs incurred by RBC in connection with the Facilities | |
| 1,425 | |
Elimination of Sargent Aerospace and Defense’s historical interest expense on intercompany debt | |
| (2,460 | ) |
| |
$ | 6,965 | |
| o) | To record the pro forma adjustments to reflect benefits from income tax at the weighted-average
estimated statutory income tax rates applicable to the jurisdictions in which the pro forma adjustments are expected to be recorded
as follows: |
| |
For the year ended
March 28, 2015 | |
Total pro forma adjustments recorded to decrease income before provision for income taxes in the unaudited pro forma condensed combined statement of income | |
$ | (12,948 | ) |
Estimated effective tax rate applicable to pro forma adjustments | |
| 34.5 | % |
Pro forma adjustment to reflect benefits from income taxes | |
$ | (4,467 | ) |
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