Notes to Unaudited Interim Consolidated
Financial Statements
(dollars in thousands, except share and
per share data)
The consolidated financial
statements included herein have been prepared by RBC Bearings Incorporated, a Delaware corporation (collectively with its subsidiaries,
the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The
April 2, 2016 fiscal year end balance sheet data have been derived from the Company’s audited financial statements, but
do not include all disclosures required by generally accepted accounting principles in the United States. The interim financial
statements included with this report have been prepared on a consistent basis with the Company’s audited financial statements
and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 2, 2016.
These statements reflect
all adjustments, accruals and estimates consisting only of items of a normal recurring nature, which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial condition and consolidated results of operations for the interim
periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements
and notes thereto included in the Annual Report on Form 10-K.
The results of operations
for the three month period ended July 2, 2016 are not necessarily indicative of the operating results for the entire fiscal year
ending April 1, 2017. The three month periods ended July 2, 2016 and June 27, 2015 each include 13 weeks. The amounts shown are
in thousands, unless otherwise indicated.
Critical Accounting Policies
Revenue
Recognition.
In accordance with SEC Staff Accounting Bulletin 101 "Revenue
Recognition in Financial Statements as amended by Staff Accounting Bulletin 104,” we recognize revenues principally
from the sale of products at the point of passage of title, which is at the time of shipment, except for certain customers for
which it occurs when the products reach their destination.
We also recognize revenue
on a Ship-In-Place basis for two customers who have required that we hold the product after final production is complete. In
this case, a written agreement has been executed (at the customer’s request) whereby the customer accepts the risk of loss
for product that is invoiced under the Ship-In-Place arrangement. For each transaction for which revenue is recognized
under a Ship-In-Place arrangement, all final manufacturing inspections have been completed and customer acceptance has been obtained.
In the three months ended July 2, 2016, 2.4% of the Company’s total net sales was recognized under Ship-In-Place transactions.
Adoption of Recent Accounting Pronouncements
In March 2016, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards update (“ASU") No. 2016-09: "Improvements
to Employee Share-Based Payment Accounting" which amends ASC Topic 718, Compensation - Stock Compensation. This ASU includes
provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial
statements. This ASU is effective for public companies for the financial statements issued for annual periods beginning after
December 15, 2016 and interim periods within those annual periods. Earlier application is permitted as of the beginning of an
interim or annual reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company
has not determined the effect that the adoption of the pronouncement may have on its financial position and/or results of operations.
In March 2016, the FASB
issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting
Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance in ASU No. 2014-09 (Topic 606), Revenue
from Contracts with Customers, issued by the FASB in May 2014. ASU No. 2016-08 clarifies the principal-versus-agent guidance in
Topic 606 and requires an entity to determine whether the nature of its promise to provide goods or services to a customer is
performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation.
ASU 2014-09 is a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance
under U.S. GAAP. This update requires the Company to recognize revenue at amounts that reflect the consideration to which the
Company expects to be entitled in exchange for those goods or services at the time of transfer. In doing so, the Company will
need to use more judgement and make more estimates than under today’s guidance, such estimates include identifying performance
obligations in the contracts, estimating the amount of variable consideration to include the transaction price and allocating
the transaction price to each separate performance obligation. The Company can either apply a full retrospective adoption or a
modified retrospective adoption. This ASU is effective for annual reporting periods beginning after December 15, 2017 and interim
periods therein. The Company has not determined the effect that the adoption of the pronouncement may have on its financial position
and/or results of operations.
In February 2016, the
FASB issued ASU 2016-02, “Leases”. The core principal of ASU 2016-02 is that an entity should recognize on its balance sheet assets
and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability
to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset
for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee
will depend on the lease classification as a finance or operating lease. This new accounting guidance is effective for public
companies for fiscal years beginning after December 15, 2018 under a modified retrospective approach and early adoption is permitted.
The Company is currently evaluating the impact this adoption will have on its consolidated financial statements.
In November 2015, the
FASB issued ASU No. 2015-17 (Topic 740): "Balance Sheet Classification of Deferred
Taxes". The FASB issued this ASU as part of its simplification initiative to reduce complexity in accounting standards. This
ASU eliminates the current requirement that requires an organization to present deferred tax liabilities and assets as current
and noncurrent in a classified balance sheet. Instead, organizations with a classified balance sheet are now required to classify
all deferred tax assets and liabilities as noncurrent assets or noncurrent liabilities. This ASU is effective for public companies
for the financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual
periods. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company elected to
early adopt this guidance prospectively during the fourth quarter of fiscal year 2016.
In September 2015, the
FASB issued ASU No. 2015-16, “Business Combinations (Topic 805), Simplifying
the Accounting for Measurement-Period Adjustments.” This ASU allows an acquirer in a business combination to account for
measurement-period adjustments during the period in which it determines the amount of the adjustment. An acquirer would also need
to capture in the current period any effect on earnings it would have recorded in previous periods if the accounting had been
completed at the acquisition date. This pronouncement is effective for fiscal and interim periods beginning after December 15,
2015. Early adoption is permitted. The Company adopted this update effective with their interim period beginning June 28, 2015.
In July 2015, the FASB
issued ASU 2015-11, “Simplifying the Measurement of Inventory.” This update requires the company to measure inventory
using the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU applies to companies
measuring inventory using methods other than the last-in, first-out (LIFO) and retail inventory methods, including but not limited
to the first-in, first-out (FIFO) or average costing methods. This pronouncement is effective for fiscal years and interim periods
beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated
financial statements.
In April 2015, the FASB
issued ASU No. 2015-04, “Compensation - Retirement Benefits: Practical Expedient for the Measurement Date of an Employer’s
Defined Benefit Obligation and Plan Assets.” This ASU permits an entity with a fiscal year-end that does not coincide with
a month-end, to measure defined benefit plan assets and obligations using the month end that is closest to the entity’s
fiscal year-end and apply that consistently from year to year. The practical expedient requires if a contribution or significant
event occurs between the month-end date used to measure the defined benefit plan assets and an entity’s fiscal year end,
the entity should adjust the measurement of the defined benefit plan assets and obligations to reflect the effects of those contributions
and other significant events. This pronouncement is effective for fiscal and interim periods beginning after December 15, 2015.
The Company has elected to adopt this guidance for the fiscal year ended April 2, 2016. The respective assets and liabilities
associated with the defined benefit plans have been valued as of March 31, 2016, with no material impact on the Company’s
consolidated financial statements.
In April 2015, the FASB
issued ASU No. 2015-03, “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.”
This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability. This pronouncement is effective for fiscal and interim periods beginning
after December 15, 2015. Early adoption is allowed. The Company adopted this pronouncement in the first quarter of fiscal 2016.
Other than a different presentation within the balance sheet, the adoption of this ASU did not have a material impact on the Company’s
financial statements.
In January 2015, the FASB
issued ASU No. 2015-01, “Income Statement-Extraordinary and Unusual Items.” This update eliminates the concept of
extraordinary items and removes the requirements to separately present extraordinary events. This ASU also requires additional
disclosures for items that are both unusual in nature and infrequent in occurrence. This pronouncement is effective for fiscal
years and interim periods beginning after December 15, 2015. The adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
In August 2014, the FASB
issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern.” This update requires management to evaluate
whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern,
and requires related footnote disclosures. This pronouncement is effective for fiscal years and interim periods beginning after
December 15, 2016. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial
statements.
1. Accumulated Other Comprehensive Income
(Loss)
The components of comprehensive
income (loss) that relate to the Company are net income, foreign currency translation adjustments and pension plan and postretirement
benefits, all of which are presented in the consolidated statements of stockholders' equity and comprehensive income (loss).
The following summarizes
the activity within each component of accumulated other comprehensive income (loss):
|
|
Currency
Translation
|
|
|
Pension
and
Postretirement
Liability
|
|
|
Total
|
|
Balance at April 2, 2016
|
|
$
|
222
|
|
|
$
|
(7,212
|
)
|
|
$
|
(6,990
|
)
|
Other comprehensive income (loss) before reclassifications
(net of taxes)
|
|
|
(1,429
|
)
|
|
|
—
|
|
|
|
(1,429
|
)
|
Amounts reclassified from accumulated
other comprehensive income (loss)
|
|
|
—
|
|
|
|
234
|
|
|
|
234
|
|
Net current period other comprehensive
income (loss)
|
|
|
(1,429
|
)
|
|
|
234
|
|
|
|
(1,195
|
)
|
Balance at July 2, 2016
|
|
$
|
(1,207
|
)
|
|
$
|
(6,978
|
)
|
|
$
|
(8,185
|
)
|
2. Net Income Per Common Share
Basic net income per common
share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.
Diluted net income per
common share is computed by dividing net income by the sum of the weighted-average number of common shares and dilutive common
share equivalents then outstanding using the treasury stock method. Common share equivalents consist of the incremental common
shares issuable upon the exercise of stock options.
The table below reflects
the calculation of weighted-average shares outstanding for each period presented as well as the computation of basic and diluted
net income per common share:
|
|
Three Months Ended
|
|
|
|
July 2,
2016
|
|
|
June 27,
2015
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,040
|
|
|
$
|
13,404
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per common share—weighted-average shares outstanding
|
|
|
23,320,579
|
|
|
|
23,162,560
|
|
Effect of dilution due to employee stock awards
|
|
|
306,172
|
|
|
|
373,804
|
|
Denominator for diluted net income per common share — weighted-average shares outstanding
|
|
|
23,626,751
|
|
|
|
23,536,364
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.77
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.76
|
|
|
$
|
0.57
|
|
At July 2, 2016, 217,250
employee stock options have been excluded from the calculation of diluted earnings per share. At June 27, 2015, 190,250 employee
stock options have been excluded from the calculation of diluted earnings per share. The inclusion of these employee stock options
and unvested restricted shares would be anti-dilutive.
3. Cash and Cash Equivalents
The Company considers
all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Short-term investments,
if any, are comprised of equity securities and are measured at fair value by using quoted prices in active markets and are classified
as Level 1 of the valuation hierarchy.
4. Inventory
Inventories
are stated at the lower of cost or market, using the first-in, first-out method, and are summarized below:
|
|
July 2,
2016
|
|
|
April 2,
2016
|
|
Raw materials
|
|
$
|
36,335
|
|
|
$
|
36,632
|
|
Work in process
|
|
|
78,017
|
|
|
|
73,761
|
|
Finished goods
|
|
|
169,989
|
|
|
|
170,144
|
|
|
|
$
|
284,341
|
|
|
$
|
280,537
|
|
5. Goodwill and Intangible Assets
Goodwill
|
|
Roller
|
|
|
Plain
|
|
|
Ball
|
|
|
Engineered
Products
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2016
|
|
$
|
16,007
|
|
|
$
|
77,211
|
|
|
$
|
5,623
|
|
|
$
|
168,418
|
|
|
$
|
267,259
|
|
Acquisition and valuation adjustments
|
|
|
—
|
|
|
|
2,386
|
|
|
|
—
|
|
|
|
(1,559
|
)
|
|
|
827
|
|
Translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
July 2, 2016
|
|
$
|
16,007
|
|
|
$
|
79,597
|
|
|
$
|
5,623
|
|
|
$
|
166,853
|
|
|
$
|
268,080
|
|
Intangible Assets
|
|
|
|
|
July 2, 2016
|
|
|
April 2, 2016
|
|
|
|
Weighted
Average
Useful
Lives
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Product approvals
|
|
|
24
|
|
|
$
|
54,384
|
|
|
$
|
5,044
|
|
|
$
|
54,360
|
|
|
$
|
4,488
|
|
Customer relationships and lists
|
|
|
24
|
|
|
|
108,738
|
|
|
|
9,769
|
|
|
|
113,409
|
|
|
|
8,784
|
|
Trade names
|
|
|
10
|
|
|
|
20,029
|
|
|
|
3,699
|
|
|
|
20,019
|
|
|
|
3,211
|
|
Distributor agreements
|
|
|
5
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
|
|
722
|
|
Patents and trademarks
|
|
|
15
|
|
|
|
8,567
|
|
|
|
3,710
|
|
|
|
8,573
|
|
|
|
3,546
|
|
Domain names
|
|
|
10
|
|
|
|
437
|
|
|
|
353
|
|
|
|
437
|
|
|
|
342
|
|
Other
|
|
|
5
|
|
|
|
1,197
|
|
|
|
1,083
|
|
|
|
1,197
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
194,074
|
|
|
|
24,380
|
|
|
|
198,717
|
|
|
|
22,165
|
|
Non-amortizable repair station certifications
|
|
|
n/a
|
|
|
|
34,200
|
|
|
|
—
|
|
|
|
30,700
|
|
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
228,274
|
|
|
$
|
24,380
|
|
|
$
|
229,417
|
|
|
$
|
22,165
|
|
Amortization expense for
definite-lived intangible assets for the three periods ended July 2, 2016 and June 27, 2015 was $2,213 and $1,768, respectively.
Estimated amortization expense for the remaining nine months of fiscal 2017, the five succeeding fiscal years and thereafter is
as follows:
2017
|
|
$
|
7,097
|
|
2018
|
|
|
9,369
|
|
2019
|
|
|
9,147
|
|
2020
|
|
|
9,039
|
|
2021
|
|
|
8,988
|
|
2022
|
|
|
8,873
|
|
2023 and thereafter
|
|
|
117,181
|
|
6. Debt
The balances payable under
all borrowing facilities are as follows:
|
|
July 2,
2016
|
|
|
April 2,
2016
|
|
Revolver and term loan facilities
|
|
$
|
341,500
|
|
|
$
|
361,500
|
|
Debt issuance costs
|
|
|
(5,460
|
)
|
|
|
(5,816
|
)
|
Other
|
|
|
7,768
|
|
|
|
8,012
|
|
Total debt
|
|
$
|
343,808
|
|
|
$
|
363,696
|
|
Less: current portion
|
|
|
10,478
|
|
|
|
10,486
|
|
Long-term debt
|
|
$
|
333,330
|
|
|
$
|
353,210
|
|
The Credit Facility
In connection with the
Sargent Aerospace & Defense (“Sargent”) acquisition on April 24, 2015, the Company entered into 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 RBCA, as Borrower, with (a) a $200,000 Term Loan and (b) a $350,000 Revolver
and together with the Term Loan ( 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 0.5% for base rate loans
and 1.5% for LIBOR rate loans. As of July 2, 2016, there was $151,500 outstanding under the Revolver and $190,000 outstanding
under the Term Loan, offset by $5,460 in debt issuance costs (original amount was $7,122).
The Credit Agreement requires
the Company to comply with various covenants, including among other things, financial covenants to maintain the following: (1)
a ratio of consolidated net debt to adjusted EBITDA, not to exceed 3.50 to 1; and (2) a consolidated interest coverage ratio not
to exceed 2.75 to 1. The Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase
its stock, incur other debt or liens, or acquire or dispose of assets provided that the Company complies with certain requirements
and limitations of the agreement. As of July 2, 2016, the Company was in compliance with all such covenants.
The Company’s obligations
under the Credit Agreement are secured as well as providing for a pledge of substantially all of the Company’s and RBCA’s
assets. The Company and certain of its subsidiaries have also entered into a Guarantee to guarantee RBCA’s obligations under
the Credit Agreement.
Approximately $3,490 of
the Revolver is being utilized to provide letters of credit to secure RBCA’s obligations relating to certain insurance programs.
As of July 2, 2016, RBCA has the ability to borrow up to an additional $195,210 under the Revolver.
Other Notes Payable
On October 1, 2012, Schaublin
purchased the land and building, which it occupied and had been leasing, for 14,067 CHF (approximately $14,910). Schaublin obtained
a 20 year fixed rate mortgage of 9,300 CHF (approximately $9,857) at an interest rate of 2.9%. The balance of the purchase price
of 4,767 CHF (approximately $5,053) was paid from cash on hand. The balance on this mortgage as of July 2, 2016 was 7,556 CHF,
or $7,768.
7. Income Taxes
The Company files income
tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. With few exceptions, the Company is no
longer subject to state or foreign income tax examinations by tax authorities for years ending before March 31, 2007. The Company
is no longer subject to U.S. federal corporate income tax examination by the Internal Revenue Service for fiscal years ending
before March 29, 2014. A U.S. federal corporate income tax examination by the Internal Revenue Service for the fiscal year ended
March 30, 2013 was deemed effectively settled in the Company’s first quarter of fiscal 2016.
The effective income tax
rates for the three month periods ended July 2, 2016 and June 27, 2015, were 32.7% and 33.1%. In addition to discrete items, the
effective income tax rates for these periods are different from the U.S. statutory rates due to a special manufacturing deduction
in the U.S. and foreign income taxed at lower rates which decrease the rate, and state income taxes which increases the rate.
The effective income tax
rate for the three month period ended July 2, 2016 of 32.7% includes discrete items of $215 primarily comprised of items associated
with the release of unrecognized tax positions associated with statute of limitations expiration. The effective income tax rate
without discrete items for the three month period ended July 2, 2016 would have been 33.5%. The effective income tax rate for
the three month period ended June 27, 2015 of 33.1% includes immaterial discrete items of $101. The effective income tax rate
without discrete items for the three month period ended June 27, 2015 would have been 33.6%. The Company believes it is reasonably
possible that some of its unrecognized tax positions may be effectively settled within the next twelve months due to the closing
of audits and the statute of limitations expiring in varying jurisdictions. The decrease, pertaining primarily to credits and
state tax, is estimated to be approximately $142.
8. Reportable Segments
The Company operates through
operating segments for which separate financial information is available, and for which operating results are evaluated regularly
by the Company's chief operating decision maker in determining resource allocation and assessing performance. Those operating
segments with similar economic characteristics and that meet all other required criteria, including nature of the products and
production processes, distribution patterns and classes of customers, are aggregated as reportable segments.
The Company has four reportable
business segments; Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products, which are described below.
Plain Bearings.
Plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed
rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.
The bearings and rings businesses of Sargent are included here.
Roller Bearings.
Roller bearings are anti-friction bearings that use rollers instead of balls. The Company manufactures four basic types
of roller bearings: heavy duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller
bearings.
Ball Bearings.
The Company manufactures four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial
ball bearings which are used in high-speed rotational applications.
Engineered Products.
Engineered Products consists of highly engineered hydraulics, fasteners, collets and precision components used in aerospace,
marine and industrial applications. The hydraulics, fasteners and precision components businesses of Sargent are included here.
Segment performance is
evaluated based on segment net sales and operating income. Items not allocated to segment operating income include corporate administrative
expenses and certain other amounts.
|
|
Three Months Ended
|
|
|
|
July 2,
2016
|
|
|
June 27,
2015
|
|
Net External Sales
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
70,450
|
|
|
$
|
65,677
|
|
Roller
|
|
|
27,834
|
|
|
|
30,580
|
|
Ball
|
|
|
13,710
|
|
|
|
12,819
|
|
Engineered Products
|
|
|
42,585
|
|
|
|
33,232
|
|
|
|
$
|
154,579
|
|
|
$
|
142,308
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
26,554
|
|
|
$
|
25,948
|
|
Roller
|
|
|
12,289
|
|
|
|
12,895
|
|
Ball
|
|
|
5,304
|
|
|
|
5,183
|
|
Engineered Products
|
|
|
13,104
|
|
|
|
8,738
|
|
|
|
$
|
57,251
|
|
|
$
|
52,764
|
|
Selling, General & Administrative Expenses
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
5,990
|
|
|
$
|
5,483
|
|
Roller
|
|
|
1,441
|
|
|
|
1,490
|
|
Ball
|
|
|
1,462
|
|
|
|
1,368
|
|
Engineered Products
|
|
|
4,893
|
|
|
|
3,946
|
|
Corporate
|
|
|
12,010
|
|
|
|
11,438
|
|
|
|
$
|
25,796
|
|
|
$
|
23,725
|
|
Operating Income
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
19,763
|
|
|
$
|
20,305
|
|
Roller
|
|
|
10,788
|
|
|
|
11,340
|
|
Ball
|
|
|
3,714
|
|
|
|
3,672
|
|
Engineered Products
|
|
|
6,947
|
|
|
|
2,560
|
|
Corporate
|
|
|
(11,991
|
)
|
|
|
(15,516
|
)
|
|
|
$
|
29,221
|
|
|
$
|
22,361
|
|
Geographic External Sales
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
135,177
|
|
|
$
|
122,980
|
|
Foreign
|
|
|
19,402
|
|
|
|
19,328
|
|
|
|
$
|
154,579
|
|
|
$
|
142,308
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
Plain
|
|
$
|
1,213
|
|
|
$
|
1,139
|
|
Roller
|
|
|
3,984
|
|
|
|
5,513
|
|
Ball
|
|
|
515
|
|
|
|
561
|
|
Engineered Products
|
|
|
7,517
|
|
|
|
8,111
|
|
|
|
$
|
13,229
|
|
|
$
|
15,324
|
|
All intersegment sales
are eliminated in consolidation.
9. Acquisitions
On April 24, 2015, the
Company acquired Sargent from Dover Corporation for $500,000 financed through a combination of cash on hand and senior debt. With
headquarters in Tucson, Arizona, Sargent is a leader in precision-engineered products, solutions and repairs for aircraft airframes
and engines, rotorcraft, submarines and land vehicles. Sargent manufactures, sells and services hydraulic valves and actuators,
specialty bearings, specialty fasteners, seal rings & alignment joints and engineered components under leading brands including
Kahr Bearing, Airtomic, Sonic Industries, Sargent Controls and Sargent Aerospace & Defense. The Company acquired Sargent because
management believes it provides complementary products and channels, and expands and enhances the Company’s product portfolio
and engineering technologies. The bearings and rings businesses are included in the Plain Bearings segment. The hydraulics, fasteners
and precision components businesses are included in the Engineered Products segment.
The acquisition of Sargent
was accounted for as a purchase in accordance with FASB Accounting Standards Codification (“ASC”) Topic 805,
Business
Combinations
. Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The fair
values of identifiable intangible assets, which were primarily customer relationships, product approvals, trade names, and patents
and trademarks, were based on valuations using the income approach. The excess of the purchase price over the estimated fair values
of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The goodwill is attributable
to expected synergies and expected growth opportunities. The purchase price allocation resulted in goodwill of $224,715. The Company
estimates a majority of goodwill will be deductible for United States income tax purposes.
The purchase price allocation for Sargent
was as follows:
|
|
As of
April 24, 2015
|
|
Current assets
|
|
$
|
3,086
|
|
Trade receivables
|
|
|
24,100
|
|
Inventories
|
|
|
49,245
|
|
Property, plant and equipment
|
|
|
39,907
|
|
Intangible assets
|
|
|
202,500
|
|
Goodwill
|
|
|
224,715
|
|
Total assets acquired
|
|
|
543,553
|
|
Accounts payable
|
|
|
14,900
|
|
Liabilities assumed
|
|
|
28,653
|
|
Net assets acquired
|
|
$
|
500,000
|
|
The valuation of the net
assets acquired of $500,000 was classified as Level 3 in the valuation hierarchy. Level 3 inputs represent unobservable inputs
for the asset or liability.
The components of intangible assets included
as part of the Sargent acquisition was as follows:
|
|
Weighted Average
Amortization Period
(Years)
|
|
|
Gross Value
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
25
|
|
|
$
|
99,800
|
|
Product approvals
|
|
|
25
|
|
|
|
50,500
|
|
Trademarks and tradenames
|
|
|
10
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
168,300
|
|
Non-amortizable intangible assets
|
|
|
|
|
|
|
|
|
Repair station certifications
|
|
|
-
|
|
|
|
34,200
|
|
Intangible assets
|
|
|
|
|
|
$
|
202,500
|
|
Included in the Company’s
results of operations for the three months ended July 2, 2016 and June 27, 2015 are revenues related to the Sargent acquisition
of $45,536 and $34,003. Also, included for the three months ended July 2, 2016 and June 27, 2015 is net income of $3,332 and $3,825.
Acquisition-related expenses were recorded in Other, net in the Consolidated Statements of Operations for the three months ended
July 2, 2016 and June 27, 2015 of $0 and $4,788, respectively.
The following
supplemental pro forma financial information presents the financial results for the three months ended July 2, 2016 and June
27, 2015, as if the acquisition of Sargent had occurred at the beginning of fiscal year 2015. The pro forma financial
information includes, where applicable, adjustments for: (i) the estimated amortization of acquired intangible assets, (ii)
estimated additional interest expense on acquisition related borrowings, (iii) the income tax effect on the pro forma
adjustments using an estimated effective tax rate. The pro forma financial information excludes, where applicable,
adjustments for: (i) the estimated impact of inventory purchase accounting adjustments and (ii) the estimated closing costs
on the acquisition. The pro forma financial information is presented for illustrative purposes only and is not necessarily
indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated
or the results that may be obtained in the future:
|
|
Three Months Ended
|
|
|
|
July 2,
2016
|
|
|
June 27,
2015
|
|
Pro forma net sales
|
|
$
|
154,579
|
|
|
$
|
150,682
|
|
Pro forma net income
|
|
|
18,294
|
|
|
|
16,665
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share as reported
|
|
$
|
0.77
|
|
|
$
|
0.58
|
|
Pro forma basic earnings per share
|
|
|
0.78
|
|
|
|
0.72
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share as reported
|
|
$
|
0.76
|
|
|
$
|
0.57
|
|
Pro forma diluted earnings per share
|
|
|
0.77
|
|
|
|
0.71
|
|