Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 AUDITED FINANCIAL STATEMENTS - SIFCO INDUSTRIES INC | ex992c-blade12312014audite.htm |
| 8-K/A - 8-K/A CBLADE ACQUISITION - PRO FORMAS - SIFCO INDUSTRIES INC | sifco8-kaxcbladeacquisition.htm |
Unaudited pro forma consolidated financial data
(Dollar amounts presented in thousands, except per share amounts unless specifically noted)
The following unaudited pro forma consolidated financial information is presented to illustrate the estimated effects of the acquisition (“the Acquisition”) by SIFCO Industries, Inc. (“SIFCO,” “we”, or the “Company) of C*Blade S.p.A. Forging and Manufacturing (“C*Blade”) from Riello Investimenti Partners SGR S.p.A, Giorgio Visentini, Giorgio Frassini, Giancarlo Sclabi, and Matteo Talmassons (collectively the “Sellers,” or “Riello Investimenti Partners”).
The following unaudited pro forma consolidated balance sheet as of March 31, 2015 and the unaudited pro forma consolidated statements of operations for the fiscal year ended September 30, 2014 and for the six months ended March 31, 2015 are derived from and should be read in conjunction with the historical audited financial statements of SIFCO for the fiscal year ended September 30, 2014 (which are available in SIFCO’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014) and the historical unaudited interim financial statements of SIFCO for the six month period ended March 31, 2015 (which are available in SIFCO’s Form 10-Q for the period ended March 31, 2015).
For purposes of the pro forma consolidated statements of operations, C*Blade has presented a twelve month period ended June 30, 2014 and a six month period ended December 31, 2014. This information was derived from the historical audited financial statements of C*Blade for the year ended December 31, 2014 as included within this Form 8-K/A and the historical unaudited financial information of C*Blade for the year ended December 31, 2013 and six months periods ended June 30, 2013 and 2014. Finally, SIFCO utilized C*Blade’s audited balance sheet as of December 31, 2014 for the unaudited pro forma consolidated balance sheet.
SIFCO prepares its financial information in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) with all amounts stated in U.S. dollars. C*Blade has prepared its financial statements in accordance with U.S. GAAP with all amounts presented in Euro (“EUR” or “€”). In order to present the unaudited pro forma consolidated financial statements in U.S. dollars, C*Blade’s statement of operations has been translated using the weighted average exchange rate of € 1.36 to $1.00 for the period July 1, 2013 through June 30, 2014 and € 1.29 to $1.00 for the period July 1, 2014 through December 31, 2014. C*Blade’s balance sheet has been translated to US dollars using the exchange rate of € 1.21 to $1.00 as of December 31, 2014.
On June 26, 2015, SIFCO entered into a Credit and Security Agreement (the “Credit Agreement”), together with the Acquisition (known as the “Transactions”), with KeyBank National Association and the lenders from time to time party thereto. The new facility has a term of five years and is comprised of (i) a revolving credit facility in a maximum amount of $25,000, which reduces to $20,000 on January 1, 2016, and (ii) a term loan of $20,000. Amounts borrowed under the new facility were used to repay the amounts outstanding under the Company’s prior credit facility with Fifth Third Bank, for the acquisition of C*Blade S.p.A. Forging & Manufacturing, and for working capital and general corporate purposes. Principle payments on the term loan are payable quarterly. Interest accrues monthly on both the term loan and revolving credit facility at a variable rate of LIBOR plus a margin of 1.75% for base rate loans and LIBOR plus a margin of 2.5% for Eurodollar loans. Borrowings will bear interest at the LIBOR rate, prime rate, or the Eurocurrency reference rate depending on the type of loan requested by the Company, in each case plus the applicable margin as set forth in the Credit Agreement.
The unaudited pro forma consolidated statements of operations give effect to the Transactions as if they occurred on October 1, 2013, the beginning of SIFCO’s fiscal year. The unaudited pro forma consolidated balance sheet gives effect to the Transactions as if it occurred on March 31, 2015. The historical consolidated financial information has been adjusted in the unaudited pro forma consolidated financial statements to give effect to pro forma events that are: (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma consolidated financial information should be read in conjunction with the accompanying notes to the unaudited pro forma consolidated financial statements.
The Acquisition will be accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), and using the fair value concepts defined in ASC 820, “Fair Value Measurements” (“ASC 820”). ASC 820 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and
circumstances, could develop and support a range of alternative estimated amounts. Under ASC 805, all assets acquired and liabilities assumed are recorded at their acquisition date fair value. The allocation of the purchase price as reflected in the unaudited pro forma consolidated financial data is based upon management’s internally developed preliminary estimates of the fair market value of assets acquired and liabilities assumed, as if the Transactions had occurred on the above dates. This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and in some instances are incomplete and have been made solely for the purpose of developing the unaudited pro forma consolidated financial data.
The unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of: (i) results of operations and financial position that would have been achieved had the Transactions taken place on the dates indicated or (ii) the future results of operations or financial position of the consolidated company. Differences between preliminary estimates and the final acquisition accounting may arise and have a material impact on the accompanying pro forma financial statements and SIFCO’s future results of operations and financial position. All pro forma adjustments and their underlying assumptions are described more fully in the notes to the unaudited pro forma consolidated financial information.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended September 30, 2014
(in thousands, expect per share amounts)
Historical | |||||||||||||||||||||
SIFCO | C*Blade | Total Historical | Pro Forma Adjustments For The Transaction (Note 6) | Footnote Reference | Pro Forma Consolidated | ||||||||||||||||
Year Ended September 30, 2014 | Year Ended June 30, 2014 | ||||||||||||||||||||
Net sales | $ | 119,654 | $ | 30,368 | $ | 150,022 | $ | — | $ | 150,022 | |||||||||||
Cost of goods sold | 93,729 | 23,672 | 117,401 | (387 | ) | 6b | 117,014 | ||||||||||||||
Gross profit | 25,925 | 6,696 | 32,621 | 387 | 33,008 | ||||||||||||||||
Selling, general and administrative expenses | 15,680 | 4,364 | 20,044 | (548 | ) | 6e | 19,496 | ||||||||||||||
Amortization of intangible assets | 2,161 | 88 | 2,249 | 784 | 6c | 3,033 | |||||||||||||||
(Gain) on disposal of operating assets | (3 | ) | (5 | ) | (8 | ) | — | (8 | ) | ||||||||||||
Operating income | 8,087 | 2,249 | 10,336 | 151 | 10,487 | ||||||||||||||||
Interest income | (17 | ) | (15 | ) | (32 | ) | — | (32 | ) | ||||||||||||
Interest expense | 201 | 734 | 935 | 1,515 | 6a | 2,450 | |||||||||||||||
Foreign currency exchange (gain) loss, net | (20 | ) | 8 | (12 | ) | — | (12 | ) | |||||||||||||
Other income, net | (433 | ) | — | (433 | ) | — | (433 | ) | |||||||||||||
Income (loss) from continuing operations before income tax provision (benefit) | 8,356 | 1,522 | 9,878 | (1,364 | ) | 8,514 | |||||||||||||||
Income tax provision (benefit) | 2,753 | 814 | 3,567 | (453 | ) | 6d | 3,114 | ||||||||||||||
Income (loss) from continuing operations | 5,603 | 708 | 6,311 | (911 | ) | 5,400 | |||||||||||||||
Income (loss) from discontinued operations, net of tax | (580 | ) | — | (580 | ) | — | (580 | ) | |||||||||||||
Net income (loss) | $ | 5,023 | $ | 708 | $ | 5,731 | $ | (911 | ) | $ | 4,820 | ||||||||||
Income (loss) per share from continuing operations | |||||||||||||||||||||
Basic | $ | 1.04 | $ | 1.00 | |||||||||||||||||
Diluted | $ | 1.03 | $ | 1.00 | |||||||||||||||||
Income (loss) per share from discontinued operations, net of tax | |||||||||||||||||||||
Basic | $ | (0.11 | ) | $ | (0.11 | ) | |||||||||||||||
Diluted | $ | (0.11 | ) | $ | (0.11 | ) | |||||||||||||||
Net income (loss) per share | |||||||||||||||||||||
Basic | $ | 0.93 | $ | 0.89 | |||||||||||||||||
Diluted | $ | 0.92 | $ | 0.89 | |||||||||||||||||
Weighted-average number of common shares (basic) | 5,402 | 5,402 | |||||||||||||||||||
Weighted-average number of common shares (diluted) | 5,424 | 5,424 | |||||||||||||||||||
See accompanying notes to unaudited pro forma consolidated financial information
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 2015
(in thousands, expect per share amounts)
Historical | |||||||||||||||||||||
SIFCO | C*Blade | Total Historical | Pro Forma Adjustments For The Transaction (Note 6) | Footnote Reference | Pro Forma Consolidated | ||||||||||||||||
Six Months Ended March 31, 2015 | Six Months Ended December 31, 2014 | ||||||||||||||||||||
Net sales | $ | 44,695 | $ | 14,367 | $ | 59,062 | $ | — | $ | 59,062 | |||||||||||
Cost of goods sold | 37,992 | 10,126 | 48,118 | (294 | ) | 6b | 47,824 | ||||||||||||||
Gross profit | 6,703 | 4,241 | 10,944 | 294 | 11,238 | ||||||||||||||||
Selling, general and administrative expenses | 8,930 | 1,771 | 10,701 | (689 | ) | 6e | 10,012 | ||||||||||||||
Amortization of intangible assets | 1,040 | 40 | 1,080 | 396 | 6c | 1,476 | |||||||||||||||
Loss on disposal of operating assets | 2 | 12 | 14 | — | 14 | ||||||||||||||||
Operating income | (3,269 | ) | 2,418 | (851 | ) | 587 | (264 | ) | |||||||||||||
Interest income | (7 | ) | — | (7 | ) | — | (7 | ) | |||||||||||||
Interest expense | 108 | 325 | 433 | 648 | 6a | 1,081 | |||||||||||||||
Foreign currency exchange (gain) loss, net | (57 | ) | 28 | (29 | ) | — | (29 | ) | |||||||||||||
Other income, net | (214 | ) | — | (214 | ) | — | (214 | ) | |||||||||||||
Income (loss) from continuing operations before income tax provision (benefit) | (3,099 | ) | 2,065 | (1,034 | ) | (61 | ) | (1,095 | ) | ||||||||||||
Income tax provision (benefit) | (894 | ) | 596 | (298 | ) | (20 | ) | 6d | (318 | ) | |||||||||||
Income (loss) from continuing operations | (2,205 | ) | 1,469 | (736 | ) | (41 | ) | (777 | ) | ||||||||||||
Income (loss) from discontinued operations, net of tax | 736 | — | 736 | — | 736 | ||||||||||||||||
Net income (loss) | $ | (1,469 | ) | $ | 1,469 | $ | — | $ | (41 | ) | $ | (41 | ) | ||||||||
Income (loss) per share from continuing operations | |||||||||||||||||||||
Basic | $ | (0.41 | ) | $ | (0.14 | ) | |||||||||||||||
Diluted | $ | (0.41 | ) | $ | (0.14 | ) | |||||||||||||||
Income (loss) per share from discontinued operations, net of tax | |||||||||||||||||||||
Basic | $ | 0.14 | $ | 0.14 | |||||||||||||||||
Diluted | $ | 0.14 | $ | 0.14 | |||||||||||||||||
Net income (loss) per share | |||||||||||||||||||||
Basic | $ | (0.27 | ) | $ | (0.01 | ) | |||||||||||||||
Diluted | $ | (0.27 | ) | $ | (0.01 | ) | |||||||||||||||
Weighted-average number of common shares (basic) | 5,430 | 5,430 | |||||||||||||||||||
Weighted-average number of common shares (diluted) | 5,447 | 5,447 | |||||||||||||||||||
See accompanying notes to unaudited pro forma consolidated financial information
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2015
(In thousands)
SIFCO | C*Blade | Total Historical | |||||||||||||||||||||
As of March 31, 2015 | As of December 31, 2014 | Pro Forma Adjustments For the Transaction (Note 7) | Footnote Reference | Pro Forma Consolidated | |||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 4,687 | $ | 1,238 | $ | 5,925 | $ | 3,119 | 7a | $ | 9,044 | ||||||||||||
Accounts receivable, net | 23,245 | 5,332 | 28,577 | — | 28,577 | ||||||||||||||||||
Inventories, net | 25,660 | 5,383 | 31,043 | 737 | 7b | 31,780 | |||||||||||||||||
Refundable income taxes | 1,802 | — | 1,802 | — | 1,802 | ||||||||||||||||||
Deferred income taxes | 791 | 1,394 | 2,185 | 735 | 7g | 2,920 | |||||||||||||||||
Prepaid expenses and other current assets | 3,302 | 619 | 3,921 | — | 3,921 | ||||||||||||||||||
Total current assets | 59,487 | 13,966 | 73,453 | 4,591 | 78,044 | ||||||||||||||||||
Property and equipment, net | 36,729 | 10,599 | 47,328 | 7,825 | 7c | 55,153 | |||||||||||||||||
Intangible assets, net | 10,450 | 131 | 10,581 | 5,682 | 7d | 16,263 | |||||||||||||||||
Goodwill | 7,658 | 7,989 | 15,647 | (342 | ) | 7e | 15,305 | ||||||||||||||||
Other assets | 521 | 99 | 620 | 316 | 7j | 936 | |||||||||||||||||
Total assets | $ | 114,845 | $ | 32,784 | $ | 147,629 | $ | 18,072 | $ | 165,701 | |||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||
Current maturities of long-term debt | $ | 2,000 | $ | 2,618 | $ | 4,618 | $ | 976 | 7h | $ | 5,594 | ||||||||||||
Short-term debt | — | 5,540 | 5,540 | — | 5,540 | ||||||||||||||||||
Accounts payable | 9,617 | 4,380 | 13,997 | — | 13,997 | ||||||||||||||||||
Accrued liabilities | 6,702 | 4,850 | 11,552 | (125 | ) | 7i | 11,427 | ||||||||||||||||
Current liabilities of business from discontinued operations | 10 | — | 10 | — | 10 | ||||||||||||||||||
Total current liabilities | 18,329 | 17,388 | 35,717 | 851 | 36,568 | ||||||||||||||||||
Long-term debt, net of current maturities | 15,575 | 7,935 | 23,510 | 20,215 | 7h | 43,725 | |||||||||||||||||
Deferred income taxes | 772 | 768 | 1,540 | 4,321 | 7g | 5,861 | |||||||||||||||||
Pension liability | 4,056 | 543 | 4,599 | — | 4,599 | ||||||||||||||||||
Other long-term liabilities | 331 | 168 | 499 | (168 | ) | 7i | 331 | ||||||||||||||||
Shareholders’ equity: | — | — | |||||||||||||||||||||
Common stock | 5,470 | 4,239 | 9,709 | (4,239 | ) | 7f | 5,470 | ||||||||||||||||
Treasury shares | — | (536 | ) | (536 | ) | 536 | 7f | — | |||||||||||||||
Additional paid-in capital | 9,444 | — | 9,444 | — | 9,444 | ||||||||||||||||||
Retained earnings | 71,215 | 2,279 | 73,494 | (3,444 | ) | 7f | 70,050 | ||||||||||||||||
Accumulated other comprehensive loss | (10,347 | ) | — | (10,347 | ) | — | (10,347 | ) | |||||||||||||||
Total shareholders’ equity | 75,782 | 5,982 | 81,764 | (7,147 | ) | 74,617 | |||||||||||||||||
Total liabilities and shareholders’ equity | $ | 114,845 | $ | 32,784 | $ | 147,629 | $ | 18,072 | $ | 165,701 | |||||||||||||
See accompanying notes to unaudited pro forma consolidated financial information
Notes to Unaudited Pro Forma Consolidated Financial Information
(Dollar amounts presented in thousands, except per share amounts unless specifically noted)
Note 1- Basis of presentation
The unaudited pro forma consolidated financial information herein is based upon the historical consolidated financial statements of SIFCO and C*Blade and has been prepared to illustrate the effects of the Transactions in accordance with U.S. GAAP and pursuant to Article 11 of Regulation S-X.
The Acquisition will be accounted for in accordance with the provisions of the authoritative guidance for business combinations using the acquisition method of accounting under the provisions of ASC 805. Under ASC 805, all assets acquired and liabilities assumed are recorded at their acquisition date fair value. The allocation of the purchase price as reflected in the unaudited pro forma consolidated financial data is based upon management’s internally developed preliminary estimates of the fair market value of assets acquired and liabilities assumed, as if the Transactions had occurred on March 31, 2015, with respect to the unaudited pro forma consolidated balance sheet. With respect to the unaudited pro forma consolidated statement of operations, the allocation of purchase price is reflected for the year ended September 30, 2014 and the six months ended March 31, 2015. This allocation of purchase price depends upon certain estimates and assumptions, all of which are preliminary and in some instances are incomplete and have been made solely for the purpose of developing the unaudited pro forma consolidated financial data. Actual results following completion of the purchase price allocation may be materially different from those presented herein.
Note 2- Description of the transactions
On March 16, 2015, SIFCO entered into a share purchase agreement (the “Agreement”) with Riello Investimenti Partners pursuant to which SIFCO acquired all of the outstanding share capital of C*Blade on July 1, 2015 for approximately $15,852 in cash, net of the current indebtedness of C*Blade assumed by the Company. As a result of the acquisition, SIFCO acquired 100% of C*Blade’s shares issued and outstanding.
On June 26, 2015, SIFCO entered into a new credit facility. The new facility has a term of five years and is comprised of (i) a revolving credit facility in a maximum borrowing amount of up to $25,000, which reduces to $20,000 on January 1, 2016, and (ii) a term loan of $20,000. Amounts borrowed under the new facility were used to repay the amounts outstanding under the Company’s prior credit facility with Fifth Third Bank, for the acquisition of C*Blade S.p.A. Forging & Manufacturing, and for working capital and general corporate purposes.
The purchase price paid by SIFO was funded by cash on hand and proceeds from the new credit facility.
Note 3- Preliminary allocation of consideration transferred to the net assets acquired
For the purposes of this pro forma financial information, preliminary fair values have been determined by management for all assets acquired and liabilities assumed. The excess of the acquisition consideration over the fair value of net assets acquired is allocated to goodwill. The adjustments to reflect the acquisition method of accounting are preliminary and are based upon available information and certain assumptions which management believes are reasonable under the circumstances.
The following table summarizes the preliminary purchase price allocation as if the Acquisition had occurred as of March 31, 2015:
Purchase price of the Acquisition (a) | $ | 15,852 | |
Allocation of purchase price to the fair market values of net assets acquired: | |||
Goodwill (b) | $ | 7,647 | |
Intangible assets (c) | 5,813 | ||
Property, plant and equipment (d) | 18,424 | ||
Deferred tax liability, net (e) | (3,695 | ) | |
Other assets/liabilities, net (f) | 3,657 | ||
Debt (g) | (15,994 | ) | |
Total | $ | 15,852 | |
(a) | The Agreement provides that the equity purchase price was equal to approximately $29,685, subject to customary working capital and indebtedness adjustments. |
Purchase price of the Acquisition | $ | 15,852 | |
Consideration transferred: | |||
Equity purchase price | $ | 29,685 | |
Plus working capital adjustment | 2,161 | ||
Less closing amount of indebtedness | (15,994 | ) | |
Purchase price of the Acquisition | $ | 15,852 | |
(b) | Represents the preliminary calculation of the excess of the purchase price over the fair values of assets acquired and liabilities assumed as a result of the Acquisition. This goodwill will not be deductible for income tax purposes. |
(c) | See discussion of fair market values of intangible assets at Note 7 - item (d). |
(d) | See discussion of fair market values of property, plant and equipment at Note 7 - item (c). |
(e) | See discussion of deferred tax liability, net at Note 7-item (g). |
(f) | Represents the fair value of other assets acquired and liabilities assumed. |
(g) | Represents the fair value of (i) C*Blade’s current maturities of long term debt of $2,737 plus (ii) short term debt of $5,540 plus (iii) C*Blade’s long term debt, net of current maturities, of $7,717. |
Note 4-Reconciliation and foreign translation of C*Blade’s unaudited historical statement of operations
The following is a reconciliation of C*Blade’s unaudited historical statement of operations for the twelve months ended June 30, 2014 as derived from the unaudited results of operations for the year ended December 31, 2013 less the unaudited historical statement of operations for the six months ended June 30, 2013 plus the unaudited historical statement of operations for the six months ended June 30, 2014 using a weighted average rate of €1.36 to $1.00 for the period July 1, 2013 through June 30, 2014.
C*Blade
Historical Statements of Operations
(in thousands)
A | B | C | D=A-B+C | |||||||||||||||||
C*Blade Acquisition | ||||||||||||||||||||
Twelve Months Ended December 31, 2013 | Six Months Ended June 30, 2013 | Six Months Ended June 30, 2014 | Twelve Months Ended June 30, 2014 | Twelve Months Ended June 30, 2014 | ||||||||||||||||
Unaudited EUR | Unaudited EUR | Unaudited EUR | Unaudited EUR | Unaudited USD | ||||||||||||||||
Net sales | € | 22,572 | € | 10,384 | € | 10,192 | € | 22,380 | $ | 30,368 | ||||||||||
Cost of goods sold | 17,546 | 9,039 | 8,938 | 17,445 | 23,672 | |||||||||||||||
Gross profit | 5,026 | 1,345 | 1,254 | 4,935 | 6,696 | |||||||||||||||
Selling, general and administrative expenses | 3,309 | 1,541 | 1,448 | 3,216 | 4,364 | |||||||||||||||
Amortization of intangible assets | 42 | 5 | 28 | 65 | 88 | |||||||||||||||
(Gain) on disposal of operating assets | (4 | ) | — | — | (4 | ) | (5 | ) | ||||||||||||
Operating income (loss) | 1,679 | (201 | ) | (222 | ) | 1,658 | 2,249 | |||||||||||||
Interest income | (11 | ) | — | — | (11 | ) | (15 | ) | ||||||||||||
Interest expense | 583 | 319 | 277 | 541 | 734 | |||||||||||||||
Foreign currency exchange (gain) loss, net | (1 | ) | (3 | ) | 4 | 6 | 8 | |||||||||||||
Other income, net | — | — | — | — | ||||||||||||||||
Income (loss) from continuing operations before income tax provision | 1,108 | (517 | ) | (503 | ) | 1,122 | 1,522 | |||||||||||||
Income tax provision (benefit) | 585 | 144 | 159 | 600 | 814 | |||||||||||||||
Income (loss) from continuing operations | 523 | (661 | ) | (662 | ) | 522 | 708 | |||||||||||||
(Loss) from discontinued operations, net of tax | — | — | — | |||||||||||||||||
Net income (loss) | € | 523 | € | (661 | ) | € | (662 | ) | € | 522 | $ | 708 | ||||||||
The following is a reconciliation of C*Blade’s unaudited statement of operations for the six months ended December 31, 2014, as derived from C*Blade’s audited statement of operations for the year ended December 31, 2014 less the unaudited statement of operations for the six month period ended June 30, 2014 using a weighted average rate of €1.29 to $1.00 for the period July 1, 2014 through December 31, 2014:
C*Blade
Historical Statements of Operations
(in thousands)
A | B | C=A-B | ||||||||||||||
C*Blade Acquisition | ||||||||||||||||
Twelve Months Ended December 31, 2014 | Six Months Ended June 30, 2014 | Six Months Ended December 31, 2014 | Six Months Ended December 31, 2014 | |||||||||||||
Audited | Unaudited | Unaudited | Unaudited | |||||||||||||
EUR | EUR | EUR | USD | |||||||||||||
Net sales | € | 21,360 | € | 10,192 | € | 11,168 | $ | 14,367 | ||||||||
Cost of goods sold | 16,809 | 8,938 | 7,871 | 10,126 | ||||||||||||
Gross profit | 4,551 | 1,254 | 3,297 | 4,241 | ||||||||||||
Selling, general and administrative expenses | 2,825 | 1,448 | 1,377 | 1,771 | ||||||||||||
Amortization of intangible assets | 59 | 28 | 31 | 40 | ||||||||||||
(Gain) on disposal of operating assets | 9 | — | 9 | 12 | ||||||||||||
Operating income (loss) | 1,658 | (222 | ) | 1,880 | 2,418 | |||||||||||
Interest income | — | — | — | — | ||||||||||||
Interest expense | 530 | 277 | 253 | 325 | ||||||||||||
Foreign currency exchange (gain) loss, net | 26 | 4 | 22 | 28 | ||||||||||||
Other income, net | — | — | — | — | ||||||||||||
Income (loss) from continuing operations before income tax provision | 1,102 | (503 | ) | 1,605 | 2,065 | |||||||||||
Income tax provision (benefit) | 622 | 159 | 463 | 596 | ||||||||||||
Income (loss) from continuing operations | 480 | (662 | ) | 1,142 | 1,469 | |||||||||||
(Loss) from discontinued operations, net of tax | — | — | — | — | ||||||||||||
Net income (loss) | € | 480 | € | (662 | ) | € | 1,142 | $ | 1,469 | |||||||
Note 5- Foreign translation of C*Blade’s audited historical balance sheet
The following table reflects the audited balance sheet for C*Blade that has been translated to U.S. dollars using the exchange rate of approximately €1.21 to $1.00 as of December 31, 2014.
C*Blade As Reported | C*Blade Translated | ||||||||
Audited (EUR) | Audited (USD) | ||||||||
as of December 31, 2014 | as of December 31, 2014 | ||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | € | 1,022 | $ | 1,238 | |||||
Accounts receivable, net | 4,403 | 5,332 | |||||||
Inventories, net | 4,445 | 5,383 | |||||||
Refundable income taxes | — | — | |||||||
Deferred income taxes | 1,151 | 1,394 | |||||||
Prepaid expenses and other current assets | 511 | 619 | |||||||
Total current assets | 11,532 | 13,966 | |||||||
Property and equipment, net | 8,752 | 10,599 | |||||||
Intangible assets, net | 108 | 131 | |||||||
Goodwill | 6,597 | 7,989 | |||||||
Other assets | 82 | 99 | |||||||
Total assets | € | 27,071 | $ | 32,784 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities: | |||||||||
Current maturities of long-term debt | € | 2,162 | $ | 2,618 | |||||
Short term debt | 4,575 | 5,540 | |||||||
Accounts payable | 3,617 | 4,380 | |||||||
Accrued liabilities | 4,005 | 4,850 | |||||||
Total current liabilities | 14,359 | 17,388 | |||||||
Long-term debt, net of current maturities | 6,552 | 7,935 | |||||||
Deferred income taxes | 634 | 768 | |||||||
Pension liability | 448 | 543 | |||||||
Other long-term liabilities | 139 | 168 | |||||||
Shareholders’ equity: | |||||||||
Common stock | 3,500 | 4,239 | |||||||
Treasury shares | (443 | ) | (536 | ) | |||||
Retained earnings | 1,882 | 2,279 | |||||||
Total shareholders’ equity | 4,939 | 5,982 | |||||||
Total liabilities and shareholders’ equity | € | 27,071 | $ | 32,784 | |||||
Note 6- Pro forma adjustments for the consolidated statements of operations
The following is a summary of material adjustments for amounts reported in the unaudited pro forma consolidated statements of operations for the year ended September 30, 2014 and for the six months ended March 31, 2015 under the “Pro Forma Adjustments for the Transactions” column heading.
(a) Represents the following adjustments to interest expense:
Pro forma adjustment for year ended September 30, 2014 | Pro forma adjustment for the six months ended March 31, 2015 | |||||||
Pro forma interest expense: | ||||||||
New debt issuances | ||||||||
Interest expense on revolving credit facility (1) | $ | 785 | $ | 392 | ||||
Interest expense on term loan (1) | 829 | 372 | ||||||
Revolver commitment fee (2) | 17 | 9 | ||||||
Pre-existing debt | ||||||||
Adjustment to interest expense on secured and unsecured credit facilities (3) | 5 | (57 | ) | |||||
Pro forma non-cash interest expense: | ||||||||
Amortization of deferred financing costs revolving credit facility (4) | 80 | 40 | ||||||
Retired debt: | ||||||||
Less historical interest expense on revolving credit facility | (148 | ) | (48 | ) | ||||
Less historical interest expense on term loan | (53 | ) | (60 | ) | ||||
Pro forma adjustment | $ | 1,515 | $ | 648 | ||||
1.) | SIFCO financed the Acquisition in part by utilizing the new $20,000 term loan and drawing approximately $19,187 on its revolving credit facility. The term loan facility and revolving credit facility accrue interest at a variable rate of LIBOR plus a margin of 2.5%. Interest expense on the term loan also includes amortization of $322 of debt issuance costs. Actual interest rates may vary from those depicted in the pro forma amounts and a 1/8% variance in the interest rate would result in an approximately $49 and $25 change in income before income taxes for the year ended September 30, 2014 and six months ended March 31, 2015, respectively. |
2.) | Represents commitment fee on the $25,000 revolving credit facility payable quarterly in arrears. Per the credit agreement, an applicable commitment fee rate of 0.3% is applied on the undrawn amount of the revolving credit facility. The company intends to pay down the revolving credit facility with operating cash over the next eighteen months. |
3.) | Represents adjustments to interest expense attributable to the $99 fair value adjustment to C*Blade’s secured and unsecured credit facilities. See Note 7 - item (h) for additional information. |
4.) | Represents amortization of debt issuance costs of $402 on the $25,000 revolving credit facility. |
(b) Represents a net adjustment for the differences in depreciation expense historically recorded and what would have been recorded during the same periods resulting from the increase in the estimated fair values of property, plant and equipment acquired due to purchase accounting.
Historical | Impact of fair value adjustment | Pro forma depreciation for the year ended September 30, 2014 | |||||||||
Depreciation expense | $ | 3,232 | $ | (387 | ) | $ | 2,845 | ||||
Historical | Impact of fair value adjustment | Pro forma depreciation for the six months ended March 31, 2015 | |||||||||
Depreciation expense | $ | 1,643 | $ | (294 | ) | $ | 1,349 | ||||
(c) Represents the elimination of historical C*Blade intangible asset amortization and the recording of pro forma amortization expense on the portion of the purchase price allocated to intangible assets
Pro forma amortization for the year ended September 30, 2014 | Pro forma amortization for the six months ended March 31, 2015 | |||||||
Pro forma amortization | $ | 872 | $ | 436 | ||||
Less: Historical amortization | (88 | ) | (40 | ) | ||||
Pro forma adjustment | $ | 784 | $ | 396 | ||||
Amortization expense has been calculated on a preliminary basis, using the straight-line method over the estimated useful life of intangible assets acquired. See useful lives at Note 7- item (d).
(d) Represents the tax effect of the pro forma adjustments, using a combined federal and state statutory tax rate of approximately 34.0% for the United States and an Italian statutory tax rate of approximately 31.4%.
(e) Represents transaction costs, including legal, accounting, valuation and other professional and consulting fees.
Note 7- Pro forma adjustments for the consolidated balance sheet
The following is a summary of material adjustments for amounts reported in the unaudited pro forma consolidated balance sheet as of March 31, 2015 under the “Pro Forma Adjustments for the Transactions” column heading.
(a) Represents the following adjustments to cash
Pro forma adjustments to cash | ||||||
As of March 31, 2015 | ||||||
Purchase of equity (1) | $ | (15,852 | ) | |||
Net impact of additional financing (2) | 21,273 | |||||
New deferred financing costs (3) | (402 | ) | ||||
Transaction costs (4) | (1,900 | ) | ||||
Total pro forma adjustments to cash | $ | 3,119 | ||||
(1) | Represents purchase of equity as discussed at Note 3- item (a). |
(2) | Represents the net cash impact of additional financing to complete the acquisition including (i) $39,187 of new financing net of (ii) $17,575 to redeem pre-existing debt, (iii) $17 related to interest accrued and repaid in the Transactions and (iv) $322 of debt issuance costs which represent a reduction in proceeds attributable to the new term loan. |
(3) | Reflects legal costs and other deferred financing fees recorded in connection with the revolving credit facility. |
(4) | Represents transaction costs, including legal, accounting, valuation and other professional and consulting fees incurred subsequent to March 31, 2015. |
(b) Represents adjustments to record the step-up inventory as a result of the Acquisition.
(c) The following table is a summary of the historical property, plant and equipment balances at March 31, 2015 and the estimated fair value adjustments and the estimated useful lives based upon a preliminary analysis performed by management:
Historical | Pro forma adjustments | Fair value | Estimated useful life (in years) | ||||||||||
Land | $ | 1,465 | $ | (915 | ) | $ | 550 | N/A | |||||
Building and improvements, net | 4,168 | (172 | ) | 3,996 | 5-40 | ||||||||
Machinery and equipment, net | 4,966 | 8,912 | 13,878 | 3-20 | |||||||||
$ | 10,599 | $ | 7,825 | $ | 18,424 | ||||||||
(d) The following table is a summary of the historical intangible assets balance at March 31, 2015 and the estimated fair value adjustments and the estimated useful lives based upon a preliminary analysis performed by management:
Historical | Pro forma adjustments | Fair value | Estimated useful life (in years) | ||||||||||
Trade name | $ | — | $ | 969 | $ | 969 | 5 | ||||||
Customer relationships | — | 2,906 | 2,906 | 10 | |||||||||
Technology assets | 243 | 1,695 | 1,938 | 5 | |||||||||
243 | 5,570 | 5,813 | |||||||||||
Accumulated amortization | (112 | ) | 112 | — | |||||||||
Total | $ | 131 | $ | 5,682 | $ | 5,813 | |||||||
(e) Goodwill is calculated as the difference between the fair value of the consideration transferred and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. The pro forma adjustment of $342 on represents the difference between the amount allocated to goodwill as a result of the Acquisition of $15,305 million and historical goodwill of $15,647.
(f) Represents (i) the elimination of C*Blade’s historical common stock, treasury shares and retained earnings as well as (ii) the impact of transaction costs, net of tax.
(g) Reflects the adjustment to deferred income tax assets and liabilities resulting from pro forma acquisition adjustments for the assets acquired and liabilities assumed. This estimate of deferred taxes is determined based on the excess book basis over the tax basis of the fair value pro forma adjustments attributable to the assets and liabilities acquired and assumed. The statutory tax rate was applied, as appropriate, to each adjustment based on the jurisdiction in which the adjustment occurred. For U.S. adjustments, a U.S. tax rate of 34.0% was used. For Italian adjustments, an Italian statutory rate of 31.4% was applied. This estimate of deferred income tax assets and liabilities is preliminary and is subject to change based upon management's final determination of the fair value of assets acquired and liabilities assumed by jurisdiction. The table below is a reconciliation of deferred tax balances from historical SIFCO and C*Blade balances to pro forma balances:
Pro forma adjustments as of March 31, 2015 | ||||||||||||||||||||
Historical | Impact of fair value adjustment | Subtotal | Impact of transaction costs | Pro forma | ||||||||||||||||
Deferred tax asset | $ | 2,185 | $ | — | $ | 2,185 | $ | 735 | (i) | $ | 2,920 | |||||||||
Deferred tax liability | (1,540 | ) | (4,321 | ) | (i) | (5,861 | ) | — | (5,861 | ) | ||||||||||
Total | $ | 645 | $ | (4,321 | ) | $ | (3,676 | ) | $ | 735 | $ | (2,941 | ) | |||||||
i. | To calculate the impact to the deferred tax liability for the fair value adjustments, an Italian statutory rate of 31.4% was used. To calculate the impact to the deferred tax liability for the transaction cost adjustments, a U.S. tax rate of 34.0% was used. Note certain of the costs relating to the Transactions may not be considered deductible for income tax purposes. |
(h) Represents adjustments to reflect additional financing arrangements that were in place upon consummation of the Transactions.
Historical | Repayment of indebtedness | Amount of new indebtedness | Impact of fair value adjustment | Pro forma | ||||||||||||||||
SIFCO: | ||||||||||||||||||||
Existing term loan facility | $ | 3,000 | $ | (3,000 | ) | $ | — | $ | — | $ | — | |||||||||
Existing revolving credit facility | 14,575 | (14,575 | ) | — | — | — | ||||||||||||||
New term loan facility | — | — | 19,678 | — | 19,678 | |||||||||||||||
New revolving loan facility | — | — | 19,187 | — | 19,187 | |||||||||||||||
C*Blade: | ||||||||||||||||||||
Secured credit facilities | 2,618 | — | — | 119 | 2,737 | |||||||||||||||
Unsecured credit facilities | 7,935 | — | — | (218 | ) | 7,717 | ||||||||||||||
Total | 28,128 | (17,575 | ) | 38,865 | (99 | ) | 49,319 | |||||||||||||
Current portion: | ||||||||||||||||||||
Term loan facility | 2,857 | |||||||||||||||||||
Secured credit facilities | 2,737 | |||||||||||||||||||
Current portion of long-term debt | 5,594 | |||||||||||||||||||
Long-term portion: | ||||||||||||||||||||
Revolving credit facility | 19,187 | |||||||||||||||||||
Term loan facility | 16,821 | |||||||||||||||||||
Unsecured credit facilities | 7,717 | |||||||||||||||||||
Long-term portion | 43,725 | |||||||||||||||||||
Total pro forma | $ | 49,319 | ||||||||||||||||||
Pro forma adjustments to current maturities of long term debt include (i) debt issued of $2,857, (ii) less repayment of indebtedness of $2,000 and (iii) plus the impact of fair value adjustments on C*Blade debt of $119. Pro forma adjustments to long-term debt, net of current maturities, include (i) debt issued of $36,008, (ii) less repayment of indebtedness of $15,575 and (iii) less the impact of fair value adjustments on C*Blade debt of $218.
(i) Represents adjustments to reduce the current and long-term portions of deferred grant interest income assumed from C*blade to a fair value of zero.
(j) Represents pro forma adjustments to record (i) $402 in financing-related transaction fees that were incurred and capitalized in other assets (ii) less the impact of fair value adjustments on C*Blade debt of $86.