Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K/A - KAMAN Corp | balsealproforma.htm |
| EX-99.1 - EXHIBIT 99.1 - KAMAN Corp | balsealengineering2019fi.htm |
| EX-23.1 - EXHIBIT 23.1 - KAMAN Corp | windesconsent.htm |
KAMAN CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On January 3, 2020, Kaman Corporation (the "Company") completed the acquisition of Bal Seal Engineering, Inc. ("Bal Seal"), at a net purchase price of approximately $308.0 million, subject to working capital adjustments (the "Acquisition"). The Acquisition constitutes a significant acquisition for purposes of 2.01 of Current Report on Form 8-K. As a result, the following unaudited pro forma combined statement of operations for the year ended December 31, 2019 is presented as if the Acquisition and related events had occurred on January 1, 2019, the first day of fiscal year 2019. The following unaudited pro forma combined balance sheet as of December 31, 2019 is presented as if the Acquisition and related events had occurred on December 31, 2019. Both the Company and Bal Seal had calendar year-ends of December 31, 2019.
The unaudited pro forma financial statements have been derived from historical financial statements prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and are presented based on information currently available. In addition, the unaudited pro forma financial statements were based on, and should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and the audited consolidated financial statements of Bal Seal for the year ended December 31, 2019 attached hereto as Exhibit 99.1. The unaudited pro forma financial statements are intended for informational purposes only and are not intended to represent the Company's financial position or results of operations had the Acquisition and related events occurred on the dates indicated, or to project the Company's financial performance for any future period. Pro forma adjustments have been made for events that are directly attributable to the Acquisition, factually supportable and, with respect to the unaudited pro forma combined statement of operations, expected to have a continuing impact on the Company's consolidated operating results.
The unaudited pro forma combined statements include information, statements and assumptions that are "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will," and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward-looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.
KAMAN CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2019
Kaman Corp(a) | Bal Seal Engineering | Pro forma Adjustments | Notes | Kaman Corp Pro forma | ||||||||||||||
Net sales | $ | 761,608 | $ | 90,800 | $ | 48 | (b) | $ | 852,456 | |||||||||
Cost of sales | 520,803 | 46,259 | 3,868 | (b)(c)(d)(e) | 570,930 | |||||||||||||
Gross profit | 240,805 | 44,541 | (3,820 | ) | 281,526 | |||||||||||||
Selling, general and administrative expenses | 177,187 | 37,123 | 21,443 | (c)(d)(f)(g)(h)(i)(j) | 235,753 | |||||||||||||
Costs from transition services agreement | 4,673 | — | — | 4,673 | ||||||||||||||
Restructuring costs | 1,558 | — | — | 1,558 | ||||||||||||||
Loss on sale of business | 3,739 | — | — | 3,739 | ||||||||||||||
Net loss on sale of assets | 237 | — | — | 237 | ||||||||||||||
Operating income | 53,411 | 7,418 | (25,263 | ) | 35,566 | |||||||||||||
Interest expense (income), net | 17,202 | (162 | ) | — | 17,040 | |||||||||||||
Non-service pension and post retirement benefit income | (396 | ) | — | — | (396 | ) | ||||||||||||
Income from transition services agreement | (3,673 | ) | — | — | (3,673 | ) | ||||||||||||
Other (income) expense, net | (309 | ) | 3,381 | (3,736 | ) | (k) | (664 | ) | ||||||||||
Earnings from continuing operations before income taxes | 40,587 | 4,199 | (21,527 | ) | 23,259 | |||||||||||||
Income tax (benefit) expense | (15,859 | ) | 182 | (4,656 | ) | (l) | (20,333 | ) | ||||||||||
Earnings from continuing operations, net of tax | 56,446 | 4,017 | (16,871 | ) | 43,592 | |||||||||||||
Earnings per share: | ||||||||||||||||||
Basic earnings per share from continuing operations | $ | 2.02 | $ | 1.56 | ||||||||||||||
Diluted earnings per share from continuing operations | $ | 2.01 | $ | 1.55 | ||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||
Basic | 27,936 | 27,936 | ||||||||||||||||
Diluted | 28,092 | 28,092 | ||||||||||||||||
See accompany notes to unaudited pro forma combined financial statements.
KAMAN CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2019 (In thousands, except share and per share amounts) | ||||||||||||||||||
Kaman Corp(a) | Bal Seal Engineering | Pro forma Adjustments | Notes | Kaman Corp Pro Forma | ||||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 471,540 | $ | 10,686 | $ | (339,040 | ) | (m) | $ | 143,186 | ||||||||
Restricted cash | — | — | 24,745 | (n) | $ | 24,745 | ||||||||||||
Accounts receivable, net | 156,492 | 10,393 | (592 | ) | (b) | 166,293 | ||||||||||||
Contract assets | 121,614 | — | 832 | (b) | 122,446 | |||||||||||||
Contract costs, current portion | 6,052 | — | — | 6,052 | ||||||||||||||
Inventories | 156,353 | 13,528 | (28 | ) | (b)(e) | 169,853 | ||||||||||||
Income tax refunds receivable | 8,069 | — | 3,575 | (l) | 11,644 | |||||||||||||
Other current assets | 16,368 | 2,561 | (83 | ) | (o) | 18,846 | ||||||||||||
Total current assets | 936,488 | 37,168 | (310,591 | ) | 663,065 | |||||||||||||
Property, plant and equipment, net of accumulated depreciation | 140,450 | 22,661 | 59,606 | (p) | 222,717 | |||||||||||||
Operating right-of-use asset, net | 15,159 | — | 653 | (o) | 15,812 | |||||||||||||
Goodwill | 195,314 | — | 100,645 | (q) | 295,959 | |||||||||||||
Other intangible assets, net | 53,439 | — | 100,000 | (r) | 153,439 | |||||||||||||
Deferred income taxes | 35,240 | — | 884 | (l) | 36,124 | |||||||||||||
Contract costs, noncurrent portion | 6,099 | — | — | 6,099 | ||||||||||||||
Other assets | 36,754 | 193 | (178 | ) | (s) | 36,769 | ||||||||||||
Total assets | $ | 1,418,943 | $ | 60,022 | $ | (48,981 | ) | $ | 1,429,984 | |||||||||
KAMAN CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2019 (In thousands, except share and per share amounts) | ||||||||||||||||||
Kaman Corp(a) | Bal Seal Engineering | Pro forma Adjustments | Notes | Kaman Corp Pro Forma | ||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable – trade | $ | 70,884 | $ | 1,291 | $ | — | $ | 72,175 | ||||||||||
Accrued salaries and wages | 43,220 | 5,037 | — | 48,257 | ||||||||||||||
Contract liabilities, current portion | 42,942 | — | 192 | (b) | 43,134 | |||||||||||||
Operating lease liabilities, current portion | 4,306 | — | 349 | (o) | 4,655 | |||||||||||||
Income taxes payable | 4,722 | 15 | (15 | ) | (l) | 4,722 | ||||||||||||
Other current liabilities | 37,918 | 1,019 | 1,000 | (t) | 39,937 | |||||||||||||
Total current liabilities | 203,992 | 7,362 | 1,526 | 212,880 | ||||||||||||||
Long-term debt, excluding current portion, net of debt issuance costs | 181,622 | — | — | 181,622 | ||||||||||||||
Deferred income taxes | 6,994 | — | 6,994 | |||||||||||||||
Underfunded pension | 97,246 | — | — | 97,246 | ||||||||||||||
Contract liabilities, noncurrent portion | 37,855 | — | — | 37,855 | ||||||||||||||
Operating lease liabilities, noncurrent portion | 11,617 | — | 221 | (o) | 11,838 | |||||||||||||
Other long-term liabilities | 56,415 | 1,932 | — | 58,347 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding | — | — | — | — | ||||||||||||||
Common stock, $1 par value, 50,000,000 shares authorized; voting; 30,058,455 shares issued | 30,058 | 12 | (12 | ) | (u) | 30,058 | ||||||||||||
Additional paid-in capital | 228,153 | 1,220 | (1,220 | ) | (u) | 228,153 | ||||||||||||
Retained earnings | 820,666 | 49,496 | (49,496 | ) | (u) | 820,666 | ||||||||||||
Accumulated other comprehensive income (loss) | (150,893 | ) | — | — | (150,893 | ) | ||||||||||||
Less 2,219,332 shares of common stock, held in treasury, at cost | (104,782 | ) | — | — | (104,782 | ) | ||||||||||||
Total shareholders’ equity | 823,202 | 50,728 | (50,728 | ) | 823,202 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 1,418,943 | $ | 60,022 | $ | (48,981 | ) | $ | 1,429,984 | |||||||||
See accompany notes to unaudited pro forma combined financial statements.
KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. | BASIS OF PRESENTATION |
On January 3, 2020, Kaman Corporation (the "Company") completed the acquisition of Bal Seal Engineering, Inc. ("Bal Seal"), at a net purchase price of approximately $308.0 million, subject to working capital adjustments. Bal Seal is a leader in the design, development, and manufacturing of highly engineered products including precision springs, seals and contacts. Bal Seal has an established global presence, with manufacturing facilities across the United States and sales representation in the United States, Europe and Asia.
The unaudited pro forma combined financial statements were prepared using the acquisition method of accounting in accordance with generally accepted accounting principles in the United States ("GAAP") and were derived based on the financial statements of the Company and Bal Seal and adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined company's results. Reclassification adjustments have been made in the presentation of Bal Seal amounts to conform to GAAP and to the Company's presentation. Adjustments are described in the accompanying notes to the unaudited pro forma combined financial statements.
2. | PURCHASE PRICE ALLOCATION |
The total preliminary purchase price for Bal Seal was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their preliminary fair values as of the acquisition date. The excess of the purchase price over the preliminary net assets (including identifiable intangible assets) was recorded as goodwill. The purchase price was allocated based upon preliminary estimates and assumptions that are subject to change as the Company finalizes the fair values of assets and liabilities assumed over the one year measurement period. The final purchase price allocation may differ from that reflected in the unaudited pro forma combined financial statements.
The following is a preliminary fair value estimate of the assets acquired and liabilities assumed by the Company in the acquisition of Bal Seal as of January 3, 2020:
(In thousands) | ||||
Cash | $ | 10,953 | ||
Restricted cash | 1,932 | |||
Accounts receivable | 9,525 | |||
Contract assets | 784 | |||
Inventories | 13,500 | |||
Property, plant and equipment | 82,267 | |||
Operating right-of-use asset | 653 | |||
Other tangible assets | 2,492 | |||
Goodwill | 96,642 | |||
Other intangible assets | 100,000 | |||
Liabilities | (10,561 | ) | ||
Net assets acquired(1) | 308,187 | |||
Less cash received | (12,885 | ) | ||
Net consideration | $ | 295,302 | ||
(1) The net assets acquired reflects a purchase price of $331.0 million less restricted cash of $22.8 million associated with Bal Seal employee retention plans. At December 31, 2019, $1.9 million in costs associated with these employee retention plans were included in other long-term liabilities on Bal Seal's Consolidated Balance Sheet. Upon the transaction closing, the Company funded $24.7 million associated with these employee retention plans into escrow accounts. Eligible participants will receive an allocation of the escrow balance one year following the acquisition date.
Identifiable intangible assets
The estimated fair value of the identifiable intangible assets and the associated estimated useful lives (in years) are as follows:
Estimated Fair Value (in thousands) | Useful Life | |||||
Customer relationships | $ | 60,600 | 30-34 years | |||
Backlog | $ | 1,500 | 1 year | |||
Trade name | $ | 11,000 | Indefinite | |||
Developed technologies | $ | 26,900 | 7-13 years | |||
The estimated amortization of the identifiable intangible assets for the five years following the acquisition are as follows:
2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||
Customer relationships | $ | 1,928 | $ | 1,928 | $ | 1,928 | $ | 1,928 | $ | 1,928 | ||||||||||
Backlog | $ | 1,500 | $ | — | $ | — | $ | — | $ | — | ||||||||||
Developed technologies | $ | 3,035 | $ | 3,035 | $ | 3,035 | $ | 3,035 | $ | 3,035 | ||||||||||
Goodwill
Goodwill represents the excess of the purchase consideration transferred over the fair value of assets and liabilities assumed on the acquisition date. Goodwill is not amortized.
3. PRO FORMA ADJUSTMENTS
Reclassification adjustments have been made in the presentation of Bal Seal amounts to conform to GAAP and to the Company's presentation. The following adjustments have been reflected in the unaudited combined pro forma financial statements:
(a) Reflects the Company's US GAAP consolidated financial statements, as reported, before pro forma adjustments related to the acquisition of Bal Seal Engineering, Inc.
(b) Bal Seal adopted Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers, in the year ended December 31, 2019. The pro forma adjustments include an adjustment to sales that is not material and an adjustment to cost of goods sold of $0.2 million related to activity for over time contracts for the year ended December 31, 2019 to conform with the Company's presentation. The adjustments also include the reclassification of balances for contract assets of and contract liabilities that were included in accounts receivable in Bal Seal's financial statements.
(c) Includes the pro forma adjustment to reclassify $6.2 million in expenses recorded in selling, general and administrative expenses to cost of goods sold to conform with the Company's presentation.
(d) Includes the pro forma adjustments for the reduction in net expense associated with the buildings purchased by the Company in the acquisition that were previously leased by Bal Seal. The reduction in expense impacts cost of goods sold by $2.6 million and selling, general and administrative expenses by $1.6 million.
(e) Includes the pro forma adjustment for the step up in fair value of inventory of $0.1 million.
(f) Includes the pro forma adjustment for the incremental amortization of intangible assets of $6.5 million. The amortization of intangible assets has been calculated based on their respective fair values and amortized over the estimated useful life.
(g) Includes the pro forma adjustment for the incremental compensation expense of $22.8 million associated with the Bal Seal employee retention plans.
(h) Reflects the pro forma adjustment for the elimination of $0.2 million in fees associated with Bal Seal's board of directors.
(i) Reflects the pro forma adjustment for the reduction in salary of Bal Seal's previous owner of $0.3 million.
(j) Reflects the pro forma adjustment for the timing of costs associated with acquisition incurred by the Company of $0.4 million.
(k) Reflects the pro forma adjustment for the elimination of transaction expenses associated with the acquisition incurred by Bal Seal.
(l) Reflects the pro forma adjustments for income tax related items, which were determined using a blended tax rate.
(m) Includes the pro forma adjustment for the Company's cash outlay of $339.0 million for the acquisition of Bal Seal.
(n) Includes the pro forma adjustment for $24.7 million of cash funded into escrow accounts for the Bal Seal employee retention plans.
(o) Reflects the pro forma adjustments for the adoption of ASU 2016-02, Leases.
(p) Reflects the pro forma adjustment for the step up in fair value of property, plant and equipment.
(q) Reflects the pro forma adjustment for goodwill acquired.
(r) Reflects the pro forma adjustment for the fair value of other intangible assets acquired.
(s) Reflects the pro form adjustment to write-off an exclusivity agreement.
(t) Reflects the pro forma adjustment to accrue for a charitable contribution included in the consideration for the acquisition of Bal Seal.
(u) Reflects the pro forma adjustments to eliminate Bal Seal's equity.