Business Acquisitions, Investments and Noncontrolling Interests | 3 Months Ended |
Feb. 28, 2015 |
Business Combinations [Abstract] | |
Business Acquisitions, Investments and Noncontrolling Interests | BUSINESS ACQUISITIONS, INVESTMENTS AND NONCONTROLLING INTERESTS |
|
Business Acquisitions |
|
Filter Resources |
On December 17, 2014, the Company acquired 100% of the outstanding shares of Filter Resources, Inc., Filtration, Inc. and Fabrication Specialties, Inc. (collectively, "Filter Resources"). The purchase price for Filter Resources was approximately $22,099, which the Company funded with borrowings under the Company's revolving credit agreement. |
Filter Resources has operating facilities located in the Texas gulf coast and Louisiana region, with approximately 75 total employees. The business is engaged in the manufacture and distribution of filtration products for petrochemical, refinery, pipeline and other industrial applications. The operations of Filter Resources have been merged into the Company's PECOFacet group of companies, headquartered in Mineral Wells, Texas. Net sales and operating profit for Filter Resources subsequent to the date it was acquired by the Company for the three months ended February 28, 2015 were $4,047 and $276, respectively. Its results are included as part of the Company's Industrial/Environmental Filtration segment from the date of acquisition. |
A preliminary allocation of the purchase price to the assets acquired and liabilities assumed was made based on available information and incorporating management's best estimates. Assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition-date fair values. A contingent liability for a potential earn-out payment to the former owners, based on earnings from certain capital projects, was recorded at its estimated fair value of $1,154, and is included in Other long-term liabilities in the Consolidated Condensed Balance Sheets. The Company assumed long-term debt of the business of $1,250, which was immediately repaid in connection with the closing. The Company is currently in the process of finalizing the valuations of all assets acquired and liabilities assumed. The Company expects to finalize the purchase price allocation within one year of the purchase date. |
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of Filter Resources: |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accounts receivable | $ | 3,180 | | | | | | | | | | | | |
| | | | | | | | | | |
Inventories | 2,042 | | | | | | | | | | | | |
| | | | | | | | | | |
Other current assets | 111 | | | | | | | | | | | | |
| | | | | | | | | | |
Property, plant and equipment | 574 | | | | | | | | | | | | |
| | | | | | | | | | |
Goodwill | 12,345 | | | | | | | | | | | | |
| | | | | | | | | | |
Intangible assets | 10,580 | | | | | | | | | | | | |
| | | | | | | | | | |
| Total assets acquired | 28,832 | | | | | | | | | | | | |
| | | | | | | | | | |
Current liabilities | 2,646 | | | | | | | | | | | | |
| | | | | | | | | | |
Noncurrent liabilities | 4,087 | | | | | | | | | | | | |
| | | | | | | | | | |
| Net assets acquired | $ | 22,099 | | | | | | | | | | | | |
| | | | | | | | | | |
Filter Resources was acquired primarily to expand the Company's access to petrochemical and refinery customers, particularly in the U.S. gulf coast region. Goodwill of $12,345 recorded in connection with the acquisition, which is not deductible for tax purposes, represents the estimated value of such future opportunities. A summary of the intangible assets acquired is shown in the following table: |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Estimated | Weighted average | Amortization | | | | | | | | | | |
Identifiable intangible assets | Value | Useful life | Method | | | | | | | | | | |
Customer relationships | $ | 10,500 | | 15 years | Straight-line | | | | | | | | | | |
| | | | | | | | | |
Trademarks | 80 | | 1 year | Straight-line | | | | | | | | | | |
| | | | | | | | | |
| $ | 10,580 | | | | | | | | | | | | | |
| | | | | | | | | |
CLARCOR Engine Mobile Solutions |
On May 1, 2014, the Company acquired Stanadyne Corporation's diesel fuel filtration business (the “Stanadyne Business”) through the acquisition of the stock of Stanadyne Holdings, Inc. The business, which now operates as “CLARCOR Engine Mobile Solutions,” is a leading supplier of original equipment and replacement fuel filtration products, primarily for heavy-duty diesel engines used in off-road, agricultural and construction applications. |
CLARCOR Engine Mobile Solutions has approximately 200 employees and is headquartered in Windsor, Connecticut, with manufacturing operations in Washington, North Carolina. Its results are included as part of the Company’s Engine/Mobile Filtration segment from the date of acquisition. The purchase price paid was approximately $327,719 in cash (cash to Stanadyne Corporation of $327,719, net of $0 cash acquired), which the Company funded with cash on hand, a $315,000 term loan and $10,000 borrowed under the Company’s revolving credit agreement (see Note 7). |
|
A preliminary allocation of the purchase price to the assets acquired and liabilities assumed was made based on available information and incorporating management’s best estimates. Assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred. The Company is currently in the process of finalizing the valuation of the assets acquired and liabilities assumed. The actual allocation of the final purchase price and the resulting effect on income from operations may differ from the unaudited pro forma amounts included herein. The Company expects to finalize the purchase price allocation within one year of the purchase date. |
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of CLARCOR Engine Mobile Solutions: |
|
| | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accounts receivable | $ | 19,548 | | | | | | | | | | | | |
| | | | | | | | | | |
Inventories | 7,257 | | | | | | | | | | | | |
| | | | | | | | | | |
Deferred income taxes | 4,121 | | | | | | | | | | | | |
| | | | | | | | | | |
Property, plant and equipment | 10,176 | | | | | | | | | | | | |
| | | | | | | | | | |
Goodwill | 194,989 | | | | | | | | | | | | |
| | | | | | | | | | |
Intangible assets | 146,430 | | | | | | | | | | | | |
| | | | | | | | | | |
| Total assets acquired | 382,521 | | | | | | | | | | | | |
| | | | | | | | | | |
Current liabilities | 8,963 | | | | | | | | | | | | |
| | | | | | | | | | |
Other noncurrent liabilities | 2,000 | | | | | | | | | | | | |
| | | | | | | | | | |
Deferred income taxes | 43,839 | | | | | | | | | | | | |
| | | | | | | | | | |
| Net assets acquired | $ | 327,719 | | | | | | | | | | | | |
| | | | | | | | | | |
|
The Stanadyne Business was acquired to significantly increase CLARCOR’s presence in the design, manufacture and supply of original equipment diesel fuel filtration products and the related original equipment services aftermarket, while also providing enhanced scale and market presence to support growth for CLARCOR’s other Engine/Mobile Filtration businesses — including the heavy-duty fuel, oil, hydraulic and air filtration products manufactured and marketed by Baldwin Filters — through original equipment customers and services channels. Goodwill of $194,989 recorded in connection with the acquisition, which is not deductible for tax purposes, represents the estimated value of such future opportunities. A summary of the intangible assets acquired is shown in the following table: |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Estimated | Weighted average | Amortization | | | | | | | | | | |
Identifiable intangible assets | Value | Useful life | Method | | | | | | | | | | |
Customer relationships | $ | 135,250 | | 13 years | Straight-line | | | | | | | | | | |
| | | | | | | | | |
Developed technology | 11,000 | | 10 years | Straight-line | | | | | | | | | | |
| | | | | | | | | |
Trademarks | 180 | | Indefinite | Not amortized | | | | | | | | | | |
| | | | | | | | | |
| $ | 146,430 | | | | | | | | | | | | | |
| | | | | | | | | |
|
Net sales and operating profit for CLARCOR Engine Mobile Solutions for the three months ended February 28, 2015 were as follows: |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | | |
| February 28, 2015 | | | | | | | | | | | | |
Net sales | $ | 24,073 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Operating profit | 4,773 | | | | | | | | | | | | | |
| | | | | | | | | | | |
CLARCOR Industrial Air |
On December 16, 2013, the Company acquired the Air Filtration business of General Electric Company’s (“GE”) Power and Water division through the acquisition of certain assets and the assumption of certain liabilities, as well as the acquisition of the stock of a subsidiary of GE. The business, which now operates as “CLARCOR Industrial Air”, was acquired to significantly increase the Company’s presence in air inlet filtration products for natural gas turbines and to expand the Company’s product offerings, technologies and customer base in industrial air filtration. CLARCOR Industrial Air employs approximately 700 people and is headquartered in Overland Park, Kansas, with manufacturing operations in Missouri and the United Kingdom. Its results are included as part of the Company’s Industrial/Environmental Filtration segment from the date of acquisition. The purchase price paid was approximately $260,312 in cash (cash to GE of $263,758, net of $3,446 cash acquired), which the Company funded with cash on hand, a $100,000 term loan and $50,000 of cash borrowed under the Company’s revolving credit agreement (see Note 7). |
CLARCOR Industrial Air operates primarily in three markets — gas turbine filtration, industrial air filtration, and specialty membranes. In gas turbine filtration, CLARCOR Industrial Air designs and manufactures high performance inlet filter houses and replacement filter elements for gas turbines used in a wide range of applications, including on-shore power generation plants, on-shore and off-shore oil and gas platforms and pipelines, distributed power generation and commercial and military marine applications. In industrial air filtration, CLARCOR Industrial Air designs and manufactures high performance filter elements for use in a variety of industries, sold to a wide range of customers under various trade names. The specialty membrane business designs and manufactures high performance membranes for apparel and microfiltration. |
An allocation of the purchase price to the assets acquired and liabilities assumed was made based on available information and incorporating management’s best estimates. Assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred. There were no adjustments to these purchase accounting valuation estimates during the three months ended February 28, 2015. The allocation of the purchase price to the assets and liabilities assumed was finalized as of February 28, 2015. |
|
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of CLARCOR Industrial Air: |
|
| | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accounts receivable | $ | 34,453 | | | | | | | | | | | | |
| | | | | | | | | | |
Inventories | 41,884 | | | | | | | | | | | | |
| | | | | | | | | | |
Other current assets | 837 | | | | | | | | | | | | |
| | | | | | | | | | |
Property, plant and equipment | 22,903 | | | | | | | | | | | | |
| | | | | | | | | | |
Goodwill | 74,324 | | | | | | | | | | | | |
| | | | | | | | | | |
Intangible assets | 133,020 | | | | | | | | | | | | |
| | | | | | | | | | |
| Total assets acquired | 307,421 | | | | | | | | | | | | |
| | | | | | | | | | |
Total liabilities | 47,109 | | | | | | | | | | | | |
| | | | | | | | | | |
| Net assets acquired | $ | 260,312 | | | | | | | | | | | | |
| | | | | | | | | | |
|
The Company believes the CLARCOR Industrial Air business provides it with a strong platform in the gas turbine filtration market from which to grow, both with respect to first-fit applications as well as the aftermarket, and a broad line of products, in-depth customer knowledge and service capabilities with which to grow in various industrial air filtration markets. Goodwill of $74,324 recorded in connection with the CLARCOR Industrial Air acquisition, which is deductible for tax purposes, represents the estimated value of such future opportunities. A summary of the intangible assets acquired, weighted-average useful lives and amortization methods is shown in the following table: |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Estimated | Weighted average | Amortization | | | | | | | | | | |
Identifiable intangible assets | Value | Useful life | Method | | | | | | | | | | |
Trade names | $ | 35,100 | | Indefinite | Not amortized | | | | | | | | | | |
| | | | | | | | | |
Customer relationships | 77,300 | | 13 years | Straight-line | | | | | | | | | | |
| | | | | | | | | |
Developed technology | 19,900 | | 13 years | Straight-line | | | | | | | | | | |
| | | | | | | | | |
GE Transitional Trademark License | 50 | | Less than 1 Year | Accelerated | | | | | | | | | | |
| | | | | | | | | |
Backlog | 670 | | Less than 1 Year | Accelerated | | | | | | | | | | |
| | | | | | | | | |
| $ | 133,020 | | | | | | | | | | | | | |
| | | | | | | | | |
|
Net sales and operating profit for CLARCOR Industrial Air for the three months ended February 28, 2015 and March 1, 2014 (which, in the case of the three-month period ended March 1, 2014, includes the period from December 16, 2013 to March 1, 2014) were as follows: |
| | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended | | | | | | | | |
| February 28, 2015 | | March 1, 2014 | | | | | | | | |
Net sales | $ | 49,551 | | | $ | 45,378 | | | | | | | | | |
| | | | | | | |
Operating profit | 3,836 | | | (1,048 | ) | | | | | | | | |
| | | | | | | |
|
Pro Forma Results for CLARCOR giving effect to the acquisitions of CLARCOR Engine Mobile Solutions and CLARCOR Industrial Air |
The following unaudited pro forma information presents the combined results of operations of CLARCOR, CLARCOR Industrial Air and CLARCOR Engine Mobile Solutions as if both acquisitions had been completed on the first day of fiscal 2013. The pro forma information is presented for information purposes only and does not purport to be indicative of the results of operations or future results that would have been achieved if the acquisitions and related borrowings had taken place at the beginning of fiscal 2013. The pro forma information combines the historical results of CLARCOR with the historical results of CLARCOR Industrial Air and CLARCOR Engine Mobile Solutions for the periods presented. |
Prior to acquisition by CLARCOR, the business now operated as CLARCOR Industrial Air was a wholly-owned business of GE’s Power and Water division, and the business now operated as CLARCOR Engine Mobile Solutions was a wholly-owned business of Stanadyne Corporation. As such, neither business was a stand-alone entity for financial reporting purposes. Accordingly, the historical operating results of CLARCOR Industrial Air and CLARCOR Engine Mobile Solutions may not be indicative of the results that might have been achieved, historically or in the future, if CLARCOR Industrial Air and CLARCOR Engine Mobile Solutions had been stand-alone entities. |
The unaudited pro forma results for the three-month period ended March 1, 2014 include adjustments to amortization charges for acquired intangible assets, depreciation expense, interest expense, and transaction costs incurred, as well as adjustments to cost of sales related to the step-up of inventory to estimated acquisition-date fair values, other income and related tax effects. The unaudited pro forma results do not give effect to any synergies, operating efficiencies or cost savings that may result from these acquisitions. These pro forma amounts are based on a preliminary allocation of the purchase price to estimates of the fair values of the assets acquired and liabilities assumed. The pro forma amounts include the Company’s preliminary determination of purchase accounting adjustments based on available information and certain assumptions that the Company believes are reasonable. |
| |
| | | | | | | | | | | | | | | |
| Three Months Ended | |
| March 1, 2014 | |
| As reported | CLARCOR | | CLARCOR | | Pro forma | |
Engine Mobile Solutions | Industrial Air | |
Net sales | $ | 312,685 | | $ | 27,056 | | | $ | 15,422 | | | $ | 355,163 | | |
|
Operating profit | 31,266 | | 7,467 | | (a) | 7,979 | | (b) | 46,712 | | |
|
Net earnings attributable to CLARCOR | 24,321 | | 4,013 | | | 5,928 | | | 34,262 | | |
|
Diluted earnings per share | $ | 0.48 | | $ | 0.08 | | | $ | 0.12 | | | $ | 0.68 | | |
|
|
| | | | | | | | | | | | | | | |
(a) | Includes adjustments to intangible asset amortization, depreciation expense and interest expense. Does not include any transaction costs or cost of sales related to the step-up of inventory to its estimated acquisition-date fair value as such costs were pushed back to the three months ended March 2, 2013 for pro forma presentation. | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(b) | Includes adjustments to remove transaction costs of $2,089 and to remove cost of sales related to the step-up of inventory to its estimated acquisition-date fair value of $4,198, which have been pushed back to the three months ended March 2, 2013 for pro forma presentation. Also includes adjustments to intangible asset amortization, depreciation expense and interest expense. | | | | | | | | | | | | | | |
|
Bekaert Business |
On December 3, 2013, the Company acquired from NV Bekaert SA 100% of the outstanding shares of Bekaert Advanced Filtration SA (Belgium), 100% of the outstanding shares of PT Bekaert Advanced Filtration (Indonesia) and certain other assets in India, China and the U.S. (collectively, the “Bekaert Business”). The purchase price was approximately $7,297 in cash (net of cash acquired), which the Company paid with cash on hand. |
The Bekaert Business has approximately 170 employees, and manufacturing facilities located in Belgium and Indonesia, as well as sales personnel in North and South America. The business is engaged in the manufacture and supply of engineered metal filters and systems used primarily in the polymer and plastics industry. The Bekaert Business was acquired to expand the Company’s technical capabilities, improve the Company's product offerings and help the Company continue to grow in Europe and in Asia. The business has been merged into the Company’s Purolator Advanced Filtration Group, headquartered in Greensboro, North Carolina. Its results are included as part of the Company’s Industrial/Environmental Filtration segment from the date of acquisition. |
An allocation of the purchase price to the assets acquired and liabilities assumed was made based on available information and incorporating management’s best estimates. Assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred. There were no adjustments to these purchase accounting valuation estimates during the three months ended February 28, 2015. The allocation of the purchase price to the assets and liabilities assumed was finalized as of February 28, 2015. |
Acquired finite-lived intangible assets of $2,057 were recorded in connection with the purchase. The $2,815 excess of the fair value of the identifiable assets acquired and liabilities assumed over the purchase price was recorded as a bargain purchase gain and is included in “Other, net” income in the Consolidated Condensed Statements of Earnings. Prior to recording this gain, the Company reassessed its identification of assets acquired and liabilities assumed, including the use of independent valuation experts to assist the Company in appraising the personal property, real property and intangible assets acquired. The Company believes there were several factors that contributed to this transaction resulting in a bargain purchase gain, including the business falling outside of NV Bekaert SA’s core activities and historical losses incurred by the business. |
Net sales and operating loss for the Bekaert business (which in the case of the three-month period ended March 1, 2014, includes the period from December 3, 2013 to March 1, 2014) for the three months ended February 28, 2015 and March 1, 2014 were as follows: |
| | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended | | | | | | | | |
| February 28, 2015 | | March 1, 2014 | | | | | | | | |
Net sales | $ | 2,529 | | | $ | 2,777 | | | | | | | | | |
| | | | | | | |
Operating loss | (437 | ) | | (251 | ) | | | | | | | | |
Investments |
|
The Company owns 30% of BioProcessH2O LLC (“BPH”), a Rhode Island-based manufacturer of industrial waste water and water reuse filtration systems. During the three months ended February 28, 2015 and March 1, 2014, respectively, the Company did not make any additional investments. The investment, with a carrying amount of $2,836 and $2,918 at February 28, 2015 and November 29, 2014, respectively, included in Other noncurrent assets in the Consolidated Condensed Balance Sheets, is being accounted for under the equity method of accounting. The carrying amount is adjusted each period to recognize the Company’s share of the earnings or losses of BPH, included in Other, net in the Consolidated Condensed Statements of Earnings, based on the percentage of ownership, as well as the receipt of any dividends. During the three months ended February 28, 2015 and March 1, 2014, the Company did not receive any dividends from BPH. |
|
The Company also owns 14.85% of BioProcess Algae LLC (“Algae”), a Delaware-based company developing technology to grow and harvest algae which can be used to consume carbon dioxide and also be used as a renewable energy source. During the three months ended February 28, 2015 the Company did not make any additional investments into Algae, and during the three months ended March 1, 2014 the Company invested an additional $473 into Algae. The investment, with a carrying amount of $3,277 at February 28, 2015 and November 29, 2014, respectively, included in Other noncurrent assets, is being accounted for under the cost method of accounting. Under the cost method, the Company recognizes dividends as income when received and reviews the cost basis of the investment for impairment if factors indicate that a decrease in value of the investment has occurred. During the three months ended February 28, 2015 and March 1, 2014, the Company did not receive any dividends from Algae. |
|
Noncontrolling Interests |
|
Noncontrolling interests changed as follows during the three months ended February 28, 2015 and March 1, 2014: |
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| 28-Feb-15 | | 1-Mar-14 |
| Redeemable | | Non-Redeemable | | Redeemable | | Non-Redeemable |
Noncontrolling interests at beginning of period | $ | 1,587 | | | $ | 1,043 | | | $ | 1,836 | | | $ | 1,025 | |
|
| | | | | | | |
Noncontrolling interests (loss) earnings | (24 | ) | | 52 | | | (41 | ) | | 61 | |
|
Foreign currency translation | (119 | ) | | (84 | ) | | 18 | | | (10 | ) |
|
Dividend | — | | | (206 | ) | | — | | | (166 | ) |
|
| | | | | | | |
Noncontrolling interests at end of period | $ | 1,444 | | | $ | 805 | | | $ | 1,813 | | | $ | 910 | |
|
|
Redeemable Noncontrolling Interests |
|
In March 2007, the Company acquired an 80% ownership share in Sinfa SA (“SINFA”), a manufacturer of automotive and heavy-duty engine filters based in Casablanca, Morocco. As part of the purchase agreement, the Company and the noncontrolling owners each have an option to require the purchase of the remaining 20% ownership shares by the Company after December 31, 2012 which would result in SINFA becoming a wholly owned subsidiary. As of February 28, 2015, neither the Company nor the noncontrolling owners have exercised the purchase option. The remaining 20% of SINFA owned by the noncontrolling owners has been reported as Redeemable noncontrolling interests and classified as mezzanine equity in the Consolidated Condensed Balance Sheets. The Redeemable noncontrolling interests is reflected at its carrying value, which is greater than its estimated redemption price. If the redemption becomes probable, the Redeemable noncontrolling interests will be accreted to the redemption price, through equity. The Company has not recorded any accretion to date. |