Acquisitions | 6 Months Ended |
Dec. 31, 2013 |
Business Combinations [Abstract] | ' |
Acquisitions | ' |
Acquisitions |
Beckwood Services, Inc. — On December 11, 2013, the Company completed the acquisition of Beckwood Services, Inc. ("Beckwood”) in a $15.3 million all-cash transaction, subject to certain post-closing adjustments and financed through the use of cash on hand and borrowings under the Company's Credit Facility. At December 31, 2013, the Company has recorded additional estimated contingent consideration of accounts receivable of less than $0.1 million in relation to a post-closing working capital adjustment, which is expected to be settled in the third quarter of the Company's fiscal 2014 year. The transaction includes an approximate $1.5 million escrowed holdback which is available to fund the working capital adjustment and potential seller indemnification obligations in relation to the acquisition agreement. |
The acquired business, which is part of the Company's Complex Systems segment and which is expected to add $18 million in annualized revenue, develops electronic or electro-mechanical controls and electronic assemblies. Their customer profile includes international Fortune 1000 manufacturers of industrial control systems, analytical instruments, measuring and detecting equipment and military, defense and Homeland Security equipment. |
The Company is in the process of obtaining valuations of certain tangible and intangible assets and liabilities and expects to complete the purchase price allocation in fiscal year 2014 after these valuations are finalized. The following table represents the preliminary allocation of the total consideration to assets acquired and liabilities assumed in the acquisition of Beckwood based on Sparton’s preliminary estimate of their respective fair values (in thousands): |
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Total purchase consideration: | | | | | | | | | | | | | |
Cash | $ | 15,300 | | | | | | | | | | | | | |
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Estimated additional consideration payable for post-closing working capital adjustment | 36 | | | | | | | | | | | | | |
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Total purchase consideration | $ | 15,336 | | | | | | | | | | | | | |
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Assets acquired and liabilities assumed: | | | | | | | | | | | | | |
Accounts receivable, net | $ | 1,157 | | | | | | | | | | | | | |
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Inventory | 2,008 | | | | | | | | | | | | | |
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Deferred income taxes | 213 | | | | | | | | | | | | | |
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Other current assets | 122 | | | | | | | | | | | | | |
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Property, plant and equipment | 110 | | | | | | | | | | | | | |
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Goodwill | 13,353 | | | | | | | | | | | | | |
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Deferred income taxes - non-current | 7 | | | | | | | | | | | | | |
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Other long-term assets | 8 | | | | | | | | | | | | | |
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Accounts payable | (977 | ) | | | | | | | | | | | | |
Other current liabilities | (665 | ) | | | | | | | | | | | | |
Total assets acquired and liabilities assumed | $ | 15,336 | | | | | | | | | | | | | |
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Total purchase consideration has been allocated to the tangible assets acquired and liabilities assumed based on their provisionally estimated fair values at the acquisition date. It is possible that acquired assets may additionally include customer relationships and the Beckwood name. The Company was unable at December 31, 2013 to assign provisionally estimated fair values to these potential assets. The Beckwood acquisition has preliminarily resulted in approximately $13 million of goodwill, which will be adjusted downward or upward based on the final values assigned to all acquired assets and liabilities. The Company believes that any goodwill remaining after the valuations are finalized will primarily relate to strategic fit, resulting synergies and the acquired workforce that this business brings to existing operations. Goodwill associated with this acquisition is not expected to be deductible for tax purposes and has been assigned entirely to the Company’s Complex Systems segment. |
Included in the Company’s Condensed Consolidated Statements of Income for the three and six months ended December 31, 2013 are net sales of approximately $0.8 million and income before provision from income taxes of approximately $0.1 million, resulting from the acquisition of Beckwood since December 11, 2013. |
The Company incurred legal, professional and other costs related to this acquisition aggregating approximately $0.1 million. These costs were recognized as selling and administrative expenses in the three months ended December 31, 2013. |
Aydin Displays, Inc. — On August 30, 2013, the Company completed the acquisition of certain assets and liabilities of Aydin Displays, Inc. ("Aydin Displays" or “Aydin”) in a $15.0 million all-cash transaction, subject to certain post-closing adjustments and financed through the use of borrowings under the Company's Credit Facility. At December 31, 2013, the Company has recorded additional estimated contingent consideration of accounts receivable of $0.4 million in relation to a post-closing working capital adjustment, which is expected to be settled during the Company's fiscal 2014 year. Additional acquisition consideration of up to $6.6 million is contingent upon Aydin attaining certain performance thresholds during the twelve month period following the transaction. The transaction includes an approximate $1.2 million escrowed holdback which is available to fund the working capital adjustment and potential seller indemnification obligations in relation to the acquisition agreement. |
The acquired business, which is part of the Company's DSS segment and which is expected to add $18 million in annualized revenue, develops enhanced flat panel display and touch-screen solutions with application-critical performance criteria including ruggedization, high resolution, color accuracy, response/refresh times, sunlight readability and other criteria such as magnetic interference and emanations security for the Military & Aerospace and Civil Marine markets. These products are currently specified in the U.S. Navy P8A Poseidon ASW aircraft behind-the-cockpit control center, the command and control centers of many U.S. Navy ships, Federal Aviation Administration air traffic control systems, and cockpit command centers for various civil marine applications. The acquired business will continue to operate as Aydin Displays. |
The following table represents the preliminary allocation of the total consideration to assets acquired and liabilities assumed in the acquisition of Aydin based on Sparton’s preliminary estimate of their respective fair values (in thousands): |
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Total purchase consideration: | | | | | | | | | | | | | |
Cash | $ | 15,000 | | | | | | | | | | | | | |
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Estimated additional consideration payable for post-closing working capital adjustment | 357 | | | | | | | | | | | | | |
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Total purchase consideration | $ | 15,357 | | | | | | | | | | | | | |
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Assets acquired and liabilities assumed: | | | | | | | | | | | | | |
Accounts receivable, net | $ | 2,279 | | | | | | | | | | | | | |
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Inventory | 6,601 | | | | | | | | | | | | | |
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Other current assets | 895 | | | | | | | | | | | | | |
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Property, plant and equipment | 582 | | | | | | | | | | | | | |
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Intangible asset - customer relationships | 1,500 | | | | | | | | | | | | | |
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Intangible asset - trade names and trademarks | 180 | | | | | | | | | | | | | |
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Intangible asset - unpatented technology | 650 | | | | | | | | | | | | | |
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Goodwill | 2,036 | | | | | | | | | | | | | |
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Other long-term assets - favorable leasehold | 590 | | | | | | | | | | | | | |
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Other long-term assets | 1,702 | | | | | | | | | | | | | |
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Accounts payable | (1,215 | ) | | | | | | | | | | | | |
Other current liabilities | (443 | ) | | | | | | | | | | | | |
Total assets acquired and liabilities assumed | $ | 15,357 | | | | | | | | | | | | | |
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Total purchase consideration has been preliminarily allocated to the tangible assets acquired and liabilities assumed based on their provisionally estimated fair values at the acquisition date. Additional acquisition consideration of up to $6.6 million is contingent upon Aydin attaining certain performance thresholds. The Company has assigned no fair value to this contingent liability. The Aydin acquisition has preliminarily resulted in approximately $2 million of goodwill, which is expected to be deductible for tax purposes and has been assigned entirely to the Company’s DSS segment. The Company believes goodwill primarily relates to strategic fit, resulting synergies and the acquired workforce that this business brings to existing operations. The provisional fair values of acquired identifiable assets have been determined to be Level 3 under the fair value hierarchy and have been estimated based on projected future cash flows and customer attrition rates, discounted using an estimated weighted average cost of capital. The customer relationships are being amortized using an accelerated methodology over fifteen years. Trade names and trademarks are being amortized using a straight-line methodology over ten years. The unpatented technology is being amortized using an accelerated methodology over seven years. The favorable leasehold is reflected in other long-term assets on the consolidated balance sheet and is being amortized on a straight-line basis over the five year life of the lease. Amortization related to Aydin unpatented technology and favorable leasehold is reflected within cost of goods sold on the consolidated statement of income. |
Included in the Company’s Condensed Consolidated Statements of Income for the three and six months ended December 31, 2013 are net sales of approximately $4.0 million and $5.2 million, respectively, and loss before benefit from income taxes of less than $0.1 million and approximately $0.1 million, respectively, resulting from the acquisition of Aydin since August 30, 2013. |
The Company incurred legal, professional and other costs related to this acquisition aggregating approximately $0.0 million and $0.2 million for the three and six months ended December 31, 2013, respectively. These costs were recognized as selling and administrative expenses. |
A portion of Aydin's revenue is derived from contracts to manufacture video displays and other related products to a buyer’s specification under long-term contracts. Revenue and profit is recognized under these contracts using the percentage of completion method based on units shipped to estimated total costs at completion. Certain upfront engineering costs in relation to long-term contracts are capitalized and amortized over the life of the contract. |
Creonix, LLC — On June 6, 2013, the Company completed the acquisition of certain assets related to the contract manufacturing business of Creonix, LLC (“Creonix”) in a $2.0 million all-cash transaction, after settlement of a $0.1 million working capital adjustment during the second quarter of the Company's fiscal 2014 year. The transaction was financed through the use of borrowings under the Company's credit facility. The transaction includes an approximate $0.3 million escrowed holdback which is available to fund the working capital adjustment and potential seller indemnification obligations in relation to the acquisition agreement. |
The acquired business, which is reported in the Company's Complex Systems segment, provides the Company with the capability of cable and wire harness engineering and assembly. Additionally, the acquisition provides further expansion into the Industrial and Military & Aerospace markets, diversifies Sparton's customer base and increases utilization of the Company's existing assets through the expected consolidation of this business into Complex Systems's Brooksville, Florida plant during the first six months of fiscal 2014. Creonix primarily manufactures products and components for battery monitoring, high speed optical imaging, neuromuscular incapacitation, imaging and wiring assemblies for military applications, and electrical grid transformer protection systems. |
During the six months ended December 31, 2013, the Company finalized the inventory adjustment under the Creonix asset purchase agreement resulting in a decrease in the previously recorded related receivable from the seller. This measurement period increase in total purchase consideration resulted in the retrospective elimination of the previously recognized gain on acquisition recorded in the fourth quarter of fiscal 2013 of less than $0.1 million and resulting in the recognition of approximately $0.1 million of goodwill. The Company's June 30, 2013 balance sheet has been restated to reflect this adjustment. The following table presents the final allocation of the total consideration to assets acquired and liabilities assumed from Creonix based on Sparton’s estimate of their respective fair values (in thousands): |
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Total purchase consideration: | | | | | | | | | | | | | |
Cash | $ | 2,100 | | | | | | | | | | | | | |
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Reduction in cash consideration in relation to working capital adjustment | (105 | ) | | | | | | | | | | | | |
Total purchase consideration | $ | 1,995 | | | | | | | | | | | | | |
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Assets acquired and liabilities assumed: | | | | | | | | | | | | | |
Inventory | $ | 1,321 | | | | | | | | | | | | | |
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Equipment | 304 | | | | | | | | | | | | | |
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Intangible assets — customer relationships | 270 | | | | | | | | | | | | | |
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Goodwill | 100 | | | | | | | | | | | | | |
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Total assets acquired and liabilities assumed | $ | 1,995 | | | | | | | | | | | | | |
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Pro Forma Results — The following table summarizes, on a pro forma basis, the combined results of operations of the Company and the acquired businesses of Aydin and Beckwood as though the acquisitions had occurred as of July 1, 2012. The pro forma amounts presented are not necessarily indicative of either the actual consolidated results had the acquisition occurred as of July 1, 2012 or of future consolidated operating results (in thousands, except per share amounts): |
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| For the Three Months Ended | | For the Six Months Ended |
| 31-Dec-13 | | 31-Dec-12 | | 31-Dec-13 | | 31-Dec-12 |
Net sales | $ | 87,662 | | | $ | 76,519 | | | $ | 168,743 | | | $ | 138,059 | |
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Income before provision for income taxes | $ | 5,625 | | | $ | 4,800 | | | $ | 9,710 | | | $ | 7,636 | |
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Net income | $ | 3,749 | | | $ | 5,391 | | | $ | 6,516 | | | $ | 7,429 | |
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Net income per share — basic | $ | 0.37 | | | $ | 0.53 | | | $ | 0.65 | | | $ | 0.73 | |
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Net income per share — diluted | $ | 0.37 | | | $ | 0.53 | | | $ | 0.64 | | | $ | 0.73 | |
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Pro forma results presented above reflect: (1) incremental depreciation relating to fair value adjustments to property, plant and equipment; (2) amortization adjustments relating to fair value estimates of intangible assets; (3) elimination of Aydin and Beckwood interest expense relating to debt paid off in conjunction with the transaction; and (4) incremental interest expense on assumed indebtedness and amortization of capitalized financing costs incurred in connection with the transactions as though the transactions occurred as of July 1, 2012. |
Additionally, acquisition related expenses of approximately $0.3 million recognized as selling and administrative expenses in the six months ended December 31, 2013 are reflected in the pro forma results above as though they were recognized during the six months ended December 31, 2012 and have been removed from the pro forma results for the year ended June 30, 2013. Similarly, the capitalization of approximately $0.3 million of gross profit recognized as part of the purchase accounting for Aydin, of which $0.1 million has been recognized as additional cost of goods sold during the six months ended December 31, 2013, is reflected in the pro forma results above as though it was recognized during fiscal 2013 and has been removed from the pro forma results for the six months ended December 31, 2013. |
Pro forma adjustments described above have been tax effected using Sparton's effective rate during the respective periods. |