Form 8-K RBC Bearings INC For: Sep 20

September 20, 2021 4:08 PM EDT

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Exhibit 23.1

 

Consent of Independent Auditors

 

We consent to the incorporation by reference in the registration statements (Nos. 333-221329, 333-192164) on Form S-8 of RBC Bearings Incorporated of our report dated September 13, 2021, with respect to the combined financial statements of the Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd, which report appears in the Form 8-K of RBC Bearings Incorporated dated September 20, 2021.

  

/s/ KPMG AG

 

Zurich, Switzerland
September 20, 2021

 

 

 

Exhibit 99.1

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

Index to Combined Financial Statements

 

Independent Auditor’s Report 2
Combined Statements of Income for the years ended December 31, 2020 and 2019 4
Combined Statements of Comprehensive Income for the years ended December 31, 2020 and 2019 5
Combined Balance Sheets as of December 31, 2020 and 2019 6
Combined Statements of Changes in Equity for the years ended December 31, 2020 and 2019 7
Combined Statements of Cash Flows for the years ended December 31, 2020 and 2019 8
Notes to the Combined Financial Statements 9
Note 1—Description of the Business 9
Note 2—Significant accounting policies 9
Note 3—Transactions with Related Parties 17
Note 4—Receivables, net 18
Note 5—Inventories, net 18
Note 6—Property, plant and equipment, net 18
Note 7—Goodwill and other intangible assets 19
Note 8—Accounts Payable 19
Note 9—Leases 20
Note 10—Income taxes 21
Note 11—Revenues 23
Note 12—Other Post-Retirement Benefit Obligations 23
Note 13—Subsequent Events 26

 

 

 

 

 

 

  KPMG AG
Badenerstrasse 172
PO Box
CH-8036 Zurich

+41 58 249 31 31
kpmg.ch

 

Independent Auditors’ Report

 

The Board of Directors

ABB Asea Brown Boveri Ltd:

 

We have audited the accompanying combined financial statements of the Dodge Mechanical Power Transmission Business (the “Business”) of ABB Asea Brown Boveri Ltd, which comprise the combined balance sheets as of December 31, 2020 and 2019, and the related combined statements of income, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes to the combined financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

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Opinion

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd. as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

 

Emphasis of Matter

 

As discussed in Note 2 to the combined financial statements, the Dodge Mechanical Power Transmission Business has not operated as a stand-alone entity. These combined financial statements are prepared on a carve-out basis and have been derived from the consolidated financial statements and accounting records of ABB Ltd, and are therefore not necessarily indicative of the results of operations, financial position and cash flows had the Business operated as an independent company during the periods presented or of future performance of the Business. Our opinion is not modified in respect to this matter.

 

/s/ KPMG AG  
   
Zurich, Switzerland  
September 13, 2021  

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd 

 

Combined Statements of Income 

 

Year ended December 31 ($ in thousands)

 

   2020   2019 
Revenues   549,997    612,390 
Cost of sales   (381,736)   (423,123)
Gross profit   168,261    189,267 
Selling, general and administrative expenses   (70,850)   (78,672)
Non-order related research and development expenses   (7,439)   (8,539)
Other income (expense), net   (449)   (148)
Interest and other finance expense   220    176 
Income from operations, before income taxes   89,743    102,084 
Income tax expense   (22,179)   (25,083)
Net income   67,564    77,001 

 

See accompanying Notes to the Combined Financial Statements

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd 

 

Combined Statements of Comprehensive Income 

 

Year ended December 31 ($ in thousands)

 

   2020   2019 
Net income   67,564    77,001 
Other comprehensive income (loss), net of tax:          
  Foreign currency translation adjustment   (1,515)   557 
  Other, net   (571)   (404)
Other comprehensive income (loss)   (2,086)   153 
Comprehensive income   65,478    77,154 

 

See accompanying Notes to the Combined Financial Statements

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd 

 

Combined Balance Sheets 

 

Year ended December 31 ($ in thousands)

 

   2020   2019 
Cash and cash equivalents        
Receivables, net   61,052    65,320 
Inventories, net   118,322    115,319 
Other current assets   5,488    7,631 
Total current assets   184,862    188,270 
           
Property, plant and equipment, net   104,923    103,952 
Operating lease right-of-use assets, net   16,998    16,084 
Goodwill   809,907    809,907 
Intangible assets, net   232,500    257,300 
Deferred taxes   1,047    1,038 
Other non-current assets   867    858 
Total assets   1,351,104    1,377,409 
           
Accounts payable   52,191    57,388 
Accrued liabilities   21,947    23,366 
Accrued distributor rebates   16,987    16,866 
Right of return provision   5,993    6,787 
Other current liabilities   9,018    6,811 
Total current liabilities   106,136    111,218 
           
Non-current finance leases
   6,441    6,705 
Non-current operating leases   17,534    18,021 
Deferred taxes   48,629    54,105 
Non-current other post-retirement obligations   11,132    12,638 
Other non-current liabilities   555    440 
Total liabilities   190,427    203,127 
           
Equity:          
  Parent company investment   1,144,106    1,155,625 
  Accumulated other comprehensive income   16,571    18,657 
Total Equity   1,160,677    1,174,282 
Total liabilities and equity   1,351,104    1,377,409 

 

See accompanying Notes to the Combined Financial Statements

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Combined Statements of Changes in Equity

 

Year ended December 31 ($ in thousands)

 

  

Parent company

investment

   Accumulated
other
comprehensive
income
   Total Equity 
Balance at January 1, 2019   1,165,013    18,504    1,183,517 
Net income   77,001        77,001 
Other comprehensive income (loss), net       153    153 
Net transfers to Parent   (86,389)       (86,389)
Balance at December 31, 2019   1,155,625    18,657    1,174,282 
Net income   67,564        67,564 
Other comprehensive income (loss), net       (2,086)   (2,086)
Net transfers to Parent   (79,083)       (79,083)
Balance at December 31, 2020   1,144,106    16,571    1,160,677 

  

See accompanying Notes to the Combined Financial Statements

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Combined Statements of Cash Flows

 

Year ended December 31 ($ in thousands)

 

   2020   2019 
Operating activities:          
Net income   67,564    77,001 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   44,466    44,074 
Deferred tax expense (benefit)   (5,309)   (6,254)
Other   (28)   633 
Changes in operating assets and liabilities:          
Receivables, net   4,453    (4,628)
Inventories, net   (3,193)   (267)
Accounts payable   (4,996)   (2,776)
Accrued liabilities   (2,170)   (4,212)
Other assets and liabilities, net   883    (1,703)
Net cash provided by operating activities   101,670    101,868 
Investing activities:          
Purchases of property, plant and equipment and intangible assets   (20,169)   (15,085)
Net cash used in investing activities   (20,169)   (15,085)
Financing activities:          
Finance lease payments   (733)   (702)
Changes in parent company investment   (79,083)   (86,389)
Other   (1,685)   308 
Net cash used in financing activities   (81,501)   (86,783)
Effects of exchange rate changes on cash and cash equivalents        
Net change in cash and cash equivalents        
Cash and equivalents, beginning of period        
Cash and cash equivalents, end of period        

  

See accompanying Notes to the Combined Financial Statements

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Note 1—Description of the Business

 

The accompanying Combined Financial Statements and Notes present the combined statements of Income, financial position, and cash flows of the Dodge mechanical power transmission business (“MOPT”, “Business”, “we”, “us”, “our”) of ABB Asea Brown Boveri Ltd.

 

In November 2020, ABB Ltd (“ABB” or “Parent”), as the ultimate parent of ABB Asea Brown Boveri Ltd and MOPT, announced its plans to explore the divestiture of the Business. The Business has designed, manufactured and marketed mechanical power transmission products for over 140 years and provides industry leading products and services to a global customer base. Further, the Business offers a diverse line of mounted bearing, enclosed gearing and power transmission (“PT”) component products.

 

Note 2—Significant accounting policies

 

The following is a summary of significant accounting policies followed in the preparation of these Combined Financial Statements.

 

Basis of presentation and principles of combination

 

These Combined Financial Statements have been derived from the consolidated financial statements and accounting records of ABB. These Combined Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Business for the periods presented as historically managed within ABB in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) based on a going concern assumption and are presented in United States dollars ($ or USD) unless otherwise stated. The Combined Financial Statements may not be indicative of the Business’ future performance and do not necessarily reflect what the results of operations, financial position and cash flows would have been had it operated as an independent business during the periods presented.

 

The Combined Financial Statements of the Business are prepared on a carve-out basis from financial information of the Parent. The operations of the Business are consistent with the components of the Parent which are planned to be divested. All amounts presented relate to companies or the relevant portions of companies which are directly controlled by the Parent and all intercompany accounts within the Business and transactions within the Business are eliminated. Intercompany transactions between us and the Parent are deemed to have been settled immediately through Parent company investment. Refer to Note 3 for additional information.

 

External debt, including any interest expense, associated with the debt of the Parent which is not directly attributable to the Business has been excluded from the Combined Financial Statements of the Business. The equity of the Business represents the net investment of the Parent in the Business. The Parent’s historical retained earnings related to the Business are included within “Parent company investment.”

 

Current and deferred income taxes have been determined based on the stand-alone results of MOPT. However, because the Business has prepared and filed its tax returns as part of ABB’s tax group in certain jurisdictions, the Business’ actual tax balances may differ from those reported.

 

These Combined Financial Statements have been prepared with facts and circumstances that were known through September 13, 2021 and considered subsequent events through September 13, 2021. See Note 13 for additional information.

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

  

Cost allocations

 

These Combined Financial Statements include general corporate expenses and shared expenses of the Parent that were historically incurred by or charged to the Business for certain support functions that are provided on a centralized basis, such as expenses related to information technology, finance and controlling, intellectual property, digital, communications, human resources, sales and marketing, health and safety and country management activities. These expenses are included in the Combined Statements of Income within “Cost of sales,” “Selling, general and administrative expenses,” and “Non-order related research and development expenses.” These expenses have been allocated to the Business on the basis of direct usage, FTEs, square footage, or other measures that are utilized by the Parent for purposes of its consolidated financial statements.

 

These Combined Financial Statements may not reflect the actual expenses that would have been incurred and may not reflect the Business’ combined results of operations, financial position and cash flows had it been a standalone business during the period presented. Actual costs that would have been incurred if the Business had been a standalone business would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Going forward, the Business may perform these functions using its own resources or outsourced services.

 

The following table reflects these allocations as described above:

 

($ in thousands)  2020   2019 
Cost of sales   15,638    21,472 
Selling, general and administrative expenses   31,597    36,600 
Non-order related research and development expenses   599    1,437 
Total   47,834    59,509 

 

Use of estimates

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities as of the date of the Combined Financial Statements and the reported amounts of revenues and expenses during the respective reporting periods. These accounting assumptions and estimates include:

 

-growth rates, discount rates and other assumptions used in testing goodwill for impairment,

 

-estimates to determine valuation allowances for deferred tax assets and amounts recorded for unrecognized tax benefits,

 

-assumptions used in determining inventory obsolescence and net realizable value,

 

-assumptions used in the determination of corporate costs attributable to the Business,

 

-estimates of loss contingencies associated with, product warranties

 

-estimates related to credit losses expected to occur over the remaining life of financial assets such as trade and other receivables,

 

-assumptions and projections related to right of return provisions and rebate accruals

 

-assumptions used in the determination of post-retirement benefit obligations and expenses

 

Cash and cash equivalents

 

Cash and cash equivalents are managed centrally by the Parent. Cash and cash equivalents have not been recorded on an allocated basis to the Business for the periods presented. As such, no cash and cash equivalents have been presented within the Combined Balance Sheets of the Business. Transfers of cash and cash equivalents between the Business and the Parent have been presented as a component of the change in parent investment as a financing activity in the Combined Statements of Cash Flows.

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Accounts receivable and allowance for expected credit losses

 

Accounts receivable are recorded at the invoiced amount. The Parent has a groupwide policy on the management of credit risk. The policy includes a credit assessment methodology to assess the creditworthiness of customers and assign to those customers a risk category. Third-party agencies’ ratings are considered, if available. For customers where agency ratings are not available, the customer’s most recent financial statements, payment history and other relevant information are considered in the assignment to a risk category. Customers are assessed at least annually or more frequently when information on significant changes in the customers’ financial position becomes known. In addition to the assignment to a risk category, a credit limit per customer is set.

 

The Business recognizes an allowance for expected credit losses to present the net amount of receivables expected to be collected as of the balance sheet date. The allowance is based on the credit losses expected to arise over the asset’s contractual term taking into account historical loss experience, customer-specific data as well as forward looking estimates. Receivables are grouped in pools based on similar risk characteristics to estimate expected credit losses. Expected credit losses are estimated individually when the related assets do not share similar risk characteristics.

 

Accounts receivable are written off when deemed uncollectible and are recognized as a deduction from the allowance for expected credit losses. Expected recoveries, which are not to exceed the amount previously written off, are considered in determining the allowance balance at the balance sheet date.

 

Concentrations of credit risk

 

The Business sells a broad range of mechanical power transmission products to a wide range of industrial, commercial, and OEM customers throughout the world. Concentrations of credit risk with respect to accounts receivable are limited as the Business’ customer base is comprised of a large number of individual customers. Ongoing credit evaluations of customers’ financial positions are performed; collateral is not generally required. The Business maintains an allowance for expected credit losses as discussed above in “Accounts receivable and allowance for expected credit losses.” Such losses, in the aggregate, are in line with the Business’ expectations.

 

Revenue recognition

 

A customer contract exists if collectability under the contract is considered probable, the contract has commercial substance, contains payment terms, as well as the rights and commitments of both parties, and has been approved.

 

The Business offers arrangements with multiple performance obligations to meet its customers’ needs. These arrangements may involve the delivery of multiple products and/or performance of services (such as installation and training) and the delivery and/or performance may occur at different points in time or over different periods of time. Goods and services under such arrangements are evaluated to determine whether they form distinct performance obligations and should be accounted for as separate revenue transactions. The Business allocates the sales price to each distinct performance obligation based on the price of each item sold in separate transactions at the inception of the arrangement.

 

The Business generally recognizes revenues for the sale of non-customized products including bearings, gearings, PT components and other goods which are manufactured on a standardized basis at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good which is when it has taken title to the products and assumed the risks and rewards of ownership of the products specified in the purchase order or sales agreement. Generally, the transfer of title and risks and rewards of ownership are governed by the contractually defined shipping terms. The Business uses various International Commercial shipping terms (as promulgated by the International Chamber of Commerce) in its sales of products to third party customers, such as Ex Works (“EXW”), Free Carrier (“FCA”) and Delivered Duty Paid (“DDP”).

 

Billing terms for these point in time contracts vary but generally coincide with delivery to the customer. Payment is generally due within 90 days or less upon receipt of the invoice.

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Revenues are reported net of distributor rebates, early settlement discounts, and similar incentives. Rebates are estimated based on sales terms, historical experience and trend analysis. The most common incentives relate to amounts paid or credited to customers for achieving defined volume levels. Further, revenues are reported net of customer returns. Customers typically have a right of return for products purchased within the preceding 12 month period and are estimated based on customer return history.

 

The Business provides for anticipated costs for warranties when it recognizes revenues on the related products. Warranty costs include calculated costs arising from imperfections in design, material and workmanship in the Business’ products. The Business makes individual assessments on contracts with risks resulting from order-specific conditions or guarantees and assessments on an overall, statistical basis for similar products sold in larger quantities.

 

Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Business and its customers, such as sales, use, value added and some excise taxes, are excluded from revenues.

 

Sales commissions are expensed immediately when the amortization period for the costs to obtain the contract is less than a year.

 

Shipping and handling costs

 

Shipping and handling costs are recorded as a component of cost of sales.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method, the weighted average-cost method, or the specific identification method. Inventoried costs are stated at acquisition cost or actual production cost, including direct material and labor and applicable manufacturing overheads. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for decreases in sales prices, obsolescence or similar reductions in value.

 

Impairment of long-lived assets

 

Long-lived assets that are held and used are assessed for impairment when events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the asset’s net carrying value exceeds the asset’s net undiscounted cash flows expected to be generated over its remaining useful life including net proceeds expected from disposition of the asset, if any, the carrying amount of the asset is reduced to its estimated fair value. The estimated fair value is determined using a market, income and/or cost approach.

 

Property, plant and equipment

 

Property, plant and equipment is stated at cost, less accumulated depreciation and is depreciated using the straight-line method. The estimated useful lives of the assets are generally as follows:

 

Factories and office buildings   30-40 years
Other facilities   15 years
Machinery and equipment   3-15 years
Furniture and office equipment   3-8 years

 

Leasehold improvements are depreciated over their estimated useful life or, for operating leases, over the lease term, if shorter.

 

Goodwill and other intangible assets

 

Goodwill is reviewed for impairment annually as of December 31, or more frequently if events or circumstances indicate that the carrying value may not be recoverable.

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Goodwill is evaluated for impairment at the reporting unit level. The Business consists of one reporting unit for purposes of assessing goodwill for impairment.

 

When evaluating goodwill for impairment, either a qualitative or quantitative assessment method at the reporting unit is used. The qualitative assessment involves determining, based on an evaluation of qualitative factors, if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on this qualitative assessment, it is determined to be more likely than not that the reporting unit’s fair value is less than its carrying value, a quantitative impairment test (described below) is performed, otherwise no further analysis is required. If an election not to perform the qualitative assessment for a reporting unit is made, then a quantitative impairment test is performed.

 

The quantitative impairment test calculates the fair value of a reporting unit (based on the income approach whereby the fair value of a reporting unit is calculated based on the present value of future cash flows) and compares it to the reporting unit’s carrying value. If the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting unit then an impairment charge equal to the difference is recognized, provided that the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit.

 

Amortization of intangibles with definite lives is calculated using the straight-line method, which is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. Intangible assets such as customer relationships, tradenames, and product-related technology assets with finite useful lives are amortized on a straight-line basis over their estimated economic lives. The useful lives are as follows:

 

Customer relationships   21 years
Tradename   10 years
Product-related technology    8 years

 

Intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. If the sum of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset. No impairment was recognized in the historical periods.

 

Product and order-related contingencies

 

The Business calculates its provision for product warranties based on historical claims experience and specific review of certain contracts. The product warranty provision as of December 31, 2020 and December 31, 2019 was $1,052 thousand and $1,923 thousand, respectively.

 

Leases

 

The Business leases consist primarily of real estate.

 

In January 2019, the Business adopted a new lease accounting standard, Accounting Standard Codification (ASC) 842, Leases, electing the transition method which permits entities to adopt the provisions of the standard using the modified retrospective approach without adjusting comparative periods. The Business also elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to grandfather the historical accounting conclusions until a reassessment event occurs. We have also elected the practical expedient to not recognize short-term leases on the balance sheet and the practical expedient to combine lease and non-lease components for the majority of our underlying classes of assets. In instances where the practical expedient was not elected, lease and non-lease consideration is allocated based on relative standalone selling price.

 

Adoption of the new standard resulted in the recording of Right of use “ROU” assets and lease liabilities of approximately $4,726 thousand and $4,726 thousand, respectively, as of January 1, 2019. The standard did not materially impact our combined statements of income, cash flows or equity as a result of adoption.

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Prior to the adoption of the new accounting standard, lease transactions where substantially all risks and rewards incident to ownership were transferred from the lessor to the lessee were accounted for as capital leases. All other leases were accounted for as operating leases. The periodic rent expense for operating leases was recorded on a straight-line basis over the life of the lease term. Amounts due under capital leases were recorded as a liability. The value of the assets under capital leases were recorded as property, plant and equipment. Depreciation and amortization of assets recorded under capital leases was included in depreciation and amortization expense.

 

Under the new lease accounting standard, the Business evaluates if a contract contains a lease at inception of the contract. A contract is or contains a lease if it conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. To determine this, the Business assesses whether, throughout the period of use, it has both the right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Leases are classified as either finance or operating, with the classification determining the pattern of expense recognition in the Combined Statements of Income. Lease expense for operating leases continues to be recorded on a straight-line basis over the lease term. Lease expense for finance leases is separated between amortization of the right-of-use assets and lease interest expense.

 

In many cases, the Business’ leases include one or more options to renew. The exercise of lease renewal options is at the Business’ discretion. Renewal periods are included in the expected lease term if they are reasonably certain of being exercised by the Business. Certain leases also include options to purchase the leased property. None of the Business’ lease agreements contain material residual value guarantees or material restrictions or covenants.

 

Long-term leases (leases with terms greater than 12 months) are recorded in the Combined Balance Sheets at the commencement date of the lease based on the present value of the minimum lease payments. The present value of the lease payments is determined by using the interest rate implicit in the lease if available. As most of the Business’ leases do not provide an implicit rate, the Business’ incremental borrowing rate is used for most leases and is determined for portfolios of leases based on the remaining lease term, currency of the lease, and the internal credit rating of the subsidiary which entered into the lease. The Business does not have significant short-term leases (leases with an initial lease term of 12 months or less).

 

Assets under operating lease are included in “Operating lease right-of-use assets, net.” Operating lease liabilities are reported both as current and non-current operating lease liabilities. Right-of-use assets represent the Business’ right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

 

Assets under finance lease are included in “Property, plant and equipment, net” while finance lease liabilities are included in “Other current liabilities” and “Non-current finance lease liabilities.”

 

Lease and non-lease components for leases other than real estate are not accounted for separately.

 

Translation of foreign currencies and foreign exchange transactions

 

The functional currency for most of the operations of the Business is the applicable local currency. The translation from the applicable functional currencies into the reporting currency is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for income statement accounts using average exchange rates prevailing during the year. The resulting translation adjustments are excluded from the determination of earnings and are recognized directly in “Parent company investment” until the subsidiary is sold, substantially liquidated or evaluated for impairment in anticipation of disposal.

 

Foreign currency exchange gains and losses, such as those resulting from foreign currency denominated receivables or payables, are included in the determination of earnings. Exchange gains and losses recognized in earnings are included in “Revenues,” “Cost of sales” or “Selling, general and administrative expenses” consistent with the nature of the underlying item.

 

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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Income taxes

 

The operations of the Business have historically been included in the income tax filings of the ABB Holdings Inc. (“US Parent”). The income tax expense in the Combined Statements of Income is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, income tax expense reflects income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year calculated as if the business was a standalone taxpayer filing hypothetical income tax returns where applicable. Any accrued tax liability or refund arising as a result of this approach is assumed to be immediately settled with the Parent as a component of “Parent company investment.” Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial statement carrying amount and the tax bases of the Business’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted. Deferred taxes are reflected in the Combined Balance Sheets to the extent that such attributes are expected to transfer with the Business upon the separation.

 

The Business uses the asset and liability method to account for deferred taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amount and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Business recognizes an income tax benefit when it determines that the tax position is more likely than not to be sustained based upon the deduction’s technical merit. Recognized tax positions are measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. Deferred tax assets and liabilities are offset against each other and reported on a net basis by tax-paying component. If relevant, a valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.

 

The Business operates in numerous tax jurisdictions and, as a result, is regularly subject to examination by taxing authorities. No liabilities are recorded in the Combined Balance Sheets for unrecognized tax benefits in the Business as all amounts will remain as obligations of the Parent.

 

Research and development

 

Research and development costs not related to specific customer orders are generally expensed as incurred.

 

Contingencies

 

The operations of the Business are subject to proceedings, litigation or threatened litigation and other claims and inquiries, related to environmental, labor, product, regulatory, tax (other than income tax) and other matters, and is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue, often with assistance from both internal and external legal counsel and technical experts. The required amount of a provision for a contingency of any type may change in the future due to new developments in the particular matter, including changes in the approach to its resolution.

 

The Business records a provision for its contingent obligations when it is probable that a loss will be incurred and the amount can be reasonably estimated. Any such provision is generally recognized on an undiscounted basis using the Business’ best estimate of the amount of loss incurred or at the lower end of an estimated range when a single best estimate is not determinable. In some cases, the Business may be able to recover a portion of the costs relating to these obligations from insurers or other third parties; however, the Business records such amounts only when it is probable that they will be collected.

 

15 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Other Post-retirement Benefit Plans

 

We recognize the post-retirement benefit obligation for certain defined benefit plans associated with retirees of the Business on the Combined Balance Sheets. Actuarial gains or losses and prior service costs or credits that have not yet been recognized as part of net periodic benefit cost are recorded as a component of Accumulated Other Comprehensive Income.

 

The calculation of the obligation and expense for other post-retirement benefits is dependent on assumptions selected by actuaries and the Parent. Those assumptions are detailed further in Note 12 and include, among others, the discount rate, mortality and the rates of increases in health care costs. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in future periods. While the Business believes that the assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the other post-retirement obligations and future expense.

 

Recently Adopted Accounting Standards

 

ASU 2016-13, Credit Losses—Measurement of Credit Losses on Financial Instruments

 

Effective January 1, 2020, ABB adopted ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” using the modified retrospective transition method. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The application of this ASU did not have a material impact on the Combined Financial Statements.

 

ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirement for Defined Benefit Plans

 

In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the defined benefit plan disclosure requirements. Application of the standard is required for annual periods ending after December 15, 2020. The Business adopted this standard in the fourth quarter of 2020. The adoption of this standard did not have a material impact on the Business’s Combined Financial Statements.

 

We also adopted the following ASUs during 2020, which did not have a material impact to our financial statements or financial statement disclosures:

 

2018-13   Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement  January 1, 2020

 

Accounting Standards Not Yet Adopted

 

ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes

 

In December 2019, an accounting standard update was issued which enhances and simplifies various aspects of the income tax accounting guidance related to intraperiod tax allocations, ownership changes in investments, and certain aspects of interim period tax accounting. This update is effective for the Business for annual and interim periods beginning January 1, 2021. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Business does not expect this update to have a significant impact on its Combined Financial Statements.

 

16 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

 

In March 2020, an accounting standard update was issued which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The update can be adopted and applied no later than December 31, 2022, with early adoption permitted. The Business does not expect this update to have a significant impact on its Combined Financial Statements.

 

Impacts of COVID-19

 

On March 11, 2020 the World Health Organization designated a new coronavirus disease (“COVID-19”) as a global pandemic. Governments around the world implemented public health and social measures to slow the transmission of the virus. These initiatives included physical and social distancing measures, as well as domestic and international travel restrictions. These initiatives have had a significant impact on certain businesses and economies, leading to economic uncertainty.

 

The Business has assessed the consequences of the COVID-19 pandemic, noting incremental costs were incurred during 2020, but were determined to not be significant for further disclosure. Additionally, there was $4,521 thousand receivable for tenant improvements included within current assets in 2019 and 2020. Due to delays driven by COVID-19 during 2020, work was not completed and payment was not received until the first quarter of 2021.

 

Note 3—Transactions with Related Parties

 

Sales to the Parent and purchases from the Parent

 

The Business sells products to other businesses and companies controlled by the Parent. These transactions are executed at prices negotiated between the two parties. During 2020 and 2019, the Business sold products of $14,222 thousand and $19,752 thousand , respectively, to the Parent.

 

During 2020 and 2019, the Business also purchased goods from the Parent. Cost of sales has been measured based on the purchase price paid for goods from the Parent. During 2020 and 2019, the Business purchased $5,802 thousand and $4,980 thousand, respectively, of certain inventory components from the Parent.

 

Outstanding amounts receivable from or payable to the Parent for goods and services sold to or purchased from the Parent are included in these Combined Financial Statements within “Receivables, net” and “Accounts payable.” See Note 4 and Note 8 for specific amounts due to/from the Parent.

 

Transactions with equity method investees

 

The Business shares a warehousing facility with an equity method investee, CoLinx, LLC, and is charged for labor and occupancy costs at the shared facility. During 2020 and 2019, the labor and warehouse occupancy charges were $13,315 thousand and $14,158 thousand, respectively. Additionally, the Business is a tenant of the shared facility leased by CoLinx, which is accounted for as an operating lease within the Combined Financial Statements. The operating lease liability at December 31, 2020 and 2019 was $3,875 thousand and $4,346 thousand, respectively. Rent expense on this operating lease during 2020 and 2019 was $472 thousand and $453 thousand, respectively.

 

17 

 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Note 4—Receivables, net

 

“Receivables, net” consisted of the following:

 

   December 31, 
($ in thousands)  2020   2019 
Trade receivables, net   57,010    60,916 
Receivables from Parent   3,465    2,930 
Other receivables, net   577    1,474 
Total   61,052    65,320 

 

Allowances for expected credit losses and write-offs are not significant. The Business does not have significant contract assets or contract liabilities.

 

Note 5—Inventories, net

 

“Inventories, net” consisted of the following:

 

   December 31, 
($ in thousands)  2020   2019 
Raw materials   36,201    36,447 
Work in process   18,401    19,859 
Finished goods   63,720    59,013 
Total   118,322    115,319 

 

Note 6—Property, plant and equipment, net

 

“Property, plant and equipment, net” consisted of the following:

 

   December 31, 
($ in thousands)  2020   2019 
Land and buildings   44,647    35,071 
Machinery and equipment   199,231    185,741 
Construction in progress   10,102    11,001 
    253,980    231,813 
Accumulated depreciation   (149,057)   (127,861)
Total   104,923    103,952 

 

Property, plant and equipment includes gross assets acquired under finance leases of $6,990 thousand and $7,062 thousand at December 31, 2020 and 2019, respectively, with related amounts in accumulated depreciation of $1,054 thousand and $560 thousand at December 31, 2020 and 2019, respectively.

 

During 2020 and 2019, depreciation was $19,666 thousand and $18,474 thousand, respectively, recorded within “Cost of Sales” within the Combined Statements of Income. There were no significant impairments of property, plant or equipment for each of the periods.

 

18 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Note 7—Goodwill and other intangible assets

 

“Goodwill” and “Intangible assets, net” include amounts recognized by Parent in connection with its historical business acquisition of Baldor, of which MOPT was a component. There have been no historical impairments recorded against the goodwill recognized.

 

“Intangible assets, net” consisted of the following definite-lived intangibles assets:

 

   December 31, 
   2020   2019 
   Gross       Net   Gross       Net 
   carrying   Accumulated   carrying   carrying   Accumulated   carrying 
($ in thousands)  amount   amortization   amount   amount   amortization   amount 
Customer-related   440,000    (207,800)   232,200    440,000    (186,800)   253,200 
Tradename   38,000    (37,700)   300    38,000    (33,900)   4,100 
Technology   72,000    (72,000)       72,000    (72,000)    
Total   550,000    (317,500)   232,500    550,000    (292,700)   257,300 

 

Amortization expense for 2020 and 2019 was $24,800 thousand and $25,600 thousand, respectively, recorded within “Cost of Sales” within the Combined Statements of Income.

 

At December 31, 2020, future amortization expense of intangible assets other than goodwill is estimated to be:

 

   ($ in thousands) 
2021   21,300 
2022   21,000 
2023   21,000 
2024   21,000 
2025   21,000 
Thereafter   127,200 
Total   232,500 

 

Note 8—Accounts Payable

 

“Accounts payable” consisted of the following:

 

   December 31, 
($ in thousands)  2020   2019 
Trade payables   49,180    54,039 
Payables to the Parent   2,128    2,144 
Other payables   883    1,205 
Total   52,191    57,388 

 

19 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Note 9—Leases

 

Under the new accounting standard, adopted in January 2019, the components of lease expense were as follows:

 

   December 31, 
($ in thousands)  2020   2019 
Operating lease cost   2,035    2,088 
Finance lease cost:          
Amortization of right-of-use assets   837    764 
Interest on lease liabilities   248    99 
Total lease expense   3,120    2,951 
           
Operating leases:          
Weighted average remaining lease term (in years)   7.8    9.4 
Weighted average discount rate   4.1%   4.2%
           
Finance leases:          
Weighted average remaining lease term (in years)   9.6    1.0 
Weighted average discount rate   3.6%   3.2%

 

The following table presents supplemental cash flow information related to leases:

 

   December 31, 
($ in thousands)  2020   2019 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows from operating leases   3,076    2,327 
Operating cash flows from finance leases   248    99 
Financing cash flows from finance leases   733    702 
Right-of-use assets obtained in exchange for new liabilities:          
Under operating leases   3,401    12,010 
Under finance leases   271    5,721 

 

At December 31, 2020, the future net minimum lease payments for operating and finance leases and the related present value of the net minimum lease payments consisted of the following:

 

($ in thousands)  Operating
Leases
   Finance
Leases
 
2021   3,759    967 
2022   3,713    946 
2023   3,713    923 
2024   2,673    810 
2025   2,099    777 
Thereafter   8,128    3,821 
Total minimum lease payments   24,085    8,244 
Net minimum lease payments          
Difference between undiscounted cash flows and discounted cash flows   3,569    1,266 
Present value of minimum lease payments   20,516    6,978 

 

Minimum lease payments have not been reduced by minimum sublease rentals due in the future under non-cancelable subleases. Such minimum sublease rentals were not significant. The present value of minimum finance lease payments included in “Other current liabilities” and “Non-current liabilities” in the Combined Balance Sheet at December 31, 2020, amounts to $538 thousand and $6,441 thousand, respectively.

 

20 

 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Note 10—Income taxes

 

The footprint of the MOPT business resides mostly in the United States. Historically the US based Business has been included in the consolidated United States tax return of US Parent. Amounts presented in these Combined Financial Statements relate to income taxes determined on a separate return basis. All current income tax liabilities are assumed to be immediately settled with the Parent and are relieved through the Parent Company Investment account. The net effect of the settlement of these transactions is reflected in Net Transfers (to) from Parent as a financing activity in the Combined Statements of Cash Flows. Therefore, no current income taxes payable are presented in MOPT’s financial statements.

 

In the Income from operations, before income taxes reported below, the split between US and foreign amounts is as follows:

 

($ in thousands)  2020   2019 
Income from operations, before income taxes - United States   83,548    96,992 
Income from operations, before income taxes - Foreign   6,195    5,092 
Income from operations, before income taxes   89,743    102,084 

 

Income tax expense (benefit) was:

 

($ in thousands)  2020   2019 
Current:          
United States   21,916    25,614 
State and local   3,948    4,656 
Foreign   1,624    1,067 
Total Current   27,488    31,337 
           
Deferred:          
United States   (4,509)   (5,388)
State and local   (788)   (1,111)
Foreign   (12)   245 
Total Deferred   (5,309)   (6,254)
Income tax expense (benefit)   22,179    25,083 

 

A reconciliation of income tax expense at the United States federal statutory rate to reported income tax expense is as follows:

 

($ in thousands)  2020   2019 
Income from operations, before income taxes   89,743    102,084 
Statutory rate applied to income before income taxes   21.0%   21.0%
Expected income tax expense   18,846    21,438 
           
State and local income taxes, net of federal tax effects   3,139    3,675 
Foreign tax rate differential   287    178 
Unrecognized tax benefits   65    84 
Tax credits   (260)   (337)
Other   102    45 
Reported income tax expense (benefit)   22,179    25,083 
Effective tax rate   24.7%   24.6%

 

21 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Deferred tax assets and liabilities resulted from the following:

 

($ in thousands)  2020   2019 
Deferred tax assets:          
Inventories   6,059    6,048 
Accrued liabilities   7,446    8,354 
Operating leases   5,063    4,889 
Other post-retirement obligation   3,055    3,446 
Other   997    1,233 
Total deferred tax assets   22,620    23,970 
           
Deferred tax liabilities:          
Property, plant and equipment   8,404    9,342 
Intangibles   57,603    63,712 
Operating lease right-of-use assets   4,195    3,983 
Total deferred tax liabilities   70,202    77,037 
Net deferred tax liabilities   47,582    53,067 

 

As mentioned earlier in the Notes, Intangibles consist of Customer Relationships, Tradenames, and Technology recorded in connection with the historical business acquisition of ABB Motors & Mechanical Inc. by the Parent. These Intangibles have no tax basis.

 

The Business considered the likelihood that the deferred tax assets presented herein would be realized under a more-likely-than-not standard and whether a valuation allowance was appropriate to accurately reflect the amounts presented. Given the nature of the deferred tax assets, the Business’ profitability and tax paying position, and taking into account reversing taxable temporary differences, it is expected that the deferred tax assets would be realized in a reasonable amount of time; therefore, the Business determined that a valuation allowance is not necessary. The Business also has no material operating loss or tax credit carryforwards that could contribute to such a determination.

 

In the United States, the Business historically was included in the US Parent’s federal income tax returns, which are continuously undergoing examination by the Internal Revenue Service (“IRS”). Parent’s IRS audits are complete through 2011 tax year and the earliest open year for audit in the United States is December 31, 2017.

 

As of December 31, 2020 and 2019, the Business recorded insignificant unrecognized tax benefits related to United States Credits for Increasing Research Activities and the ability to maintain those credits under examination. Based on past examination experience, the Business does not believe that its historical operations gave rise to any material tax exposures. There are no associated interest and penalties accrued.

 

22 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

Note 11—Revenues

 

The Business operates as a single segment. The following table presents “Revenues” during 2020 and 2019:

 

($ in thousands)  2020   2019 
Product type          
  Bearings   265,764    299,497 
  Gearings   194,726    209,052 
  Pt components   74,017    85,038 
  Mechanical service and other   15,490    18,803 
Total Revenues   549,997    612,390 
           
  Third-party revenues   535,775    592,638 
  Revenues with Parent   14,222    19,752 
Total Revenues   549,997    612,390 

 

Note 12—Other Post-Retirement Benefit Obligations

 

Post-retirement Benefits Other Than Pensions

 

The Business provides retiree health care and life insurance benefits covering certain former U.S. employees, all of which are retired or inactive. The plan is frozen with no active participants during the financial statement periods presented herein. The Business uses a December 31 measurement date to measure its post-retirement benefit obligations.

 

The change in the post-retirement benefit obligation for the year are as follows:

 

($ in thousands)  2020   2019 
Obligations at beginning of year   13,920    14,758 
Change in benefit obligations:          
Service cost        
Interest cost   390    584 
Net actuarial gains   (242)   (225)
Benefit payments   (1,738)   (1,197)
Net change in benefit obligations   (1,590)   (838)
Obligations at end of year   12,330    13,920 

 

The funded status of the post-retirement benefit plans at year end is as follows:

 

($ in thousands)  2020   2019 
Post-retirement benefit obligations   (12,330)   (13,920)
Items not yet recognized in net post-retirement benefit cost (amounts are pretax):          
Actuarial gain   (4,377)   (4,476)
Prior service credit   (3,771)   (4,394)
    (8,148)   (8,870)
Net amount recognized   (20,478)   (22,790)

 

23 

 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

The amounts included in the Combined Balance Sheets at December 31, 2020 and 2019 as follows:

 

($ in thousands)  2020   2019 
Current other post-retirement obligations, included with Other accrued liabilities   (1,198)   (1,282)
Non-current other post-retirement obligations   (11,132)   (12,638)
Net post-retirement obligations   (12,330)   (13,920)
           
Accumulated other comprehensive income (amounts are pretax)   (8,148)   (8,870)
Total amount recognized   (20,478)   (22,790)

 

The post-retirement benefit plan does not have separate plan assets and is instead funded through payments made from the plan sponsor’s general assets. The following outlines the changes in the plan assets for the periods ended December 31, 2020 and 2019.

 

($ in thousands)  2020   2019 
Beginning fair value of plan assets        
Employer contributions   1,738    1,197 
Benefit payments   (1,738)   (1,197)
Return on assets        
Ending fair value of plan assets        

 

The following changes in benefit obligations were recognized in accumulated other comprehensive income at December 31, 2020 and 2019 as follows (amounts are pretax):

 

($ in thousands)  2020   2019 
Current year actuarial gain   (242)   (225)
Amortization of actuarial gains   343    348 
Amortization of prior service credits   623    623 
Other adjustments   (2)   1 
    722    747 

 

The components of the net post-retirement benefit cost included within “Interest and other finance expense” are as follows:

 

($ in thousands)  2020   2019 
Service cost        
Interest cost   390    584 
Amortization:          
Actuarial loss or (gain)   (343)   (348)
Prior service cost or (credit)   (623)   (623)
Net amortization   (966)   (971)
Net post-retirement benefit cost or (income)   (576)   (387)

 

24 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements

 

The following are amounts that are expected to be amortized from accumulated other comprehensive income into net post-retirement benefit cost during 2021:

 

($ in thousands)  2021 
Amortization:     
Actuarial loss or (gain)   (393)
Prior service cost or (credit)   (623)
Net amortization   (1,016)

 

Amortization included in net post-retirement benefit cost is based on the average remaining life expectancy of the in-active participants. The weighted average discount rates used to determine the accumulated post-retirement benefit obligation and net post-retirement benefit cost are as follows:

 

   2020   2019 
Discount rate to determine the accumulated post-retirement benefit obligation   2.20%   2.95%
Discount rate to determine the net post-retirement benefit cost   2.95%   4.15%

 

The discount rate has been derived using market information and the expected future cash flows of our other post-retirement benefit obligation.

 

The weighted average assumed health care cost trend rates at December 31 are as follows:

 

   2020   2019 
Health care cost trend rate assumed for next year   5.50%   7.00%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)   4.50%   5.00%
Year that the rate reaches the ultimate trend rate   2025    2028 

 

The following estimated future benefit payments are expected to be paid in the years indicated:

 

   ($ in thousands) 
2021   1,212 
2022   1,159 
2023   1,098 
2024   1,040 
2025   982 
2026 - 2030   3,994 

 

25 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Combined Financial Statements 

 

Note 13—Subsequent Events

 

Greenville Lease Commencement

 

On June 8, 2021, MOPT entered into a lease agreement for a new Greenville, South Carolina headquarters building. The new lease is expected to commence on December 1, 2021, includes escalating rent payments over an 11 year term, and is expected to be accounted for as an operating lease. The future minimum lease payments for this lease are expected to be as follows:

 

   ($ in thousands) 
2021   105 
2022   1,272 
2023   1,343 
2024   1,377 
2025   1,412 
Thereafter   10,775 
Total   16,284 

 

As the new lease is expected to commence December 1, 2021, MOPT will move out of the current Greenville, South Carolina headquarters building.

 

Sale of Business

 

On July 24, 2021, ABB Asea Brown Boveri Ltd entered into an agreement to sell the Business to RBC Bearings Incorporated for $2.9 billion in cash consideration, subject to certain adjustments based on the levels of cash, debt and working capital at closing and certain other items. This transaction is targeted to be completed by the fourth quarter of 2021, subject to market, regulatory and certain other customary conditions. Until the sale occurs, the Business will be wholly owned by ABB.

 

26 

 

 

 

Exhibit 99.2

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Index to Condensed Combined Financial Statements (Unaudited)

 

Combined Statements of Income for the three and six months ended June 30, 2021 and 2020  2
Combined Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020  3
Combined Balance Sheets as of June 30, 2021 and December 31, 2020  4
Combined Statements of Changes in Equity for the six months ended June 30, 2021 and 2020  5
Combined Statements of Cash Flows for the six months ended June 30, 2021 and 2020  6
Notes to the Condensed Combined Financial Statements  7
Note 1—Basis of Presentation  7
Note 2—Cost Allocations and Transactions with Related Parties  7
Note 3—Receivables, net  9
Note 4—Inventories, net  9
Note 5—Property, Plant and Equipment, net  9
Note 6—Goodwill and Other Intangible Assets  10
Note 7—Accounts Payable  11
Note 8—Income Taxes  11
Note 9—Revenues  11
Note 10—Other Post-Retirement Benefit Obligations  12
Note 11—Subsequent Events  12

 

 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd 

 

Combined Statements of Income (Unaudited) 

 

Three and Six months ended June 30, 2021 and 2020 ($ in thousands)

 

  

Three Months Ended
June 30,

  

Six Months Ended
June 30,

 
   2021   2020   2021   2020 
Revenues   166,958    126,704    335,923    274,054 
Cost of sales   (110,770)   (89,584)   (221,815)   (188,262)
Gross profit   56,188    37,120    114,108    85,792 
Selling, general and administrative expenses   (21,409)   (16,445)   (41,374)   (35,693)
Non-order related research and development expenses   (2,985)   (1,894)   (6,250)   (3,629)
Other income (expense), net   605    (14)   885    (297)
Interest and other finance income/ (expense)   (57)   87    57    319 
Income from operations, before income taxes   32,342    18,854    67,426    46,492 
Income tax expense   (7,988)   (4,668)   (16,654)   (11,509)
Net income   24,354    14,186    50,772    34,983 

 

See accompanying Notes to the Condensed Combined Financial Statements

 

2

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Combined Statements of Comprehensive Income (Unaudited) 

 

Three and Six months ended June 30, 2021 and 2020 ($ in thousands)

 

  

Three months ended
June 30,

  

Six months ended
June 30,

 
   2021   2020   2021   2020 
Net income   24,354    14,186    50,772    34,983 
Other comprehensive income (loss), net of tax:                    
Foreign currency translation adjustment   (245)   84    (219)   401 
Other, net   (183)   (261)   (405)   (505)
Other comprehensive income (loss)   (428)   (177)   (624)   (104)
Comprehensive income   23,926    14,009    50,148    34,879 

 

See accompanying Notes to the Condensed Combined Financial Statements

 

3

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd 

 

Combined Balance Sheets (Unaudited) 

 

As of June 30, 2021 and December 31, 2020 ($ in thousands)

 

  

June 30,
2021

   December 31,
2020
 
Cash and cash equivalents        
Receivables, net   90,744    61,052 
Inventories, net   117,485    118,322 
Other current assets   611    5,488 
Total current assets   208,840    184,862 
           
Property, plant and equipment, net   104,917    104,923 
Operating lease right-of-use assets, net   15,873    16,998 
Goodwill   809,907    809,907 
Intangible assets, net   221,700    232,500 
Deferred taxes   1,047    1,047 
Other non-current assets   822    867 
Total assets   1,363,106    1,351,104 
           
Accounts payable   70,154    52,191 
Accrued liabilities   30,721    21,947 
Accrued distributor rebates   18,654    16,987 
Right of return provision   5,656    5,993 
Other current liabilities   11,222    9,018 
Total current liabilities   136,407    106,136 
           
Non-current finance leases    6,299    6,441 
Non-current operating leases   14,806    17,534 
Deferred taxes   45,526    48,629 
Non-current other post-retirement obligations   10,700    11,132 
Other non-current liabilities   541    555 
Total liabilities   214,279    190,427 
           
Equity:          
Parent company investment   1,132,880    1,144,106 
Accumulated other comprehensive income   15,947    16,571 
Total Equity   1,148,827    1,160,677 
Total liabilities and equity   1,363,106    1,351,104 

 

See accompanying Notes to the Condensed Combined Financial Statements

 

4

 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Combined Statements of Changes in Equity (Unaudited)

 

Six month ended June 30, 2021 and 2020 ($ in thousands)

 

    Parent company
investment
    Accumulated
other
comprehensive
income
    Total Equity  
Balance at January 1, 2020     1,155,624       18,657       1,174,281  
Net income     34,983             34,983  
Other comprehensive income (loss), net           (104 )     (104 )
Net transfers to Parent     (32,987 )           (32,987 )
Balance at June 30, 2020     1,157,620       18,553       1,176,173  
                         
Balance at January 1, 2021     1,144,106       16,571       1,160,677  
Net income     50,772             50,772  
Other comprehensive income (loss), net           (624 )     (624 )
Net transfers to Parent     (61,998 )           (61,998 )
Balance at June 30, 2021     1,132,880       15,947       1,148,827  

 

See accompanying Notes to the Condensed Combined Financial Statements

 

5 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Combined Statements of Cash Flows (Unaudited)

 

Six month ended June 30, 2021 and 2020 ($ in thousands)

 

   Six months ended June 30, 
   2021   2020 
Operating activities:   50,772    34,983 
Net income          
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   19,490    22,234 
Deferred tax expense (benefit)   (2,983)   (2,765)
Other   (308)   (241)
Changes in operating assets and liabilities:          
Receivables, net   (29,528)   707 
Inventories, net   985    (12,089)
Accounts payable   17,662    679 
Accrued liabilities   10,030    (2,405)
Other assets and liabilities, net   5,656    1,736 
Net cash provided by operating activities   71,776    42,839 
Investing activities:          
Purchases of property, plant and equipment and intangible assets   (8,916)   (10,503)
Net cash used in investing activities   (8,916)   (10,503)
Financing activities:          
Finance lease payments   (399)   (377)
Changes in parent company investment   (61,998)   (32,987)
Other   (463)   1,028 
Net cash used in financing activities   (62,860)   (32,336)
Effects of exchange rate changes on cash and cash equivalents        
Net change in cash and cash equivalents        
Cash and equivalents, beginning of period        
Cash and cash equivalents, end of period        

 

See accompanying Notes to the Condensed Combined Financial Statements

 

6 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Condensed Combined Financial Statements (Unaudited)

 

Note 1—Basis of Presentation

 

The Condensed Combined Financial Statements and Notes have been derived from the interim consolidated financial information and accounting records of ABB Ltd. (“ABB” or “Parent”) as the ultimate parent of ABB Asea Brown Boveri Ltd and the Business. These Condensed Combined Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Business (“MOPT”, “we”, “us”, “our”) for the periods presented as historically managed within ABB in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and are presented in United States dollars ($ or USD) unless otherwise stated. As such, the Condensed Combined Financial Statements do not include all the information and notes required under U.S. GAAP for annual combined financial statements. Therefore, such financial statements should be read in conjunction with the Business’ audited combined financial statements for the year ended December 31, 2020. The Condensed Combined Financial Statements may not be indicative of the Business’ future performance and do not necessarily reflect what the results of operations, financial position or cash flows would have been had it operated as an independent business during the periods presented.

 

The Condensed Combined Financial Statements are prepared on a carve-out basis from financial information of the Parent. The operations of the Business are consistent with the components of the Parent which are planned to be divested. All amounts presented relate to companies or the relevant portions of companies which are directly controlled by the Parent and all intercompany accounts within the Business and transactions within the Business are eliminated. Intercompany transactions between us and the Parent are deemed to have been settled immediately through Parent company investment. Refer to Note 2 for additional information.

 

External debt, including any interest expense, associated with the debt of the Parent which is not directly attributable to the Business has been excluded from the Combined Statement of Income and Balance Sheet of the Business. The equity of the Business represents the net investment of the Parent in the Business. The Parent’s historical retained earnings related to the Business are included within “Parent company investment.”

 

Current and deferred income taxes have been determined based on the stand-alone results of the Business. However, because the Business has prepared and filed its tax returns as part of ABB’s tax group in certain jurisdictions, the Business’ actual tax balances may differ from those reported.

 

These Condensed Combined Financial Statements have been prepared with facts and circumstances that were known through September 13, 2021 and considered subsequent events through September 13, 2021. See Note 11 for additional information.

 

For further details regarding the basis of presentation or other information regarding the Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd, these Condensed Combined Financial Statements should be read in conjunction with the latest audited annual financial statements.

 

Note 2—Cost Allocations and Transactions with Related Parties

 

Cost Allocations

 

These Condensed Combined Financial Statements include general corporate expenses and shared expenses of the Parent that were historically incurred by or charged to the Business for certain support functions that are provided on a centralized basis, such as expenses related to information technology, finance and controlling, intellectual property, digital, communications, human resources, sales and marketing, health and safety and country management activities. These expenses are included in the Combined Statements of Income within “Cost of sales,” “Selling, general and administrative expenses,” and “Non-order related research and development expenses.” These expenses have been allocated to the Business on the basis of direct usage, FTEs, square footage, or other measures that are utilized by the Parent for purposes of its consolidated financial statements.

 

7 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Condensed Combined Financial Statements (Unaudited)

 

These Condensed Combined Financial Statements may not reflect the actual expenses that would have been incurred and may not reflect the Business’ combined results of operations, financial position and cash flows had it been a standalone business during the period presented. Actual costs that would have been incurred if the Business had been a standalone business would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Going forward, the Business may perform these functions using its own resources or outsourced services.

 

The following table reflects these allocations as described above:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
($ in thousands)  2021   2020   2021   2020 
Cost of sales   2,724    3,856    5,593    8,010 
Selling, general and administrative expenses   6,516    7,503    12,762    16,403 
Non-order related research and development expenses   1,043    149    2,277    305 
Total   10,283    11,508    20,632    24,718 

 

Sales to the Parent and purchases from the Parent

 

The Business sells products to other businesses and companies controlled by the Parent. These transactions are executed at prices negotiated between the two parties. During the three months ended June 30, 2021 and June 30, 2020, the Business sold products of $3,660 thousand and $4,639 thousand, respectively, to the Parent. During the six months ended June 30, 2021 and June 30, 2020, the Business sold products of $8,206 thousand and $9,591 thousand, respectively, to the Parent.

 

The Business also purchases goods from the Parent with Cost of Sales measured based on the purchase price paid to the Parent. During the three months ended June 30, 2021 and June 30, 2020, the Business purchased $2,007 thousand and $1,014 thousand of certain inventory components, respectively. For the six month period ending June 30, 2021 and June 30, 2020, the Business purchased certain inventory components in the amount of $3,798 thousand and $2,613 thousand.

 

Outstanding amounts receivable from or payable to the Parent for goods and services sold to or purchased from the Parent are included in these Combined Financial Statements within “Receivables, net” and “Accounts payable.” See Note 4 and Note 8 for specific amounts due to/from the Parent.

 

Transactions with equity method investees

 

The Business shares a warehousing facility with an equity method investee, CoLinx, LLC, and is charged for labor and occupancy costs at the shared facility. During the three months ended June 30, 2021 and June 30, 2020, the labor and warehouse occupancy charges were $3,984 thousand and $3,029 thousand, respectively. For the six months ended June 30, 2021 and June 30, 2020, the labor and warehouse occupancy charges were $8,154 thousand and $6,507 thousand, respectively. Additionally, the Business is a tenant of the shared facility leased by CoLinx, which is accounted for as an operating lease within the Condensed Combined Financial Statements. The operating lease liability at June 30, 2021 and December 31, 2020 was $3,632 thousand and $3,875 thousand, respectively. Rent expense on this operating lease during the three months ended June 30, 2021 and June 30, 2020 was $121 thousand and $117 thousand, respectively. Rent expense on this operating lease during the six months ended June 30, 2021 and June 30, 2020 was $243 thousand and $233 thousand, respectively.

 

8

 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Condensed Combined Financial Statements (Unaudited)

 

Note 3—Receivables, net

 

“Receivables, net” consisted of the following:

 

($ in thousands)  June 30,
2021
   December
31, 2020
 
Trade receivables, net   85,479    57,010 
Receivables from Parent   4,512    3,465 
Other receivables, net   753    577 
Total   90,744    61,052 

 

Allowances for expected credit losses and write-offs are not significant. The Business does not have significant contract assets or contract liabilities.

 

Note 4—Inventories, net

 

“Inventories, net” consisted of the following:

 

($ in thousands) 

June 30,

2021

   December 31,
2020
 
Raw materials   37,996    36,201 
Work in process   21,068    18,401 
Finished goods   58,421    63,720 
Total   117,485    118,322 

 

Note 5—Property, Plant and Equipment, net

 

“Property, plant and equipment, net” consisted of the following:

 

($ in thousands)  June 30,
2021
   December 31,
2020
 
Land and buildings   44,261    44,647 
Machinery and equipment   191,491    199,231 
Construction in progress   13,144    10,102 
    248,896    253,980 
Accumulated depreciation   (143,979)   (149,057)
Total   104,917    104,923 

 

Property, plant and equipment includes gross assets acquired under finance leases of $7,439 thousand and $6,990 thousand at June 30, 2021 and December 31, 2020, respectively, with related amounts in accumulated depreciation of $1,453 thousand and $1,054 thousand at June 30, 2021 and December 31, 2020, respectively.

 

 9 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Condensed Combined Financial Statements (Unaudited)

 

Depreciation included within each Income Statement caption is as follows:

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2021   2020   2021   2020 
Cost of sales   4,267    5,003    8,494    9,776 
Selling, general and administrative expenses   79        160     
Non-order related research and development expenses   3    30    36    59 
Total   4,349    5,033    8,690    9,834 

 

Note 6—Goodwill and Other Intangible Assets

 

“Goodwill” and “Intangible assets, net” include amounts recognized by Parent in connection with its historical business acquisition of Baldor, of which MOPT was a component. There have been no historical impairments recorded against the goodwill recognized.

 

“Intangible assets, net” consisted of the following definite-lived intangibles assets:

 

   June 30, 2021   December 31, 2020 
   Gross       Net   Gross       Net 
   carrying   Accumulated   carrying   carrying   Accumulated   carrying 
($ in thousands)  amount   amortization   amount   amount   amortization   amount 
Customer-related   440,000    (218,300)   221,700    440,000    (207,800)   232,200 
Tradename   38,000    (38,000)       38,000    (37,700)   300 
Technology   72,000    (72,000)       72,000    (72,000)    
Total   550,000    328,300    221,700    550,000    (317,500)   232,500 

 

Amortization expense for the three and six months ended June 30, 2021 and June 30, 2020 was $5,200 thousand, $10,800 thousand, $6,200 thousand, and $12,400 thousand, respectively, recorded within “Cost of Sales” within the Combined Statements of Income.

 

At June 30, 2021, future amortization expense of intangible assets other than goodwill is estimated to be:

 

   ($ in thousands) 
2021   10,500 
2022   21,000 
2023   21,000 
2024   21,000 
2025   21,000 
Thereafter   127,200 
Total   221,700 

 

 10 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Condensed Combined Financial Statements (Unaudited)

 

Note 7—Accounts Payable

 

“Accounts payable” consisted of the following:

 

($ in thousands) 

June 30,

2021

   December 31,
2020
 
Trade payables   65,720    49,180 
Payables to the Parent   2,729    2,128 
Other payables   1,705    883 
Total   70,154    52,191 

 

Note 8—Income Taxes

 

For the three months ended June 30, 2021, we recorded income tax expense of $7,988 thousand or 24.70% of income from operations, before income taxes compared to $4,668 thousand or 24.75% during the three months ended June 20, 2020. For the three months ended June 30, 2021 and 2020, the effective tax rate is more than the federal statutory rate of 21% due principally to state income taxes assessed in the US.

 

For the six months ended June 30, 2021, we recorded income tax expense of $16,654 thousand or 24.70% of income from operations, before income taxes compared to $11,509 thousand or 24.75% during the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, the effective tax rate is more than the federal statutory rate of 21% due principally to state income taxes assessed in the US.

 

Note 9—Revenues

 

The Business operates as a single segment. The following table presents “Revenues” during the three and six months ended:

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
($ in thousands)  2021   2020   2021   2020 
Product type                    
 Bearings   83,919    60,568    166,993    132,663 
 Gearings   55,674    46,094    116,338    97,127 
 Pt components   24,552    16,940    45,970    37,421 
 Mechanical service and other   2,813    3,102    6,622    6,843 
Total   166,958    126,704    335,923    274,054 
                     
 Third-party revenues   163,298    122,065    327,717    264,463 
 Revenues with Parent   3,660    4,639    8,206    9,591 
Total Revenues   166,958    126,704    335,923    274,054 

 

 11 

 

 

The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd

 

Notes to Condensed Combined Financial Statements (Unaudited)

 

Note 10—Other Post-Retirement Benefit Obligations

 

Post-retirement Benefits Other Than Pensions

 

The following summarizes the net periodic benefit costs for the three months ended June 30, 2021 and 2020 are as follows:

 

($ in thousands)  2021   2020 
Service Cost        
Interest Cost   64    98 
Amortization:          
Prior service cost or (credit)   (156)   (156)
Actuarial loss or (gain)   (98)   (86)
Net Periodic Benefit Cost   (190)   (144)

 

The following summarizes the net periodic benefit costs for the six months ended June 30, 2021 and 2020 are as follows:

 

($ in thousands)  2021   2020 
Service Cost        
Interest Cost   128    196 
Amortization:          
Prior service cost or (credit)   (312)   (312)
Actuarial loss or (gain)   (196)   (172)
Net Periodic Benefit Cost   (380)   (288)

 

The components of other postretirement benefit expenses are included in Other income (expense), net on the Combined Statement of Income.

 

Note 11Subsequent Events

 

Sale of Business

 

On July 24, 2021, ABB Asea Brown Boveri Ltd entered into an agreement to sell the Business to RBC Bearings Incorporated for $2.9 billion in cash consideration, subject to certain adjustments based on the levels of cash, debt and working capital at closing and certain other items. This transaction is targeted to be completed by the fourth quarter of 2021, subject to market, regulatory and certain other customary conditions. Until the sale occurs, the Business will be wholly owned by ABB.

 

 12 

 

 

Exhibit 99.3

 

RBC BEARINGS INCORPORATED 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Introduction

 

On July 24, 2021, RBC Bearings Incorporated (together with its consolidated subsidiaries, the “Company” or “RBC”) entered into a Stock and Asset Purchase Agreement (the “Purchase Agreement”) with ABB Asea Brown Boveri Ltd (“ABB” or “Seller”) pursuant to which the Company agreed to acquire (the “Pending Acquisition”) the mechanical power transmission division of ABB operated under the Dodge brand (“Dodge”). In connection with the Pending Acquisition, the Company will purchase all of the outstanding equity interests in certain entities, and certain other assets relating to Dodge. The purchase price for the Pending Acquisition will be $2.9 billion in cash, subject to adjustments, as provided for in the Purchase Agreement. In connection with the Pending Acquisition, the Company intends to enter into certain financing transactions, including incurring new term loan and revolving credit facilities, issuing senior notes and engaging in certain offerings of the Company’s common stock (the “Common Stock”) and Series A Mandatory Convertible Preferred Stock (the “Preferred Stock”) (collectively, the “Financing Transactions”). See “Description of the Financing Transactions” below for an explanation of the Financing Transactions.

 

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”

 

The unaudited pro forma condensed combined balance sheet as of July 3, 2021 gives effect to the Pending Acquisition and the Financing Transactions as if those transactions had been completed on July 3, 2021 and combines the unaudited consolidated balance sheet of the Company as of July 3, 2021 with the unaudited combined balance sheet of Dodge as of June 30, 2021.

 

The unaudited pro forma condensed combined statements of operations for the fiscal year ended April 3, 2021 and the three months ended July 3, 2021 give effect to the Pending Acquisition and the Financing Transactions as if they had occurred on March 29, 2020, the first day of the Company’s fiscal year 2021 and the beginning of the Company’s annual period presented. The unaudited pro forma condensed combined statement of operations for the fiscal year ended April 3, 2021 combines the audited consolidated statement of operations of the Company for the fiscal year ended April 3, 2021 and Dodge’s audited combined statement of income for the year ended December 31, 2020. The unaudited pro forma condensed combined statement of operations for the three months ended July 3, 2021 combines the unaudited consolidated statement of operations of the Company for the three months ended July 3, 2021 with Dodge’s unaudited combined statement of income for the three months ended June 30, 2021.

 


RBC has a fiscal year consisting of 52 or 53 weeks, ending on the Saturday closest to March 31. By contrast, the fiscal year for Dodge ends on December 31 of each year. As a result of the different year ends, Dodge’s combined statement of income for the three months ended March 31, 2021 is excluded from the unaudited pro forma condensed combined statements of operations. Dodge revenues and net income for the three months ended March 31, 2021 were $169.0 million and $26.4 million, respectively.

 

The historical financial statements of RBC and Dodge have been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to pro forma events that are transaction accounting adjustments, which are necessary to account for the Pending Acquisition and the Financing Transactions in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company’s management believes are reasonable.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

The accompanying notes to the unaudited pro forma condensed combined financial information;

The separate audited consolidated financial statements of RBC as of and for the fiscal year ended April 3, 2021 and the related notes, included in RBC’s Annual Report on Form 10-K for the fiscal year ended April 3, 2021;

The separate unaudited consolidated financial statements of RBC as of and for the three months ended July 3, 2021 and the related notes, included in RBC’s Quarterly Report on Form 10-Q for the period ended July 3, 2021;

Dodge’s audited combined financial statements and related notes (the “Dodge Audited Financial Statements”) as of December 31, 2020 and 2019 and for the years then ended and the related report of KPMG AG, its independent auditors included as Exhibit 99.1 to the Current Report of RBC on Form 8-K being used to file the unaudited pro forma condensed combined financial information contained herein with the Securities and Exchange Commission (“SEC”); and

 

1

 

Dodge’s unaudited condensed combined financial statements and related notes (the “Dodge Unaudited Interim Financial Statements” and, together with the Dodge Audited Financial Statements, the “Dodge Financial Statements”) as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020, respectively, included as Exhibit 99.2 to the Current Report of RBC on Form 8-K being used to file the unaudited pro forma condensed combined financial information contained herein with the SEC.

 

The unaudited pro forma condensed combined financial information has been prepared solely for informational purposes. As a result, the unaudited pro forma condensed combined financial information is not intended to represent and does not purport to be indicative of what the combined company financial condition or results of operations would have been had the Pending Acquisition and the Financing Transactions occurred at an earlier date or on the dates assumed. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial condition and results of operations of the Company. The actual results of the Company may differ significantly from those reflected in the unaudited pro forma condensed combined financial information.

 

Description of the Financing

 

The closing of the Pending Acquisition is not subject to any financing condition and the Company’s obligation to pay the purchase price is supported by a $2.8 billion bridge loan commitment provided by Goldman Sachs Bank USA and by the Company’s cash and marketable securities on hand. The Company intends to enter into the Financing Transactions to permanently finance the Pending Acquisition with a mix of debt and equity financing. The Company intends to use the net proceeds from the Financing Transactions to fund a portion of the cash purchase price for the Pending Acquisition, to pay acquisition-related fees and expenses, and for general corporate purposes. However, no assurance can be given that the Company will be successful in consummating any or all of the Financing Transactions. Furthermore, this Exhibit 99.3 is being provided purely for informational purposes and is not an offer to sell or the solicitation of an offer to buy any security.

 

As part of the Financing Transactions, the Company’s subsidiary, Roller Bearing Company of America, Inc. (“RBC America”), intends to issue $500.0 million in aggregate principal amount of senior notes (the “Senior Notes”) and enter into certain senior secured term loan facilities in an aggregate principal amount not to exceed $1,300.0 million (“Term Facility”) and a senior secured revolving credit facility in an aggregate principal amount not to exceed $500.0 million (the “Revolving Facility”) (collectively, the “Debt Financing”). In addition, the Company intends to raise approximately $1,000.0 million in gross proceeds through the issuance and sale of shares of Common Stock and Preferred Stock (the “Equity Financing”) in separate registered underwritten public offerings. The unaudited pro forma condensed combined financial information assumes that RBC will issue 3,000,000 shares of Common Stock and 4,000,000 shares of Preferred Stock in connection with the Equity Financing with no exercise of the option granted to the underwriters of the separate registered underwritten public offerings to purchase additional shares of Common Stock and Preferred Stock, as applicable. The foregoing summary of the anticipated terms of the Financing Transactions reflects certain assumptions of the Company as of the date hereof and remains subject to change. No assurances can be given that the Financing Transactions will be consummated on the terms anticipated by the Company, if at all.

 

2

 

RBC BEARINGS INCORPORATED 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET 

As of July 3, 2021 

($ in thousands, except share and per share data)

 

   RBC
Historical
As of July 3,
2021
  

Dodge Reclassed
As of June 30, 2021
(Note 2)

  

Dodge
Transaction
Accounting
Adjustments

   (Note 4)  

Transaction
Accounting
Adjustments -
Financing

   (Note 4)  

Pro Forma
Combined As
of July 3, 2021

 
ASSETS                                   
Current assets:                                   
Cash and cash equivalents  $175,771   $-   $(2,872,823)   (a)   $2,836,720    (a)   $139,668 
Marketable securities   120,320    -    (52,983)   (a)    (67,337)   (a)    - 
Accounts receivable, net of allowance for doubtful accounts   105,756    90,744    -         -         196,500 
Inventories   369,854    117,485    23,307    (b)    -         510,646 
Prepaid expenses and other current assets   14,423    611    -         -         15,034 
Total current assets   786,124    208,840    (2,902,499)        2,769,383         861,848 
Property, plant & equipment, net   206,276    104,917    33,688    (d)    -         344,881 
Operating lease assets, net   34,671    15,873    -         -         50,544 
Goodwill   277,930    809,907    673,951    (e)    -         1,761,788 
Intangible assets, net   153,756    221,700    1,293,300    (c)    -         1,668,756 
Other assets   31,842    1,869    -         4,565    (g)    38,276 
Total assets  $1,490,599   $1,363,106   $(901,560)       $2,773,948        $4,726,093 
LIABILITIES AND STOCKHOLDERS' EQUITY                                   
Current liabilities:                                   
Accounts payable  $42,687   $70,154   $-        $-        $112,841 
Accrued expenses and other current liabilities   46,724    62,517    -         -         109,241 
Current operating lease liabilities   5,586    3,736    -         -         9,322 
Current portion of long-term debt   505    -    -         65,000    (g)    65,505 
Total current liabilities   95,502    136,407    -         65,000         296,909 
Long-term debt, less current portion   10,249    -    -         1,716,195    (g)    1,726,444 
Long-term operating lease liabilities   29,142    14,806    -         -         43,948 
Deferred income taxes   17,956    45,526    291,671    (f)    -         355,153 
Other noncurrent liabilities   63,374    17,540    -         -         80,914 
Total liabilities   216,223    214,279    291,671         1,781,195         2,503,368 
Stockholders' equity                                   
Preferred stock, $0.01 par value   -    -    -         40    (h)    40 
Common stock,  $0.01 par value   263    -    -         30    (h)    293 
Additional paid-in capital   467,524    -    -         992,683    (h)    1,460,207 
Accumulated other comprehensive loss   (8,172)   15,947    (15,947)   (i)    -         (8,172)
Retained earnings   884,851    -    (44,404)   (k)    -         840,447 
Parent Company Investment        1,132,880    (1,132,880)   (j)                
Treasury stock   (70,090)   -    -         -         (70,090)
Total stockholders’ equity   1,274,376    1,148,827    (1,193,231)        992,753         2,222,725 
Total liabilities and stockholders’ equity  $1,490,599   $1,363,106   $(901,560)       $2,773,948        $4,726,093 

 

See the accompanying notes to the unaudited pro forma condensed combined financial information

 

3

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS 

For the Three Months Ended July 3, 2021 

($ in thousands, except share and per share data)

 

   RBC Three
Months Ended
July 3, 2021
   Dodge Reclassed
Three Months
Ended  June 30,
2021
(Note 2)
  

Dodge
Transaction
Accounting
Adjustments

   (Note 5)  

Transaction
Accounting
Adjustments -
Financing

   (Note 5)   Pro Forma
Combined
Three
Months
Ended July 3,
2021
 
Net sales  $156,205   $166,958   $-        $-        $323,163 
Cost of sales   92,432    105,570    991    (a)    -         198,993 
Gross margin   63,773    61,388    (991)        -         124,170 
Operating expenses:                                   
Selling, general and administrative   29,802    24,394    -         -         54,196 
Other, net   3,248    4,595    10,328    (b)    -         18,171 
Total operating expenses   33,050    28,989    10,328         -         72,367 
Operating income   30,723    32,399    (11,319)        -         51,803 
Interest expense, net   319    247    -         12,943    (c)    13,509 
Other non-operating (income)/expense   (465)   (190)   254    (d)    -         (401)
Income before income taxes   30,869    32,342    (11,573)        (12,943)        38,695 
Provision for income taxes   4,870    7,988    (2,778)   (e)    (3,106)   (e)     6,974 
Net income  $25,999   $24,354   $(8,795)       $(9,837)       $31,721 
Dividends on  Preferred Stock   -    -    -         (5,000)   (f)    (5,000)
Net income (loss) available to the stockholders  $25,999   $24,354   $(8,795)       $(14,837)       $26,721 
Net income per common share:                                   
Basic  $1.04                        (g)   $0.95 
Diluted  $1.03                        (g)   $0.94 

 

See the accompanying notes to the unaudited pro forma condensed combined financial information

 

4

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended April 3, 2021

($ in thousands, except share and per share data)

 

   RBC Historical
Year Ended
April 3, 2021
   Dodge
Reclassed Year
Ended
December 31,
2020
(Note 2)
   Dodge
Transaction
Accounting
Adjustments
   (Note 5)  Transaction
Accounting
Adjustments -
Financing
   (Note 5)  Pro Forma
Combined
Year
Ended
April 3,
2021
 
Net sales  $608,984   $549,997   $-      $-      $1,158,981 
Cost of sales   374,878    356,936    27,270   (a)   -       759,084 
Gross margin   234,106    193,061    (27,270)      -       399,897 
Operating expenses:                               
Selling, general and administrative   106,000    78,289    -       -       184,289 
Other, net   16,648    25,249    81,714   (b)   -       123,611 
Total operating expenses   122,648    103,538    81,714       -       307,900 
Operating income (loss)   111,458    89,523    (108,984)      -       91,997 
Interest expense, net   1,430    356    -       52,552   (c)   54,338 
Other non-operating (income) expense   (31)   (576)   966   (d)   -       359 
Income (loss) before income taxes   110,059    89,743    (109,950)      (52,552)      37,300 
Provision (benefit) for income taxes   20,426    22,179    (24,299)  (e)   (12,612)  (e)   5,694 
Net income (loss)  $89,633   $67,564   $(85,651)     $(39,940)     $31,606 
                                
Dividends on Preferred Stock   -    -    -       (20,000)  (f)   (20,000)
Net income (loss) available to the stockholders  $89,633   $67,564   $(85,651)     $(59,940)     $11,606 
Net income (loss) per common share:                               
Basic  $3.61                     (g)  $0.42 
Diluted  $3.58                     (g)  $0.41 

 

See the accompanying notes to the unaudited pro forma condensed combined financial information

 

5 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Note 1 - Basis of Presentation

 

The unaudited pro forma condensed combined financial information and related notes are prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”

 

RBC and Dodge’s historical financial statements were prepared in accordance with U.S. GAAP and are presented in U.S. dollars. As discussed in Note 2, certain reclassifications were made to align the presentation of Dodge’s financial statements with those of RBC. RBC is currently in the process of evaluating Dodge’s accounting policies, which will be finalized upon completion of the Pending Acquisition, or as more information becomes available. As a result of that review, additional differences could be identified between the accounting policies of the two companies. With the information currently available, RBC has determined that no significant adjustments are necessary to conform Dodge’s financial statements to the accounting policies used by RBC.

 

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, with RBC as the accounting acquirer, using the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and based on the historical consolidated financial statements of RBC and Dodge. Under ASC 805, all assets acquired and liabilities assumed in a business combination are recognized and measured at their assumed acquisition date fair value, while transaction costs associated with the business combination are expensed as incurred. The excess of acquisition consideration over the estimated fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.

 

The allocation of the aggregate acquisition consideration depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the aggregate acquisition consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information. The final determination of fair values of assets acquired and liabilities assumed relating to the Pending Acquisition could differ materially from the preliminary allocation of aggregate acquisition consideration. The final valuation will be based on the actual net tangible and intangible assets of Dodge existing at the acquisition date.

 

The unaudited pro forma condensed combined balance sheet as of July 3, 2021, the unaudited pro forma condensed combined statement of operations for the year ended April 3, 2021 and the unaudited pro forma condensed combined statement of operations for the three months ended July 3, 2021 presented herein are based on the historical financial statements of RBC and Dodge. While RBC and Dodge have different fiscal period ends, Rule 11-02(c)(3) of Regulation S-X permits fiscal period ends to be within one quarter between the acquirer and acquiree, and thus the following financial information was combined:

 

The unaudited pro forma condensed combined balance sheet as of July 3, 2021 is presented as if the Pending Acquisition and the Financing Transactions had occurred on July 3, 2021 and combines the historical consolidated balance sheet of RBC as of July 3, 2021 with the historical combined balance sheet of Dodge as of June 30, 2021.

 

The unaudited pro forma condensed combined statement of operations for the year ended April 3, 2021 has been prepared as if the Pending Acquisition and the Financing Transactions had occurred on March 29, 2020, the first day of at the beginning of RBC’s fiscal year 2021 and the beginning of RBC’s annual period presented, and combines RBC’s historical consolidated statement of operations for the fiscal year ended April 3, 2021 with Dodge’s historical combined statement of income for the year ended December 31, 2020.

 

6 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The unaudited pro forma condensed combined statement of operations for the three months ended July 3, 2021 has been prepared as if the Pending Acquisition had occurred on March 29, 2020 and combines RBC’s historical unaudited consolidated statement of operations for the three months ended July 3, 2021 with Dodge’s historical condensed combined statement of income for the three months ended June 30, 2021.

 

Dodge’s historical financial information has been presented on a “carve-out” basis from ABB’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities of Dodge and includes allocations of corporate expenses and shared expenses from ABB. These allocations reflect significant assumptions, and the financial statements may not fully reflect what Dodge’s financial position, results of operations or cash flows would have been had it been a standalone company during the periods presented. As a result, historical financial information is not necessarily indicative of Dodge’s future results of operations, financial position or cash flows.

 

Additionally, the face of the unaudited pro forma condensed combined financial statements does not include any adjustments to these corporate and shared expense allocations from ABB nor the realization of any costs from operating efficiencies, synergies or other restructuring activities that might result from the Pending Acquisition. Further, there may be additional charges related to restructuring or other integration activities resulting from the Pending Acquisition, the timing, nature and amount of which management cannot currently identify, and thus, such charges are not reflected in the unaudited pro forma condensed combined financial statements. The pro forma adjustments represent management’s best estimates and are based upon currently available information and certain assumptions that RBC believes are reasonable under the circumstances. RBC is not aware of any material transactions between RBC and Dodge during the periods presented. Accordingly, adjustments to eliminate transactions between RBC and Dodge have not been reflected in the unaudited pro forma condensed combined financial information.

 

Note 2 – RBC and Dodge Reclassification Adjustments

 

During the preparation of the unaudited pro forma condensed combined financial information, RBC management performed a preliminary analysis of Dodge’s financial information to identify differences in accounting policies as compared to those of RBC and differences in financial statement presentation as compared to the financial statement presentation of RBC. With the information currently available, RBC has determined that no significant adjustments are necessary to conform Dodge’s financial statements to the accounting policies used by RBC. However, certain reclassification adjustments have been made to conform Dodge’s historical financial statement presentation to RBC’s financial statement presentation. Following the Pending Acquisition, the combined company will finalize the review of accounting policies and reclassifications, which could be materially different from the amounts set forth in the unaudited pro forma condensed combined financial information presented herein.

 

7 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

A)Refer to the table below for a summary of reclassification adjustments made to present Dodge’s balance sheet as of June 30, 2021 to conform with RBC’s balance sheet as of July 3, 2021:

 

(in thousands)   Dodge Historical Combined
Balance Sheet Line Items
  RBC Historical Consolidated
Balance Sheet Line Items
  Dodge Historical
Combined Balances
As of June 30, 2021
   Reclassification       Dodge Reclassed
As of June 30, 2021
   Cash and cash equivalents  Cash and cash equivalents  $-   $-      $ -
    Receivables, net  Accounts receivable, net   90,744    -        90,744
    Inventories, net  Inventory   117,485    -        117,485
    Other current assets  Prepaid and other current assets   611    -        611
    Property, plant and equipment, net  Property, plant and equipment, net   104,917    -        104,917
    Operating lease right-of-use assets, net  Operating leases, net   15,873    -        15,873
    Goodwill  Goodwill   809,907    -        809,907
    Intangible assets, net  Intangible assets, net   221,700    -        221,700
    Deferred taxes      1,047    (1,047)   (e)   -
    Other non-current assets  Other assets   822    1,047    (e)   1,869
    Accounts payable  Accounts payable   70,154    -        70,154
    Accrued liabilities  Accrued expenses and other current liabilities   30,721    31,796    (a)(b)(c)   62,517
       Current operating lease liabilities   -    3,736    (g)   3,736
    Accrued distributor rebates      18,654    (18,654)   (a)   -
    Right of return provision      5,656    (5,656)   (b)    -
    Other current liabilities      11,222    (11,222)   (c)(g)   -
    Non-current finance leases      6,299    (6,299)   (d)   -
    Non-current operating leases  Long-term operating lease liabilities   14,806    -        14,806
    Deferred taxes  Deferred income taxes   45,526    -        45,526
    Non-current other post-retirement obligations      10,700    (10,700)   (f)   -
    Other non-current liabilities  Other non-current liabilities   541    16,999    (d)(f)   17,540
    Parent company investment      1,132,880    -        1,132,880
    Accumulated other comprehensive income  Accumulated other comprehensive loss   15,947    -        15,947

 

8 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

(a) Reclassification of $18.7 million of accrued distributor rebates to accrued expenses and other current liabilities.

(b) Reclassification of $5.7 million of right of return provisions to accrued expenses and other current liabilities.

(c) Reclassification of $7.5 million of other current liabilities to accrued expenses and other current liabilities.

(d) Reclassification of $6.3 million of non-current finance leases to other non-current liabilities.

(e) Reclassification of $1.0 million of deferred tax assets to other assets.

(f) Reclassification of $10.7 million of non-current other post-retirement obligations to other non-current liabilities.

(g) Reclassification of $3.7 million of other current liabilities to current operating lease liabilities.

 

B)Refer to the table below for a summary of adjustments made to present Dodge’s statement of income for the three months ended June 30, 2021 to conform with that of RBC’s statement of operations for the three months ended July 3, 2021. Note the amounts presented in this table may not represent the arithmetic summation or calculation of the figures that precede them due to different signage presentation for expense items within the Dodge Historical Combined Statement of Income:

 

(in thousands)  Dodge Historical Combined Statement of Income
Line Items
  RBC Historical Consolidated Statement of
Operations Line Items
  Dodge Historical
Combined
Balances 
Three Months
ended June 30,
2021
   Reclassification       Dodge
Reclassed
Three Months
ended June 30,
2021
 
  Revenues  Net sales  $166,958            $166,958 
   Cost of sales  Cost of sales   (110,770)  $(5,200 )  (b)   105,570 
   Selling, general and administrative expenses  Selling, general and administrative   (21,409)   2,985    (a)   24,394 
   Non-order related research and development expenses      (2,985)   (2,985 )  (a)   - 
   Other income (expenses), net  Other, net   605    5,200    (b)   4,595 
      Other non-operating (income)/expenses   -    (190 )  (c)   (190)
   Interest and other finance expense  Interest expense, net   (57)   190    (c)   247 
   Income tax expense  Provision for income taxes   (7,988)   -        7,988 

 

(a) Reclassification of $3.0 million of non-order related research and development expenses to selling, general and administrative expenses.

(b) Reclassification of $5.2 million of amortization expenses from cost of sales to other, net.

(c) Reclassification of $0.2 million of net periodic benefit costs related to the Dodge pension plan from interest expense to other income (expense).

 

9 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

C) Refer to the table below for a summary of adjustments made to present Dodge’s statement of income for the year ended December 31, 2020 to conform with RBC’s statement of operations for the year ended April 3, 2021. Note the amounts presented in this table may not represent the arithmetic summation or calculation of the figures that precede them due to different signage presentation for expense items within the Dodge Historical Combined Statement of Income:

  

(in thousands)   Dodge Historical Combined Statement of
Income Line Items
  RBC Historical Consolidated Statement of
Operations Line Items
  Dodge Historical
Combined
Balances
Year Ended
December 31, 2020
   Reclassification       Dodge Reclassed
 Year Ended
December 31,
2020
   Revenues  Net sales  $549,997             $549,997
    Cost of sales  Cost of sales   (381,736)  $(24,800)   (b)   356,936
    Selling, general and administrative expenses  Selling, general and administrative   (70,850)   7,439    (a)    78,289
    Non-order related research and development expenses      (7,439)   (7,439)   (a)   -
    Other income (expenses), net  Other, net   (449)   24,800    (b)    25,249
       Other non-operating (income)/expenses   -    (576)   (c)   (576)
    Interest and other finance expense  Interest expense, net   220    576    (c)   356
    Income tax expense  Provision for income taxes   (22,179)   -        22,179

 

(a) Reclassification of $7.4 million of non-order related research and development expenses to selling, general and administrative expenses.

(b) Reclassification of $24.8 million of amortization expenses from cost of sales to other, net.

(c) Reclassification of $0.6 million of net periodic benefit costs related to the Dodge pension plan from interest expense to other income (expense).

 

10 

 

 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Note 3 – Preliminary Purchase Price Allocation

 

Estimated Aggregate Acquisition Consideration

 

The estimated aggregate acquisition consideration for Dodge is $2.9 billion, subject to certain closing adjustments. The following table summarizes the preliminary calculation of the aggregate acquisition consideration:

 

(in thousands)  Amount 
Base purchase price as defined in the Purchase Agreement  $2,900,000 
Less: Dodge closing indebtedness (i)   (18,598)
Preliminary estimated aggregate purchase consideration  $2,881,402 

 

(i) Reflects approximately $11.9 million related to an unfunded post-retirement benefit plan recorded within both other noncurrent liabilities and other current liabilities and approximately $6.7 million related to finance leases recorded within both other noncurrent liabilities and other current liabilities, in each case, that are being assumed in connection with the Pending Acquisition and are categorized as closing indebtedness in accordance with the Purchase Agreement. Pursuant to the Purchase Agreement, the amount of consideration to be funded to ABB is reduced by any Dodge closing indebtedness.

 

Preliminary Aggregate Acquisition Consideration Allocation

 

The assumed accounting for the Pending Acquisition, including the aggregate acquisition consideration, is based on provisional amounts, and the associated purchase accounting is not final. The preliminary allocation of the purchase price to the acquired assets and assumed liabilities was based upon the preliminary estimate of fair values. As of the date of this filing, the Company has not completed the detailed valuations necessary to finalize the required estimated fair values and estimated useful lives of Dodge’s assets to be acquired and liabilities to be assumed and the related allocation of the purchase price for the Pending Acquisition. The Company anticipates completing its purchase price allocation subsequent to the closing of the Pending Acquisition, and within the measurement period permissible under the acquisition method of accounting, as it completes its assessment about facts and circumstances that existed as of the acquisition date. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments reflected herein.

 

11 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following table summarizes the preliminary aggregate acquisition consideration allocation, as if the Pending Acquisition had been completed on July 3, 2021:

 

(in thousands)  Amount 
Assets:     
Accounts receivable  $90,744 
Inventories   140,792 
Prepaid expenses and other current assets   611 
Property, plant & equipment, net   138,605 
Operating lease assets, net   15,873 
Goodwill   1,483,858 
Intangible assets, net   1,515,000 
Other assets   1,869 
Liabilities:     
Accounts payable   70,154 
Accrued expenses and other current liabilities   62,517 
Current and long-term operating lease liabilities   18,542 
Deferred income taxes   337,197 
Other non-current liabilities   17,540 
Estimated aggregate purchase consideration  $2,881,402 

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION