0001104659-16-137504.txt : 20160805 0001104659-16-137504.hdr.sgml : 20160805 20160805143013 ACCESSION NUMBER: 0001104659-16-137504 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20160705 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160805 DATE AS OF CHANGE: 20160805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MTS SYSTEMS CORP CENTRAL INDEX KEY: 0000068709 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 410908057 STATE OF INCORPORATION: MN FISCAL YEAR END: 1001 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-02382 FILM NUMBER: 161810532 BUSINESS ADDRESS: STREET 1: 14000 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-2290 BUSINESS PHONE: 6129374000 MAIL ADDRESS: STREET 1: 14000 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: RESEARCH INC DATE OF NAME CHANGE: 19670216 8-K/A 1 a16-14523_28ka.htm 8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): July 5, 2016

MTS SYSTEMS CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MINNESOTA		0-02382		41-0908057
(STATE OR OTHER JURISDICTION OF INCORPORATION)		(COMMISSION FILE NUMBER)		(IRS EMPLOYER IDENTIFICATION NO.)

14000 TECHNOLOGY DRIVE
EDEN PRAIRIE, MN 55344

(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES,
INCLUDING ZIP CODE)

(952) 937-4000
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

N/A

(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

On July 5, 2016, MTS Systems Corporation (the “Company”) completed its previously announced acquisition of PCB Group, Inc. (“PCB”), which is now a wholly owned subsidiary of the Company, pursuant to the Agreement and Plan of Merger dated as of April 5, 2016, by and among the Company, Nickel Merger Sub Inc., a newly formed wholly owned subsidiary of the Company (“Merger Sub”), PCB and David T. Hore, John A. Lally and David M. Lally as representatives of the shareholders of PCB. The acquisition was completed by a merger of Merger Sub with and into PCB (the “Merger”), with PCB being the surviving corporation in the Merger and becoming a wholly owned subsidiary of the Company. This amendment (“Amendment”) to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 7, 2016 (the “Original Report”) is being filed to provide the financial statements and pro forma financial information described in Item 9.01 below, which were not previously filed with the Original Report, and which are permitted to be filed by amendment no later than 71 calendar days after the date the Original Report was required to be filed with the SEC. This Amendment should be read in connection with the Original Report.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited consolidated financial statements of PCB comprised of the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of stockholders’ equity and consolidated statements of cash flows for the years ended December 31, 2015, 2014 and 2013, the notes related thereto and the independent auditors’ report of each of KPMG LLP and Chiampou Travis Besaw & Kershner LLP, are filed as Exhibit 99.1 hereto and incorporated herein by reference.

The unaudited consolidated financial statements of PCB comprised of the consolidated balance sheets as of March 31, 2016 and December 31, 2015, and the related consolidated statements of income, consolidated statements of comprehensive income and consolidated statements of cash flows for the three months ended March 31, 2016 and 2015, and the notes related thereto, are filed as Exhibit 99.2 hereto and incorporated herein by reference.

(b) Pro Forma Financial Information.

The following unaudited pro forma condensed consolidated financial information giving effect to the Merger is filed as Exhibit 99.3 hereto and incorporated herein by reference:

(i) Unaudited pro forma condensed consolidated statement of income for the six months ended April 2, 2016;

(ii) Unaudited pro forma condensed consolidated statement of income for the fiscal year ended October 3, 2015; and

(iii) Unaudited pro forma condensed consolidated balance sheet as of April 2, 2016.

(d) Exhibits.

23.1 Consent of Chiampou Travis Besaw & Kershner LLP.

23.2 Consent of KPMG LLP.

99.1 Audited consolidated financial statements of PCB Group, Inc. as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013, the notes related thereto and the independent auditors’ report of each of KPMG LLP and Chiampou Travis Besaw & Kershner LLP.

99.2 Unaudited interim consolidated financial statements of PCB Group, Inc. as of March 31, 2016 and December 31, 2015, and for the three months ended March 31, 2016 and 2015, and the notes related thereto.

99.3 Unaudited pro forma condensed consolidated financial information for the fiscal year ended October 3, 2015, and as of and for the six months ended April 2, 2016, and the notes related thereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MTS SYSTEMS CORPORATION
	(Registrant)


Date: August 5, 2016	By:	/s/ Jeffrey P. Oldenkamp
		Jeffrey P. Oldenkamp
		Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Number	Description	Method of Filing
23.1	Consent of Chiampou Travis Besaw & Kershner LLP.	Filed Electronically.

23.2	Consent of KPMG LLP.	Filed Electronically.

99.1	Audited consolidated financial statements of PCB Group, Inc. as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013, the notes related thereto and the independent auditors’ report of each of KPMG LLP and Chiampou Travis Besaw & Kershner LLP.	Filed Electronically.

99.2	Unaudited interim consolidated financial statements of PCB Group, Inc. as of March 31, 2016 and December 31, 2015, and for the three months ended March 31, 2016 and 2015, and the notes related thereto.	Filed Electronically.

99.3	Unaudited pro forma condensed consolidated financial information for the fiscal year ended October 3, 2015, and as of and for the six months ended April 2, 2016, and the notes related thereto.	Filed Electronically.

EX-23.1 2 a16-14523_2ex23d1.htm EX-23.1

Exhibit 23.1

Consent of Independent Public Accounting Firm

The Board of Directors
MTS Systems Corporation:

We consent to the incorporation by reference in the registration statements (Nos. 333-172136, 333-172137, 333-187287, and 333-211902) on Form S-8 and the registration statement (No. 333-211901) on Form S-3 of MTS Systems Corporation of our report dated April 23, 2014, except for Note 2, as to which the date is June 7, 2016, with respect to the consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2013 of PCB Group and subsidiaries, which report appears in the Current Report on Form 8-K/A of MTS Systems Corporation dated August 5, 2016.

(signed) Chiampou Travis Besaw & Kershner LLP

Buffalo, New York
August 5, 2016

EX-23.2 3 a16-14523_2ex23d2.htm EX-23.2

Exhibit 23.2

Consent of Independent Auditors

The Board of Directors
MTS Systems Corporation:

We consent to the incorporation by reference in the registration statements (Nos. 333-172136, 333-172137, 333-187287, and 333-211902) on Form S-8 and the registration statement (No. 333-211901) on Form S-3 of MTS Systems Corporation of our report dated June 7, 2016, with respect to the consolidated balance sheets of PCB Group, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2015, which report appears in the Current Report on Form 8-K/A of MTS Systems Corporation dated August 5, 2016.

(signed) KPMG LLP

Minneapolis, Minnesota
August 5, 2016

EX-99.1 4 a16-14523_2ex99d1.htm EX-99.1

Exhibit 99.1

Independent auditors’ report

The Board of Directors

PCB Group, Inc.:

We have audited the accompanying consolidated financial statements of PCB Group Inc., and subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PCB Group, Inc. and its subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Minneapolis, Minnesota

June 7, 2016

Independent auditors’ report

To the Board of Directors of

PCB Group, Inc. and Subsidiaries

Depew, New York

We have audited the accompanying consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows of PCB Group, Inc. and subsidiaries for the year ended December 31, 2013, and the related notes to the consolidated financial statements.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated 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 consolidated financial statements based on our audits. We did not audit the financial statements of Synotech Sensor - und Messtechnik GmbH, a wholly-owned subsidiary, or the financial statements of PCB Piezotronics SA, a majority-owned subsidiary, whose combined statements reflect total revenues of $22,329,000 for the year ended December 31, 2013. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Synotech Sensor - und Messtechnik GmbH and PCB Piezotronics SA, is based solely on the reports of the other auditors. 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

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

Opinion

In our opinion, based on our audit and the reports of the other auditors, such 2013 consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of PCB

Group, Inc. and subsidiaries for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ Chiampou Travis Besaw & Kershner LLP

Buffalo, New York

April 23, 2014, except for Note 2 which is June 7, 2016

PCB Group, Inc. and subsidiaries

Consolidated balance sheets

(in thousands)

	December 31, 2015			December 31, 2014
Assets
Current assets
Cash and cash equivalents	$	18,809		$	19,971
Accounts receivable, net of allowance for doubtful accounts of $378 and $375, respectively	22,445			22,273
Inventories	42,523			41,909
Prepaid expenses and other current assets	2,621			2,706
Due from affiliates	—			30
Due from stockholders	150			5,054
Deferred income taxes	61			55
Total current assets	86,609			91,998
Property, plant and equipment, net	13,057			15,010
Other Assets, net	2,345			4,037
Goodwill	9,259			9,418
Total assets	$	111,270		$	120,463
Liabilities, Redeemable Interest and Stockholders’ Equity
Current liabilities
Lines of credit	$	2,000		$	6,100
Current portion of long-term debt	6			15
Accounts payable	7,178			6,538
Accrued expenses and other current liabilities	9,692			10,221
Deferred revenue	807			620
Total current liabilities	19,683			23,494
Long-term debt, less current maturities	2,004			2,013
Due to affiliates	—			10
Contingent consideration	320			650
Interest rate swap liability	—			5
Other noncurrent liabilities	216			206
Total liabilities	22,223			26,378
Redeemable Interest	2,825			—
Stockholders’ Equity
Capital stock, $0.01 par value; 35,000 voting and 3,465,000 non-voting shares authorized as of December 31, 2015 and 2014; 32,697 voting and 3,237,003 non-voting shares issued and outstanding as of December 31, 2015 and 2014	33			33
Retained earnings	88,274			94,339
Accumulated other comprehensive income (loss)	(2,085		)	(703		)
Total PCB Group, Inc. stockholders’ equity	86,222			93,669
Noncontrolling interest	—			416
Total stockholders’ equity	86,222			94,085
Total liabilities, redeemable interest and stockholders’ equity	$	111,270		$	120,463

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of income

(in thousands)

For the Years Ended	December 31, 2015		December 31, 2014		December 31, 2013
Net sales	$	179,661	$	178,454	$	152,305
Cost of goods sold	87,675		88,619		80,501
Gross profit	91,986		89,835		71,804
Selling, general and administrative	60,962		57,734		51,927
Income from operations	31,024		32,101		19,877
Other income, net	618		152		154
Income before provision for income taxes	31,642		32,253		20,031
Provision for (benefit from) income taxes	1,622		1,677		(159		)
Net income including noncontrolling interest	30,020		30,576		20,190
Less: Net income attributable to noncontrolling interest	9		86		57
Net income attributable to PCB Group, Inc. and subsidiaries	$	30,011	$	30,490	$	20,133

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of comprehensive income

(in thousands)

For the years ended	December 31, 2015			December 31, 2014			December 31, 2013
Net income including noncontrolling interest	$	30,020		$	30,576		$	20,190
Other comprehensive income (loss)
Change in fair value of interest rate swap contract	5			34			139
Change in tax status	—			—			(61		)
Foreign currency translation	(1,387		)	(1,157		)	328
Other comprehensive income (loss)	(1,382		)	(1,123		)	406
Comprehensive income including noncontrolling interest	28,638			29,453			20,596
Less: Comprehensive income attributable to noncontrolling interest	9			123			67
Comprehensive income attributable to PCB Group, Inc. and subsidiaries	$	28,629		$	29,330		$	20,529

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of stockholders’ equity

(in thousands)

	Capital stock		Retained earnings			Accumulated other comprehensive income (loss)			Total PCB Group, Inc. stockholders’ equity			Noncontrolling interest			Total stockholders’ equity			Redeemable interest
Balance at December 31, 2012	$	33	$	58,764		$	14		$	58,811		$	226		$	59,037		$	—
Net income	—		20,133			—			20,133			57			20,190			—
Distributions to stockholders	—		(2,350		)	—			(2,350		)	—			(2,350		)	—
Change in fair value of interest rate swap contract	—		—			139			139			—			139			—
Change in tax status	—		—			(61		)	(61		)	—			(61		)
Foreign currency translation	—		—			328			328			10			338			—
Balance at December 31, 2013	33		76,547			420			77,000			293			77,293			—
Net income	—		30,490			—			30,490			86			30,576			—
Distributions to stockholders	—		(12,698		)	—			(12,698		)	—			(12,698		)	—
Change in fair value of interest rate swap contract	—		—			34			34			—			34			—
Foreign currency translation	—		—			(1,157		)	(1,157		)	37			(1,120		)	—
Balance at December 31, 2014	33		94,339			(703		)	93,669			416			94,085			—
Net income	—		30,011			—			30,011			9			30,020			—
Distributions to stockholders	—		(32,548		)	—			(32,548		)	—			(32,548		)	—
Put option agreement	—		(2,825		)	—			(2,825		)	—			(2,825		)	2,825
Change in fair value of interest rate swap contract	—		—			5			5			—			5			—
Purchase of noncontrolling interest	—		(703		)	—			(703		)	(425		)	(1,128		)	—
Foreign currency translation	—		—			(1,387		)	(1,387		)	—			(1,387		)	—
Balance at December 31, 2015	$	33	$	88,274		$	(2,085	)	$	86,222		$	—		$	86,222		$	2,825

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of cash flows

(in thousands)

For the years ended	December 31, 2015			December 31, 2014			December 31, 2013
Cash Flows from Operating Activities
Net income	$	30,020		$	30,576		$	20,190
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	3,042			2,900			2,780
Bad debt expense (recovery)	19			(256		)	—
Equity earnings in affiliate	—			(41		)	250
Deferred income taxes	(6		)	(7		)	(917		)
Gain on sale of equity method investment	(4,265		)	—			—
Debt forgiveness	639			—			—
Cumulative translation adjustments from dissolution of foreign subsidiaries	(253		)	—			—
(Increase) decrease in cash surrender value of officers’ life insurance	1,061			(158		)	(273		)
Decrease in fair value of contingent consideration	(250		)	(325		)	(425		)
Increase in foreign post-employment obligation	32			35			31
Foreign currency exchange loss	243			159			116
(Gain) loss on disposal of assets	(52		)	33			10
Changes in operating assets and liabilities
Accounts receivable	(1,622		)	(4,409		)	(587		)
Inventories	(775		)	(3,574		)	(1,715		)
Prepaid expenses and other	(180		)	(252		)	(88		)
Accounts payable	1,703			139			571
Accrued expenses and other	(471		)	(159		)	(78		)
Deferred revenue	187			89			31
Net Cash Provided by Operating Activities	29,072			24,750			19,896
Cash Flows from Investing Activities
Purchases of property, plant and equipment	(2,107		)	(3,411		)	(2,503		)
Business acquisitions, net of cash acquired	—			(66		)	(3,853		)
Proceeds from the disposal of assets	1,074			50			—
Proceeds from sale of equity investment	4,900			—			—
Other assets	20			(26		)	(51		)
Net Cash Provided by (Used in) Investing Activities	3,887			(3,453		)	(6,407		)
Cash Flows from Financing Activities
Net borrowings (repayments) on lines of credit	(4,100		)	6,100			(4,225		)
Proceeds from long-term debt	—			—			3,107
Principal payments on long-term debt	(18		)	(2,452		)	(3,264		)
Repayments from (advances to) affiliates	30			(214		)	9
Repayments from (loans to) stockholders	4,465			(4,365		)	(190		)
Purchase of noncontrolling interest	(1,128		)	—			—
Contingent consideration payment	(80		)	—			—
Deferred compensation payments	—			—			(128		)
Distributions to stockholders	(32,548		)	(12,698		)	(2,350		)
Net Cash Used in Financing Activities	(33,379		)	(13,629		)	(7,041		)
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents	(742		)	(880		)	124
Increase (decrease) in cash and cash equivalents	(1,162		)	6,788			6,572
Cash and Cash Equivalents
Balance, beginning of year	19,971			13,183			6,611
Balance, end of year	$	18,809		$	19,971		$	13,183
Supplemental Disclsoure of Cash Flow Information
Interest paid	$	146		$	232		$	272
Income tax payments	472			387			390
Income tax refunds received	10			192			1,872

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Notes to consolidated financial statements

(in thousands, except share data)

1. Summary of significant accounting policies

Nature of operations—PCB Group, Inc. and its subsidiaries design and manufacture sensors, test and measurement products and instrumentation equipment for sale and lease to customers throughout the world. We also provide consulting services to the test, measurement and industrial markets. We are headquartered in Depew, New York, with four other primary manufacturing facilities located throughout the United States, and numerous sales operations located throughout the United States and internationally.

Terms—When we use the terms “we,” “us,” the “Company” or “our” in this report, unless the context otherwise requires, we are referring to PCB Group, Inc. and its subsidiaries.

Basis of consolidation—The consolidated financial statements include the accounts of PCB Group, Inc. and its subsidiaries. Investments in affiliated companies in which we exercise significant influence, but do not control, are accounted for in the consolidated financial statements under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation.

Foreign currency—The consolidated financial statements are presented in U.S. dollars. We have subsidiaries which are located and conduct business outside of the United States (collectively, the “Foreign Subsidiaries”). The accounts of our Foreign Subsidiaries are denominated in the Euro, Swedish Krona, British Pound, Canadian Dollar, Japanese Yen or Chinese Yuan Renminbi, as applicable. The accounts of our Foreign Subsidiaries have been translated using the U.S. dollar as the reporting currency. All assets and liabilities of our Foreign Subsidiaries are translated into U.S. dollars using year end exchange rates, while elements of operations and cash flows are translated using average daily exchange rates in effect during the year. Translation gains and losses have been included as a component of accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ equity.

We have regular transactions with our Foreign Subsidiaries and conduct a limited amount of business with unrelated parties based on foreign currencies. Transaction gains and losses that arise from exchange rate fluctuations on these transactions are included in other income in the consolidated statements of income.

During the year ended December 31, 2015, we dissolved wholly-owned foreign subsidiaries which resulted in $253 of Cumulative Translation Adjustments (“CTA”), previously included in AOCI, being recognized in other income on the consolidated statement of income.

Cash and cash equivalents—Cash and cash equivalents represent cash, demand deposits and highly liquid investments with original maturities of three months or less. We maintain cash in bank deposit accounts which, at times, may exceed federally insured limits. We believe that we are not exposed to any significant credit risk with regard to cash. Cash equivalents, both inside and outside the United States, are recorded at cost, invested in bank deposits and/or money market funds and are held in local currency denomination.

Accounts receivable—Accounts receivable are recorded at net realizable value. We consider all receivables outstanding greater than 10 days over terms to be past due and use judgmental factors such as customer history and existing economic conditions to determine whether to reserve for the past due amounts in our allowance for doubtful accounts. Upon our determination of uncollectibility, such accounts are written-off through the allowance.

Inventories—Inventories consist of materials, labor and overhead costs, and are stated at the lower of cost or market generally using the first-in, first-out accounting method. Certain inventories are measured using the weighted average cost accounting method.

Prepaid expenses and other—Prepaid expenses and other current assets consist primarily of prepaid employee health benefits, property taxes, insurance and service contracts.

Property, plant and equipment—Property, plant and equipment are capitalized at cost. Depreciation is recognized over the estimated useful lives of the assets using the straight-line method. Capitalized buildings and improvements have a useful life ranging from 5 to 39 years. Capitalized machinery and equipment have a useful life ranging from 3 to 7 years. Capitalized furniture and fixtures have a useful life ranging from 3 to 5 years. Capitalized automotive equipment has a useful live of 3 years. Maintenance and repairs are charged to operations as incurred and significant betterments are capitalized.

Impairment of long-lived assets—We review the carrying value of our long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as asset utilization, physical change, legal factors or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, we recognize an asset impairment charge against income from operations. The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.

Goodwill and intangible assets—Goodwill represents the excess of cost over the fair value of the identifiable net assets of businesses acquired and allocated to our reporting units at the time of acquisition. Goodwill is tested for impairment annually and when an event occurs or circumstances change that indicates the carrying value of the reporting unit may not be recoverable.

Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a two-step process. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by management on a regular basis.

Prior to completing the two-step process described below, we have the option to perform a qualitative assessment of goodwill for impairment to determine whether it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If we conclude the fair value is more likely than not less than the carrying value, we would need to perform the two-step process. Otherwise, no further testing is needed.

If the two-step process is required, the first step of the impairment test is to compare the calculated fair value of each reporting unit to its carrying value, including goodwill and other intangible assts. We estimate the fair value of a reporting unit using a discounted cash flow model that requires input of certain estimates and assumptions requiring judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs and new product introductions. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and step 2 would need to be performed to measure the impairment loss. In step 2, we would calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets, including unrecognized intangible assets, of the reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less than the carrying value of goodwill, an

impairment loss equal to the difference would be recognized in the period identified. The loss recognized cannot exceed the carrying amount of goodwill.

While we believe the estimates and assumptions used in determining the fair value of our reporting units are reasonable, significant changes in estimates of future cash flows, such as those caused by unforeseen events or changes in market conditions, could materially impact the fair value of a reporting unit which could result in the recognition of a goodwill impairment charge.

The following table summarizes the changes in the carrying amount of goodwill for 2015 and 2014.

	2015			2014
Beginning balance	$	9,418		$	9,438
Currency translation loss	(159		)	(86		)
Working capital purchase price adjustment	—			66
Ending balance	$	9,259		$	9,418

We have obtained numerous patents to protect proprietary technology. Legal costs incurred to obtain such patents, and the value of customer lists purchased as a result of the acquisition of a product line from a former supplier, are all included in other assets on the consolidated balance sheets as of December 31, 2015 and 2014. See Note 5 for additional information.

Contingent consideration—We have contingent liabilities related to the acquisition of subsidiaries during 2009 and 2013, which require additional consideration to be paid to the former owners based on certain financial results of the respective subsidiary and on the production and delivery of qualifying new products. The fair value of contingent consideration requires assumptions to be made of future operating results and probabilities assigned to various operating result scenarios and is subject to an annual review. Based on the purchase agreements, the consideration is due to be paid through 2016.

Financial instruments—We have adopted a standard for determining the fair value of assets and liabilities which are subject to reporting at fair value. The standard establishes a hierarchy for the determination of fair value, as well as disclosure requirements relative to those assets and liabilities. The hierarchy identifies three levels of input. Level 1 inputs are unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible to us at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situation in which there is little, if any, market activity for the asset or liability at measurement date. These may include such things as present value of expected future cash flows or other valuation methodologies. The hierarchy gives the highest priority to Level 1 input, as this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3 inputs. Level 3 inputs are to be used only where neither Level 1 nor Level 2 inputs are available.

We use interest rate swap contracts primarily for purposes of hedging our exposure to variable interest rates on certain bank obligations. The derivative instruments are recorded in the consolidated balance sheet as of December 31, 2014 at fair value, and related losses are deferred in stockholders’ equity as a component of AOCI. The fair value of the interest rate swap contracts is based on the difference between the contracted interest rate and the market rate. The interest rate swap contracts expired in 2015.

Capital stock—Capital stock consisted of the following at December 31, 2015 and 2014:

Voting common stock: $0.01 par value; 35,000 shares authorized; 32,697 shares issued and outstanding

Non-voting common stock: $0.01 par value; 3,465,000 shares authorized; 3,237,003 shares issued and outstanding

Comprehensive income—Our comprehensive income includes net income, the fair market value adjustments to certain financial instruments, the impact of a change in tax status and foreign currency translation adjustments.

Revenue recognition—We recognize revenue when it is realized or realizable and earned. This occurs when all of the following criteria have been met: (1) Persuasive evidence of an arrangement exists; (2) Delivery and title transfer has occurred or services have been rendered; (3) The sales price is fixed and determinable; (4) Collectability is reasonably assured; and (5) All significant obligations to the customer have been fulfilled.

Generally, revenues for product sales are recognized in accordance with customer shipment terms and revenues from the leasing of equipment are recognized throughout the rental period. Net sales are shown net of product returns and discounts. On occasion, we may receive prepayments from various sales arrangements with customers. Revenue is deferred and recognized upon shipment to customers under such arrangements.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities. Taxes collected are recorded as current liabilities until remitted to the relevant government authority.

Warranty obligations—We are subject to warranty obligations on sales of our products. We record general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects our historical warranty claims experience over the preceding twelve-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. Warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. A certain amount of judgment is required in determining appropriate reserve levels for anticipated warranty claims. While these reserve levels are based on our historical warranty claims experience, they may not reflect the actual claims that will occur over the upcoming warranty period and additional warranty reserves may be required. For the years ended December 31, 2015, 2014 and 2013, warranty costs amounted to $518, $367 and $346, respectively.

Noncontrolling interest—On March 31, 2015, PCB France purchased a noncontrolling interest for $1,128. The noncontrolling interest in our consolidated balance sheet as of December 31, 2014, represented the portion of our net equity allocable to the noncontrolling stockholders’ of PCB’s subsidiary, PCB France, which totaled 13% prior to the purchase. The portion of PCB France’s earnings allocable to such stockholders is included as net income attributable to noncontrolling interest in our consolidated statements of income for the years ended December 31, 2015, 2014 and 2013.

Redeemable interest—We granted a put option to Bank of America, which has the right in certain circumstances to put shares to us at a defined purchase price. This put option requires us to classify these shares as a redeemable interest outside of equity on our consolidated balance sheet for as long as the put is exercisable by Bank of America. When the put is no longer exercisable, the redeemable interest will be reclassified to stockholders’ equity in the consolidated balance sheet.

Income taxes and distributions—We elected to be taxed as a Subchapter S corporation effective January 1, 2013 under sections of the federal and state income tax laws, which provide that, in lieu of corporate income taxes, the stockholders separately account for the Company’s items of income, deductions, losses, and credits. Distributions may be declared periodically in amounts that will cover the individual stockholder’s income tax liabilities arising from the taxable income of the Company and for other purposes.

For our Foreign Subsidiaries, along with certain states that do not recognize Subchapter S Corporations, we pay corporate income taxes and record a tax provision for the anticipated consequences of the results of our operations.

Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We have evaluated our tax positions and concluded that we have taken no uncertain tax positions that require recognition in the consolidated financial statements at December 31, 2015 and 2014.

Advertising costs—Advertising costs are charged to operations when incurred and are included in selling, general and administrative expense on the consolidated statements of income. For the years ended December 31, 2015, 2014 and 2013, advertising costs were $1,021, $1,141 and $1,059, respectively.

Research and development costs—Expenditures for research and development are charged to operations when incurred and are included in selling, general and administrative expense on the consolidated statements of income. For the years ended December 31, 2015, 2014 and 2013, research and development expenditures were $1,589, $1,737 and $1,641, respectively.

Shipping and handling costs—Freight revenue billed to customers is reported within net sales on the consolidated statements of income. Expenses incurred for shipping products to customers are reported within cost of goods sold on the consolidated statements of income.

Other income (expense)—Other income (expense) on our consolidated statements of income consists primarily of interest income (expense), foreign exchange gains (losses) and investment income (losses). Other income (expense) also included $250, $325 and $425 of other income for the years ended December 31, 2015, 2014 and 2013, respectively, resulting from the fair value adjustment of our contingent consideration related to a prior year business acquisition.

Health insurance—We are self-insured for health benefits with stop-loss insurance coverage for individual claims in excess of $250. Reserves for losses include estimates for claims incurred but not reported at year-end. The estimates are based on claim reports provided by the insurance carrier. These reserves are included in accrued expenses and other in the accompanying consolidated balance sheets, and were $1,127 and $1,116 at December 31, 2015 and 2014, respectively.

Foreign operations—We conduct business outside the United States through our subsidiaries. Foreign sales for the years ended December 31, 2015, 2014 and 2013 were $47,033, $48,574 and $38,932, respectively. At December 31, 2015 and 2014, our consolidated balance sheets included trade accounts receivable from foreign customers of $6,669 and $7,809, respectively. At December 31, 2015 and 2014, our consolidated balance sheets also included cash balances held by foreign subsidiaries of $4,575 and $6,648, respectively.

Loss contingencies—We establish an accrual for loss contingencies when it is both probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. When loss contingencies are not probable and cannot be reasonably estimated, we do not establish an accrual. However, when there is at least a reasonable possibility that a loss has been incurred, but is not probable or reasonably estimated, we disclose the nature of the loss contingency and an estimate of the possible loss or range of loss, as applicable. Any adjustment made to a loss contingency accrual during an accounting period affects the earnings of the period.

Use of estimates—Preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the consolidated financial statements and report amounts of revenues and expenses incurred during the reporting period. Actual results could differ from those estimates.

Recently issued pronouncements—In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This update clarifies the principles for revenue recognition in transactions involving contracts with customers. The new revenue recognition guidance provides a five-step analysis to determine when and how revenue is recognized. The new guidance will require revenue recognition to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross Revenue versus Net), to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The new standard is effective for annual periods beginning after December 15, 2018, (as amended in August 2015 by ASU 2015-14, deferral of effective date) including interim periods within that annual period, which is our year ended December 31, 2019. The new standard may be adopted retrospectively for all periods presented, or adopted using a modified retrospective approach. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, and interim periods within that annual period, which is our year ended December 31, 2017. We have not yet evaluated the impact, if any, the adoption of this guidance may have on our financial condition, results of operations or disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update modifies existing requirements regarding measuring inventory at the lower of cost or market. Under current inventory standards, the market value requires consideration of replacement cost, net realizable value and net realizable value less an approximately normal profit margin. The new guidance replaces market with net realizable value defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The standard is required to be adopted for annual periods beginning after December 15, 2016, including interim periods within that annual period, which is our year ended December 31, 2017. The standard is to be applied prospectively with early adoption permitted. We have not yet evaluated the impact, if any, the adoption of this guidance may have on our financial condition, results of operations or disclosures.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under the existing business combination standard, an acquirer reports provisional amounts with respect to acquired assets and liabilities when their measurements are incomplete as of the end of the reporting period. Prior to this update, an acquirer is required to adjust provisional amounts and the related impact on earnings by restating prior period financial statements during the measurement period which cannot exceed one year from the date of acquisition. The new guidance requires that the cumulative impact of a measurement-period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified eliminating the requirement to restate prior period financial statements. The new standard requires disclosure of the nature and amount of measurement-period adjustments as well as information with respect to the portion of the adjustments recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustments to provisional amounts had been recognized as of the acquisition date. The standard is required to be adopted for annual periods beginning after December 15, 2016, including interim periods within that annual period, which is our year ended December 31, 2017. The amendment is to be applied prospectively to measurement-period adjustments that occur after the effective date with earlier adoption permitted. We have not yet evaluated the impact, if any, the adoption of this guidance may have on our financial condition, results of operations or disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires deferred tax liabilities and assets to be classified as noncurrent in the Consolidated Balance Sheet. The standard is required to be adopted for annual periods beginning after December 15, 2017, including interim periods within that annual period, which is our year ended December 31, 2018. The amendment may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted. We have not yet evaluated, if any, the impact the adoption of this guidance will have on our financial condition, results of operations or disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 824), which requires lessees to recognize a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability on the balance sheet for all leases with terms greater than 12 months. Lessees can forgo recognizing a right-of-use asset and lease liability with lease terms of 12 months or less on the balance sheet through accounting policy elections as long as the lease does not include options to purchase the underlying assets that is reasonably certain to be exercised. The new guidance also requires certain qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases, along with additional key information about leasing arrangements. The standard is required to be adopted for annual periods beginning after December 15, 2019, including interim periods within that annual period, which is our year ended December 31, 2020. The amendment is to be applied using a modified retrospective approach, which includes a number of optional practical expedients. Early adoption is permitted. We have not yet evaluated, if any, the impact the adoption of this guidance will have on our financial condition, results of operations or disclosures.

2. Correction of errors

During 2015, we identified accounting errors in previously issued consolidated financial statements that have been corrected in these consolidated financial statements. The corrections resulted in adjustment to net income totaling a reduction of $956, an increase of $1,134 and an increase of $218 for the years ended December 31, 2015, 2014 and 2013, respectively. We evaluated the materiality of the errors from both qualitative and quantitative perspectives and concluded that the errors were immaterial to our 2015, 2014 and 2013 consolidated financial statements.

3. Inventories

Inventories at December 31, 2015 and 2014 were as follows:

	2015		2014
Raw materials	$	10,859	$	11,317
Work-in-process	6,112		6,072
Finished goods	25,552		24,520
Total Inventory	$	42,523	$	41,909

4. Property, plant and equipment

Property, plant and equipment at December 31, 2015 and 2014 was as follows:

	2015			2014
Land and improvements	$	1,278		$	1,278
Buildings and improvements	12,807			13,481
Machinery and equipment	25,155			23,824
Furniture and fixtures	6,938			6,796
Automotive equipment	863			901
Equipment installations in progress	50			492
Property, plant and equipment, gross	47,091			46,772
Less accumulated depreciation	(34,034		)	(31,762		)
Property, plant and equipment, net	$	13,057		$	15,010

Depreciation expense recognized during the years ended December 31, 2015, 2014 and 2013 was $2,977, $2,835 and $2,705, respectively.

5. Composition of Certain Financial Statement Captions

Other assets

Other assets as of December 31, 2015 and 2014 consisted of the following:

	2015		2014
Cash surrender value of life insurance	$	1,543	$	2,604
Investment in equity method investee	—		635
Customer lists, net of accumulated amortization of $308 and $265, respectively	124		167
Patents, net of accumulated amortization of $13 and $8, respectively	89		62
Other, net	589		569
Total	$	2,345	$	4,037

Amortization expense related to other assets recognized in the years ended December 31, 2015, 2014 and 2013 was $65, $65 and $75, respectively.

We amortize intangible assets using the straight-line method. Patents and customer lists are amortized over an estimated useful life of 15 years and 10 years, respectively.

We accounted for our investment in STI Technologies, Inc. (“STI”) using the equity method. We recorded earnings (losses) of $41 and $(250) for the years ended December 31, 2014 and 2013, respectively, representing our 49% share of STI’s equity earnings. Effective March 3, 2015, we sold all of our interest in STI for cash consideration of $4,900 to one of our stockholders and recognized a gain of $4,265, which is included in other income (expense) on the consolidated income statement for the year ended December 31, 2015. In connection with the sale, we have entered into a put option agreement with STI, Bank of America and the stockholder covering 6,045 shares of our voting stock and 72,139 shares of our non-voting stock. Under the terms of the put agreement, upon the occurrence of an event of default on STI’s debt agreement with Bank of America or an event of default under our debt agreement with Bank of America, Bank of America may exercise the put and sell to us, and we agree to purchase all of the shares for a purchase price equal to the outstanding principal, interest, fees, expenses and other amounts owed to Bank of America by STI. The put is not currently exercisable as there has not been an event of default, and therefore, the redeemable interest has not been adjusted to its current redemption amount.

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities as of December 31, 2015 and 2014 consisted of the following:

	2015	2014
Accrued payroll	1,428	1,225
Accrued benefits	2,597	2,539
Accrued profit sharing	939	949
Accrued variable compensation	412	589
Accrued warranty costs	515	512
Accrued self insurance	1,127	1,116
Accrued income taxes	522	736
Other accrued liabilities	2,152	2,555
Accrued expenses and other current liabilities	9,692	10,221

6. Financing arrangements

We have a Revolving Credit and Term Loan Agreement with a commercial bank that has a maximum borrowing capacity of $24,000 as of December 31, 2015. Our revolving credit facility is reviewed and renewed annually by the commercial bank and matures on June 16, 2016. During 2015 and 2014, the revolving credit borrowings bore interest at either the bank’s prime rate or at the LIBOR rate plus 150 basis points, at our election. The outstanding borrowings under the LIBOR rate option bear interest at a rate of 1.85% and 1.70% as of December 31, 2015 and 2014, respectively.

We have a term note payable to a bank, with interest only payments due at the LIBOR rate plus 150 basis points, which was 1.85% at December 31, 2015, due July 2018. The note is secured by substantially all our assets and carried a balance of $2,000 for each of the years ending December 31, 2015 and 2014.

Our revolving line of credit and long-term debt as of December 31, 2015 and 2014 consistent of the following:

	2015		2014
Term note	$	2,000	$	2,000
Revolving line of credit	2,000		6,100
Other	10		28
Total	4,010		8,128
Less current portion	2,006		6,115
Long-term portion	$	2,004	$	2,013

The credit facility includes certain financial covenants, including the ratio of consolidated total indebtedness to consolidated EBITDA, as well as the ratio of consolidated EBITDA, less distributions and unfunded capital expenditures to the current portion of long term debt (including capitalized lease obligations) plus interest expense. At December 31, 2015 and 2014, we were in compliance with the financial covenants.

We guaranteed the debt of STI in conjunction with our Revolving Credit and Term Loan Agreement. In conjunction with the sale of STI on March 3, 2015, we are no longer the guarantor of the debt.

Future minimum payments for the years subsequent to December 31, 2015 are as follows:

2016	$	2,006
2017	$	4
2018	$	2,000

7. Fair value of financial instruments

Liabilities subject to measurement at fair value on a recurring basis, and the basis for determining fair value as of December 31, 2015 and 2014 were as follows:

	2015		2014
Interest rate swap liability (Level 2)	$	—	$	5
Contingent consideration (Level 3)	320		650
Total liabilities at fair value	$	320	$	655

A reconciliation of the beginning and ending balances for the contingent consideration measured at fair value using Level 3 inputs for the years ended December 31, 2015 and 2014 were as follows:

	2015			2014
Balance, beginning of year	$	650		$	975
Payment of contingent consideration	(80		)	—
Reduction in fair value of contingent consideration	(250		)	(325		)
Balance, end of year	$	320		$	650

8. Income taxes

The provisions for income taxes for the years ended December 31, 2015, 2014 and 2013 were as follows:

	2015		2014			2013
Current
Federal	$	241	$	(111	)	$	(623	)
State	64		57			42
Foreign	1,317		1,731			1,333
	$	1,622	$	1,677		$	752
Change in tax status
Federal	$	—	$	—		$	(874	)
State	—		—			(37		)
	$	—	$	—		$	(911	)
Total	$	1,622	$	1,677		$	(159	)

As discussed in Note 1, we elected S corporation status for federal income tax purposes as of January 1, 2013. Accordingly, the net deferred income tax liability of $850 as of December 31, 2012, has been recorded as a $911 benefit from income taxes within the consolidated statement of income and a $61 other comprehensive loss within the consolidated statement of stockholders’ equity for the year ended December 31, 2013. Additionally, we are subject to potential built-in gains tax that applies to corporations converting to S corporation status. This potential built-in gains tax applies to realized gains from the future sale of appreciated assets during the ten years following the election of S corporation status that was not taxed at the conversion date. The appreciation is calculated as of the conversion date and is the excess of the fair value of all corporate assets at the conversion date of their tax bases. We recorded $241 of built-in gains tax for the year ended December 31, 2015 relating to the sale of STI, our equity method investee. There was no built-in gains tax for the year ended December 31, 2014. We recorded $735 of built-in gains tax for the year ended December 31, 2013.

Deferred income taxes have been provided for New York state tax credits. The state of New York does not conform to the Federal S Corporation election under IRC Sec. 1361 and as such we are taxable in the state as a C Corporation. We do not believe these credits are more-likely-than-not to be utilized and have recorded a full valuation allowance. If not used, these credits will expire in years 2020 through 2029.

Net deferred tax assets for the years ended December 31, 2015 and 2014 consisted of the following:

	2015			2014
State tax credits	$	1,266		$	1,266
Valuation allowance	(1,266		)	(1,266		)
Foreign timing differences	61			55
Net deferred tax assets	$	61		$	55

As of December 31, 2015 our tax returns for the years ended 2012 through 2015 remain subject to examination.

9. Related party transactions

We incurred certain operating expenses, including officer compensation and related benefits, which we allocated to STI in the form of a management fee through December 31, 2014. See Note 5 for additional information related to our investment in STI. The management fee charges to STI during the years ended December 31, 2014 and 2013 totaled $402 and $332, respectively, and is included in other income (expense) in the consolidated statements of income. The amounts due from this affiliate at December 31, 2014 related to the management fee totaled $30.

STI also advanced funds to us in prior years for working capital purposes. At December 31, 2014, the amount due to this affiliate from us totaled $10.

We entered into management consulting agreements with certain stockholders and former employees for business advisory services. The amounts paid are included in selling, general and administrative expenses which totaled $2,873 and $80 in the years ended December 31, 2015 and 2014 respectively.

On March 21, 2014, we entered into an agreement to purchase certain assets from a stockholder for $705, which represented the appraised value. We incurred expenses related to these assets of $24 in the year ended December 31, 2015. These assets were sold on August 28, 2015 and October 6, 2015 for net proceeds of $662.

In 2015, we transferred the cash surrender value of six life insurance policies from us as the beneficiary to the stockholders as the beneficiary in amounts totaling $1,071. The transaction was recorded in selling, general and administrative expense in the consolidated statement of income for the year ended December 31, 2015.

We have advanced funds to certain stockholders with the advances bearing interest at rates commensurate with market interest rates. There was $150 and $5,054 of advances outstanding as of December 31, 2015 and 2014, respectively. In 2015, five of these loans were forgiven with $639 resulting in a charge to other income (expense) in the consolidated statement of income for the year ended December 31, 2015.

On June 19, 2015, we reached a settlement agreement with two former stockholders for approximately $3,000. The amount is included in other income (expense) in the consolidated statement of income for the year ended December 31, 2015.

10. Operating leases

We rent our manufacturing facility in Cincinnati, Ohio, under an operating lease that expires in April 2017. Minimum annual rent is $125 through the remainder of the lease term. We rent our international sales and distribution facility in Germany under an operating lease that expires in December 2016. Annual rent is approximately $155 through the remainder of the lease term. We also rent our other domestic and foreign sales offices under various non-cancellable and month-to-month leasing arrangements which are immaterial to the consolidated financial statements.

Minimum rental commitments under noncancelable operating leases for the next five years are as follows:

2016	$	540
2017	$	191
2018	$	100
2019	$	57
2020	$	28

11. Retirement plan

We maintain a contributory profit sharing retirement plan covering all domestic employees who have met certain eligibility requirements. The plan provides for employees to make voluntary salary deferral contributions subject to certain limitations. In addition, we may approve certain discretionary profit sharing contributions, subject to limitations, which are then funded by the participating domestic subsidiaries. Our discretionary profit sharing contributions amounted to $1,002, $1,001 and $905 for the years ended December 31, 2015, 2014 and 2013, respectively.

Our Foreign Subsidiaries in Europe participate in contributory pension plans as mandated by statutory pension provisions of the respective countries, which cover all employees. Liabilities for foreign post-employment obligations are established by our Foreign Subsidiaries where required and are included in other long-term liabilities in the consolidated balance sheets. Statutory pension contributions of our Foreign Subsidiaries were $492, $454 and $373 for the years ended December 31, 2015, 2014 and 2013, respectively.

12. Subsequent events

On April 5, 2016, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with MTS Systems Corporation (“MTS”), whereby we would become a wholly-owned subsidiary of MTS.

Under the terms of the Merger Agreement, our stockholders will receive $580,000 in cash at the time of closing. The consummation of the merger is subject to certain adjustments for cash and indebtedness.

The Merger Agreement includes customary termination provisions for both MTS and us and provides that, in connection with the termination of the Merger Agreement by MTS or us, under specified circumstances, MTS would be required to pay us a termination fee of $43,500.

As part of the Merger Agreement, the parties have agreed to certain customary covenants which restrict us pending the closing of the acquisition. Among these obligations, we: (1) must conduct business in the ordinary course consistent with our past practice; (2) use commercially reasonable efforts to maintain and preserve intact the current organization, our business and franchise and to preserve our current rights, franchises, goodwill and relationships of our employees, customers, lenders, suppliers, regulators and others having material business relationships with us; (3) not make or change any tax elections, change an annual accounting period, adopt or change any accounting methods with respect to taxes, file any amended tax return, enter into any closing agreement, settle or compromise any proceedings with respect to any tax claim or assessment relating to us, surrender any right to claim a refund of taxes or consent to any extension or waiver of the limitation period applicable to any tax claim or assessment relating to us; (4) keep available the services of our current officers, employees and consultants on commercially reasonable terms; and (5) make capital expenditures only in the ordinary course of business.

Subsequent events have been evaluated up to and including June 7, 2016, which is the date these financial statements were available to be issued.

* * * * * *

EX-99.2 5 a16-14523_2ex99d2.htm EX-99.2

Exhibit 99.2

PCB Group, Inc. and subsidiaries

Consolidated balance sheets

(in thousands)

	March 31, 2016			December 31, 2015
	(unaudited)			(Note)
Assets
Current assets
Cash and cash equivalents	$	11,774		$	18,809
Accounts receivable, net of allowance for doubtful accounts of $346 and $378, respectively	22,488			22,445
Inventories	41,875			42,523
Prepaid expenses and other current assets	2,748			2,621
Due from stockholders	150			150
Deferred income taxes	61			61
Total current assets	79,096			86,609
Property, plant and equipment, net	12,649			13,057
Other assets, net	2,320			2,345
Goodwill	9,316			9,259
Total assets	$	103,381		$	111,270
Liabilities, Redeemable Interest and Stockholders’ Equity
Current liabilities
Lines of credit	$	2,000		$	2,000
Current portion of long-term debt	—			6
Accounts payable	6,029			7,178
Accrued expenses and other current liabilities	10,321			9,692
Deferred revenue	715			807
Total current liabilities	19,065			19,683
Long-term debt, less current maturities	2,000			2,004
Contingent consideration	320			320
Other noncurrent liabilities	231			216
Total liabilities	21,616			22,223
Redeemable Interest	2,825			2,825
Stockholder’s Equity
Capital stock, $0.01 par value; 35,000 voting and 3,465,000 non-voting shares authorized as of March 31, 2016 and December 31, 2015; 32,697 voting and 3,237,003 non-voting shares issued and outstanding as of March 31, 2016 and December 31, 2015	33			33
Retained earnings	80,621			88,274
Accumulated other comprehensive income (loss)	(1,714		)	(2,085		)
Total stockholders’ equity	78,940			86,222
Total liabilities, redeemable interest and stockholders’ equity	$	103,381		$	111,270

Note: The Consolidated Balance Sheet as of December 31, 2015 has been derived from the audited consolidated financial statements at that date.

The accompany Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of income (unaudited)

(in thousands)

	Three months ended
	March 31, 2016			March 31, 2015
Net sales	$	43,245		$	44,941
Cost of goods sold	21,030			21,473
Gross profit	22,215			23,468
Selling, general and administrative	14,846			17,804
Income from operations	7,369			5,664
Other income (expense), net	(39		)	3,894
Income before provision for income taxes	7,330			9,558
Provision for income taxes	410			268
Net income including noncontrolling interest	6,920			9,290
Less: Net income attributable to noncontrolling interest	—			9
Net income attributable to PCB Group, Inc. and subsidiaries	$	6,920		$	9,281

The accompany Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of comprehensive income (unaudited)

(in thousands)

	Three months ended
	March 31, 2016		March 31, 2015
Net income including noncontrolling interest	$	6,920	$	9,290
Other comprehensive income (loss)
Foreign currency translation	372		(1,116		)
Other comprehensive income (loss)	372		(1,116		)
Comprehensive income including noncontrolling interest	7,292		8,174
Less: Comprehensive income attributable to noncontrolling interest	—		9
Comprehensive income attributable to PCB Group, Inc. and subsidiaries	$	7,292	$	8,165

The accompany Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Consolidated statements of cash flows (unaudited)

(in thousands)

	Three months ended
	March 31, 2016			March 31, 2015
Cash Flows from Operating Activities
Net income	$	6,920		$	9,290
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	704			739
Bad debt recovery	(32		)	(12		)
Gain on sale of equity investment	—			(4,265		)
Increase in cash surrender value of officers’ life insurance	(3		)	(3		)
Increase in foreign post-employment obligation	7			6
Foreign currency exchange loss	—			303
(Gain) loss on disposal of assets	18			(57		)
Changes in operating assets and liabilities
Accounts receivable	926			155
Inventories	426			(1,004		)
Prepaid expenses and other	(85		)	(329		)
Accounts payable	(1,519		)	1,210
Accrued expenses and other	430			75
Deferred revenue	(92		)	95
Net Cash Provided by Operating Activities	7,700			6,203
Cash Flows from Investing Activities
Purchases of property, plant and equipment	(295		)	(409		)
Proceeds from sale of equity investment	—			4,900
Proceeds from the disposal of assets	—			286
Other assets	4			29
Net Cash Provided by (Used in) Investing Activities	(291		)	4,806
Cash Flows from Financing Activities
Repayments on lines of credit	—			(3,300		)
Principal payments on long-term debt	(9		)	(4		)
Repayments from (advances to) affiliates	—			20
Repayments from stockholders	—			4,465
Purchase of noncontrolling interest	—			(1,128		)
Distributions to stockholders	(14,573		)	(24,598		)
Net Cash Used in Financing Activities	(14,582		)	(24,545		)
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents	138			(876		)
Increase (decrease) in cash and cash equivalents	(7,035		)	(14,412		)
Cash and Cash Equivalents
Balance, beginning of period	18,809			19,971
Balance, end of period	$	11,774		$	5,559
Supplemental Disclosure of Cash Flow Information
Interest paid	$	38		$	37
Income tax payments	326			409

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

PCB Group, Inc. and subsidiaries

Notes to consolidated financial statements (unaudited)

(in thousands, except share data)

1. Summary of significant accounting policies

Terms—When we use the terms “we,” “us,” the “Company” or “our” in this report, unless the context otherwise requires, we are referring to PCB Group, Inc. and its subsidiaries.

Foreign currency—The consolidated financial statements are presented in U.S. dollars. We have subsidiaries which are located and conduct business outside of the United States (collectively, the “Foreign Subsidiaries”). The accounts of our Foreign Subsidiaries are denominated in the Euro, Swedish Krona, British Pound, Canadian Dollar, Japanese Yen or Chinese Yuan Renminbi, as applicable. The accounts of our Foreign Subsidiaries have been translated using the U.S. dollar as the reporting currency. All assets and liabilities of our Foreign Subsidiaries are translated into U.S. dollars using period end exchange rates, while elements of operations and cash flows are translated using average daily exchange rates in effect during the year. Translation gains and losses have been included as a component of accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ equity.

Prepaid expenses and other—Prepaid expenses and other current assets consist primarily of prepaid employee health benefits, property taxes, insurance and service contracts.

Property, plant and equipment—Property, plant and equipment are capitalized at cost. Depreciation is recognized over the estimated useful lives of the assets using the straight-line method. Capitalized buildings and improvements have a useful life ranging from 5 to 39 years. Capitalized machinery and equipment have a useful life ranging from 3 to 7 years. Capitalized furniture and fixtures have a useful life ranging from 3 to 5 years. Capitalized automotive equipment has a useful life of 3 years. Maintenance and repairs are charged to operations as incurred and significant betterments are capitalized.

impairment loss equal to the difference would be recognized in the period identified. The loss recognized cannot exceed the carrying amount of goodwill.

The changes in the carrying amount of goodwill were as follows:

	Three months ended
	March 31, 2016		March 31, 2015
Beginning balance	$	9,259	9,418
Currency translation gain (loss)	57		(79		)
Ending balance	$	9,316	$	9,399

We have obtained numerous patents to protect proprietary technology. Legal costs incurred to obtain such patents, and the value of customer lists purchased as a result of the acquisition of a product line from a former supplier, are all included in other assets on the consolidated balance sheets as of March 31, 2016 and December 31, 2015. See Note 4 for additional information.

Capital stock—Capital stock consisted of the following at March 31, 2016 and December 31, 2015:

Voting common stock: $0.01 par value; 35,000 shares authorized; 32,697 shares issued and outstanding

Non-voting common stock: $0.01 par value; 3,465,000 shares authorized; 3,237,003 shares issued and outstanding

Comprehensive income—Our comprehensive income includes net income and foreign currency translation adjustments.

Warranty obligations—We are subject to warranty obligations on sales of our products. We record general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects our historical warranty claims experience over the preceding annual period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. Warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. A certain amount of judgment is required in determining appropriate reserve levels for anticipated warranty claims. While these reserve levels are based on our historical warranty claims experience, they may not reflect the actual claims that will occur over the upcoming warranty period and additional warranty reserves may be required. For the three months ended March 31, 2016 and 2015, warranty costs amounted to $71 and $92, respectively.

Noncontrolling interest—On March 31, 2015, PCB France purchased a noncontrolling interest for $1,128. The portion of PCB France’s earnings allocable to the former noncontrolling interest is included as net income attributable to noncontrolling interest in our consolidated statement of income for the three months ended March 31, 2015.

Advertising costs—Advertising costs are charged to operations when incurred and are included in selling, general and administrative expense on the consolidated statements of income. For the three months ended March 31, 2016 and 2015, advertising costs were approximately $317 and $286, respectively.

Research and development costs—Expenditures for research and development are charged to operations when incurred and are included in selling, general and administrative on the consolidated statements of income. For the three months ended March 31, 2016 and 2015, research and development expenditures were approximately $221 and $381, respectively.

Health insurance—We are self-insured for health benefits with stop-loss insurance coverage for individual claims in excess of $250. Reserves for losses include estimates for claims incurred but not reported at year-end. The estimates are based on claim reports provided by the insurance carrier. These reserves are included in accrued expenses and other in the accompanying consolidated balance sheets, and were approximately $1,043 and $1,127 at March 31, 2016 and December 31, 2015, respectively.

Foreign operations—We conduct business outside the United States through our subsidiaries. Foreign sales for the three months ended March 31, 2016 and 2015 were $11,715 and $11,747, respectively. At March 31, 2016 and December 31, 2015, our consolidated balance sheets included trade accounts receivable from foreign customers of $6,962 and $6,669, respectively. Additionally, at March 31, 2016 and December 31, 2015, our consolidated balance sheets included cash balances held by foreign subsidiaries of $6,104 and $4,575, respectively.

estimated. When loss contingencies are not probable and cannot be reasonably estimated, we do not establish an accrual. However, when there is at least a reasonable possibility that a loss has been incurred, but is not probable or reasonably estimated, we disclose the nature of the loss contingency and an estimate of the possible loss or range of loss, as applicable. Any adjustment made to a loss contingency accrual during an accounting period affects the earnings of the period.

from the date of acquisition. The new guidance requires that the cumulative impact of a measurement-period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified eliminating the requirement to restate prior period financial statements. The new standard requires disclosure of the nature and amount of measurement-period adjustments as well as information with respect to the portion of the adjustments recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustments to provisional amounts had been recognized as of the acquisition date. The standard is required to be adopted for annual periods beginning after December 15, 2016, including interim periods within that annual period, which is our year ended December 31, 2017. The amendment is to be applied prospectively to measurement-period adjustments that occur after the effective date with earlier adoption permitted. We have not yet evaluated the impact, if any, the adoption of this guidance may have on our financial condition, results of operations or disclosures.

2. Inventories

Inventories consisted of the following:

	March 31, 2016		December 31, 2015
Raw materials	$	10,405	$	10,859
Work-in-process	5,472		6,112
Finished goods	25,998		25,552
Total Inventory	$	41,875	$	42,523

3. Property, plant and equipment

Property, plant and equipment consisted of the following:

	March 31, 2016			December 31, 2015
Land and improvements	$	879		$	1,278
Buildings and improvements	14,233			12,807
Machinery and equipment	24,369			25,155
Furniture and fixtures	6,956			6,938
Automotive equipment	790			863
Equipment installations in progress	41			50
Property, plant and equipment, gross	47,268			47,091
Less accumulated depreciation	(34,619		)	(34,034		)
Property, plant and equipment, net	$	12,649		$	13,057

Depreciation expense recognized during the three months ended March 31, 2016 and 2015 was $692 and $728, respectively.

4. Composition of certain financial statement captions

Other assets

Other assets consisted of the following:

	March 31, 2016		December 31, 2015
Cash surrender value of life insurance	$	1,546	$	1,543
Customer lists, net of accumulated amortization of $320 and $308, respectively	112		124
Patents, net of accumulated amortization of $13, respectively	89		89
Other, net	573		589
Total	$	2,320	$	2,345

Amortization expense related to other assets recognized in the three months ended March 31, 2016 and 2015 was $7 and $11, respectively.

We amortize intangible assets using the straight-line method. Patents and customer lists are amortized over an estimated useful life of 15 years and 10 years, respectively.

We accounted for our investment in STI Technologies, Inc. (“STI”) using the equity method. Effective March 3, 2015, we sold all of our interest in STI for cash consideration of $4,900 to one of our stockholders and recognized a gain of $4,265, which is included in other income (expense) on the consolidated statement of income for the three months ended March 31, 2015. In connection with the sale, we have entered into a put option agreement with STI, Bank of America and the stockholder covering 6,045 shares of our voting stock and 72,139 shares of our non-voting stock. Under the terms of the put agreement, upon the occurrence of an event of default on STI’s debt agreement with Bank of America or an event of default under our debt agreement with Bank of America, Bank of America may exercise the

put and sell to us, and we agree to purchase all of the shares for a purchase price equal to the outstanding principal, interest, fees, expenses and other amounts owed to Bank of America by STI. The put is not currently exercisable as there has not been an event of default, and therefore, the redeemable interest has not been adjusted to its current redemption amount.

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

	March 31, 2016	December 31, 2015
Accrued payroll	1,262	1,428
Accrued benefits	2,398	2,597
Accrued profit sharing	951	939
Accrued variable compensation	351	412
Accrued warranty costs	600	515
Accrued self insurance	1,043	1,127
Accrued income taxes	304	522
Other accrued liabilities	3,412	2,152
Accrued expenses and other current liabilities	10,321	9,692

5. Financing arrangements

We have a Revolving Credit and Term Loan Agreement with a commercial bank that has a maximum borrowing capacity of $24,000 as of March 31, 2016. Our revolving credit facility is reviewed and renewed annually by the commercial bank and matures on June 16, 2016. During the three months ended March 31, 2016 and the year ended December 31, 2015, the revolving credit borrowings bore interest at either the bank’s prime rate or at the LIBOR rate plus 150 basis points, at our election. The outstanding borrowings under the LIBOR rate option bear interest at a rate of 1.85% and 1.85% as of March 31, 2016 and December 31, 2015, respectively.

We have a term note payable to a bank with interest only payments due at the LIBOR rate plus 150 basis points which was 1.85% at March 31, 2016 due July 2018. The note is secured by substantially all our assets and was $2,000 as of both March 31, 2016 and December 31, 2015.

Our revolving line of credit and long-term debt consisted of the following:

	March 31, 2016		December 31, 2015
Term note	$	2,000	$	2,000
Revolving line of credit	2,000		2,000
Other	—		10
Total	4,000		4,010
Less current portion	2,000		2,006
Long-term portion	$	2,000	$	2,004

Our credit facility includes certain financial covenants, including the ratio of consolidated total indebtedness to consolidated EBITDA, as well as the ratio of consolidated EBITDA, less distributions and

unfunded capital expenditures to the current portion of long term debt (including capitalized lease obligations) plus interest expense. At March 31, 2016 and December 31, 2015, we were in compliance with the financial covenants.

We guaranteed the debt of STI in conjunction with our Revolving Credit and Term Loan Agreement. In conjunction with the sale of STI on March 3, 2015, we are no longer the guarantor of the debt.

6. Fair value of financial instruments

Liabilities subject to measurement at fair value on a recurring basis, and the basis for determining fair value were as follows:

	March 31, 2016		December 31, 2015
Contingent consideration (Level 3)	$	320	$	320
Total liabilities at fair value	$	320	$	320

A reconciliation of the beginning and ending balances for the contingent consideration measured at fair value using Level 3 inputs was as follows:

	March 31, 2016
Balance, beginning of period	$	320
Payment of contingent consideration	—
Reduction in fair value of contingent consideration	—
Balance, end of period	$	320

7. Income taxes

The provisions for income taxes were as follows:

	Three months ended
	March 31, 2016		March 31, 2015
Current
Federal	$	46	$	—
State	24		—
Foreign	340		268
	$	410	$	268

As discussed in Note 1, we elected S corporation status for federal income tax purposes as of January 1, 2013. Additionally, we are subject to potential built-in gains tax that applies to corporations converting to S corporation status. This potential built-in gains tax applies to realized gains from the future sale of appreciated assets during the ten years following the election of S corporation status that was not taxed at the conversion date. The appreciation is calculated as of the conversion date and is the excess of the fair value of all corporate assets at the conversion date of their tax bases.

Net deferred tax assets consisted of the following:

	March 31, 2016			December 31, 2015
State tax credits	$	1,266		$	1,266
Valuation allowance	(1,266		)	(1,266		)
Foreign timing differences	61			61
Net deferred tax assets	$	61		$	61

As of March 31, 2016 our tax returns for the years ended 2012 through 2015 remain subject to examination.

8. Related party transactions

We entered into management consulting agreements with certain stockholders and former employees for business advisory services. The amounts paid are included in selling, general and administrative expenses and totaled $440 and $1,417 for the three months ended March 31, 2016 and 2015, respectively.

We have advanced funds to certain stockholders with the advances bearing interest at rates commensurate with market interest rates. There was $150 of advances outstanding as of both March 31, 2016 and December 31, 2015.

9. Operating leases

We rent our manufacturing facility in Cincinnati, Ohio, under an operating lease that expires in April 2017. Minimum annual rent is $125 through the remainder of the lease term. Rent expense was approximately $33 for both the three months ended March 31, 2016 and 2015.

We rent our international sales and distribution facility in Germany under an operating lease that expires in December 2016. Annual rent is approximately $155 through the remainder of the lease term. We also rent our other domestic and foreign sales offices under various non-cancellable and month-to-month leasing arrangements which are immaterial to the consolidated financial statements.

10. Retirement plan

We maintain a contributory profit sharing retirement plan covering all domestic employees who have met certain eligibility requirements. The plan provides for employees to make voluntary salary deferral contributions subject to certain limitations. In addition, we may approve certain discretionary profit sharing contributions, subject to limitations, which are then funded by the participating domestic subsidiaries. Our discretionary profit sharing contributions amounted to $101 and $222 for the three months ended March 31, 2016 and 2015, respectively.

post-employment obligations are established by our Foreign Subsidiaries where required and are included in other long-term liabilities in the consolidated balance sheets. Statutory pension contributions of our Foreign Subsidiaries were $86 and $92 for the three months ended March 31, 2016 and 2015, respectively.

11. Subsequent event

On April 5, 2016, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with MTS Systems Corporation (“MTS”), whereby we would become a wholly owned subsidiary of MTS.

The Merger Agreement includes customary termination provisions for both us and MTS and provides that, in connection with the termination of the Merger Agreement by us or MTS, under specified circumstances, MTS would be required to pay us a termination fee of $43,500.

As part of the Merger Agreement, the parties have agreed to certain customary covenants which restrict us pending the closing of the acquisition. Among these obligations, we (1) must conduct business in the ordinary course consistent with our past practice; (2) use commercially reasonable efforts to maintain and preserve intact the current organization, our business and franchise and to preserve our current rights, franchises, goodwill and relationships of our employees, customers, lenders, suppliers, regulators and others having material business relationships with us; (3) not make or change any tax elections, change an annual accounting period, adopt or change any accounting methods with respect to taxes, file any amended tax return, enter into any closing agreement, settle or compromise any proceedings with respect to any tax claim or assessment relating to us, surrender any right to claim a refund of taxes or consent to any extension or waiver of the limitation period applicable to any tax claim or assessment relating to us; (4) keep available the services of our current officers, employees and consultants on commercially reasonable terms; and (6) make capital expenditures only in the ordinary course of business.

Subsequent events have been evaluated up to and including June 7, 2016, which is the date these financial statements were available to be issued.

* * * * * *

EX-99.3 6 a16-14523_2ex99d3.htm EX-99.3

Exhibit 99.3

Unaudited pro forma condensed consolidated financial information

The following unaudited pro forma condensed consolidated financial information is based on the combined historical consolidated financial information of MTS Systems Corporation (“MTS”) and PCB Group, Inc. (“PCB”) and their respective subsidiaries. The unaudited pro forma condensed consolidated statements of income gives effect to (i) the acquisition of PCB through a merger of Nickel Merger Sub Inc., a newly formed wholly owned subsidiary of MTS (“Merger Sub”), with and into PCB (the “Merger”), with PCB being the surviving corporation in the Merger and becoming a wholly owned subsidiary of MTS, and (ii) financing transactions consisting of (A) a senior secured revolving credit facility of up to $100.0 million (the “New Revolving Credit Facility”), (B) a term loan B facility of up to $490.0 million (the “New Term Loan Facility” and together with the New Revolving Credit Facility, the “New Senior Secured Credit Facilities”), (C) a registered offering of 1,897,500 shares of MTS’s common stock (the “Common Stock Offering”), and (D) a registered offering of 1,150,000 of MTS’s 8.75% tangible equity units (the “Tangible Equity Units Offering” and together with the New Senior Secured Credit Facilities and the Common Stock Offering, the “Financing Transactions”), as if they had been completed on September 28, 2014, the first day of our most recent fiscal year presented, and the unaudited pro forma condensed consolidated balance sheet gives effect to the Merger and the Financing Transactions as if they had been completed on April 2, 2016, the latest interim balance sheet date. See “Notes to Unaudited Pro Forma Condensed Consolidated Financial Information” below.

The unaudited pro forma condensed consolidated financial information is provided for informational purposes only. The unaudited pro forma condensed consolidated statements of income are not necessarily indicative of operating results that would have been achieved had the Merger been completed as of September 28, 2014 and does not intend to project the future financial results of MTS after the Merger. The unaudited pro forma condensed consolidated balance sheet does not purport to reflect what MTS’s financial condition would have been had the transactions closed on April 2, 2016, or for any future or historical period. The unaudited pro forma condensed consolidated statements of income and balance sheet are based on certain assumptions, described in the accompanying notes, which management believes are reasonable, directly attributable to the transactions, factually supportable and do not reflect the cost of any integration activities or the benefits from the Merger and synergies that may be derived from any integration activities.

MTS’s 2015 pro forma fiscal year ended on October 3, 2015, while PCB’s 2015 year ended on December 31, 2015. The unaudited condensed consolidated balance sheet is derived from the unaudited consolidated balance sheet of MTS as of April 2, 2016, and the unaudited consolidated balance sheet of PCB as of March 31, 2016. The full-year unaudited pro forma condensed consolidated statement of income for fiscal year 2015 combines the audited consolidated statement of income for MTS for the fiscal year ended October 3, 2015 and the audited consolidated statement of income of PCB for the year ended December 31, 2015. The unaudited pro forma condensed consolidated statement of income for the six months ended April 2, 2016 combines the unaudited consolidated statement of income of MTS for the six months ended April 2, 2016 and the unaudited consolidated statement of income of PCB for the six months ended March 31, 2016. The unaudited consolidated statement of income of PCB for the six months ended March 31, 2016 was determined by adding PCB’s unaudited consolidated statement of income for the three months ended December 31, 2015 (PCB’s fourth quarter of 2015) to the unaudited consolidated statement of income for the three months ended March 31, 2016 (PCB’s first quarter of 2016).

The unaudited pro forma condensed consolidated financial statements have been prepared using the acquisition method of accounting under Generally Accepted Accounting Principles in the United States (“GAAP”), with MTS considered the acquirer of PCB. Accordingly, consideration given by MTS to acquire PCB will be allocated to the assets and liabilities of PCB based on their estimated fair values as of the date of completion of the Merger. Any excess of the consideration over the fair value of assets acquired and liabilities assumed will be allocated to goodwill. MTS has not completed the detailed valuation studies necessary to arrive at the required determination of the fair value of the PCB assets to be acquired and the liabilities to be assumed, and the related allocations of purchase price, nor has it identified all adjustments necessary to conform PCB’s accounting policies to MTS’s accounting policies. The accounting for the Merger is dependent upon certain valuations that are

provisional and are subject to change. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing the unaudited pro forma condensed consolidated financial statements. Differences between these preliminary estimates and the final acquisition accounting or conforming accounting adjustments may occur and these differences could be material. The differences, if any, could have a material impact on the summary unaudited pro forma condensed consolidated financial information presented below and MTS’s future results of operations and financial position. MTS estimated the fair value of PCB’s assets and liabilities based on discussions with PCB’s management, preliminary valuation studies and due diligence.

The unaudited pro forma condensed combined consolidated financial statements do not include any adjustment for liabilities or related costs that may result from integration activities, as such expenses are accounted for as an expense in the period in which the costs are incurred. Significant liabilities and related costs may ultimately be recorded for employee severance and costs associated with other integration activities.

The unaudited pro forma condensed consolidated financial information has been developed from, and should be read in conjunction with, the following financial information in accordance with GAAP:

· the accompanying notes to the unaudited pro forma condensed consolidated financial information;

· MTS’s audited consolidated financial statements as of and for the fiscal year ended October 3, 2015, included in MTS’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on December 2, 2015;

· MTS’s unaudited consolidated financial statements as of and for the six months ended April 2, 2016, included in MTS’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2016;

· PCB’s audited consolidated financial statements as of and for the year ended December 31, 2015, included as Exhibit 99.1 to the Current Report on Form 8-K/A to which this Exhibit 99.3 is attached; and

· PCB’s unaudited consolidated financial statements as of and for the three months ended March 31, 2016, included as Exhibit 99.2 to the Current Report on Form 8-K/A to which this Exhibit 99.3 is attached.

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.

Unaudited pro forma condensed combined statement of income

For the six months ended April 2, 2016

(in thousands, except per share data)

	Historical MTS			Historical PCB(1)			Pro forma Adjustments			Pro forma combined
Total revenue	$	277,599		$	88,385		$	—		$	365,984
Total cost of sales	179,944			43,910			—			223,854
Gross profit	97,655			44,475			—			142,130
Operating expenses
Selling and marketing, general and administrative	68,637			32,631			4,733		(f),(l)	106,001
Research and development	11,046			—			288		(f),(l)	11,334
Total operating expenses	79,683			32,631			5,021			117,335
Income from operations	17,972			11,844			(5,021		)	24,795
Interest income (expense), net	(458		)	—			(14,462		)(g)	(14,920		)
Other income (expense), net	(203		)	(328		)	—			(531		)
Income before income taxes	17,311			11,516			(19,483		)	9,344
Provision for income taxes	2,539			1,014			(4,501		)(h)	(948		)
Net Income	14,772			10,502			(14,982		)	10,292
Earnings per share
Basic
Earnings per share	$	1.00								$	0.54
Weighted average common shares outstanding	14,808						4,179		(k)	18,987
Diluted
Earnings per share	$	0.99								$	0.54
Weighted average common shares outstanding	14,925						4,179		(k)	19,104

(1) The pro forma statement of income of PCB for the six month interim period ended April 2, 2016 was derived by adding the three month period ended December 31, 2015 and March 31, 2016. Due to the different fiscal year ends, the pro forma statement of income for the three month period ended December 31, 2015 was also included in the pro forma statement of income for PCB for the fiscal year ended October 3, 2015. Summarized operating information about the duplicated quarter is as follows (in thousands):

Total revenue	$	45,140
Gross profit	$	22,260
Net income	$	3,582

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information

Unaudited pro forma condensed combined statement of income

For the fiscal year ended October 3, 2015

(in thousands, except per share data)

	Historical MTS			Historical PCB			Pro forma Adjustments			Pro forma combined
Total revenue	$	563,934		$	179,661		$	—		$	743,595
Total cost of sales	344,321			87,675			—			431,996
Gross profit	219,613			91,986			—			311,599
Operating expenses
Selling and marketing, general and administrative	134,412			60,962			12,168		(f),(l)	207,542
Research and development	23,705			—			577		(f),(l)	24,282
Total operating expenses	158,117			60,962			12,745			231,824
Income from operations	61,496			31,024			(12,745		)	79,775
Interest income (expense), net	(795		)	(9		)	(29,718		)(g)	(30,522		)
Other income (expense), net	(1,529		)	618			—			(911		)
Income before income taxes	59,172			31,633			(42,463		)	48,342
Provision for income taxes	13,710			1,622			(6,314		)(h)	9,018
Net Income	45,462			30,011			(36,149		)	39,324
Earnings per share
Basic
Earnings per share	$	3.03								$	2.05
Weighted average common shares outstanding	14,984						4,179		(k)	19,163
Diluted
Earnings per share	$	3.00								$	2.04
Weighted average common shares outstanding	15,142						4,179		(k)	19,321

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information

Unaudited pro forma condensed combined balance sheet

April 2, 2016

(in thousands, except per share amounts)

	Historical MTS			Historical PCB		Pro forma Adjustments			Pro forma combined
Assets
Current assets
Cash and cash equivalents	$	63,347		$	11,774	$	(2,835	)(a),(b),(c),(d),(e),(i),(j),(m)	$	72,286
Accounts receivable, net	96,193			22,488		—			118,681
Unbilled accounts receivable	73,924			—		—			73,924
Inventories	95,988			41,875		12,100		(a)	149,963
Deferred income taxes	14,863			61		1,436		(q)	16,360
Other current assets	17,920			2,898		—			20,818
Total current assets	362,235			79,096		10,701			452,032
Property and equipment, net	82,586			12,649		—			95,235
Goodwill	26,917			9,316		349,443		(a)	385,676
Intangible assets, net	20,583			—		233,700		(a),(l)	254,283
Other assets	6,057			2,320		1,787		(e)	10,164
Total assets	$	498,378		$	103,381	$	595,631		$	1,197,390
Liabilities, redeemable interest and shareholders’ equity
Current liabilities
Short-term borrowings	$	21,387		$	2,000	$	(1,240	)(a),(b),(c),(e),(i),(j),(n)	$	22,147
Accounts payable	37,311			6,029		—			43,340
Advance payments from customers	98,393			—		—			98,393
Other accrued liabilities	59,782			11,036		—			70,818
Total current liabilities	216,873			19,065		(1,240		)	234,698
Long-term debt, less current maturities	—			2,000		443,303		(a),(b)	445,303
Other long-term liabilities	29,304			551		93,122		(a),(h),(o)	122,977
Total liabilities	246,177			21,616		535,185			802,978
Redeemable interest	—			2,825		(2,825		)(a)	—
Shareholders’ equity
Common stock, $0.25 par; 64,000 shares authorized:
14,728 and 14,932 shares issued and outstanding as of April 2, 2016 and October 3, 2015, respectively	3,682			—		474		(i),(p)	4,156
Additional paid-in capital	—			—		150,402		(a),(b),(i),(j),(p)	150,402
Members equity	—			78,940		(78,940		)(a)	—
Retained earnings	253,868			—		(8,665		)	245,203
Accumulated other comprehensive income (loss)	(5,349		)	—		—			(5,349		)
Total shareholders’ equity	252,201			78,940		63,271			394,412
Total liabilities, redeemable interest and shareholders’ equity	$	498,378		$	103,381	$	595,631		$	1,197,390

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information

Notes to unaudited pro forma condensed consolidated financial information

Note 1. Description of the transaction

MTS and Merger Sub entered into the Agreement and Plan of Merger (“Merger Agreement”), dated as of April 5, 2016, with PCB and the other parties thereto, pursuant to which PCB became a wholly owned subsidiary of MTS upon closing of the Merger on July 5, 2016.

We funded the aggregate consideration for the Merger in the amount of $580.0 million, subject to certain adjustments for cash, indebtedness, transaction costs and the level of net working capital at closing (collectively, the “Merger Consideration”), through a combination of the Financing Transactions.

We obtained the financing commitment to provide to us New Senior Secured Credit Facilities in an aggregate principal amount of up to $740.0 million, consisting of a $390.0 million term loan B facility, a $100.0 million New Revolving Credit Facility (which will replace our existing revolving credit facility) and a $250.0 million bridge facility. The obligations of the lenders to provide this debt financing was subject to a number of customary conditions, including, without limitation, execution and delivery of certain definitive documentation.

Our obligation to consummate the Merger was not subject to a financing condition.

Note 2. Basis of pro forma presentation

These unaudited pro forma condensed consolidated financial statements (the “Statements”) have been derived from the historical condensed consolidated financial statements of MTS and PCB that are included as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K/A. Certain financial statement line items included in the PCB historical presentation have been disaggregated or condensed to conform to corresponding financial statement line items included in our historical presentation.

The Merger is reflected in the Statements as an acquisition of PCB by MTS using the acquisition method of accounting, in accordance with business combination accounting guidance under GAAP. Under these accounting standards, the total Merger Consideration is described in Note 3 to these Statements, and the assets acquired and the liabilities assumed will be measured at estimated fair value. For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, we have applied the accounting guidance under GAAP for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions in connection with the Merger, including historical and current market data. The final Merger Consideration allocation will be determined after the completion of the Merger, and the final allocation may differ materially from those presented herein.

Note 3. Adjustments to unaudited pro forma condensed consolidated financial information

Pro forma adjustments are necessary to reflect the estimated Merger Consideration, to adjust amounts related to PCB’s assets and liabilities to a preliminary estimate of their fair values, to reflect financing transactions associated with the Merger, to reflect changes in depreciation and amortization expense resulting from the estimated fair value adjustments to tangible and intangible assets, to reflect other transactions directly related to the Merger, and to reflect the income tax effects related to the pro forma adjustments. There were no inter-company transactions between MTS and PCB reflected.

The accompanying Statements have been prepared as if the Merger was completed on April 2, 2016 for balance sheet purposes and September 28, 2014 for statement of income purposes, and reflect the following adjustments:

(a) Records the preliminary allocation of Merger Consideration and the elimination of PCB’s equity.

The Merger Consideration of approximately $580.0 million was funded entirely through cash consideration.

The preliminary allocation of the Merger Consideration to the fair values of assets to be acquired and liabilities to be assumed in the Merger includes unaudited pro forma adjustments to reflect the estimated fair values of PCB’s assets and liabilities at the completion of the Merger. The preliminary allocation of the Merger Consideration is as follows (in thousands):

Current assets(1)	$	79,422
Property and equipment(2)	12,649
Goodwill	358,759
Intangible assets:
Amortizable intangible assets	198,000
Indefinite-lived intangible assets	35,700
Other long-term assets	2,108
Current liabilities	(17,065		)
Deferred income taxes(3)	(89,341		)
Other long-term liabilities(4)	(232		)
Total consideration	$	580,000

(1) Reflects an adjustment of $12.1 million to record the historical PCB inventories to estimated fair value. This inventory adjustment is expected to be recognized in cost of sales in the first two quarters following consummation of the Merger. We expect this step-up in basis and amortization of this amount to have a negative effect on margin. This also reflects historical PCB value of $22.5 million in accounts receivable, $41.9 million in inventories, and $2.9 million in other current assets.

(2) We believe that the carrying value of property and equipment approximates fair value. Additionally, we reviewed PCB’s policies regarding its useful lives and determined that those policies were reasonable. Therefore, no adjustments have been made to historical depreciation.

(3) Amount includes the addition of approximately $85.0 million of deferred tax liabilities related to amortizable intangible assets acquired.

(4) Amount includes the elimination of $0.3 million in contingent consideration.

The preliminary Merger Consideration allocation for PCB is subject to revision as more detailed analysis is completed and additional information on the fair values of PCB’s assets and liabilities become available. Any change in the fair value of the assets and liabilities of PCB will change the amount of the Merger Consideration allocable to goodwill. The final Merger Consideration allocation may differ materially from the allocation presented above.

We have made preliminary allocation estimates based on limited access to information and will not have sufficient information to make final allocations until after completion of the Merger. The final

determination of the Merger Consideration allocation is anticipated to be completed as soon as practicable after completion of the Merger. We anticipate that the valuations of the acquired assets and liabilities will include, but not be limited to, fixed assets, inventory, developed technology, trade names, customer relationships, and other potential intangible assets. The valuations will consist of physical appraisals, discounted cash flow analyses, or other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.

The final amounts allocated to assets acquired and liabilities assumed in the Merger could differ materially from the preliminary amounts presented in these Statements. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the Merger from those preliminary valuations presented in these Statements would result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the Merger. In addition, if the value of the acquired assets is higher than the preliminary estimate, it may result in higher amortization and depreciation expense than is presented in these Statements.

(b) Reflects the incurrence of $460.0 million of debt to fund the Merger and repay certain of our existing debt and fund debt issuance costs. The total adjustment for the long-term debt relates to the issuance of $443.6 million of net debt related to the New Senior Secured Credit Facilities (less financing fees), the issuance of the $18.0 million of the net debt portion of the 8.75% tangible equity units (less financing fees) and the reduction of PCB historical debt of $2.0 million that was paid prior to the consummation of the Merger. A detailed estimate of the sources and uses of cash associated with the Merger are as follows (in thousands):

Sources:
New Senior Credit Facilities	$	460,000
Common Stock Offering	79,695
Tangible Equity Units Offering—Equity	87,614
Tangible Equity Units Offering—Debt	27,386
Total Sources	$	654,695
Uses:
Merger Consideration	$	580,000
Cash payments related to refinancing and debt repayments:
Repayment of the existing revolving credit facility	21,387
Estimated fees and expenses of the Transactions	23,404
Financing fees(1)	20,965
Excess cash to the balance sheet	8,939
Total Uses	$	654,695

(1) Financing fees will be capitalized as deferred loan costs and amortized over seven years.

Bank line of credit, monthly U.S. LIBOR based	$	10,000
Bank line of credit, monthly EURO LIBOR based	11,387
Total short-term borrowings	$	21,387

As of July 2, 2016, MTS had no outstanding borrowings under its former revolving credit facility, excluding $43.5 million deposited in an escrow amount to secure the termination fee in connection with the Merger. MTS utilized a portion of net proceeds from the Common Stock Offering and the Tangible Equity Units Offering to repay all amounts outstanding under its former revolving credit facility.

(d) Reflects estimated transaction fees paid to third parties related to the Merger, including $1.3 million of acquisition-related expenses through April 2, 2016 incurred as part of the Merger Agreement. An additional estimated $13.9 million in related fees have been reflected as a reduction in cash as part of the transaction.

(e) Reflects debt issuance costs of $2.0 million incurred as a result of the revolving credit facility. All other debt issuance costs are netted against their respective portion of the debt.

(f) Reflects additional amortization expense of identifiable, definite-lived intangible assets related to the estimated fair value of such identifiable intangible assets held by PCB at the time of the Merger. Intangible assets will principally relate to customer relationships and trade names and are expected to have a useful life of approximately three to 16 years.

(g) Reflects interest expense based upon the assumed debt structure following the Merger closing. Interest costs represent a blended rate for the New Senior Secured Credit Facilities based on the committed rates and an assumed rate for the amortizing note component of the 8.75% tangible equity units.

	Six months ended April 2, 2016			Fiscal year ended October 3, 2015
Amortization of debt issuance costs	$	1,500		$	3,000
Interest costs	13,548			27,922
Less: Historical expense
MTS	(585		)	(1,205		)
Net interest expense adjustment	$	14,463		$	29,717

(h) To reflect the income tax effects, assuming MTS and PCB were combined companies for the periods presented and filed as a U.S. federal tax consolidated group. The main pro forma income tax effects are: (1) income tax effects on historic PCB domestic income as if it were a Subchapter C Corporation under the Internal Revenue Code for the periods presented; (2) the tax effect of the pro forma statements of earnings adjustments using a combined statutory and federal rate of 36.35% for both the pro forma unaudited condensed combined statement of income for the six months ended April 2, 2016 and for the year ended October 3, 2015; and (3) to the extent applicable, any modification to permanent tax items, credits and/or state tax rate of MTS caused by the consolidation of the two groups. Prior to the Merger, the PCB domestic parent was a Subchapter S Corporation for U.S. federal and most states income tax purposes, which historically resulted in PCB recording little to no domestic current or deferred income taxes. Upon acquisition by MTS, PCB has reverted back to a fully taxable Subchapter C Corporation and became an immediate member of the MTS tax consolidated group.

(i) Reflects the issuance of $79.7 million worth of shares of our common stock in the Common Stock Offering, including the exercise by the underwriters of their option to purchase additional shares in the Common Stock Offering in full. We issued an aggregate of 1,897,500 shares of common stock in the Common Stock Offering, resulting in net proceeds of $74.3 million.

(j) Reflects the issuance of an aggregate of 1,150,000 of our 8.75% tangible equity units in the Tangible Equity Units Offering at a stated amount of $100 per tangible equity unit, resulting in estimated net proceeds of $110.9 million, including the exercise by the underwriters of their option to purchase additional tangible equity units in the Tangible Equity Units Offering in full.

(k) The issuance of common stock in the Common Stock Offering resulted in a 1,897,500 share increase to pro forma basic and diluted shares for both the year ended October 3, 2015 and the six months ended April 2, 2016. Based on the minimum settlement rate for the stock purchase contract component of the 8.75% tangible equity units of 1.9841 shares of the common stock per purchase contract, the issuance of 1,150,000 tangible equity units results in a 2,281,715 share increase to pro forma basic and diluted weighted average shares outstanding for both the year ended October 3, 2015 and the six months ended April 2, 2016.

(l) Reflects the incremental amortization based on the preliminary fair values of the intangibles assets acquired as follows:

	Intangible assets		Estimated useful lives (yrs)(1)	Pro forma amortization
Customer relationships	$	179,600	16	$	11,225
Tradenames—Definite Lived	1,100		3	367
Tradenames—Indefinite Lived	35,700		—	—
Developed Technology	17,300		15	1,153
	$	233,700		$	12,745

(1) Any change in these valuation lives will result in an increase or decrease in amortization expense.

(m) Reflects the $9.0 million of excess cash to the balance sheet less the following (in thousands):

Net cash outflows
Payment of purchase price	$	(580,000	)
Extinguish PCB redeemable interest	(2,825		)
Extinguish PCB cash and debt	(8,949		)
Terminate MTS revolving credit facility	(21,387		)
Debt issuance costs	(20,965		)
Fee for capped call transactions	(7,935		)
Other transaction fees	(6,000		)
Total outflows	$	(648,061	)
Net cash inflows
New debt issuance	$	460,000
Net proceeds from tangible equity units(1)	110,926
Net proceeds from common stock(1)	74,300
Total inflows	$	645,226
Total adjustments	$	(2,835	)

(1) Net of underwriting discounts and offering expenses paid by us: $4.1 million and $5.4 million for the Tangible Equity Units Offering and the Common Stock Offering, respectively, and includes the exercise of the underwriters’ options to purchase additional securities in connection therewith. Net proceeds from the Common Stock Offering based on the public offering price of $42.00 per share.

(n) Reflects an aggregate decrease in short term borrowings from the repayment of our former senior secured revolving credit facility, the short-term borrowings of PCB and the aggregate increase for the short term portion of our New Senior Secured Credit Facilities and debt portion of the 8.75% tangible equity units.

(o) Reflects the long term deferred tax liability of $93.4 million for the recording of amortizable intangible assets and debt issuance costs; the reduction of $0.3 million of contingent consideration that was paid prior the consummation of the Merger.

(p) To record the proceeds from the issuance of common stock of $74.3 million and the equity portion of the 8.75% tangible equity units of $84.5 million, net of issuance costs. In addition, this includes $7.9 million of costs related to the capped call transactions.

(q) Reflects the current deferred tax liability of $4.4 million for the inventory fair market value step up and the initial PCB deferred tax assets for the historical book to tax basis adjustment of $5.8 million.