Attached files
file | filename |
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8-K - FORM 8-K - ROBBINS & MYERS, INC. | l41545e8vk.htm |
EX-99.3 - EX-99.3 - ROBBINS & MYERS, INC. | l41545exv99w3.htm |
EX-23.1 - EX-23.1 - ROBBINS & MYERS, INC. | l41545exv23w1.htm |
EX-99.1 - EX-99.1 - ROBBINS & MYERS, INC. | l41545exv99w1.htm |
EX-99.5 - EX-99.5 - ROBBINS & MYERS, INC. | l41545exv99w5.htm |
EX-99.2 - EX-99.2 - ROBBINS & MYERS, INC. | l41545exv99w2.htm |
Exhibit 99.4
T-3 ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except for share amounts)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except for share amounts)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 6,720 | $ | 11,747 | ||||
Accounts receivable trade, net |
38,159 | 28,450 | ||||||
Inventories |
68,945 | 53,689 | ||||||
Deferred income taxes |
3,660 | 2,485 | ||||||
Prepaids and other current assets |
4,259 | 7,311 | ||||||
Total current assets |
121,743 | 103,682 | ||||||
Property and equipment, net |
49,755 | 49,353 | ||||||
Goodwill, net |
88,871 | 88,779 | ||||||
Other intangible assets, net |
30,260 | 32,091 | ||||||
Other assets |
6,129 | 5,916 | ||||||
Total assets |
$ | 296,758 | $ | 279,821 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable trade |
$ | 17,642 | $ | 17,213 | ||||
Accrued expenses and other |
13,382 | 14,359 | ||||||
Current maturities of long-term debt |
| | ||||||
Total current liabilities |
31,024 | 31,572 | ||||||
Long-term debt, less current maturities |
| | ||||||
Other long-term liabilities |
746 | 1,144 | ||||||
Deferred income taxes |
8,692 | 8,009 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.001 par value, 25,000,000 shares
authorized, no shares issued or outstanding |
| | ||||||
Common stock, $.001 par value, 50,000,000 shares authorized,
13,338,861 and 13,038,143 shares issued and outstanding at
September 30, 2010 and December 31, 2009 |
13 | 13 | ||||||
Warrants, 8,595 and 10,157 issued and outstanding at
September 30, 2010 and December 31, 2009 |
17 | 20 | ||||||
Additional paid-in capital |
188,260 | 181,115 | ||||||
Retained earnings |
66,044 | 56,201 | ||||||
Accumulated other comprehensive income |
1,962 | 1,747 | ||||||
Total stockholders equity |
256,296 | 239,096 | ||||||
Total liabilities and stockholders equity |
$ | 296,758 | $ | 279,821 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
T-3 ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Products |
$ | 41,541 | $ | 39,098 | $ | 117,803 | $ | 141,645 | ||||||||
Services |
12,550 | 8,392 | 29,723 | 24,379 | ||||||||||||
54,091 | 47,490 | 147,526 | 166,024 | |||||||||||||
Cost of revenues: |
||||||||||||||||
Products |
28,501 | 25,819 | 78,663 | 90,226 | ||||||||||||
Services |
7,004 | 5,049 | 17,277 | 14,488 | ||||||||||||
35,505 | 30,868 | 95,940 | 104,714 | |||||||||||||
Gross profit |
18,586 | 16,622 | 51,586 | 61,310 | ||||||||||||
Selling, general and administrative expenses |
13,122 | 12,876 | 38,824 | 44,422 | ||||||||||||
Equity in earnings of unconsolidated affiliates |
437 | 359 | 1,001 | 912 | ||||||||||||
Income from operations |
5,901 | 4,105 | 13,763 | 17,800 | ||||||||||||
Interest expense |
(147 | ) | (159 | ) | (489 | ) | (641 | ) | ||||||||
Other income, net |
121 | 1,234 | 258 | 1,484 | ||||||||||||
Income from continuing operations before provision
for income taxes |
5,875 | 5,180 | 13,532 | 18,643 | ||||||||||||
Provision for income taxes |
1,393 | 1,101 | 3,765 | 5,856 | ||||||||||||
Income from continuing operations |
4,482 | 4,079 | 9,767 | 12,787 | ||||||||||||
Income from discontinued operations, net of tax |
| | 76 | | ||||||||||||
Net income |
$ | 4,482 | $ | 4,079 | $ | 9,843 | $ | 12,787 | ||||||||
Basic earnings per common share: |
||||||||||||||||
Continuing operations |
$ | .34 | $ | .32 | $ | 0.75 | $ | 1.01 | ||||||||
Discontinued operations |
$ | | $ | | $ | 0.01 | $ | | ||||||||
Net income per common share |
$ | .34 | $ | .32 | $ | 0.76 | $ | 1.01 | ||||||||
Diluted earnings per common share: |
||||||||||||||||
Continuing operations |
$ | .34 | $ | .32 | $ | 0.74 | $ | 1.00 | ||||||||
Discontinued operations |
$ | | $ | | $ | 0.01 | $ | | ||||||||
Net income per common share |
$ | .34 | $ | .32 | $ | 0.75 | $ | 1.00 | ||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
13,136 | 12,811 | 13,025 | 12,660 | ||||||||||||
Diluted |
13,255 | 12,887 | 13,181 | 12,758 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
T-3 ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 9,843 | $ | 12,787 | ||||
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |
||||||||
Income from discontinued operations, net of tax |
(76 | ) | | |||||
Bad debt expense |
79 | 361 | ||||||
Depreciation and amortization |
6,870 | 6,484 | ||||||
Amortization of deferred loan costs |
171 | 171 | ||||||
Loss (gain) on sale of assets |
(49 | ) | 18 | |||||
Write-off of property and equipment and inventory, net |
365 | 93 | ||||||
Deferred taxes |
(922 | ) | (1,137 | ) | ||||
Employee stock-based compensation expense |
3,687 | 5,026 | ||||||
Excess tax benefits from stock-based compensation |
(516 | ) | (122 | ) | ||||
Equity in earnings of unconsolidated affiliate |
(1,001 | ) | (912 | ) | ||||
Return on equity investments in unconsolidated affiliates |
795 | | ||||||
Changes in assets and liabilities, net of effect of
acquisitions and dispositions: |
||||||||
Accounts receivable trade |
(9,721 | ) | 17,445 | |||||
Inventories |
(15,674 | ) | 3,176 | |||||
Prepaids and other current assets |
3,049 | 1,497 | ||||||
Other assets |
(351 | ) | 58 | |||||
Accounts payable trade |
446 | (10,325 | ) | |||||
Accrued expenses and other |
(761 | ) | (2,840 | ) | ||||
Net cash provided by (used in) operating activities |
(3,766 | ) | 31,780 | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(5,335 | ) | (4,181 | ) | ||||
Proceeds from sales of property and equipment |
146 | 116 | ||||||
Equity investments in unconsolidated affiliates |
| (2,039 | ) | |||||
Cash paid for acquisitions, net of cash acquired |
| (7,474 | ) | |||||
Net cash used in investing activities |
(5,189 | ) | (13,578 | ) | ||||
Cash flows from financing activities: |
||||||||
Net repayments under swing line credit facility |
| (750 | ) | |||||
Borrowings on revolving credit facility |
| 19,000 | ||||||
Repayments on revolving credit facility |
| (37,000 | ) | |||||
Payments on long-term debt |
| (113 | ) | |||||
Proceeds from exercise of stock options |
3,369 | 2,404 | ||||||
Proceeds from exercise of warrants |
23 | | ||||||
Excess tax benefits from stock-based compensation |
516 | 122 | ||||||
Net cash provided by (used in) financing activities |
3,908 | (16,337 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
20 | 94 | ||||||
Net increase (decrease) in cash and cash equivalents |
(5,027 | ) | 1,959 | |||||
Cash and cash equivalents, beginning of period |
11,747 | 838 | ||||||
Cash and cash equivalents, end of period |
$ | 6,720 | $ | 2,797 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
T-3 ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income |
$ | 4,482 | $ | 4,079 | $ | 9,843 | $ | 12,787 | ||||||||
Other comprehensive income: |
||||||||||||||||
Foreign currency
translation adjustment,
net of tax |
409 | 679 | 215 | 1,351 | ||||||||||||
Comprehensive income |
$ | 4,891 | $ | 4,758 | $ | 10,058 | $ | 14,138 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
T-3 ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
T-3 Energy Services, Inc. has prepared the accompanying unaudited condensed consolidated
financial statements in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included. These financial
statements include the accounts of T-3 Energy Services, Inc. and its wholly owned subsidiaries
(collectively, T-3 or the Company). The Company accounts for its 50% investments in its
unconsolidated Mexico and Dubai affiliates under the equity method of accounting and has eliminated
all significant intercompany balances and transactions in consolidation. Operating results for the
three and nine months ended September 30, 2010 may not be indicative of the results for the full
year ending December 31, 2010. The Company has made certain reclassifications to conform prior
year financial information to the current period presentation. For further information, refer to
the consolidated financial statements and footnotes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2009.
Fair Value of Financial Instruments
The Companys financial instruments consist of cash, accounts receivable, accounts payable and
accrued expenses. The carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses approximate their respective fair values because of the short maturities of those
instruments.
Goodwill and Other Long-Lived Assets
The Company tests for the impairment of goodwill on at least an annual basis and for the
impairment of other long-lived assets upon the occurrence of a triggering event.
The Company has assessed the current market conditions and has concluded, at the present time,
that no triggering events requiring an impairment analysis of goodwill or long-lived assets have
occurred in 2010. The Company will continue to monitor for events or conditions that could change
this assessment.
New Accounting Pronouncements
On January 1, 2009, the Company adopted prospectively a new framework for measuring fair value
for non-financial assets and liabilities for which companies do not measure fair value on a
recurring basis. The application of the new principles to the Companys non-financial assets and
liabilities primarily relate to assets acquired and liabilities assumed in business combinations
and asset impairments, including goodwill and long-lived assets occurring subsequent to the
effective date. The initial application of the new principles did not have a material impact on
the Companys consolidated financial position, results of operations and cash flows, nor does the
Company expect the impact in future periods to be material.
On January 1, 2009, the Company adopted a new accounting principle on accounting for business
combinations. Due to the adoption of these new principles, approximately $125,000 of transaction
costs was expensed during the first quarter of 2009 that, prior to the issuance of these new
principles, would have been capitalized. The effect of this adoption for periods beyond the first
quarter of 2009 will be dependent upon acquisitions at that time and therefore is not currently
estimable.
In May 2009, new accounting principles were issued that establish general standards of
accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. These new principles became effective
for interim and annual periods ending after June 15, 2009 and set forth the period after the
balance sheet date during which management of the Company should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial statements, the
5
circumstances under which the Company should recognize events or transactions occurring after
the balance sheet date in its financial statements and the disclosures that the Company should make
about events or transactions that occurred after the balance sheet date. The Company adopted these
new principles on June 30, 2009. The adoption of these new principles did not have any impact on
the Companys consolidated financial position, results of operations and cash flows.
In October 2009, an update was issued to existing guidance on revenue recognition for
arrangements with multiple deliverables. This update will allow companies to allocate
consideration received for qualified separate deliverables using estimated selling price for both
delivered and undelivered items when vendor-specific objective evidence or third-party evidence is
unavailable. Additional disclosures discussing the nature of multiple element arrangements, the
types of deliverables under the arrangements, the general timing of their delivery, and significant
factors and estimates used to determine estimated selling prices are required. The Company will
adopt this update for new revenue arrangements entered into or materially modified beginning
January 1, 2011. The Company does not expect the provisions of this update to have a material
impact on the Companys consolidated financial position, results of operations and cash flows.
2. BUSINESS COMBINATIONS AND DISPOSITIONS
Pending
Merger with Robbins & Myers, Inc.
On October 6, 2010, the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) with Robbins & Myers, Inc., an Ohio corporation (R&M), Triple Merger I, Inc., a
Delaware corporation and wholly-owned subsidiary of R&M (Merger Sub), and Triple Merger II, Inc.,
a Delaware corporation and wholly-owned subsidiary of R&M (Second Merger Sub). The Merger
Agreement provides that, upon the terms and subject to the conditions set forth in the Merger
Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the
surviving corporation (the First Merger). If required pursuant to the Merger Agreement,
immediately following the First Merger, R&M will cause the Company to merge with and into Second
Merger Sub, with Second Merger Sub continuing as the surviving corporation and a wholly-owned
subsidiary of R&M (such merger, if necessary, and the First Merger, together, the Merger).
Upon the terms and subject to the conditions of the Merger Agreement, which has been
unanimously approved and adopted by the boards of directors of both R&M and the Company, T-3
stockholders will receive, for each share of the Companys common stock owned, (1) 0.894 common
shares, without par value, of R&M and (2) $7.95 in cash without interest. Based on the closing
price of the R&M common shares (as reported on The New York Stock Exchange) of $26.68 per share on
October 5, 2010, the implied exchange ratio of consideration is 1.192 common shares of R&M for each
share of T-3 common stock and the value of the merger consideration is $31.80 per share of the
Companys common stock, for total aggregate consideration of approximately $422 million, net of
cash assumed. Under the Merger Agreement, the Companys stockholders are estimated to receive, in
aggregate, approximately 12.0 million R&M common shares and $106.0 million in cash. Upon
completion of the Merger, the Companys current stockholders would own approximately 27% of the
combined company.
The Merger Agreement contains certain termination rights for both R&M and the Company. Upon
termination of the Merger Agreement under specified circumstances, R&M may be required to pay the
Company
a termination fee of $24 million and the Company may be required to pay R&M a termination fee
of $12 million.
The consummation of the Merger is subject to (1) R&Ms shareholders approving the issuance of
R&M shares in the Merger, (2) T-3s stockholders adopting the Merger Agreement, (3) the expiration
or termination of the Hart-Scott-Rodino Antitrust Improvements Act waiting period and (4) other
customary closing conditions. The Merger is not conditioned on financing. The Merger is intended to
qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
The Company currently expects to complete the Merger during the first quarter of 2011, if not
earlier. Please read Item 1A. Risk Factors Failure to complete the merger, or a significant
delay in the completion of the merger, could negatively impact our stock price and future business
and financial results.
For additional information about the Merger, please see the Companys Current Report on Form
8-K, filed with the SEC on October 6, 2010, and the Merger Agreement, which is attached as Exhibit
2.1 thereto.
Business Combinations
On March 4, 2009, the Company purchased the assets of the surface wellhead business of Azura
Energy Systems Surface, Inc. (Azura) for $8.1 million in cash (subject to a customary working
capital adjustment) plus the assumption of accounts payable and other liabilities. During the
third quarter of 2009, the Company finalized the working capital adjustment and subsequently
adjusted the purchase price to $7.4 million. This business, which has been consolidated with the
Companys current wellhead business, provides additional geographic locations in key markets such
as the Marcellus and Barnett Shales. The Company funded the purchase of these assets from its
working capital and the use of borrowings under its senior credit facility.
On May 29, 2008, the Company exercised its option to purchase certain fixed assets and
inventory of HP&T Products, Inc. (HP&T) in India at their estimated fair value of $0.4 million.
During the first quarter of 2009, the Company made a further payment of $0.1 million based on the
final fair market valuation of the fixed assets and inventory. The Company funded the purchase of
these assets from the Companys working capital and the use of borrowings under its senior credit
facility.
These acquisitions were accounted for using the purchase method of accounting. Results of
operations for the above acquisitions are included in the accompanying condensed consolidated
financial statements since the dates of acquisition. The Company allocated the purchase prices to
the net assets acquired based upon their estimated fair market values at the dates of acquisition.
The Company considers the balances included in the consolidated balance sheets at December 31, 2009
and September 30, 2010 related to the HP&T acquisition to be final. The Company based the balances
included in the consolidated balance sheet at December 31, 2009 related to the Azura acquisition on
preliminary information and, at September 30, 2010, the Company considers these balances to be
final. These acquisitions are not material to the Companys condensed consolidated financial
statements, and therefore the Company does not present a preliminary purchase price allocation and
pro forma information.
The Company had no acquisitions for the nine months ended September 30, 2010. The following
schedule summarizes investing activities related to the Companys acquisitions presented in the
condensed consolidated
statements of cash flows for the nine months ended September 30, 2009 (dollars in thousands):
Fair value of tangible and intangible assets,
net of cash acquired |
$ | 8,865 | ||
Goodwill recorded |
| |||
Total liabilities assumed |
(1,391 | ) | ||
Common stock issued |
| |||
Cash paid for acquisitions, net of cash acquired
|
$ | 7,474 | ||
6
3. INVENTORIES
Inventories consist of the following (dollars in thousands):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Raw materials |
$ | 7,047 | $ | 5,304 | ||||
Work in process |
14,640 | 11,891 | ||||||
Finished goods and component parts |
47,258 | 36,494 | ||||||
$ | 68,945 | $ | 53,689 | |||||
4. DEBT
The Companys senior credit facility provides for a $180 million revolving line of credit,
maturing October 26, 2012, that can be increased by up to $70 million (not to exceed a total
commitment of $250 million) with the approval of the senior lenders. The senior credit facility
consists of a U.S. revolving credit facility that includes a swing line subfacility and a letter of
credit subfacility up to $25 million and $50 million. The Companys senior credit facility also
provides for a separate Canadian revolving credit facility, which includes a swing line subfacility
of up to U.S. $5 million and a letter of credit subfacility of up to U.S. $5 million. The
revolving credit facility matures on the same date as the senior credit facility, and is subject to
the same covenants and restrictions. As of September 30, 2010, the Company had no outstanding
borrowings under its senior credit facility and Canadian revolving credit facility. However, at
September 30, 2010, the Company used the senior credit facility for letters of credit of
approximately $0.6 million that mature at various dates through May 2011. The senior credit
facility provides, among other covenants and restrictions, that the Company comply with the
following financial covenants: a minimum interest coverage ratio of 3.0 to 1.0, a maximum leverage
ratio of 3.0 to 1.0 and a limitation on capital expenditures of no more than 75% of current year
EBITDA (as defined under the senior credit facility). As of September 30, 2010, the Company was in
compliance with the covenants under the senior credit facility, with an interest coverage ratio of
127.2 to 1.0, a leverage ratio of 0.0 to 1.0, and year-to-date capital expenditures of $5.3
million, which represents 22% of current year EBITDA.
As of September 30, 2010, the Companys availability under its senior credit facility was
$100.1 million. The Companys availability in future periods is limited to the lesser of (a) three
times the Companys EBITDA on a trailing-twelve-months basis, which totals $100.7 million at
September 30, 2010, less the Companys outstanding borrowings, standby letters of credits and other
debt (as each of these terms are defined under the Companys senior credit facility) and (b) the
amount of additional borrowings that would result in interest payments on all of the Companys debt
that exceed one third of the Companys EBITDA on a trailing-twelve-months basis. See Note 7 to the
Companys consolidated financial statements included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2009 for additional information related to the Companys long-term
debt.
5. EARNINGS PER SHARE
The Company computes basic net income per common share by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net income per common share
is the same as basic, but the computation also includes dilutive stock options, restricted stock
and warrants using the treasury stock method. The following tables reconcile the numerators and
denominators of the basic and diluted per common share computations for net income for the three
and nine months ended September 30, 2010 and 2009, as follows (in thousands except per share data):
Three Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Numerator: |
||||||||
Income from continuing operations |
$ | 4,482 | $ | 4,079 | ||||
Income from discontinued operations |
| | ||||||
Net income |
$ | 4,482 | $ | 4,079 | ||||
7
Three Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Denominator: |
||||||||
Weighted average common shares outstanding basic |
13,136 | 12,811 | ||||||
Shares for dilutive stock options, restricted stock and warrants |
119 | 76 | ||||||
Weighted average common shares outstanding diluted |
13,255 | 12,887 | ||||||
Basic earnings per common share: |
||||||||
Continuing operations |
$ | .34 | $ | .32 | ||||
Discontinued operations |
| | ||||||
Net income per common share |
$ | .34 | $ | .32 | ||||
Diluted earnings per common share: |
||||||||
Continuing operations |
$ | .34 | $ | .32 | ||||
Discontinued operations |
| | ||||||
Net income per common share |
$ | .34 | $ | .32 | ||||
For the three months ended September 30, 2010 and 2009, there were 612,000 and 846,000 options
that were not included in the computation of diluted earnings per share because their inclusion
would have been anti-dilutive.
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Numerator: |
||||||||
Income from continuing operations |
$ | 9,767 | $ | 12,787 | ||||
Income from discontinued operations |
76 | | ||||||
Net income |
$ | 9,843 | $ | 12,787 | ||||
Denominator: |
||||||||
Weighted average common shares outstanding basic |
13,025 | 12,660 | ||||||
Shares for dilutive stock options, restricted stock and warrants |
156 | 98 | ||||||
Weighted average common shares outstanding diluted |
13,181 | 12,758 | ||||||
Basic earnings per common share: |
||||||||
Continuing operations |
$ | 0.75 | $ | 1.01 | ||||
Discontinued operations |
0.01 | | ||||||
Net income per common share |
$ | 0.76 | $ | 1.01 | ||||
Diluted earnings per common share: |
||||||||
Continuing operations |
$ | 0.74 | $ | 1.00 | ||||
Discontinued operations |
0.01 | | ||||||
Net income per common share |
$ | 0.75 | $ | 1.00 | ||||
For the nine months ended September 30, 2010 and 2009, there were 557,000 and 974,000 options
that were not included in the computation of diluted earnings per share because their inclusion
would have been anti-dilutive.
6. SEGMENT INFORMATION
The Companys determination of reportable segments considers the strategic operating units
under which the Company sells various types of products and services to various customers.
Financial information for purchase transactions is included in the segment disclosures only for
periods subsequent to the dates of acquisition.
The pressure control segment manufactures, remanufactures and repairs high pressure, severe
service products including valves, chokes, actuators, blowout preventers, accumulators, rubber
goods, manifolds and wellhead equipment.
8
The accounting policies of the segment are the same as those of the Company. The Company
evaluates
performance based on income from operations excluding certain corporate costs not allocated to the
segment. Substantially all revenues are from domestic sources and Canada, and the Company holds
substantially all assets in the United States, Canada and India.
(dollars in thousands) | ||||||||||||
Pressure | ||||||||||||
Control | Corporate | Consolidated | ||||||||||
Three months ended September 30: |
||||||||||||
2010 |
||||||||||||
Revenues |
$ | 54,091 | $ | | $ | 54,091 | ||||||
Depreciation and amortization |
2,103 | 232 | 2,335 | |||||||||
Income (loss) from operations |
9,847 | (3,946 | ) | 5,901 | ||||||||
Capital expenditures |
2,112 | 251 | 2,363 | |||||||||
2009 |
||||||||||||
Revenues |
$ | 47,490 | $ | | $ | 47,490 | ||||||
Depreciation and amortization |
2,019 | 238 | 2,257 | |||||||||
Income (loss) from operations |
8,407 | (4,302 | ) | 4,105 | ||||||||
Capital expenditures |
1,230 | 19 | 1,249 | |||||||||
Pressure | ||||||||||||
Control | Corporate | Consolidated | ||||||||||
Nine months ended September 30: |
||||||||||||
2010 |
||||||||||||
Revenues |
$ | 147,526 | $ | | $ | 147,526 | ||||||
Depreciation and amortization |
6,168 | 702 | 6,870 | |||||||||
Income (loss) from operations |
25,207 | (11,444 | ) | 13,763 | ||||||||
Capital expenditures |
4,774 | 561 | 5,335 | |||||||||
2009 |
||||||||||||
Revenues |
$ | 166,024 | $ | | $ | 166,024 | ||||||
Depreciation and amortization |
5,806 | 678 | 6,484 | |||||||||
Income (loss) from operations |
35,132 | (17,332 | ) | 17,800 | ||||||||
Capital expenditures |
3,629 | 552 | 4,181 |
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the ordinary course of business.
The Companys environmental remediation and compliance costs have not been material during any
of the periods presented. As part of the sale of a business in 2001, the Company agreed to
indemnify the buyers for certain environmental cleanup and monitoring activities associated with a
former manufacturing site. The Company and the buyers have engaged a licensed engineering firm to
conduct a post-closure corrective action subsurface investigation on the property and Phase II and
III investigations. During 2009, the Company recorded approximately $380,000 for incurred and
estimated future Phase III investigation costs to determine the location, nature and extent of any
contamination and potential future remediation costs based on the preliminary results of the Phase
III investigation. During the nine months ended September 30, 2010, the Company recorded an
additional $92,000 of costs related to the Phase III investigation. The Company anticipates the
environmental monitoring activities, for which the Company bears partial liability, to continue at
least through the year 2024. While no agency-approved final remediation plan has been made of the
Companys liability for remediation costs with respect to the site, management does not expect that
its ultimate remediation costs will have a material impact on its financial position, results of
operations or cash flows.
The Company has been identified as a potentially responsible party with respect to the Lake
Calumet Cluster site near Chicago, Illinois, which has been designated for cleanup under CERCLA and
Illinois state law. Management believes that the Companys involvement at this site was minimal.
While no agency-approved final allocation has been made of the Companys liability with respect to
the Lake Calumet Cluster site, management does not expect that its ultimate share of remediation
costs will have a material impact on its financial position, results of operations or cash flows.
In July 2003, a lawsuit was filed against the Company in the U.S. District Court, Eastern
District of Louisiana as Chevron, U.S.A. v. Aker Maritime, Inc. The lawsuit alleged that a wholly
owned subsidiary of the Company, the assets and liabilities of which were sold in 2004, failed to
deliver the proper bolts and/or sold defective bolts to the plaintiffs contractor to be used in
connection with a drilling and production platform in the
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Gulf of Mexico. The plaintiff claimed that the bolts failed and were replaced at a cost of
approximately $3.0 million. The complaint named the plaintiffs contractor and seven of its
suppliers and subcontractors (including the Companys subsidiary) as the defendants and alleged
negligence on the part of all defendants. The lawsuit was called to trial during June 2007 and
resulted in a jury finding of negligence against the Company and three other defendants. The jury
awarded the plaintiffs damages in the amount of $2.9 million, of which the Company estimates its
share to be $1.0 million. The Company appealed this decision, and on April 27, 2010 the Court of
Appeals issued an opinion that affirmed the judgment for damages but reversed the judgment awarding
attorney fees to Chevron. Additionally, the Court of Appeals remanded the partiescontract claims
to the District Court for further consideration. The Company accrued approximately $1.1 million,
net of tax, for its share of the damages and attorney fees, court costs and interest, as a loss
from discontinued operations in the consolidated statement of operations during the year ended
December 31, 2007. During the nine months ended September 30, 2010, the Company reversed $0.1
million, net of tax, of this accrual to reflect the reversal of the judgment awarding attorneys
fees to Chevron.
At September 30, 2010, the Company had $0.6 million of letters of credit outstanding.
8. STOCKHOLDERS EQUITY
Common Stock
The Company issued 300,718 shares of common stock during the nine months ended September 30,
2010 in connection with the exercise of 204,156 stock options by option holders under the Companys
2002 Stock Incentive Plan, the exercise of 1,562 warrants and the granting of 103,500 shares of
restricted stock to Company employees and members of the Companys Board of Directors, less the
forfeiture of 8,500 shares of restricted stock granted in previous periods.
Warrants
There were 1,562 warrants exercised during the nine months ended September 30, 2010. At
September 30, 2010, warrants to acquire 8,595 shares of common stock at $12.80 per share remain
outstanding. Each of these warrants expire on December 17, 2011.
Additional Paid-In Capital
During the nine months ended September 30, 2010, additional paid-in capital increased as a
result of the net employee stock-based compensation cost recorded, stock options exercised by
employees under the Companys 2002 Stock Incentive Plan (as discussed above), warrant exercises (as
discussed above) and the excess tax benefits from the stock options exercised and vesting of
restricted stock. Partially offsetting these increases to additional paid-in capital is a decrease
principally related to the reversal of deferred tax assets related to vested stock options that
expired unexercised.
9. STOCK-BASED COMPENSATION
The T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended (the Plan) provides
officers, employees and non-employee directors equity-based incentive awards, including stock
options and restricted stock. The Plan, after an amendment approved by the shareholders on June
14, 2010, provides for the issuance of up to 3,573,000 shares of common stock thereunder, and will
remain in effect until December 31, 2011, unless terminated earlier. Stock options granted reduce
the number of available shares under the Plan on a one share for one share basis, whereas
restricted stock reduce the number of available shares under the Plan on a 1.72 shares for one
share basis. As of September 30, 2010, the Company had 1,118,170 equivalent shares available for
issuance as stock options or 762,711 equivalent shares available for issuance as restricted stock
in connection with the Plan. Outstanding stock options and unvested restricted stock awards under
the Plan as of September 30, 2010 were 918,323 options and 200,400 shares.
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Stock Option Awards
Stock options under the Companys Plan generally expire 7 to 10 years from the grant date and
vest over three years from the grant date. The Company amortizes to selling, general and
administrative expense, on a straight-line basis over the vesting period, the fair value of the
options. The Company has recorded an estimate for forfeitures of awards of stock options. The
Company will adjust this estimate as actual forfeitures differ from the estimate. The Company
estimates the fair value of each stock option on the grant date using the Black-Scholes
option-pricing model, using assumptions made for the expected volatility, expected term and the
risk-free interest rate. The Company estimates the expected volatility based on historical and
implied volatilities of the Companys stock and historical and implied volatilities of comparable
companies. The Company bases the expected term on historical employee exercises of options. The
Company bases the risk-free interest rate upon the U.S. Treasury yield curve in effect at the time
of grant. The Company does not expect to pay any dividends on its common stock. Assumptions used
for stock options granted during 2010 and 2009 were as follows:
Nine Months Ended | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Expected volatility |
57.00 | % | 57.96 | % | ||||
Risk-free interest rate |
1.84 | % | 2.33 | % | ||||
Expected term (in years) |
4.5 | 4.5 |
The Company granted 129,000 and 207,500 options during the nine months ended September 30,
2010 and 2009. The weighted average grant date fair value of options granted during the nine
months ended September 30, 2010 and 2009 was $14.80 and $7.65. The Company recognized employee
stock-based compensation expense related to stock options of $2,739,000 and $4,485,000 during the
nine months ended September 30, 2010 and 2009. As further discussed in Note 11 of the Companys
Quarterly Report on Form 10-Q for the period ended March 31, 2009, the stock-based compensation
expense related to stock options for the nine months ended September 30, 2009 includes a charge of
$651,000 related to the immediate vesting of 50,000 unvested stock options held by the Companys
former President, Chief Executive Officer and Chairman of the Board, pursuant to the terms of his
separation agreement.
On June 4, 2009, the Company converted phantom stock options awarded to Steven W. Krablin,
representing the value of the right to acquire 100,000 shares of the Companys stock, to 100,000
stock options granted pursuant to the Plan. The Company originally awarded these phantom stock
options on March 23, 2009, in connection with Mr. Krablins appointment as President, Chief
Executive Officer and Chairman of the Board, and they had a strike price of $14.85, which was equal
to the fair market value of the Companys common stock on March 23, 2009. The terms and conditions
of the stock options are unchanged from the terms and conditions of the phantom stock options. On
March 23, 2010, 50,000 of these stock options vested, and the remaining 50,000 stock options will
vest on March 23, 2011, conditioned on Mr. Krablins continued employment with the Company. For
further discussion of Mr. Krablins appointment, please refer to Note 16 of the Companys Annual
Report on Form 10-K for the year ended December 31, 2009.
Restricted Stock Awards
During the nine months ended September 30, 2010, the Company granted 93,500 shares of
restricted stock to certain employees of the Company and 10,000 shares of restricted stock to
non-executive members of the Board of Directors. The fair value of these restricted shares was
determined based on the closing price of the Companys stock on the grant date. The shares granted
to employees will vest annually in one-third increments beginning in June 2012, and the shares
granted to the Board members will vest on June 14, 2011.
On June 4, 2009, the Company converted a phantom 10,000 share restricted stock grant to Mr.
Krablin to a grant of 10,000 shares of restricted stock granted pursuant to the Plan. The Company
originally awarded this phantom restricted stock grant on March 23, 2009, in connection with Mr.
Krablins appointment with the Company. The Company determined the fair value of these restricted
shares based on the closing price of the Companys stock on June 4, 2009. On March 23, 2010, 5,000
shares of this restricted stock grant vested, and the remaining 5,000 shares will vest on March 23,
2011, conditioned on Mr. Krablins continued employment with the Company.
11
Additionally, on June 4, 2009, the Company granted 102,000 shares of restricted stock to
certain employees of the Company and 16,000 shares of restricted stock to non-executive members of
the Board of Directors. The Company determined the fair value of these restricted shares based on
the closing price of the Companys stock on the grant date. The shares granted to employees will
vest annually in one-third increments beginning on June 4, 2011, and the shares granted to the
Board members vested on June 4, 2010.
The Company recognized employee stock-based compensation expense related to restricted stock
awards of $948,000 and $541,000 during the nine months ended September 30, 2010 and 2009.
10. INCOME TAXES
The Companys effective tax rate was 23.7% for the three months ended September 30, 2010
compared to 21.3% for the three months ended September 30, 2009. The tax rate in 2010 was lower
than the statutory rate primarily due to income derived in lower-taxed foreign jurisdictions, tax
benefits realized, as a result of the expiration of the statute of limitations, relating to tax
positions taken in prior years and adjustments related to the filing of tax returns. The tax rate
in 2010 was higher than the rate in 2009 primarily due to a decrease in tax benefits realized, as a
result of the expiration of the statute of limitations, relating to tax positions taken in prior
years partially offset by adjustments related to the filing of tax returns.
The Companys effective tax rate was 27.8% for the nine months ended September 30, 2010
compared to 31.4% for the nine months ended September 30, 2009. The tax rate in 2010 was lower
than the statutory rate as well as the rate in 2009 primarily due to income derived in lower-taxed
foreign jurisdictions, an increase in state tax credits, an increase in tax benefits realized, as
a result of the expiration of the statute of limitations and the settlement of tax audits, relating
to tax positions taken in prior years, and adjustments related to the filing of tax returns.
11. OTHER
Subsequent Events
The Companys management has evaluated subsequent events for events or transactions that have
occurred after September 30, 2010 through the date of the filing of this Form 10-Q.
Other than disclosed above, no events or transactions have occurred during this period that
the Company believes should be recognized or disclosed in the September 30, 2010 financial
statements.
12