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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

x               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 29, 2014

 

or

 

o                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                

 

Commission File No. 001-16501

 


 

Global Power Equipment Group Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

73-1541378

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

400 E. Las Colinas Blvd., Suite 400

Irving, TX 75039

(Address of principal executive offices) (Zip code)

 

(214) 574-2700

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

 

Accelerated filer

x

 

 

 

 

 

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  o    No  x

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  o

 

As of July 23, 2014 there were 17,122,735 shares of common stock of Global Power Equipment Group Inc. outstanding.

 

 

 



Table of Contents

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

Form 10-Q

 

For the quarter ended June 30, 2014

 

Table of Contents

 

Part I—FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013

3

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)

5

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2014 (unaudited)

6

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)

7

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

36

 

 

Item 4. Controls and Procedures

36

 

 

Part II—OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

37

 

 

Item 1A. Risk Factors

37

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

Item 3. Defaults Upon Senior Securities

37

 

 

Item 4. Mine Safety Disclosures

37

 

 

Item 5. Other Information

37

 

 

Item 6. Exhibits

38

 

 

SIGNATURES

39

 



Table of Contents

 

Part I—FINANCIAL INFORMATION

 

Item 1.                                  Financial Statements.

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

ASSETS

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 $

15,559

 

 

 $

13,942

 

Restricted cash

 

71

 

 

120

 

Accounts receivable, net of allowance of $573 and $557, respectively

 

73,761

 

 

93,484

 

Inventories

 

8,456

 

 

6,476

 

Costs and estimated earnings in excess of billings

 

61,495

 

 

41,804

 

Deferred tax assets

 

3,301

 

 

3,301

 

Other current assets

 

8,475

 

 

8,215

 

 

 

 

 

 

 

 

Total current assets

 

171,118

 

 

167,342

 

Property, plant and equipment, net

 

19,896

 

 

20,644

 

Goodwill

 

106,884

 

 

109,930

 

Intangible assets, net

 

61,833

 

 

60,594

 

Deferred tax assets

 

7,471

 

 

7,630

 

Other long-term assets

 

980

 

 

1,258

 

 

 

 

 

 

 

 

Total assets

 

 $

368,182

 

 

 $

367,398

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 $

17,233

 

 

 $

19,664

 

Accrued compensation and benefits

 

16,198

 

 

14,798

 

Billings in excess of costs and estimated earnings

 

11,323

 

 

12,757

 

Accrued warranties

 

1,683

 

 

3,261

 

Other current liabilities

 

6,852

 

 

8,483

 

 

 

 

 

 

 

 

Total current liabilities

 

53,289

 

 

58,963

 

Long-term debt

 

31,000

 

 

23,000

 

Other long-term liabilities

 

5,950

 

 

5,844

 

 

 

 

 

 

 

 

Total liabilities

 

90,239

 

 

87,807

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 170,000,000 shares authorized and 18,386,443 and 18,294,998 shares issued, respectively, and 17,071,780 and 17,059,943 shares outstanding, respectively

 

184

 

 

183

 

Paid-in capital

 

70,228

 

 

69,049

 

Accumulated other comprehensive income

 

3,039

 

 

3,473

 

Retained earnings

 

204,504

 

 

206,898

 

Treasury stock, at par (1,263,708 and 1,235,055 common shares, respectively)

 

(12

)

 

(12

)

 

 

 

 

 

 

 

Total stockholders’ equity

 

277,943

 

 

279,591

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

 $

368,182

 

 

 $

367,398

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

3



Table of Contents

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues

 

(Unaudited)

 

(Unaudited)

 

Product Solutions

 

 $

59,171

 

 

 $

35,930

 

 

 $

98,102

 

 

 $

 74,824

 

 

Nuclear Services

 

41,430

 

 

66,435

 

 

98,492

 

 

131,448

 

 

Energy Services 

 

14,138

 

 

13,600

 

 

23,027

 

 

26,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Consolidated

 

114,739

 

 

115,965

 

 

219,621

 

 

232,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Solutions

 

47,588

 

 

27,368

 

 

76,648

 

 

60,305

 

 

Nuclear Services

 

35,686

 

 

58,070

 

 

85,727

 

 

114,597

 

 

Energy Services 

 

11,203

 

 

11,724

 

 

18,506

 

 

23,004

 

 

 Consolidated

 

94,477

 

 

97,162

 

 

180,881

 

 

197,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross profit 

 

20,262

 

 

18,803

 

 

38,740

 

 

34,769

 

 

 Selling and marketing expenses 

 

2,474

 

 

2,462

 

 

4,297

 

 

4,685

 

 

 General and administrative expenses 

 

14,179

 

 

12,812

 

 

27,933

 

 

27,366

 

 

 Depreciation and amortization expense

 

2,141

 

 

1,559

 

 

4,455

 

 

2,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income 

 

1,468

 

 

1,970

 

 

2,055

 

 

86

 

 

 Interest expense, net

 

340

 

 

190

 

 

753

 

 

276

 

 

 Other expense (income), net

 

(94

)

 

154

 

 

176

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income tax

 

1,222

 

 

1,626

 

 

1,126

 

 

(194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Income tax expense

 

358

 

 

884

 

 

334

 

 

265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

864

 

 

742

 

 

792

 

 

(459

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

(90

)

 

(1

)

 

(97

)

 

(41

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 $

774

 

 

 $

741

 

 

 $

695

 

 

 $

 (500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations 

 

 $

0.06

 

 

 $

0.04

 

 

 $

0.05

 

 

$

 (0.03

)

 

Loss from discontinued operations 

 

(0.01

)

 

—   

 

 

(0.01

)

 

—   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share - basic 

 

 $

0.05

 

 

 $

0.04

 

 

 $

0.04

 

 

$

 (0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted average number of shares of common stock outstanding - basic 

 

17,070,615

 

 

16,956,925

 

 

17,033,816

 

 

16,865,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations 

 

 $

0.06

 

 

 $

0.04

 

 

 $

0.05

 

 

 $

 (0.03

)

 

Loss from discontinued operations 

 

(0.01

)

 

—   

 

 

(0.01

)

 

—   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share - diluted 

 

 $

0.05

 

 

 $

0.04

 

 

 $

0.04

 

 

 $

 (0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted average number of shares of common stock outstanding - diluted 

 

17,075,189

 

 

16,967,356

 

 

17,040,130

 

 

16,865,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash dividends per share

 

 $

0.09

 

 

 $

0.09

 

 

 $

0.18

 

 

 $

 0.18

 

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

4



Table of Contents

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(Unaudited)

 

(Unaudited)

 

Net income (loss)

 

 $

774

 

 

 $

741

 

 

 $

695

 

 

 $

(500

)

 

Foreign currency translation adjustment

 

(346

)

 

825

 

 

(434

)

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 $

428

 

 

 $

1,566

 

 

 $

261

 

 

 $

(481

)

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

5



Table of Contents

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 Per Share

 

Paid-in

 

Comprehensive

 

Retained

 

Treasury Shares

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Income

 

Earnings

 

Shares

 

Amount

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2013

 

18,294,998

 

 

$

184

 

 

$

69,050

 

 

$

3,473

 

 

$

206,897

 

 

(1,235,055

)

 

$

(12

)

 

$

279,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

91,445

 

 

 

 

 

1,178

 

 

 

 

 

 

(28,653

)

 

 

 

1,178

 

Dividends declared

 

 

 

 

 

 

 

 

 

(3,088

)

 

 

 

 

 

(3,088

)

Net income

 

 

 

 

 

 

 

 

 

695

 

 

 

 

 

 

695

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

(434

)

 

 

 

 

 

 

 

(434

)

Balance, June 30, 2014

 

18,386,443

 

 

$

184

 

 

$

70,228

 

 

$

3,039

 

 

$

204,504

 

 

(1,263,708

)

 

$

(12

)

 

$

277,943

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

6



Table of Contents

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

 

 

 

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

Operating activities:

 

(Unaudited)

 

Net income (loss) 

 

 $

695

 

 

 $

(500

)

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Deferred income tax benefit provision

 

(970

)

 

(974

)

 

Depreciation and amortization on plant, property and equipment and intangible assets

 

5,044

 

 

3,281

 

 

Amortization on deferred financing costs

 

113

 

 

91

 

 

Stock-based compensation 

 

1,744

 

 

2,504

 

 

Changes in operating assets and liabilities, net of businesses acquired and sold

 

(7,743

)

 

23,870

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities 

 

(1,117

)

 

28,272

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

—   

 

 

(32,970

)

 

Net transfers of restricted cash 

 

49

 

 

—   

 

 

Proceeds from sale of equipment 

 

—   

 

 

66

 

 

Purchase of property, plant and equipment 

 

(1,236

)

 

(2,489

)

 

 

 

 

 

 

 

 

 

Net cash used in investing activities 

 

(1,187

)

 

(35,393

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Repurchase of stock-based awards for payment of statutory taxes due on

 

 

 

 

 

 

 

stock-based compensation

 

(566

)

 

(1,531

)

 

Debt issuance costs

 

9

 

 

—   

 

 

Dividends paid

 

(3,088

)

 

(3,141

)

 

Proceeds from long-term debt

 

30,000

 

 

30,000

 

 

Payments of long-term debt 

 

(22,000

)

 

(10,000

)

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities 

 

4,355

 

 

15,328

 

 

Effect of exchange rate changes on cash 

 

(434

)

 

(31

)

 

Net change in cash and cash equivalents 

 

1,617

 

 

8,176

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

13,942

 

 

31,951

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 $

15,559

 

 

 $

40,127

 

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

7



Table of Contents

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1—BUSINESS AND ORGANIZATION

Global Power Equipment Group Inc. (“Global Power,” “we,” “us,” “our,” or “the Company”) is a comprehensive provider of customer-engineered equipment, and modification and maintenance services for customers in the power generation, oil & gas, natural gas, infrastructure and process and industrial markets.  Our customers are in and outside the United States (“U.S.”) in both developed and emerging economies.

We design, engineer and manufacture a comprehensive range of gas and steam turbine auxiliary products, control houses and generator enclosures primarily used to enhance the efficiency and facilitate the operation of gas turbine power plants, sub-base and stand-alone tanks meeting UL listings UL142, UL2085 and ULC-S 601 and for other industrial pipeline compression stations, electric power transmissions and distribution systems.  With a strong competitive position in our product lines due to our technology, skilled work force and experience, we benefit from a large installed base of equipment throughout the world which provides us strong brand recognition and value.

We provide on-site specialty modification and maintenance services, outage management, facility upgrade services, specialty repair, brazed aluminum heat exchanger repair and maintenance, and other industrial and safety services to nuclear, fossil-fuel, industrial gas, and liquefied natural gas, petrochemical and other industrial operations in the U.S. We have the capability to combine our services and equipment resources to offer turn-key solutions for aftermarket repair applications for the North American gas turbine power generation, energy infrastructure, and process and cogeneration markets.

Our operations are grouped into three reportable segments:  Product Solutions, Nuclear Services and Energy Services.  Our Product Solutions segment is comprised of two primary product categories:  Electrical Solutions and Auxiliary Products.

·                  Our Electrical Solutions product category is comprised of Koontz-Wagner Custom Controls Holdings, LLC (“Koontz-Wagner”), including, following its merger with and into Koontz-Wagner (the “Merger”), the former operations of IBI, LLC (“IBI Power” or “IBI”). This product category focuses on manufacturing and integrating engineered packaged control house solutions and manufacturing custom power packaging and integration solutions, including control house systems, generator enclosures, and industrial tanks, for the energy, oil & gas and electrical industries.

·                  Our Auxiliary Products category is comprised of Braden Manufacturing, L.L.C. (“Braden”) which engineers and manufactures filter houses, inlet and exhaust systems, diverter dampers, selective catalytic emission reduction systems (commonly referred to as “SCR”) used in the power generation market.  Consolidated Fabricators Inc. (“CFI”), which engineers and manufactures complex equipment to support gas turbines and other power generation equipment, and, TOG Manufacturing Company, Inc. (“TOG”), which manufactures highly-engineered precision components for critical applications across a variety of industries including:  Power Generation, U.S. Defense Department and Off-Shore Drilling.

·                  Our Nuclear Services segment is comprised of the operations of Williams Plant Services, LLC and Williams Specialty Services, LLC (together, the “Williams business”).  Our Nuclear Services segment is focused on the nuclear maintenance and specialty services business.

·                  Our Energy Services segment is comprised Hetsco, Inc. (“Hetsco”) and the operations of Construction & Maintenance Professionals, LLC and Williams Industrial Services, LLC.  Our Energy Services segment is focused on providing mission critical brazed aluminum heat exchanger repair, maintenance, and safety services to the industrial gas, liquefied natural gas and petrochemical industries and maintenance and specialty services to the industrial and fossil business.

 

Effective as of January 1, 2013, our Board of Directors decided to change from a traditional month-end calendar close cycle to a 4-4-5 calendar close methodology during interim periods. Our fiscal year will continue to end on December 31. Under this methodology, each interim period is comprised of 13 weeks, which includes two 4-week months and one 5-week month, and begins on Monday and ends on Sunday. The 4-4-5 close methodology will change the accounting periods to month-end dates that may be different than the traditional last day of the standard month end. We will label our quarterly information using a calendar convention, that is, first quarter will be labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. This change in methodology aligns our financial calendar to our payroll cycle, simplifying our close process. The effects of this practice are modest and only exist within a reporting year. The reporting periods and applicable reports for 2014 are:

 

8



Table of Contents

 

Fiscal Period

 

Reporting Period

 

Report to be Filed

First quarter of fiscal 2014

 

January 1, 2014 to March 30, 2014

 

Quarterly Report on Form 10-Q

Second quarter of fiscal 2014

 

March 31, 2014 to June 29, 2014

 

Quarterly Report on Form 10-Q

Third quarter of fiscal 2014

 

June 30, 2014 to September 28, 2014

 

Quarterly Report on Form 10-Q

Fourth quarter of fiscal 2014

 

September 29, 2014 to December 31, 2014

 

Annual Report on Form 10-K

 

Acquisitions: During 2013, we completed the following acquisitions:

Business Acquired

 

Date of Closing

 

Net Assets 
Acquired 
(in millions)

 

Primary Form of 
Consideration

IBI, LLC

 

July 9, 2013

 

$

18.6

 

Cash

Hetsco Holdings, Inc.

 

April 30, 2013

 

$

32.4

 

Cash

 

Each of the acquired businesses has been included in our results of operations since the date of closing. Due to the timing of these acquisitions and related operating results, our 2014 and 2013 operating results are not entirely comparable. See Note 3—Acquisitions.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation: These unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the U.S.  The information in the condensed consolidated financial statements, in the opinion of management, includes normal recurring adjustments and reflects all adjustments that are necessary for a fair presentation of such financial statements.  We believe that the disclosures presented are adequate to represent materially correct interim financial statements.  These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 17, 2014.

 

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Global Power and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates: The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could vary materially from those estimates.

 

Reclassifications: Certain reclassifications have been made to prior years’ consolidated balances to conform with the current year presentation.

 

Discontinued Operations Presentation: In August 2011, we completed the sale of substantially all of the operating assets of our Deltak L.L.C. (“Deltak”) business unit. Discontinued operations are presented net of tax. The following notes relate to our continuing operations only, unless otherwise noted.

 

Dollar Amounts: All dollar amounts (except share and per share amounts) presented in the tabulations within the notes to our consolidated financial statements are stated in thousands of dollars, unless otherwise noted.

 

Long-Lived Assets: Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. We group long-lived assets by legal entity for purposes of recognition and measurement of an impairment loss as this is the lowest level for which cash flows are independent.

 

Goodwill and Other Intangible Assets:   Goodwill is not amortized to expense, but rather, we test goodwill for impairment annually and more frequently if circumstances warrant. Impairment write-downs are charged to results of operations in the period in which the impairment is determined.

 

During the three months ended September 30, 2013, we changed our annual impairment testing date from December 31 to the first day of the fourth quarter, which we label as October 1.

 

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In 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” which provides entities with the option to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. The Company elected to bypass the qualitative assessment option and continue performing the first step of the goodwill impairment test.

 

In connection with our reportable segments, we also assess our reporting units that are operating segments or one level below the operating segment for impairment testing. We consider the management of operating activities, discrete financial information, similarities of economic characteristics, and the nature of the products, production processes, customers, distribution and regulatory environments. For impairment testing of goodwill and other indefinite-lived assets we test TOG as a separate reporting unit from Product Solutions with the remainder tested as the Auxiliary Products and Electrical Solutions product lines.  We test Hetsco as a separate reporting unit from Energy Solutions with the remainder tested as the Industrial Solutions reporting unit, and we test the Nuclear Solutions segment as a reporting unit.

 

We did not identify any impairment of our recorded goodwill from our most recent annual testing, which was performed as of October 1, 2013. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. We have not identified any such events and, accordingly, have not tested goodwill for impairment during the six months ended June 30, 2014.

 

Adoption of New Accounting Pronouncements:

 

In March 2014, the FASB issued ASU Update 2014-06 “Technical Corrections and Improvements Related to Glossary Terms” (the “Update”). The amendments in the Update relate to glossary terms and cover a wide range of Topics in the Codification.  These amendments are presented in four sections – Deletion of Master Glossary Terms (Section A), Addition of Master Glossary Term Links (Section B), Duplicate Master Glossary Terms (Section C), and Other Technical Corrections Related to Glossary Terms (Section D).  The amendments in this Update represent changes to clarify the Master Glossary of the Codification, or make improvements to the Master Glossary that are not expected to result in substantive changes to the application of existing guidance or create a significant administrative cost to most entities.  Additionally, the amendments will make the Master Glossary easier to understand, as well as reduce the number of terms that appear in the Master Glossary.  The amendments resulting from this Update do not have transition guidance and will be effective upon issuance for both public and private companies.  The immediate adoption of this standard in March 2014 did not have an impact on our consolidated financial statements, and there was no material impact to our financial statement disclosures.

 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”).  ASU 2014-09 takes effect in 2017 and establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries.  The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services.  It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled.  To accomplish this objective, the standard requires five basic steps:  (i)  identify the contract with the customer, (ii)  identify the performance obligations in the contract, (iii)  determine the transaction price, (iv)  allocate the transaction price to the performance obligations in the contract, and (v)  recognize revenue when (or as) the entity satisfies a performance obligation.  There are three basic transition methods available:  full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.  We are currently evaluating the impact on our consolidated financial statements and financial statement disclosures.

 

In June 2014, the FASB issued ASU 2014-12  Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period” (“ASU 2014-12”).  On June 29, 2014, the FASB issued ASU 2014-12 to clarify that a performance target in a share-based compensation award that could be achieved after an employee completes the requisite service period should be treated as a performance condition that affects the vesting of the award.  As such, the performance target should not be reflected in estimating the grant-date fair value of the award.  The Company has reviewed its accounting of these types of share-based payments and has determined that we are in compliance with the stated guidelines.

 

NOTE 3—ACQUISITIONS

 

During 2013, we acquired 100% equity in two businesses, which included one products company and one industrial gas services company, both based in the U.S. These acquisitions allow us to expand our products and service offerings internationally and in the U.S.  A summary of the acquisitions is as follows:

 

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Business Acquired

 

Date of Closing

 

Net Assets
Acquired

(in millions)

 

Segment

 

Primary Form of
Consideration

 

IBI, LLC

 

July 9, 2013

 

$

18.6

 

Product Solutions

 

Cash

 

Hetsco Holdings, Inc.

 

April 30, 2013

 

$

32.4

 

Energy Services

 

Cash

 

 

Each of the acquired businesses has been included in our results of operations since the date of closing. Due to the timing of each acquisition and related operating results, our 2014 and 2013 operating results are not entirely comparable.

 

On July 9, 2013, we acquired IBI Power, a leading manufacturer of custom power packaging and integration solutions, including control house systems, generator enclosures and industrial tanks. The aggregate consideration paid consisted of $18.6 million in cash, after final working capital adjustments and other adjustments of which $0.7 million was paid in January, 2014.  IBI merged with and into Koontz-Wagner and its financial results are included in our Product Solutions segment since the acquisition date.

 

On April 30, 2013, we acquired Hetsco, a global provider of mission critical brazed aluminum heat exchanger repair, maintenance and safety services to the industrial gas, liquefied natural gas and petrochemical industries. The aggregate acquisition price consisted of $32.4 million in cash, after final working capital adjustments. The financial results of the Hetsco acquisition have been included in our Energy Services segment since the acquisition date.

 

We funded the purchase of the IBI Power and Hetsco acquisitions (together, the “2013 Acquisitions”) through a combination of cash on hand and draws on our $150.0 million credit facility (as amended or supplemented from time to time, the “Revolving Credit Facility”).

 

The following table summarizes the consideration paid for the 2013 Acquisitions and presents an allocation of these amounts to the net tangible and identifiable intangible assets based on the estimated fair values as of the respective acquisition dates.

 

 

 

 

2013 Acquisition Activity

 

 

Hetsco Inc.

 

IBI Power

 

Total

 

 

 

 

 

 

 

Current assets

 

$

 7,733

 

$

 8,304

 

$

 16,037

Property, plant and equipment

 

867

 

2,822

 

3,689

Identifiable intangible assets

 

22,800

 

9,300

 

32,100

Goodwill

 

12,997

 

4,542

 

17,539

Total assets acquired

 

44,397

 

24,968

 

69,365

Current liabilities

 

(2,265)

 

(6,327)

 

(8,592)

Long-term deferred tax liability

 

(8,645)

 

 

(8,645)

Other long-term liabilities

 

(1,089)

 

 

(1,089)

Net assets acquired

 

$

 32,398

 

$

 18,641

 

$

 51,039

 

 

The purchase price was preliminarily allocated based on estimated fair values as of each acquisition date.  These allocations require the significant use of estimates and are based on the information that was available to management at the time these consolidated financial statements were prepared.  The estimated fair values and useful lives acquired have been supported by third party valuation.  The IBI fair values remain subject to potential adjustments including, but not limited to, assessment of income tax related assets and liabilities.

 

Acquired intangible assets in 2013 of $32.1 million consisted of customer relationships, trade names and noncompete agreements. The amortization period for these intangible assets, except trade names which are indefinite, ranges from five to seven years. We recorded $1.8 million of amortization expense related to these intangible assets during the six months ended June 30, 2014.  The major classes of intangible assets are as follows:

 

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Weighted Average

 

 

 

($ in thousands)

 

Amortization Years

 

At Date of
Acquisition

 

 Customer Relationships

 

7

 

$

19,200

 

 Trade Names

 

Indefinite

 

11,000

 

 Noncompetes

 

5

 

1,900

 

 

 

 

 

$

32,100

 

 

 

 

The estimated future aggregate amortization expense of intangible assets from the 2013 Acquisitions as of June 30, 2014 is set forth below:

 

 

($ in thousands)

 

 

 

 

 

 

 

For the Fiscal Year Ending December 31 --

 

 

 

 2014 (remainder of year)

 

$

1,033

 

 2015

 

3,123

 

 2016

 

3,123

 

 2017

 

3,123

 

 2018

 

2,894

 

 Thereafter

 

3,814

 

 Total

 

$

17,110

 

 

 

 

The goodwill associated with the IBI Power acquisition is deductible for tax purposes whereas the goodwill associated with the Hetsco acquisition is not deductible for tax purposes.

 

The following unaudited pro forma information has been provided for illustrative purposes only and is not necessarily indicative of results if the 2013 Acquisitions of IBI Power and Hetsco occurred on January 1, 2012, nor are they necessarily indicative of future results.

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

(unaudited)

 

(unaudited)

 

($ in thousands, except per share data)

 

2014

 

2013

 

2014

 

2013

 

 Consolidated revenues

 

$

114,739

 

$

133,417

 

$

219,621

 

$

265,447

 

 Income (loss) from continuing operations before income tax

 

864

 

(1,900)

 

792

 

(592)

 

 Earnings (loss) per share from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

$

(0.11)

 

$

0.05

 

$

(0.04)

 

Diluted

 

$

0.06

 

$

(0.11)

 

$

0.05

 

$

(0.04)

 

 

 

The unaudited pro forma consolidated results during the three and six months ended June 30, 2014 and 2013 have been prepared by adjusting our historical results to include the 2013 Acquisitions as if they occurred on January 1, 2012. These unaudited pro forma consolidated historical results were then adjusted for the following:

 

·                  a net increase in interest expense during the three and six months ended June 30, 2013;

·                  an increase in amortization expense due to the incremental intangible assets recorded related to the 2013 Acquisitions;

·                  a change in depreciation expense relating to the net impact of adjusting acquired property and equipment to the acquisition date fair values;

·                  adjustments to reflect the impact of transaction costs related to the acquisition of IBI Power and Hetsco of $0.3 million in the three months ended June 30, 2013 and $1.0 million in the six months ended June 30, 2013;

 

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·                  adjustments to tax effect the pro forma results of the acquisition of IBI Power and Hetsco at Global Power’s estimated domestic statutory tax rate of 39% for all periods and

·                  a net increase in stock compensation expense associated with restricted stock granted as a part of the Hetsco acquisition offset by a reduction in stock compensation expense resulting from the cancellation of Hetsco’s previous stock grants.

 

 

The unaudited pro forma results do not include any adjustments to eliminate the impact of cost savings or other synergies that may have resulted from the 2013 Acquisitions. As noted above, the unaudited pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.

 

NOTE 4—EARNINGS PER SHARE

Basic earnings per common share are calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share is based on the weighted average common shares outstanding during the period, adjusted to include the incremental effect of common shares that would be issued upon the conversion of warrants and the vesting and release of restricted stock awards.

 

Basic and diluted earnings per common share are calculated as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

($ in thousands, except per share data)

 

2014

 

2013

 

2014

 

2013

Net Income (Loss):

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

864

 

$

742

 

$

792

 

$

(459)

Loss from discontinued operations

 

(90)

 

(1)

 

(97)

 

(41)

Income (loss) available to common shareholders

 

$

774

 

$

741

 

$

695

 

$

(500)

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) Per Common Share:

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

17,070,615

 

16,956,925

 

17,033,816

 

16,865,070

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share from continuing operations

 

$

0.06

 

$

0.04

 

$

0.05

 

$

(0.03)

Basic loss per common share from discontinued operations

 

(0.01)

 

 

(0.01)

 

Basic earnings (loss) per common share

 

$

0.05

 

$

0.04

 

$

0.04

 

$

(0.03)

 

 

 

 

 

 

 

 

 

Diluted Earnings (Loss) Per Common Share:

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

17,070,615

 

16,956,925

 

17,033,816

 

16,865,070

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

Unvested portion of restricted stock awards

 

4,574

 

10,431

 

6,314

 

Warrants to purchase common stock

 

 

 

 

Weighted Average Common Shares Outstanding Assuming Dilution

 

17,075,189

 

16,967,356

 

17,040,130

 

16,865,070

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share from continuing operations

 

$

0.06

 

$

0.04

 

$

0.05

 

$

(0.03)

Diluted loss per common share from discontinued operations

 

(0.01)

 

 

(0.01)

 

Diluted earnings (loss) per common share

 

$

0.05

 

$

0.04

 

$

0.04

 

$

(0.03)

 

During the three and six months ended June 30, 2014, there were 145,525 and 116,655 outstanding stock equivalents, respectively that were anti-dilutive and excluded from the computations of diluted earnings per common share.  During the three and six months ended June 30, 2013, there were 179,609 and 262,404 outstanding stock equivalents, respectively that were anti-dilutive and excluded from the computations of diluted earnings per common share.  Excluded from the calculation of both basic and diluted earnings per common share are the unvested performance-based, both Operating Margin and Relative TSR Performance Objective, restricted stock awards of 317,303 for which achieving performance targets had not been determined by the Board of Directors as of June 30, 2014.  There were 273,959 performance-based stock awards outstanding as of June 30, 2013.

 

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NOTE 5—INCOME TAXES

 

The overall effective income tax rate for continuing operations during the three and six months ended June 30, 2014 and 2013 was as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2014

 

2013

 

2014

 

2013

Effective income tax rate

 

29.3%

 

54.4%

 

29.7%

 

-136.6%

 

 

The effective income tax rate differs from the statutory federal income tax rate of 35% primarily because of state and foreign income taxes and permanent differences.  The amount of the income tax provision for continuing operations during the three months ended June 30, 2014 and 2013 differs from the statutory federal income tax rate of 35% as follows:

 

 

 

Three Months Ended June 30,

 

 

2014

 

2014

 

2013

 

2013

 

 

Amount

 

Percent

 

Amount

 

Percent

Tax expense computed at the maximum U.S. statutory rate

 

$

428

 

35.0%

 

$

569

 

35.0%

Difference resulting from state income taxes, net of federal income tax benefits

 

(73)

 

-5.9%

 

36

 

2.2%

Foreign tax rate differences

 

(56)

 

-4.6%

 

(30)

 

-1.7%

Non-deductible business acquisition costs

 

 

 

309

 

19.0%

Non-deductible meals and entertainment

 

24

 

1.9%

 

15

 

0.9%

Non-deductible expenses, other

 

8

 

0.7%

 

28

 

1.7%

Net change in accrual for uncertain tax positions

 

87

 

7.1%

 

(27)

 

-1.7%

Tax credit carryforwards

 

(60)

 

-4.9%

 

 

Other, net

 

 

 

(16)

 

-1.0%

Total

 

$

358

 

29.3%

 

$

884

 

54.4%

 

 

The amount of the income tax provision for continuing operations during the six months ended June 30, 2014 and 2013 differs from the statutory federal income tax rate of 35% as follows:

 

 

 

Six Months Ended June 30,

 

 

2014

 

2014

 

2013

 

2013

 

 

Amount

 

Percent

 

Amount

 

Percent

Tax expense computed at the maximum U.S. statutory rate

 

$

394

 

35.0%

 

$

(68)

 

35.0%

Difference resulting from state income taxes, net of federal income tax benefits

 

(75)

 

-6.6%

 

(24)

 

12.2%

Foreign tax rate differences

 

(53)

 

-4.7%

 

8

 

-4.0%

Non-deductible business acquisition costs

 

 

 

309

 

-159.3%

Non-deductible meals and entertainment

 

22

 

2.0%

 

(3)

 

1.4%

Non-deductible expenses, other

 

8

 

0.7%

 

(6)

 

3.1%

Net change in accrual for uncertain tax positions

 

98

 

8.6%

 

42

 

-21.6%

Tax credit carryforwards

 

(60)

 

-5.3%

 

 

Other, net

 

 

 

7

 

-3.4%

Total

 

$

334

 

29.7%

 

$

265

 

-136.6%

 

 

As of June 30, 2014 and June 30, 2013, we would need to generate approximately $85.8 million and $104.1 million, respectively, of future financial taxable income to realize our deferred tax assets.

 

As of both June 30, 2014 and December 31, 2013, we provided for a liability of $4.7 million and $4.7 million, respectively, for unrecognized tax benefits related to various federal, foreign and state income tax matters, which was included in long-term deferred tax assets and other long-term liabilities.  If recognized, the entire amount of the liability would affect the effective tax rate.  As of June 30, 2014, we had accrued approximately $2.6 million in other long-term liabilities for potential payment of interest and penalties related to uncertain income tax positions.

 

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NOTE 6—DEBT

 

Revolving Credit Facility.  As of June 30, 2014, we had $31.0 million outstanding under our Revolving Credit Facility and we were in compliance with all financial and other covenants under the Revolving Credit Facility.  During the six months ended June 30, 2014, we borrowed $30.0 million on our Revolving Credit and we repaid $22.0 million.  The weighted average interest rates on borrowings were 1.49%.

 

The Revolving Credit Facility allows for borrowings up to $150.0 million, subject to outstanding standby letters of credit and other restrictions.  The facility has a $75.0 million revolving letter of credit facility and provides access to multi-currency funds.  The Revolving Credit Facility has a maturity date of February 21, 2017.

 

We are subject to interest rate changes on our LIBOR-based variable interest rate under our Revolving Credit Facility.  As of June 30, 2014, a maximum of $107.2 million was available under our Revolving Credit Facility.  Our ability to borrow this maximum amount is governed by a number of provisions of our Revolving Credit Facility, some of which have the effect of limiting the amount that we can borrow based upon such factors as the Company’s compliance with certain leverage ratios and other financial covenants or the use of the proceeds of the relevant drawdown, in each case as of a particular date or time.  In practice, these provisions of our Revolving Credit Facility mean that we may not be permitted to borrow the full $150.0 million of our Revolving Credit Facility and the amount we are allowed to borrow under our Revolving Credit Facility will likely be materially less than the difference between our actual borrowings and $150.0 million for the foreseeable future.  As of June 30, 2014, we pay an unused line fee of 0.20% pursuant to the terms of our Revolving Credit Facility.

 

Letters of Credit and Bonds.  In line with industry practice, we are often required to provide letters of credit, surety and performance bonds to customers.  These letters of credit and bonds provide credit support and security for the customer if we fail to perform our obligations under the applicable contract with such customer.

 

The interest rate on letters of credit issued under the Revolving Credit Facility letter of credit was 1.25% per annum as of June 30, 2014.  Should we need to borrow additional amounts against the Revolving Credit Facility, we would incur an interest rate of LIBOR or a specified base rate, plus in each case, an additional margin based on our consolidated leverage ratio.  The Revolving Credit Facility includes additional margin ranges on base rate loans between 0.25% and 1.25% and between 1.25% and 2.25% on LIBOR-based loans.

 

As of June 30, 2014, our outstanding stand-by letters of credit totaled approximately $11.8 million for our U.S. entities and $11.1 million for non-U.S. entities.  Currently there are no amounts drawn upon these letters of credit.  In addition, as of June 30, 2014, we had outstanding surety bonds on projects of approximately $24.7 million.

 

Deferred Financing Costs.  As of June 30, 2014, we had unamortized deferred financing fees on our Revolving Credit Facility of $0.6 million and interest expense associated with the amortization of $0.1 million for the six months ending June 30, 2014 and $0.1 million for the six months ended June 30, 2013.

 

NOTE 7—COMMITMENTS AND CONTINGENCIES

 

Litigation and Claims: We are from time to time party to various lawsuits, claims and other proceedings that arise in the ordinary course of our business. With respect to all such lawsuits, claims and proceedings, we record a reserve when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that the resolution of any currently pending lawsuits, claims and proceedings, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or liquidity. However, the outcomes of any currently pending lawsuits, claims and proceedings cannot be predicted, and therefore, there can be no assurance that this will be the case.

 

Deltak Claims: By purchase agreement dated August 5, 2011, referred to as the 2011 Purchase Agreement, we sold substantially all of the assets of our Deltak business unit to Hamon Acquisitions, Inc. (n/k/a Hamon Deltak, Inc.) (an indirect wholly owned subsidiary of Hamon & Compagnie International SA) (the “Buyer”). Under the 2011 Purchase Agreement, we retained certain liabilities relating to the assets sold to the Buyer. The 2011 Purchase Agreement established escrow accounts totaling $7.0 million set aside for contingencies, of which $6.2 million was initially subject to a five year escrow term and $0.8 million was subject to scheduled releases.  We previously recorded $3.1 million in short-term restricted cash and $3.8 million, which was subject to a five year escrow term, was previously recorded in other long-term assets.   During 2013, we received two claims for indemnification from the Buyer in connection with the activities of our Deltak business unit.  Under the terms of the settlement agreement, $0.1 million of the remaining escrow was classified as short-term restricted cash as of December 31, 2013.  On February 4, 2014, less than $0.1 million of the purchase price held in escrow related to the sale of the assets of Deltak was released to Global Power.

 

Asbestos Cases: A former operating unit of Global Power has been named as a defendant in a limited number of asbestos personal injury lawsuits. Neither we nor our predecessors ever mined, manufactured, produced or distributed asbestos fiber, the material that allegedly caused the injury underlying these actions. The bankruptcy court’s discharge order issued upon emergence from bankruptcy extinguished the claims made by all plaintiffs who had filed asbestos claims against us before that time. We also believe the bankruptcy court’s discharge order should serve as a bar against any later claim filed against us, including any of our subsidiaries, based on alleged injury from asbestos at any time before emergence from bankruptcy. In any event in all of the asbestos cases finalized post-bankruptcy, we have been successful in having such cases dismissed without liability. Moreover, during 2012, we secured insurance coverage that will help to reimburse the defense costs and potential indemnity obligations of our former operating unit relating to these claims. We intend to vigorously defend all currently active actions, just as we defended the other actions that have since been dismissed, all without liability, and we do not anticipate that any of these actions will have a material adverse effect on our financial position, results of operations or liquidity. However, the outcomes of any legal action cannot be predicted and, therefore, there can be no assurance that this will be the case.

 

Contingencies: On June 28, 2013, we announced a change in senior leadership in our Nuclear and Energy Services segments.  We subsequently filed a Form 8-K disclosing anticipated separation costs of approximately $0.5 million pursuant to a Separation Agreement relating to this change in leadership. On July 17, 2013, we rescinded the Separation Agreement and therefore have not accrued any of the previously disclosed separation costs in the consolidated balance sheet and statement of operations as of June 30, 2014 and December 31, 2013.

 

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NOTE 8—STOCKHOLDERS’ EQUITY

 

Dividends:  In May 2012, our Board of Directors approved a quarterly cash dividend policy. The terms of our Revolving Credit Facility limit the amount of cash dividends we can pay and such terms are defined in the Revolving Credit Facility. The following table sets forth certain information relating to the Company’s cash dividends declared to common stockholders of the Company during the six months ended June 30, 2014:

 

 

 

 

Dividend
Declaration Date

 

Dividend
per Share

 

Date of Record for
Dividend Payment

 

Dividend Cash
Payment Date

Fiscal year 2014:

 

May 1, 2014

 

$

0.09

 

June 13, 2014

 

June 27, 2014

 

 

March 7, 2014

 

$

0.09

 

March 18, 2014

 

March 28, 2014

 

 

 

Dividend equivalents equal to the dividends payable on the same number of shares of our common stock were accrued on unvested restricted stock awards. No dividend equivalents are paid on any unvested restricted stock awards that are forfeited prior to the vesting date. Dividend equivalents are paid out in cash at the vesting date on restricted stock awards. A non-cash accrual of $0.2 million for unpaid dividend equivalents for unvested restricted stock awards was included in the accompanying consolidated balance sheet as of June 30, 2014. In addition, accumulated dividend equivalents of less than $0.1 million were paid upon the vesting and release of 86,934 restricted stock awards during the six months ended June 30, 2014.

 

Stock Repurchase Program:  In May 2012, our Board of Directors authorized a program to repurchase up to two million shares of our common stock until the earlier of June 30, 2014 or a determination by the Board of Directors to discontinue the repurchase program.  We repurchased 421,731 shares of common stock during the year ended December 31, 2012 for $6.8 million under the repurchase program.  During the three and six months ended June 30, 2014 and 2013, we did not repurchase any shares of common stock.  As of the date of this report, the Board of Directors has not extended this program.

 

Foreign Currency Translation:  Foreign assets and liabilities are translated using the exchange rate in effect at the balance sheet date, and results of operations are translated using an average rate during the period. Translation adjustments are accumulated and reported as a component of accumulated other comprehensive income. We had foreign currency translation adjustments resulting in less than $0.4 million and $0.1 million of unrealized loss for the six months ended June 30, 2014 and 2013, respectively. Our foreign earnings are considered permanently reinvested and, therefore, we do not have any corresponding deferred taxes for our unremitted earnings.

 

Stock-Based Compensation: During the six months ended June 30, 2014, we vested 66,167 shares of stock-based compensation to employees and recorded a $0.5 million non-cash accrual related to the payment of statutory taxes due on the awards that was paid as of June 30, 2014.

 

We granted 110,903 shares of restricted stock awards subject only to service conditions to employees and directors during the six months ended June 30, 2014 at a weighted-average fair value price per share of $19.66.  These service-based restricted stock awards will vest ratably over one, three or four years.

 

We also granted 90,623 restricted stock awards subject to performance conditions during the six months ended June 30, 2014 at a weighted-average fair value price per share of $19.89.  Of these, 10,000 performance-based restricted stock awards will vest at the end of a one-year performance period subject to meeting or exceeding a $30.0 million EBITDA target.  The remaining 80,623 performance-based restricted stock awards will cliff vest at the end of a three-year performance period subject to multiple target levels of operating margin. If the minimum target set in the agreement is not met, none of the shares would vest and no compensation expense would be recognized and any previously recognized compensation expense would be reversed. The actual number of shares that will ultimately vest is dependent on achieving fixed thresholds between the minimum and maximum performance condition and ranges between 0% and 200% the number of units originally granted. We recognize stock-based compensation expense related to performance awards based upon our determination of the potential likelihood of achievement of the performance target at each reporting date, net of estimated forfeitures.

 

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We also granted 80,624 market-based restricted stock awards during the six months ended June 30, 2014 which, in addition to being subject to continuing employment requirements are subject to a market condition in the form of a total shareholder return (“TSR”) modifier. The actual number of shares that cliff vest at the end of the three-year vesting period is determined based on our TSR relative to the Russell 2000 over the related three-year performance period. Depending on the level of achievement, the actual number of shares that vest may range from 0% to 200% of the awards originally granted.

 

We estimate the fair value of our market-based restricted stock awards on the date of grant using a Monte Carlo simulation valuation model. This pricing model uses multiple simulations to evaluate our probability of achieving various stock price levels to determine our expected TSR performance ranking. Expense is only recorded for the number of market-based restricted stock awards granted, net of estimated forfeitures. The assumptions used to estimate the fair value of market-based restricted stock awards granted during the six months ended June 30, 2014 were as follows:

 

 

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

 

 

 

2014

 

Expected term (years) 

 

 

 

2.75

 

Expected volatility 

 

 

 

34.7%

 

Expected dividend yield 

 

 

 

0.0%

 

Risk-free interest rate 

 

 

 

0.79%

 

Weighted-average grant date fair value

 

 

 

$

  25.71

 

 

NOTE 9—OTHER SUPPLEMENTAL INFORMATION

 

Other current assets consist of the following:

 

 

 

 

June 30,

 

December 31,

 

($ in thousands)

 

2014

 

2013

 

 Prepaid expenses

 

$

  3,618

 

$

  2,735

 

 VAT receivable

 

3,487

 

3,216

 

 Prepaid taxes

 

677

 

872

 

 Other Receivables

 

 

55

 

 Other

 

693

 

1,337

 

Total 

 

$

  8,475

 

$

  8,215

 

 

 

Other long-term assets consist of the following:

 

 

 

 

June 30,

 

December 31,

 

($ in thousands)

 

2014

 

2013

 

 Debt issuance costs, net

 

$

  629

 

$

  751

 

 Other

 

351

 

507

 

Total 

 

$

  980

 

$

  1,258

 

 

Other current liabilities consist of the following:

 

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June 30,

 

December 31,

 

($ in thousands)

 

2014

 

2013

 

 Accrued workers compensation

 

$

1,451

 

$

1,659

 

 Accrued taxes

 

1,092

 

1,524

 

 Accrued contract obligation

 

801

 

1,030

 

 Accrued job reserves

 

622

 

1,387

 

 Accrued legal and professional fees

 

537

 

1,036

 

 Other

 

2,349

 

1,847

 

Total 

 

$

6,852

 

$

8,483

 

 

Other long-term liabilities consist of the following:

 

 

 

 

June 30,

 

December 31,

 

($ in thousands)

 

2014

 

2013

 

 Uncertain tax liabilities

 

$

5,151

 

$

5,054

 

 Other

 

799

 

790

 

Total 

 

$

5,950

 

$

5,844

 

 

 

Supplemental cash flow disclosures are as follows:

 

 

 

 

Six Months Ended June 30,

 

 

2014

 

2013

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

Cash paid for the period for:

 

 

 

 

Interest 

 

$

313

 

$

233

Income taxes 

 

$

217

 

$

2,470

 

 

 

 

 

Net effect of changes in operating activities

 

 

 

 

Decrease in accounts receivable

 

$

19,722

 

$

37,711

Increase in inventories

 

(1,980)

 

(581)

(Increase) decrease in costs and estimated earnings in excess of billings 

 

(19,691)

 

3,576

Increase in other current assets 

 

(261)

 

(948)

Decrease (increase) in other assets 

 

157

 

(190)

Decrease in accounts payable 

 

(2,431)

 

(8,423)

Decrease in accrued and other liabilities 

 

(247)

 

(819)

(Decrease) increase in accrued warranties

 

(1,578)

 

50

Decrease in billings in excess of costs and estimated earnings 

 

(1,434)

 

(6,506)

Changes in operating assets and liabilities

 

$

(7,743)

 

$

23,870

 

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NOTE 10—MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

 

We have certain customers that represent more than 10 percent of consolidated accounts receivable. The balance for these customers as a percentage of the consolidated accounts receivable is as follows:

 

 

 

As of

 

As of

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

 

Customer

 

2014

 

2013

 

Siemens Energy, Inc.

 

15%

 

21%

 

General Electric Company

 

14%

 

25%

 

 

 

We have certain customers that represent more than 10 percent of consolidated revenue. The revenue for these customers as a percentage of the consolidated revenue is as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

Customer

 

2014

 

2013

 

2014

 

2013

 

Southern Nuclear Operating Company

 

10%

 

13%

 

19%

 

21%

 

Siemens Energy, Inc.

 

13%

 

*     

 

*     

 

12%

 

Tennessee Valley Authority

 

17%

 

14%

 

17%

 

14%

 

General Electric Company

 

12%

 

18%

 

13%

 

14%

 

Energy Northwest

 

*     

 

18%

 

*     

 

10%

 

All others

 

48%

 

37%

 

51%

 

29%

 

Total

 

100%

 

100%

 

100%

 

100%

 

 

 

*         Less than 10% of revenue included in “All others”

 

Customers for the Product Solutions segment include original equipment manufacturers, engineering, procurement and construction contractors, owners and operators of oil and gas pipelines, operators of power generation facilities and firms engaged across several process-related industries. Product Solutions segment customers include Siemens Energy, Inc. and General Electric Company. Customers for the Nuclear Services segment and Energy Services segment are varied, but include some major utility companies within the U.S. Our major customers vary over time due to the relative size and duration of our projects and customer outages.  Nuclear Services segment and Energy Services segment customers include Southern Nuclear Operating Company, Energy Northwest and Tennessee Valley Authority.

 

NOTE 11—SEGMENT INFORMATION

 

We follow ASC 280—Segment Reporting, to present segment information. We considered the way our management team, most notably our chief operating decision maker, makes operating decisions and assesses performance and considered which components of our enterprise have discrete financial information available. As management makes decisions using a products and services group focus, our analysis resulted in three reportable segments:  the Product Solutions segment, the Energy Services segment, and the Nuclear Services segment.  The Product Solutions segment consists of two product categories:  Auxiliary Products and Electrical Solutions.  The financial results of the 2013 Acquisitions have been included in their respective segment as of their respective acquisition dates.

 

For all periods presented, we have excluded the results of operations of our discontinued operations. As a result of our 2011 disposal of the Deltak business unit, certain corporate and other operating costs were reallocated for all periods presented to our continuing operations. In addition, management also reevaluated our primary measure of segment performance and determined that EBITDA should be used as the best measure of segment performance.

 

The accounting policies for our segments are the same as those described in Note 2—Summary of Significant Accounting Policies.

 

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The following tables present information about segment income:

 

($ in thousands)

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Product Solutions

 

 $

59,171

 

 $

35,930

 

 $

98,102

 

 $

74,824

 

Nuclear Services

 

41,430

 

66,435

 

98,492

 

131,448

 

Energy Services

 

14,138

 

13,600

 

23,027

 

26,403

 

Consolidated

 

 $

114,739

 

 $

115,965

 

 $

219,621

 

 $

232,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Depreciation and Amortization: (1)

 

 

 

 

 

 

 

 

 

Product Solutions

 

 $

1,684

 

 $

1,284

 

 $

3,340

 

 $

2,508

 

Nuclear Services

 

175

 

192

 

389

 

389

 

Energy Services

 

657

 

374

 

1,528

 

384

 

Consolidated

 

 $

2,516

 

 $

1,850

 

 $

5,257

 

 $

3,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Operating Income (Loss):

 

 

 

 

 

 

 

 

 

Product Solutions

 

 $

1,799

 

 $

1,125

 

 $

2,782

 

 $

(2,269)

 

Nuclear Services

 

343

 

2,786

 

1,738

 

4,061

 

Energy Services

 

(674)

 

(1,941)

 

(2,465)

 

(1,706)

 

Consolidated

 

 $

1,468

 

 $

1,970

 

 $

2,055

 

 $

86

 

 

 

(1)  Depreciation and Amortization includes $0.4 million and $0.3 million in cost of sales for the three months ended June 30, 2014 and 2013, respectively.  Depreciation and Amortization for the six months ended June 30, 2014 and 2013 included in cost of sales was $0.8 million and $0.6 million, respectively.

 

 

The following table presents information which reconciles segment assets to consolidated total assets:

 

 

 

 

As of

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

 

($ in thousands)

 

2014

 

2013

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

Product Solutions

 

 $

223,062

 

 $

232,070

 

Nuclear Services

 

74,973

 

63,897

 

Energy Services

 

50,384

 

49,782

 

Non allocated corporate headquarters assets

 

19,763

 

21,649

 

Total consolidated assets

 

 $

368,182

 

 $

367,398

 

 

 

Corporate assets consist primarily of cash and deferred tax assets.

 

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The following presents the Product Solutions segment revenue by geographical region based on our operating locations. Products are often shipped to other geographical areas but revenue is listed in the region in which the revenue is recognized:

 

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Product

 

Revenue

 

Product

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Recognized In

 

Shipped To

 

Recognized In

 

Shipped To

 

 

 

 

 

 

 

 

 

 

 

United States

 

 $

37,820

 

 $

29,624

 

 $

26,663

 

 $

14,560

 

Canada

 

—  

 

284

 

—  

 

79

 

Europe

 

19,676

 

1,280

 

6,735

 

2,280

 

Mexico

 

1,073

 

592

 

2,077

 

37

 

Asia

 

602

 

3,062

 

455

 

1,315

 

Middle East

 

—  

 

14,021

 

—  

 

14,615

 

South America

 

—  

 

1,319

 

—  

 

1,325

 

Other

 

—  

 

8,989

 

—  

 

1,719

 

Total

 

 $

59,171

 

 $

59,171

 

 $

35,930

 

 $

35,930

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Product

 

Revenue

 

Product