Attached files
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8-K/A - FORM 8-K/A - INNOVATE Corp. | d772637d8ka.htm |
EX-99.3 - EX-99.3 - INNOVATE Corp. | d772637dex993.htm |
EX-99.1 - EX-99.1 - INNOVATE Corp. | d772637dex991.htm |
Exhibit 99.2
SCHUFF INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
AS OF MARCH 30, 2014 AND THE THREE MONTHS
ENDED MARCH 30, 2014 AND MARCH 31, 2013
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS |
Grant Thornton LLP 2398 E Camelback Road Suite 600 Phoenix, Arizona 85016
T 602.474.3400 F 602.474.3421 www.GrantThornton.com |
Board of Directors and Stockholders
Schuff International, Inc.
We have reviewed the accompanying condensed consolidated interim financial statements of Schuff International, Inc. and subsidiaries (the Company), which comprise the condensed consolidated balance sheet as of March 30, 2014, and the related condensed consolidated statements of income, stockholders equity, and cash flows for the three-month periods ended March 30, 2014 and March 31, 2013, and the related notes to the interim financial statements.
Managements responsibility
The Companys management is responsible for the preparation and fair presentation of the condensed consolidated interim financial statements in accordance with accounting principles generally accepted in the United States of America; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with accounting principles generally accepted in the United States of America.
Auditors responsibility
Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements. Accordingly, we do not express such an opinion.
Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements referred to above for them to be in accordance with accounting principles generally accepted in the United States of America.
Report on condensed consolidated balance sheet as of December 29, 2013
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 29, 2013, and the related consolidated statements of operations, stockholders equity, and cash flows for the year then ended (not presented herein); and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated July 24, 2014. In our opinion, the accompanying condensed consolidated balance sheet of the Company as of December 29, 2013, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.
/s/ GRANT THORNTON LLP
Phoenix, Arizona
July 24, 2014
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
SCHUFF INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 30 2014 |
December 29 2013 |
|||||||
(in thousands, except for share data) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 756 | $ | 1,066 | ||||
Receivables |
135,738 | 106,620 | ||||||
Income tax receivable |
| 228 | ||||||
Costs and recognized earnings in excess of billings on uncompleted contracts |
25,021 | 20,831 | ||||||
Inventories |
13,252 | 11,557 | ||||||
Deferred tax asset |
1,707 | 1,707 | ||||||
Prepaid expenses and other current assets |
1,442 | 1,402 | ||||||
Assets of discontinued operations |
1,100 | 1,471 | ||||||
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|
|
|
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Total current assets |
179,016 | 144,882 | ||||||
Property, plant and equipment, net |
76,285 | 70,238 | ||||||
Goodwill |
10,054 | 10,054 | ||||||
Other assets |
4,078 | 4,102 | ||||||
Assets of discontinued operations |
306 | 311 | ||||||
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$ | 269,739 | $ | 229,587 | |||||
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Liabilities and stockholders equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 42,658 | $ | 49,901 | ||||
Accrued payroll and employee benefits |
10,751 | 7,398 | ||||||
Accrued interest |
135 | 90 | ||||||
Other current liabilities |
5,457 | 4,907 | ||||||
Billings in excess of costs and recognized earnings on uncompleted contracts |
60,169 | 38,584 | ||||||
Income tax payable |
1,023 | | ||||||
Current portion of long-term debt |
21,459 | 2,663 | ||||||
Liabilities of discontinued operations |
1,075 | 1,396 | ||||||
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|
|
|
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Total current liabilities |
142,727 | 104,939 | ||||||
Long-term debt |
9,000 | 9,166 | ||||||
Deferred tax liability |
6,517 | 6,517 | ||||||
Other liabilities |
557 | 656 | ||||||
Liabilities of discontinued operations |
27 | 27 | ||||||
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16,101 | 16,366 | |||||||
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Commitments and Contingencies (Note 9) |
| | ||||||
Schuff International stockholders equity |
||||||||
Preferred stock, $.001 par value authorized 1,000,000 shares, none issued |
| | ||||||
Common stock, $.001 par value 20,000,000 shares authorized, 10,038,707 shares issued in both 2014 and 2013 and 4,183,385 and 4,202,933 shares outstanding in 2014 and 2013, respectively |
10 | 10 | ||||||
Additional paid-in capital |
49,246 | 49,224 | ||||||
Retained earnings |
134,652 | 131,687 | ||||||
Treasury stock-5,855,322 and 5,835,774 shares in 2014 and 2013, respectively, at cost |
(77,349 | ) | (76,946 | ) | ||||
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|
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Total Schuff International stockholders equity |
106,559 | 103,975 | ||||||
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Non-controlling interest |
4,352 | 4,307 | ||||||
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|
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Total stockholders equity |
110,911 | 108,282 | ||||||
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|
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$ | 269,739 | $ | 229,587 | |||||
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|
See notes to condensed consolidated financial statements.
1
SCHUFF INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended | ||||||||
March 30 2014 |
March 31 2013 |
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(in thousands, except per share data) | ||||||||
Revenues |
$ | 105,142 | $ | 88,131 | ||||
Cost of revenues |
88,701 | 75,974 | ||||||
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|
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Gross profit |
16,441 | 12,157 | ||||||
General and administrative expenses |
11,385 | 9,268 | ||||||
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|
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Operating income |
5,056 | 2,889 | ||||||
Interest expense |
(464 | ) | (1,131 | ) | ||||
Other income |
116 | 34 | ||||||
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|
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Income before income tax provision |
4,708 | 1,792 | ||||||
Income tax provision |
1,685 | 724 | ||||||
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Income before non-controlling interest |
3,023 | 1,068 | ||||||
Non-controlling interest |
(45 | ) | 15 | |||||
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|
|
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Income from continuing operations |
2,978 | 1,083 | ||||||
(Loss) income from discontinued operations, net of tax |
(13 | ) | 9 | |||||
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Net income |
$ | 2,965 | $ | 1,092 | ||||
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Income from continuing operations per common share: |
||||||||
Basic |
$ | 0.71 | $ | 0.26 | ||||
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Diluted |
$ | 0.71 | $ | 0.26 | ||||
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(Loss) income from discontinued operations per common share: |
||||||||
Basic |
$ | | $ | | ||||
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|
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Diluted |
$ | | $ | | ||||
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Income per common share: |
||||||||
Basic |
$ | 0.71 | $ | 0.26 | ||||
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Diluted |
$ | 0.71 | $ | 0.26 | ||||
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Weighted average shares used in computation: |
||||||||
Basic |
4,201 | 4,180 | ||||||
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Diluted |
4,201 | 4,183 | ||||||
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|
See notes to condensed consolidated financial statements.
2
SCHUFF INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE PERIOD FROM DECEMBER 30, 2013 TO MARCH 30, 2014 (UNAUDITED)
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
Total | ||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Balance at December 30, 2013 |
4,203 | $ | 10 | $ | 49,224 | $ | 131,687 | $ | (76,946 | ) | $ | 4,307 | $ | 108,282 | ||||||||||||||
Net income |
| | | 2,965 | | | 2,965 | |||||||||||||||||||||
Issuance of common stock |
2 | | 22 | | 26 | | 48 | |||||||||||||||||||||
Minority interest in income |
| | | | | 45 | 45 | |||||||||||||||||||||
Purchase of treasury stock |
(22 | ) | | | | (429 | ) | | (429 | ) | ||||||||||||||||||
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Balance at March 30, 2014 |
4,183 | $ | 10 | $ | 49,246 | $ | 134,652 | $ | (77,349 | ) | $ | 4,352 | $ | 110,911 | ||||||||||||||
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See notes to condensed consolidated financial statements.
3
SCHUFF INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended | ||||||||
March 30 | March 31 | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Operating Activities |
||||||||
Income from continuing operations |
$ | 2,978 | $ | 1,083 | ||||
Adjustments to reconcile income from continuing operations to net cash used in operating activities: |
||||||||
Depreciation and amortization |
1,852 | 1,959 | ||||||
(Gain) loss on disposals of property, plant and equipment |
(2 | ) | 26 | |||||
Non-controlling interest income (loss) |
45 | (15 | ) | |||||
Stock awards |
48 | | ||||||
Compensation expense - restricted stock grant |
| 120 | ||||||
Changes in working capital components: |
||||||||
Receivables |
(29,118 | ) | (1,925 | ) | ||||
Costs and recognized earnings in excess of billings on uncompleted contracts |
(4,190 | ) | 800 | |||||
Inventories |
(1,695 | ) | 1,315 | |||||
Prepaid expenses and other current assets |
(40 | ) | (10 | ) | ||||
Accounts payable |
(7,243 | ) | (4,077 | ) | ||||
Accrued payroll and employee benefits |
3,353 | 1,949 | ||||||
Accrued interest |
45 | (488 | ) | |||||
Other current liabilities |
550 | 239 | ||||||
Billings in excess of costs and recognized earnings on uncompleted contracts |
21,585 | (2,310 | ) | |||||
Income taxes receivable/payable |
1,251 | (375 | ) | |||||
Other liabilities |
(99 | ) | (119 | ) | ||||
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Net cash used in operating activities |
(10,680 | ) | (1,828 | ) | ||||
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Investing activities |
||||||||
Acquisitions of property, plant and equipment |
(7,839 | ) | (6,013 | ) | ||||
Proceeds from disposals of property, plant and equipment |
2 | 2 | ||||||
Increase in other assets |
(36 | ) | | |||||
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Net cash used in investing activities |
(7,873 | ) | (6,011 | ) | ||||
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Financing activities |
||||||||
Proceeds from revolving line of credit and long-term borrowings |
112,040 | 97,605 | ||||||
Principal payments on revolving line of credit and long-term debt |
(93,412 | ) | (97,198 | ) | ||||
Proceeds from exercise of stock options and stock purchase plan |
| 23 | ||||||
Purchase of treasury stock |
(429 | ) | | |||||
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Net cash provided by financing activities |
18,199 | 430 | ||||||
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Discontinued operations |
||||||||
Net cash provided by operating activities |
43 | 2,124 | ||||||
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Net cash provided by discontinued operations |
43 | 2,124 | ||||||
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Decrease in cash and cash equivalents |
(311 | ) | (5,285 | ) | ||||
Cash and cash equivalents at beginning of period |
1,067 | 8,804 | ||||||
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Cash and cash equivalents at end of period |
$ | 756 | $ | 3,519 | ||||
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See notes to condensed consolidated financial statements.
4
SCHUFF INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 30, 2014 and March 31, 2013
1. | Interim Financial Statements |
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at December 29, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 28, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report for the year ended December 29, 2013.
Fiscal Year
The Company uses a 4-4-5 week quarterly cycle ending on the Sunday closest to December 31. Fiscal 2014 will cover the period from December 30, 2013 to December 28, 2014 (hereinafter 2014). Fiscal 2013 covered the period from December 31, 2012 to December 29, 2013 (hereinafter 2013).
Revenue and Cost Recognition
The Company performs its services primarily under fixed-price contracts and recognizes revenues and costs from construction projects using the percentage of completion method. Under this method, revenue is recognized based upon either the ratio of the costs incurred to date to the total estimated costs to complete the project or the ratio of tons fabricated to date to total estimated tons. Revenue recognition begins when work has commenced. Costs include all direct material and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs, which are charged to contract costs as incurred. Revenues relating to changes in the scope of a contract are recognized when the work has commenced, the Company has made an estimate of the amount that is probable of being paid for the change and there is a high degree of probability that the charges will be approved by the customer or general contractor. While the Company has been successful in having the majority of its change orders approved in prior years, there is no guarantee that the majority of unapproved change orders at March 30, 2014 will be approved. Revisions in estimates during the course of contract work are reflected in the accounting period in which the facts requiring the revision become known. Provisions for estimated losses on uncompleted contracts are made in the period a loss on a contract becomes determinable.
Construction contracts with customers generally provide that billings are to be made monthly in amounts which are commensurate with the extent of performance under the contracts. Contract receivables arise principally from the balance of amounts due on progress billings on jobs under construction. Retentions on contract receivables are amounts due on progress billings, which are withheld until the completed project has been accepted by the customer.
5
SCHUFF INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 30, 2014 and March 31, 2013
Costs and recognized earnings in excess of billings on uncompleted contracts primarily represent revenue earned under the percentage of completion method which has not been billed. Billings in excess of related costs and recognized earnings on uncompleted contracts represent amounts billed on contracts in excess of the revenue allowed to be recognized under the percentage of completion method on those contracts.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized, net of any valuation allowance, for deductible temporary differences and net operating loss and tax credit carry forwards. The Company regularly evaluates the realizeability of its deferred tax assets by assessing its forecasts of future taxable income and reviewing available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this evaluation, it was determined that realization of the deferred tax assets is more likely than not.
2. | Discontinued Operations |
On April 26, 2013, the Company entered into an agreement with Canam Steel Corporation (Canam) to sell Canam substantially all of the assets of the Companys subsidiary, Quincy Joist Company. Under the agreement, the assets included the joist plant in Buckeye, Arizona (Arizona), including all equipment and inventory and the joist plant (excluding the land) in Quincy, Florida (Florida), including all equipment and inventory. The sale of the Arizona assets was completed on June 1, 2013 and the sale of the Florida assets was completed on July 10, 2013.
3. | Stock-Based Compensation |
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. Fair value of the restricted stock units awarded is based on the current traded price of the Companys stock. Restricted stock grants (Grants) vest over three or five years. The Grants provide for accelerated vesting if there is a change in control (as defined in the agreements).
There was no compensation cost charged against income for the Grants for the three months ending March 30, 2014. The compensation cost that has been charged against income for the Grants was $120,000 for the three months ending March 31, 2013.
6
SCHUFF INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 30, 2014 and March 31, 2013
4. | Receivables and Contracts in Progress |
Receivables consist of the following:
March 30 | December 29 | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Contract receivables: |
||||||||
Contracts in progress |
$ | 101,468 | $ | 72,960 | ||||
Unbilled retentions |
34,067 | 33,409 | ||||||
Allowance for doubtful accounts |
(17 | ) | (17 | ) | ||||
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135,518 | 106,352 | |||||||
Other receivables |
220 | 268 | ||||||
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$ | 135,738 | $ | 106,620 | |||||
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5. | Inventories |
Inventories consist of the following:
March 30 | December 29 | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Raw materials |
$ | 12,912 | $ | 11,212 | ||||
Work in process |
152 | 157 | ||||||
Finished goods |
188 | 188 | ||||||
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$ | 13,252 | $ | 11,557 | |||||
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6. | Accounts Payable |
Accounts payable consists of the following at:
March 30 | December 29 | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Accounts payable |
$ | 37,830 | $ | 44,526 | ||||
Retentions payable |
4,828 | 5,375 | ||||||
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$ | 42,658 | $ | 49,901 | |||||
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7
SCHUFF INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 30, 2014 and March 31, 2013
7. | Long-Term Debt and Line of Credit |
The Company has a Credit and Security Agreement (Credit Facility) with Wells Fargo Credit, Inc. (Wells Fargo). The Company also has a Line of Credit Agreement (International LOC) with Banco General, S.A. in Panama.
At March 30, 2014, the Company had $20,792,000 of borrowings and $3,902,000 of outstanding letters of credit issued under its Credit Facility. There was $25,306,000 available under the Companys Credit Facility at March 30, 2014. At March 30, 2014, the Company had no borrowings and no outstanding letters of credit issued under its International LOC. There was $3,500,000 available under the Companys International LOC at March 30, 2014.
The Credit Facility is secured by a first priority, perfected security interest in all of the Companys assets, excluding the real estate, and its present and future subsidiaries and a second priority, perfected security interest in all of the Companys real estate. The security agreements pursuant to which the Companys assets are pledged prohibit any further pledge of such assets without the written consent of the bank. The Credit Facility has a floating interest rate of LIBOR plus 4.00% (4.25% at March 30, 2014) and requires monthly interest payments. The Credit Facility contains various restrictive covenants. At March 30, 2014, the Company was in compliance with these covenants.
The International LOC is secured by a first priority, perfected security interest in Schuff Hopsa Engineerings (SHE) property and plant. The interest rate is 5.25% plus 1% of the special interest compensation fund (FECI). The International LOC contains covenants that, among other things, limit SHEs ability to incur additional indebtedness, change its business, merge, consolidate or dissolve and sell, lease, exchange or otherwise dispose of its assets, without prior written notice.
8
SCHUFF INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 30, 2014 and March 31, 2013
8. | Income Per Share |
The following table sets forth the computation of basic and diluted income per share:
Three Months Ended | ||||||||
March 30 | March 31 | |||||||
2014 | 2013 | |||||||
(in thousands except per share data) |
||||||||
Income from continuing operations |
$ | 2,978 | $ | 1,083 | ||||
(Loss) income from discontinued operations |
(13 | ) | 9 | |||||
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|
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Net income |
$ | 2,965 | $ | 1,092 | ||||
|
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|
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Denominator for basic income per share |
||||||||
- weighted average shares |
4,201 | 4,180 | ||||||
Effect of dilutive securities: |
||||||||
Unvested restricted stock grants |
| 3 | ||||||
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|
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Denominator for diluted income per share |
||||||||
- adjusted weighted average shares and assumed conversions |
4,201 | 4,183 | ||||||
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Basic EPS |
||||||||
Income per share from continuing operations |
$ | 0.71 | $ | 0.26 | ||||
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|
|
|
|||||
(Loss) income per share from discontinued operations |
$ | | $ | | ||||
|
|
|
|
|||||
Income per share |
$ | 0.71 | $ | 0.26 | ||||
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|
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Diluted EPS |
||||||||
Income per share from continuing operations |
$ | 0.71 | $ | 0.26 | ||||
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(Loss) income per share from discontinued operations |
$ | | $ | | ||||
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Income per share |
$ | 0.71 | $ | 0.26 | ||||
|
|
|
|
9. | Contingent Matters |
The Company is currently and from time to time involved through the ordinary course of business in certain claims, litigation, and assessments. Due to the nature of the construction industry, the Companys employees from time to time become subject to injury, or even death, while employed by the Company. The Company does not believe any new material contingencies arose during the three months ended March 30, 2014.
10. | Comprehensive Income |
Total comprehensive income for the three months ended March 30, 2014 and March 31, 2013 equaled net income for the corresponding periods.
9
SCHUFF INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 30, 2014 and March 31, 2013
11. | Backlog |
The Companys backlog was $451,140,000 ($377,073,000 under contracts or purchase orders and $74,067,000 under letters of intent) at March 30, 2014. The Companys backlog can be significantly affected by the receipt, or loss, of individual contracts. Approximately $227,864,000, representing 50.5% of the Companys backlog at March 30, 2014, was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more large contracts are terminated or their scope reduced, the Companys backlog could decrease substantially.
12. | Subsequent Events |
The Company has evaluated subsequent events through July 24, 2014, which is the date the condensed consolidated financial statements were available to be issued.
On May 29, 2014, HC2 Holdings, Inc. completed its purchase of 2,500,000 shares of the Companys common stock from SAS Venture LLC and Scott A. Schuff at a purchase price of $31.50 per share. The purchase of the shares represents approximately 60% of the Companys outstanding stock as of the date of purchase. In connection with the ownership change, the Company paid a total of $1,200,000 to certain executives related to the change of control clause in their employment agreements.
During June and July 2014, the Company purchased 327,664 shares of the Companys common stock from former Company executives at a total purchase price of approximately $8,691,000.
10