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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

For the quarterly period ended September 28, 2014

 

or

 

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      No  

 

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      No  

 

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

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

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

 

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      No  

 

As of October 27, 2014, there were 17,123,608 shares of common stock of Global Power Equipment Group Inc. outstanding.

 

 

 

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

Form 10-Q

 

For the quarter ended September 30, 2014

 

Table of Contents

 

 

 

Part I—FINANCIAL INFORMATION 

 

 

 

Item 1. Financial Statements.

 

 

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

 

 

Condensed Consolidated Statements of Operations for the Three and Nine months Ended September 30, 2014 and 2013 (unaudited) 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine months Ended September 30, 2014 and 2013 (unaudited) 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine months Ended September 30, 2014 (unaudited) 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2014 and 2013 (unaudited) 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited) 

 

 

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

19 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

29 

 

 

Item 4. Controls and Procedures.

30 

 

 

Part II—OTHER INFORMATION 

 

 

 

Item 1. Legal Proceedings.

31 

 

 

Item 1A. Risk Factors.

31 

 

 

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

31 

 

 

Item 3. Defaults Upon Senior Securities.

31 

 

 

Item 4. Mine Safety Disclosures.

31 

 

 

Item 5. Other Information.

31 

 

 

Item 6. Exhibits.

32 

 

 

SIGNATURES 

33 

 

2


 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

ASSETS

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents 

$

10,733 

 

$

13,942 

Restricted cash 

 

 

 

120 

Accounts receivable, net of allowance of $616 and $557, respectively

 

113,729 

 

 

93,484 

Inventories:

 

 

 

 

 

    Raw Material

 

7,688 

 

 

6,133 

    Finished Goods

 

1,316 

 

 

985 

    Inventory Reserve

 

(430)

 

 

(642)

Costs and estimated earnings in excess of billings 

 

62,948 

 

 

41,804 

Deferred tax assets

 

3,301 

 

 

3,301 

Other current assets 

 

6,673 

 

 

8,215 

Total current assets 

 

205,959 

 

 

167,342 

Property, plant and equipment, net 

 

19,013 

 

 

20,644 

Goodwill 

 

106,884 

 

 

109,930 

Intangible assets, net 

 

60,433 

 

 

60,594 

Deferred tax assets

 

5,722 

 

 

7,630 

Other long-term assets 

 

945 

 

 

1,258 

Total assets 

$

398,956 

 

$

367,398 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable 

$

20,417 

 

$

19,664 

Accrued compensation and benefits 

 

24,856 

 

 

14,798 

Billings in excess of costs and estimated earnings 

 

15,441 

 

 

12,757 

Accrued warranties 

 

1,413 

 

 

3,261 

Other current liabilities 

 

6,466 

 

 

8,483 

Total current liabilities 

 

68,593 

 

 

58,963 

Long-term debt

 

45,000 

 

 

23,000 

Other long-term liabilities 

 

6,151 

 

 

5,844 

Total liabilities 

 

119,744 

 

 

87,807 

Commitments and contingencies (Note 7)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value, 170,000,000 shares authorized and 18,387,686 and 18,294,998 shares issued, respectively, and 17,123,608 and 17,059,943 shares outstanding, respectively 

 

184 

 

 

183 

Paid-in capital 

 

71,294 

 

 

69,049 

Accumulated other comprehensive income 

 

352 

 

 

3,473 

Retained earnings 

 

207,395 

 

 

206,898 

Treasury stock, at par (1,264,078 and 1,235,055 common shares, respectively)

 

(13)

 

 

(12)

Total stockholders’ equity 

 

279,212 

 

 

279,591 

 

 

 

 

 

 

Total liabilities and stockholders’ equity 

$

398,956 

 

$

367,398 

 

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

 

3


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2014

   

2013

   

2014

   

2013

 

(Unaudited)

 

(Unaudited)

Revenue

$

145,128 

 

$

109,998 

 

$

364,749 

 

$

342,673 

Cost of Sales

 

120,447 

 

 

89,272 

 

 

301,328 

 

 

287,178 

 Gross profit 

 

24,681 

 

 

20,726 

 

 

63,421 

 

 

55,495 

 

 

 

 

 

 

 

 

 

 

 

 

 Selling and marketing expenses 

 

3,008 

 

 

2,272 

 

 

7,305 

 

 

6,957 

 General and administrative expenses 

 

13,521 

 

 

14,806 

 

 

41,454 

 

 

42,172 

 Depreciation and amortization expense (1)

 

1,993 

 

 

1,936 

 

 

6,448 

 

 

4,568 

Operating income

 

6,159 

 

 

1,712 

 

 

8,214 

 

 

1,798 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest expense, net

 

421 

 

 

207 

 

 

1,174 

 

 

483 

 Other (income) expense, net

 

(1,200)

 

 

164 

 

 

(1,024)

 

 

168 

Income from continuing operations before income tax

 

6,938 

 

 

1,341 

 

 

8,064 

 

 

1,147 

 Income tax expense

 

2,510 

 

 

312 

 

 

2,844 

 

 

577 

Income from continuing operations 

 

4,428 

 

 

1,029 

 

 

5,220 

 

 

570 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

96 

 

 

273 

 

 

(1)

 

 

232 

Net Income

$

4,524 

 

$

1,302 

 

$

5,219 

 

$

802 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share from continuing operations 

$

0.26 

 

$

0.06 

 

$

0.31 

 

$

0.03 

Basic earnings per common share from discontinued operations 

 

—   

 

 

0.02 

 

 

—   

 

 

0.02 

Basic earnings per common share

$

0.26 

 

$

0.08 

 

$

0.31 

 

$

0.05 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share from continuing operations 

$

0.26 

 

$

0.06 

 

$

0.31 

 

$

0.03 

Diluted earnings per common share from discontinued operations 

 

—   

 

 

0.02 

 

 

—   

 

 

0.02 

Diluted earnings per common share

$

0.26 

 

$

0.08 

 

$

0.31 

 

$

0.05 

 

(1)

Excludes depreciation and amortization expense for the three months ended September 30, 2014 and 2013 of $484 and $399 included in cost of sales, respectively. Excludes depreciation and amortization expense for the nine months ended September 30, 2014 and 2013 of $1,285 and $1,048 included in cost of sales, respectively.

 

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

4


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

(Unaudited)

 

 

(Unaudited)

Net Income

 

$

4,524 

 

$

1,302 

 

$

5,219 

 

$

802 

Foreign currency translation adjustment

 

 

(2,687)

 

 

830 

 

 

(3,121)

 

 

849 

Comprehensive Income

 

$

1,837 

 

$

2,132 

 

$

2,098 

 

$

1,651 

 

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

5


 

 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

$

183 

 

$

69,049 

 

$

3,473 

 

$

206,898 

 

(1,235,055)

 

$

(12)

 

$

279,591 

Stock-based compensation 

92,688 

 

 

 

 

2,245 

 

 

— 

 

 

— 

 

(29,023)

 

 

(1)

 

 

2,245 

Dividends declared

— 

 

 

— 

 

 

— 

 

 

— 

 

 

(4,722)

 

— 

 

 

— 

 

 

(4,722)

Net Income

— 

 

 

— 

 

 

— 

 

 

— 

 

 

5,219 

 

— 

 

 

— 

 

 

5,219 

Foreign currency translation adjustment

— 

 

 

— 

 

 

— 

 

 

(3,121)

 

 

— 

 

— 

 

 

— 

 

 

(3,121)

Balance, September 30, 2014

18,387,686 

 

$

184 

 

$

71,294 

 

$

352 

 

$

207,395 

 

(1,264,078)

 

$

(13)

 

$

279,212 

 

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

6


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2014

 

2013

Operating activities:

 

(Unaudited)

Net income

    

$

5,219 

    

$

802 

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

 

 

 

 

 

 

Deferred income tax expense (benefit) provision

 

 

778 

 

 

(900)

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

 

 

7,733 

 

 

5,616 

Amortization of deferred financing costs

 

 

171 

 

 

137 

Loss on disposals of equipment

 

 

161 

 

 

13 

Stock-based compensation 

 

 

2,816 

 

 

3,429 

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

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

(21,364)

 

 

23,785 

(Increase) decrease in inventories

 

 

(2,207)

 

 

(670)

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

 

 

(21,984)

 

 

(532)

(Increase) decrease in other current assets

 

 

1,290 

 

 

(756)

(Increase) decrease in other assets

 

 

137 

 

 

36 

Increase (decrease) in accounts payable

 

 

1,043 

 

 

(8,140)

Increase (decrease) in accrued and other liabilities

 

 

8,346 

 

 

2,758 

Increase (decrease) in accrued warranties

 

 

(1,829)

 

 

(745)

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

 

 

3,064 

 

 

(5,037)

Net cash (used in) provided by operating activities 

 

 

(16,626)

 

 

19,796 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

— 

 

 

(50,328)

Proceeds from sale of business, net of restricted cash and transaction costs

 

 

— 

 

 

267 

Net transfers of restricted cash

 

 

120 

 

 

— 

Proceeds from sale of equipment

 

 

264 

 

 

62 

Purchase of property, plant and equipment

 

 

(2,162)

 

 

(3,927)

Net cash used in investing activities

 

 

(1,778)

 

 

(53,926)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

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

 

 

(571)

 

 

(1,542)

Dividends paid

 

 

(4,722)

 

 

(4,668)

Proceeds from long-term debt

 

 

66,000 

 

 

50,000 

Payments of long-term debt

 

 

(44,000)

 

 

(10,000)

Net cash provided by financing activities

 

 

16,707 

 

 

33,790 

Effect of exchange rate changes on cash

 

 

(1,512)

 

 

731 

Net change in cash and cash equivalents

 

 

(3,209)

 

 

391 

Cash and cash equivalents, beginning of period

 

 

13,942 

 

 

31,951 

Cash and cash equivalents, end of period

 

$

10,733 

 

$

32,342 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

Cash paid for interest

 

$

326 

 

$

313 

Cash paid for income taxes, net of refunds

 

$

483 

 

$

1,108 

 

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

7


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Global Power Equipment Group Inc. and its wholly owned subsidiaries (“Global Power,” “we,” “us,” “our,” or “the Company”), is a comprehensive provider of custom 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 have three operating segments as defined in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2014:  Product Solutions, Nuclear Services and Energy Services.

 

Presentation

 

The accompanying unaudited condensed consolidated financial statements of Global Power and its subsidiaries have been prepared pursuant to the rules and regulations of the SEC.  Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2014,  the results of operations for the three-month and nine-month periods ended September 30, 2014 and 2013, and cash flows for the nine month periods ended September 30, 2014 and 2013.  The balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

These interim results are not necessarily indicative of the results to be expected for the full year and the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

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

 

As of January 1, 2013, we changed from reporting on a calendar quarter basis to a fiscal quarter basis utilizing a “modified” 4-4-5 calendar (modified in that the fiscal year always begins on January 1 and ends on December 31).  However, we have continued to label our quarterly information using a calendar convention.  The effects of this practice are modest and only exist when comparing interim period results. The reporting periods and corresponding fiscal interim periods are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Reporting Interim Period

 

Fiscal Interim Period

 

 

2014

 

2013

Three Months Ended March 31

 

January 1, 2014 to March 30, 2014

 

January 1, 2013 to March 31, 2013

Three Months Ended June 30

 

March 31, 2014 to June 29, 2014

 

April 1, 2013 to June 30, 2013

Three Months Ended September 30

 

June 30, 2014 to September 28, 2014

 

July 1, 2013 to September 29, 2013

 

Summary of Significant Accounting Policies

 

See Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 for a summary of our significant accounting policies.  There have been no significant changes to our accounting policies during the nine-month period ended September 30, 2014. 

 

 

 

 

 

8


 

NOTE 2—NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS

 

Adoption of New Accounting Pronouncements:

 

In March 2014, the Financial Accounting Standards Board (“FASB”) issued ASU Update  2014-06, “Technical Corrections and Improvements Related to Glossary Terms” (“ASU 2014-06”). 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 ASU 2014-06 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 ASU 2014-06 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 the implementation of ASU 2014-09 will have on our consolidated financial statements and financial statement disclosures in addition to the implementation methodology we will utilize.

 

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 for these types of share-based payments and has determined that we are in compliance with the stated guidelines.

In August 2014, the FASB issued ASU 2014-15,  “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern” (“ASU 2014-15”).  ASU 2014-15 requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable).  When conditions or events raise substantial doubts about an entity’s ability to continue as a going concern, management shall disclose: (i) the principal conditions or events that raise substantial doubt about the entity's ability to continue as a going concern; (ii) management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations; and (iii) management's plans that are intended to mitigate the conditions or events and whether or not those plans alleviate the substantial doubt about the entity's ability to continue as a going concern.  ASU 2014-15 is effective for the Company for fiscal year 2016, and early application is permitted.  We do not currently anticipate that ASU 2014-15 will have any impact on the Company’s financial statement disclosures.

9


 

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 allowed us to expand our products and service offerings internationally and in the U.S.  A summary of the acquisitions is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Net Assets

    

 

    

 

 

 

 

 

Acquired

 

 

 

Primary Form of

Business Acquired

 

Date of Closing

 

(in millions)

 

Segment

 

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, LLC (“IBI”), 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 our wholly-owned subsidiary, Koontz-Wagner Custom Controls, LLC, and its financial results have been included in our Product Solutions segment since the acquisition date.

 

On April 30, 2013, we acquired Hetsco Holdings, Inc. (“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 and Hetsco acquisitions (together, the “2013 Acquisitions”) through a combination of cash on hand and draws on our $150.0 million revolving 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. The fair values and useful lives were supported by third party valuations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 Acquisition Activity

 

    

Hetsco

    

IBI

    

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 

 

Acquired intangible assets in 2013 of $32.1 million consisted of customer relationships, trade names and noncompete agreements. The amortization periods for these intangible assets, except trade names which are indefinite, range from five to

10


 

seven years. We recorded $2.6 million and $1.0 million of amortization expense related to these intangible assets during the nine months ended September 30, 2014 and 2013, respectively. The major classes of intangible assets are as follows:

 

 

 

 

 

 

 

 

 

    

 

    

 

 

 

 

Weighted Average

 

At Date of

 

 

Amortization Years

 

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 September 30, 2014 is set forth below:

 

 

 

 

 

 

 

    

    

 

 

 

 

 

For the Fiscal Year Ending December 31 –

 

 

 

 2014 (remainder of year)

 

$

781 

 2015

 

 

3,123 

 2016

 

 

3,123 

 2017

 

 

3,123 

 2018

 

 

2,894 

 Thereafter 

 

 

3,814 

 Total

 

$

16,858 

 

The goodwill associated with the IBI 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 occurred on January 1, 2013, nor are they necessarily indicative of future results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

(unaudited)

 

 

(unaudited)

($ in thousands, except per share data)

 

2014

 

 

2013

 

 

2014

 

 

2013

Consolidated revenues

$

145,128 

 

$

110,512 

 

$

364,749 

 

$

375,958 

Income from continuing operations

 

4,428 

 

 

895 

 

 

5,220 

 

 

637 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.26 

 

$

0.05 

 

$

0.31 

 

$

0.04 

Diluted

$

0.26 

 

$

0.05 

 

$

0.31 

 

$

0.04 

 

The unaudited pro forma consolidated results during the three months and nine months ended September 30, 2014 and 2013 have been prepared by adjusting our historical results to include the 2013 Acquisitions as if they occurred on January 1, 2013. These adjustments for unaudited pro forma consolidated historical results included the following:

 

·

a net increase in interest expense during the three and nine months ended September 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 remove the impact of transaction costs related to the acquisitions of IBI and Hetsco;

 

·

adjustments to tax effect the pro forma results of the acquisitions of IBI 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.

11


 

 

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

 

 

As of September 30, 2014, our 17,123,608 shares outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 50,954 shares as of September 30, 2014 and 56,802 shares as of September 30, 2013. Shares of unvested restricted stock are excluded from our calculation of basic weighted average shares outstanding, but their dilutive impact is included in the calculation of diluted weighted average shares outstanding.

 

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 vesting and release of restricted stock awards. The dilutive effect of all outstanding restricted stock is reflected in diluted earnings per share by application of the treasury stock method.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

($ in thousands, except per share data)

2014

 

2013

 

2014

 

2013

Net Income:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

4,428 

 

$

1,029 

 

$

5,220 

 

$

570 

Income (loss) from discontinued operations

 

96 

 

 

273 

 

 

(1)

 

 

232 

Income available to common shareholders

$

4,524 

 

$

1,302 

 

$

5,219 

 

$

802 

Basic Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

17,072,317 

 

 

16,958,138 

 

 

16,982,990 

 

 

16,896,434 

Basic earnings per common share from continuing operations

$

0.26 

 

$

0.06 

 

$

0.31 

 

$

0.03 

Basic earnings per common share from discontinued operations

 

—   

 

 

0.02 

 

 

—   

 

 

0.02 

Basic earnings per common share

$

0.26 

 

$

0.08 

 

$

0.31 

 

$

0.05 

Diluted Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

17,072,317 

 

 

16,958,138 

 

 

16,982,990 

 

 

16,896,434 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

Unvested portion of restricted stock awards

 

6,673 

 

 

37,235 

 

 

39,675 

 

 

123,900 

Weighted Average Common Shares Outstanding Assuming Dilution

 

17,078,990 

 

 

16,995,373 

 

 

17,022,665 

 

 

17,020,334 

Diluted earnings per common share from continuing operations

$

0.26 

 

$

0.06 

 

$

0.31 

 

$

0.03 

Diluted earnings per common share from discontinued operations

 

—   

 

 

0.02 

 

 

—   

 

 

0.02 

Diluted earnings per common share

$

0.26 

 

$

0.08 

 

$

0.31 

 

$

0.05 

 

 

For the three and nine months ended September 30, 2014, there were 194,822 and 169,185, respectively, weighted average unvested service-based restricted stock awards that were not included in the computation of diluted earnings per share because their effect was antidilutive.  For the three and nine months ended September 30, 2013, there were 224,863 and 192,220, respectively, weighted average unvested service-based restricted stock awards that were not included in the computation of diluted earnings per share because their effect was antidilutive.  For the three and nine months ended September 30, 2014, there were 305,500 and 227,960, respectively, weighted average unvested performance-based restricted stock awards for which related targets had not been met which were excluded from the calculation of both basic and diluted earnings per common share.  For the three and nine months ended September 30, 2013, there were 277,159 and 247,446, respectively, weighted

12


 

average unvested performance-based restricted stock awards for which related targets had not been met which were excluded from the calculation of both basic and diluted earnings per common share.

 

NOTE 5—INCOME TAXES

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

    

2014

 

    

2013

 

 

2014

 

    

2013

 

Effective income tax rate

 

36.2%

 

 

23.3%

 

35.3%

 

 

50.3%

 

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 September 30, 2014 and 2013 differs from the statutory federal income tax rate of 35% as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2014

   

2014

 

   

 

2013

   

2013

 

 

 

Amount

 

Percent

 

 

 

Amount

 

Percent

 

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

$

2,428 

 

35.0 

%

 

$

469 

 

35.0 

%

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

 

144 

 

2.1 

%

 

 

 

0.7 

%

Foreign tax rate differences

 

(280)

 

-4.0

%

 

 

(115)

 

-8.6

%

Non-deductible business acquisition costs

 

— 

 

— 

%

 

 

— 

 

— 

%

Non-deductible meals and entertainment

 

140 

 

2.0 

%

 

 

31 

 

2.3 

%

Non-deductible expenses, other

 

58 

 

0.8 

%

 

 

15 

 

1.1 

%

Net change in accrual for uncertain tax positions

 

60 

 

0.9 

%

 

 

47 

 

3.5 

%

Tax credit carryforwards

 

— 

 

0.0 

%

 

 

— 

 

— 

%

Impact of change to state blended rate

 

— 

 

— 

%

 

 

(144)

 

-10.7

%

Other, net

 

(40)

 

-0.6

%

 

 

— 

 

— 

%

Total

$

2,510 

 

36.2 

%

 

$

312 

 

23.3 

%

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2014

   

2014

 

   

 

2013

   

2013

 

 

 

Amount

 

Percent

 

 

 

Amount

 

Percent

 

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

$

2,822 

 

35.0 

%

 

$

402 

 

35.0 

%

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

 

69 

 

0.9 

%

 

 

(15)

 

-1.3

%

Foreign tax rate differences

 

(333)

 

-4.2

%

 

 

(107)

 

-9.3

%

Non-deductible business acquisition costs

 

— 

 

— 

%

 

 

309 

 

26.9 

%

Non-deductible meals and entertainment

 

162 

 

2.0 

%

 

 

29 

 

2.5 

%

Non-deductible expenses, other

 

66 

 

0.8 

%

 

 

 

0.8 

%

Net change in accrual for uncertain tax positions

 

158 

 

2.0 

%

 

 

90 

 

7.8 

%

Tax credit carryforwards

 

(60)

 

-0.7

%

 

 

— 

 

— 

%

Impact of change to state blended rate

 

— 

 

— 

%

 

 

(144)

 

-12.6

%

Other, net

 

(40)

 

-0.5

%

 

 

 

0.5 

%

Total

$

2,844 

 

35.3 

%

 

$

577 

 

50.3 

%

 

 

Our foreign earnings are considered permanently reinvested and, therefore, we do not have any corresponding deferred taxes for our unremitted earnings.  As of September 30, 2014 and September 30, 2013, we would need to generate approximately $82.5 million and $107.1 million, respectively, of future financial taxable income to realize our deferred tax assets. 

 

13


 

As of both September 30, 2014 and December 31, 2013, we provided for a liability of $4.7 million 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 September 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.

NOTE 6—DEBT

 

Revolving Credit Facility.  As of September 30, 2014, we had $45.0 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 nine months ended September 30, 2014, we borrowed $66.0 million on our Revolving Credit Facility and we repaid $44.0 million.  The weighted average interest rates on borrowings were 1.75%.

 

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 September 30, 2014, a maximum of $93.7 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 September 30, 2014, we pay an unused line fee of 0.25% 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 was 1.50% per annum as of September 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 September 30, 2014, our outstanding stand-by letters of credit under the facility totaled approximately $11.3 million for our U.S. entities.  Currently, there are no amounts drawn upon these letters of credit.

 

As of September 30, 2014, we also had outstanding stand-by letters of credit totaling $10.2 million for our non-U.S. entities which were not issued under the Revolving Credit Facility.  Currently there are no amounts drawn upon these letters of credit. 

 

In addition, as of September 30, 2014, we had outstanding surety bonds on projects of approximately $46.3 million.

 

Deferred Financing Costs.  As of September 30, 2014, we had unamortized deferred financing fees on our Revolving Credit Facility of $1.1 million.  We recognized interest expense associated with deferred fee amortization of $0.2 million for the nine months ended September 30, 2014 and $0.1 million for the nine months ended September 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  (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

14


 

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.  As of September 30, 2014, we no longer have any escrow amounts or warranty reserves on our balance sheet related to the sale of Deltak.

 

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 any of the periods presented.

 

On October 10, 2014, the counterparty to the rescinded Separation Agreement filed a complaint in the U.S. District Court for the Northern District of Georgia against the Company challenging the rescission and seeking the separation payments that the counterparty asserts remain due under the Separation Agreement, plus legal fees and interest.  We believe the complaint is without merit and will take all appropriate steps to protect our interests.

 

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 nine months ended September 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Dividend 

    

Dividend 

    

Date of Record for

    

Dividend Cash

 

 

Declaration Date

 

per Share

 

Dividend Payment

 

Payment Date

Fiscal year 2014:

 

March 7, 2014

 

$

0.09 

 

March 18, 2014

 

March 28, 2014

 

 

May 1, 2014

 

$

0.09 

 

June 13, 2014

 

June 27, 2014

 

 

July 31, 2014

 

$

0.09 

 

September 12, 2014

 

September 26, 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 unaudited condensed consolidated balance sheet as of September 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.  Under this program we repurchased 421,731 shares of common stock.  No shares were repurchased during 2013 or 2014 and the program expired on June 30, 2014.

 

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 for the period. Translation adjustments are accumulated and reported as a component of accumulated other comprehensive income. We had foreign currency translation adjustments resulting in unrealized losses of $2.7 million and $3.1million, respectively, for the three months and nine months

15


 

ended September 30, 2014. We had foreign currency translation adjustments resulting in $0.8 million of unrealized gains for both the three months and nine months ended September 30, 2013. 

 

Stock-Based Compensation: During the three months ended September 30, 2014, we vested 1,243 shares of restricted stock units to employees of which 370 shares were withheld for employee tax liabilities. During the nine months ended September 30, 2014, we vested 92,688 shares of restricted stock units to employees, of which 29,023 shares were withheld for employee tax liabilities.

 

We granted 3,333 and 114,235 shares of restricted stock awards subject only to service conditions to employees and directors during the three months and nine months ended September 30, 2014, at weighted-average fair value prices per share of $16.48 and $19.57, respectively.  Of the shares granted, 5,000 will vest on December 31, 2014 and 25,278 will vest in equal installments in January 2015, 2016, 2017 and 2018. The remaining 83,957 will vest in equal installments in March 2015, 2016 and 2017. 

 

We granted 3,334 and 93,957 restricted stock awards subject to performance conditions during the three months and nine months ended September 30, 2014, at weighted-average fair value prices per share of $16.48 and $19.77, respectively. Of these, 10,000 performance-based restricted stock awards will vest on December 31, 2014, subject to meeting or exceeding a specified EBITDA target for 2014. The remaining 83,957 performance-based restricted stock awards will cliff vest on March 31, 2017, subject to the achievement of specified levels of operating margin for the period January 1, 2014 through December 31, 2016.  If the minimum target set in the agreement is not met, none of the shares will vest and any compensation expense previously recognized will be reversed.  The actual number of shares that will ultimately vest is dependent on achieving fixed thresholds between the minimum and maximum performance conditions and ranges between 0% and 200% of 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.

 

We also granted 3,333 and 83,957 market-based restricted stock awards during the three and nine months ended September 30, 2014, respectively, at the weighted average values shown below.  These restricted stock awards will cliff vest on March 31, 2017, subject to the achievement of specified levels of the Company’s total shareholder return (“TSR”) as compared to the Russell 2000 for the period January 1, 2014 through December 31, 2016.  If the minimum target set in the agreement is not met, none of the shares will vest and any compensation expense previously recognized will be reversed.  The actual number of shares that will ultimately vest is dependent on achieving fixed thresholds between the minimum and maximum performance conditions and ranges between 0% and 200% of the number of units originally granted. We recognize stock-based compensation expense related to market based awards based upon our determination of the potential likelihood of achievement of the performance target at each reporting date, net of estimated forfeitures.

 

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 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

    

Three Months Ended

 

    

Three Months Ended

 

 

September 30,

 

 

June 30,

 

 

March 31,

 

 

2014

 

 

2014

 

 

2014

Expected term (years) 

 

 

2.35 

 

 

 

 

2.75 

 

 

 

 

NA

 

Expected volatility 

 

 

31.60 

%

 

 

 

34.74 

%

 

 

 

NA

 

Expected dividend yield 

 

 

0.00 

%

 

 

 

0.00 

%

 

 

 

NA

 

Risk-free interest rate 

 

 

0.69 

%

 

 

 

0.79 

%

 

 

 

NA

 

Weighted-average grant date fair value 

 

$

15.85 

 

 

 

$

25.71 

 

 

 

 

NA

 

Number of Shares Granted

 

 

3,333 

 

 

 

 

80,624 

 

 

 

 

— 

 

 

NOTE 9—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 Nuclear Services segment, and the Energy Services segment.  The Product Solutions segment consists of two product categories: 

16


 

Auxiliary Products and Electrical Solutions.  Management determined that operating income 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 to our audited consolidated financial statements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.  The financial results of the 2013 Acquisitions have been included in their respective segment since their respective acquisition dates.  For all periods presented, we have excluded the results of operations of our discontinued operations.

 

The following tables present information about segment income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

    

Nine Months Ended September 30,

 

2014

    

2013

    

2014

    

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Product Solutions - 3rd Party

$

58,010 

 

$

54,577 

 

$

156,112 

 

$

129,401 

Product Solutions - Intersegment

 

366 

 

 

— 

 

 

366 

 

 

— 

Product Solutions - Total

 

58,376 

 

 

54,577 

 

 

156,478 

 

 

129,401 

Nuclear Services - 3rd Party

 

69,188 

 

 

49,854 

 

 

167,680 

 

 

181,302 

Nuclear Services - Intersegment

 

— 

 

 

483 

 

 

— 

 

 

483 

Nuclear Services - Total

 

69,188 

 

 

50,337 

 

 

167,680 

 

 

181,785 

Energy Services - 3rd Party

 

17,930 

 

 

5,567 

 

 

40,957 

 

 

31,970 

Energy Services - Intersegment

 

(15)

 

 

(11)

 

 

1,328 

 

 

— 

Energy Services - Total

 

17,915 

 

 

5,556