Attached files
| file | filename |
|---|---|
| EX-32.2 - EX-32.2 - KMG CHEMICALS INC | kmg-ex322_8.htm |
| EX-32.1 - EX-32.1 - KMG CHEMICALS INC | kmg-ex321_6.htm |
| EX-31.2 - EX-31.2 - KMG CHEMICALS INC | kmg-ex312_7.htm |
| EX-31.1 - EX-31.1 - KMG CHEMICALS INC | kmg-ex311_9.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2016
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 001-35577
KMG CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
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Texas |
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75-2640529 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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300 Throckmorton Street, Fort Worth, Texas |
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76102 |
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(Address of principal executive offices) |
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(Zip Code) |
(817)-761-6100
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 Web site, 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. (Check one):
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☒ |
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Non-accelerated filer |
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☐ |
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(Do not check if a smaller reporting company) |
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Smaller reporting company |
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☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 7, 2016, there were 11,855,857 shares of the registrant’s common stock outstanding.
2
PART I — FINANCIAL INFORMATION
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
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October 31, |
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July 31, |
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||
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|
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2016 |
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2016 |
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(Unaudited) |
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Assets |
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|
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Current assets |
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|
|
|
|
|
|
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Cash and cash equivalents |
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$ |
17,606 |
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$ |
12,428 |
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Accounts receivable |
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|
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|
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Trade, net of allowances of $184 at October 31, 2016 and $210 at July 31, 2016 |
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34,446 |
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|
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33,324 |
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Other |
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5,101 |
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|
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5,572 |
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Inventories, net |
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34,851 |
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37,401 |
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Prepaid expenses and other |
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6,438 |
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6,623 |
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Total current assets |
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98,442 |
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95,348 |
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Property, plant and equipment, net |
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77,706 |
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79,739 |
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Goodwill |
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22,039 |
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22,228 |
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Intangible assets, net |
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32,968 |
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33,906 |
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Restricted cash |
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1,000 |
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1,000 |
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Other assets, net |
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4,828 |
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4,807 |
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Total assets |
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$ |
236,983 |
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$ |
237,028 |
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Liabilities and stockholders’ equity |
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Current liabilities |
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Accounts payable |
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$ |
27,534 |
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$ |
26,418 |
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Accrued liabilities |
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10,977 |
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11,252 |
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Employee incentive accrual |
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3,142 |
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5,999 |
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Total current liabilities |
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41,653 |
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43,669 |
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Long-term debt |
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33,300 |
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35,800 |
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Deferred tax liabilities |
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9,982 |
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9,948 |
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Other long-term liabilities |
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4,299 |
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4,422 |
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Total liabilities |
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89,234 |
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93,839 |
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Commitments and contingencies |
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Stockholders’ equity |
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued |
|
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— |
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— |
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Common stock, $0.01 par value, 40,000,000 shares authorized, 11,888,664 shares issued and outstanding at October 31, 2016 and 11,877,282 shares issued and outstanding at July 31, 2016 |
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119 |
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119 |
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Additional paid-in capital |
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38,035 |
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36,553 |
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Accumulated other comprehensive loss |
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(14,358 |
) |
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(12,047 |
) |
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Retained earnings |
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123,953 |
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118,564 |
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Total stockholders’ equity |
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147,749 |
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143,189 |
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Total liabilities and stockholders’ equity |
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$ |
236,983 |
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$ |
237,028 |
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See accompanying notes to condensed consolidated financial statements.
3
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except for per share amounts)
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Three Months Ended |
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|||||
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October 31, |
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|||||
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2016 |
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2015 |
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Net sales |
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$ |
76,495 |
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$ |
76,650 |
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Cost of sales |
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46,811 |
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47,390 |
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Gross profit |
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29,684 |
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29,260 |
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Distribution expenses |
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9,102 |
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10,129 |
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Selling, general and administrative expenses |
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11,901 |
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11,215 |
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Restructuring charges |
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— |
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466 |
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Realignment charges |
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— |
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130 |
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Operating income |
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8,681 |
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7,320 |
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Other (expense) income |
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|
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Interest expense, net |
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(177 |
) |
|
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(152 |
) |
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Other, net |
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230 |
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|
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(17 |
) |
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Total other (expense) income, net |
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53 |
|
|
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(169 |
) |
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Income before income taxes |
|
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8,734 |
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|
|
7,151 |
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Provision for income taxes |
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(2,992 |
) |
|
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(2,560 |
) |
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Net income |
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$ |
5,742 |
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$ |
4,591 |
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Earnings per share |
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Net income per common share basic |
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$ |
0.48 |
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$ |
0.39 |
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Net income per common share diluted |
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$ |
0.47 |
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$ |
0.39 |
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Weighted average shares outstanding |
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|
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Basic |
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11,880 |
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11,697 |
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Diluted |
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12,152 |
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11,865 |
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See accompanying notes to condensed consolidated financial statements.
4
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
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Three Months Ended |
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October 31, |
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2016 |
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2015 |
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Net income |
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$ |
5,742 |
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$ |
4,591 |
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Other comprehensive income |
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Foreign currency translation loss |
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(2,311 |
) |
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(484 |
) |
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Total comprehensive income |
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$ |
3,431 |
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$ |
4,107 |
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See accompanying notes to condensed consolidated financial statements.
5
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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Three Months Ended |
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|||||
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October 31, |
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|||||
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2016 |
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2015 |
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Cash flows from operating activities |
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Net income |
|
$ |
5,742 |
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$ |
4,591 |
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Adjustments to reconcile net income to net cash provided by operating activities |
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|
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|
|
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Depreciation and amortization |
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3,552 |
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3,545 |
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Non-cash restructuring and realignment charges |
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— |
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|
105 |
|
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Stock-based compensation expense |
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|
1,425 |
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|
939 |
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Deferred income tax expense |
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|
188 |
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|
|
86 |
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Other |
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182 |
|
|
|
110 |
|
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Changes in operating assets and liabilities |
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|
|
|
|
|
|
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Accounts receivable — trade |
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(1,657 |
) |
|
|
1,099 |
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Accounts receivable — other |
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1,240 |
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|
|
160 |
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Inventories |
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2,092 |
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|
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2,310 |
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Other current and noncurrent assets |
|
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(153 |
) |
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|
420 |
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Accounts payable |
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|
1,359 |
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|
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(7,850 |
) |
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Accrued liabilities and other |
|
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(3,064 |
) |
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|
2,450 |
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Net cash provided by operating activities |
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|
10,906 |
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|
7,965 |
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Cash flows from investing activities |
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|
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|
|
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Additions to property, plant and equipment |
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(2,634 |
) |
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(3,616 |
) |
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Proceeds — insurance claim |
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|
250 |
|
|
|
— |
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Net cash used in investing activities |
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(2,384 |
) |
|
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(3,616 |
) |
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Cash flows from financing activities |
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|
|
|
|
|
|
|
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Payments under credit facility |
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(2,500 |
) |
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|
(1,500 |
) |
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Excess tax benefit from stock-based awards |
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(57 |
) |
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|
10 |
|
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Payment of dividends |
|
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(353 |
) |
|
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(351 |
) |
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Net cash used in financing activities |
|
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(2,910 |
) |
|
|
(1,841 |
) |
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Effect of exchange rate changes on cash |
|
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(434 |
) |
|
|
373 |
|
|
Net increase in cash and cash equivalents |
|
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5,178 |
|
|
|
2,881 |
|
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Cash and cash equivalents at beginning of period |
|
|
12,428 |
|
|
|
7,517 |
|
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Cash and cash equivalents at end of period |
|
$ |
17,606 |
|
|
$ |
10,398 |
|
|
Supplemental disclosures of cash flow information |
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|
|
|
|
|
|
|
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Cash paid for interest |
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$ |
128 |
|
|
$ |
151 |
|
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Cash paid for income taxes, net |
|
$ |
2,230 |
|
|
$ |
1,371 |
|
|
Supplemental disclosure of non-cash investing activities |
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment through accounts payable |
|
$ |
482 |
|
|
$ |
137 |
|
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated balance sheet as of July 31, 2016, which has been derived from audited consolidated financial statements, and the unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting. As permitted under those requirements, certain footnotes or other financial information that are normally required by generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information not misleading and in the opinion of management reflect all adjustments, including those of a normal recurring nature, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of results of operations to be expected for the full year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2016.
These condensed consolidated financial statements are prepared using certain estimates by management and include the accounts of KMG Chemicals, Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 is intended to address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the new guidance and does not believe this standard will have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016‑15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 is intended to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the new guidance and does not believe this standard will have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is evaluating the new guidance and does not believe this standard will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718), Improvements to Employee Share-based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is planning to early adopt the standard beginning in the second quarter of fiscal 2017, and the impact on its consolidated financial statements and footnote disclosures is not expected to be material.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which is intended to increase transparency and comparability of accounting for lease transactions. The ASU will require all leases with lease terms exceeding one year to be recognized on the balance sheet as lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. The guidance is effective beginning January 1, 2019 with an option to early adopt. The Company is evaluating whether to early adopt and the effect that ASU 2016-02 will have on its consolidated financial statements, and footnote disclosures.
7
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes,” which requires deferred tax liabilities and assets to be classified as noncurrent in the Balance Sheet. The standard will be effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for financial statements that have not been previously issued. The ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company adopted this ASU on a prospective basis in the second quarter of fiscal year 2016. This change in accounting principle did not have an impact on the Company’s results of operations, cash flow or stockholders’ equity.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Adoption can occur using one of two prescribed transition methods. In March and April 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” which provide supplemental adoption guidance and clarification to ASC 2014-09. ASU 2016-08 and ASU 2016-10 must be adopted concurrently with the adoption of ASU 2014-09. The Company is currently evaluating the impact that these new standards will have on its consolidated financial statements and footnote disclosures.
2. Earnings Per Share
Basic earnings per share have been computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share have been computed by dividing net income by the weighted average shares outstanding plus potentially dilutive common shares. There were approximately 272,000 and 168,000 dilutive shares related to stock-based awards for the three months ended October 31, 2016 and 2015, respectively.
Outstanding stock-based awards are not included in the computation of diluted earnings per share under the treasury stock method if the effect of including them would be anti-dilutive. There were 11,160 and 14,783 potentially dilutive securities that were not included for the three months ended October 31, 2016 and 2015, respectively.
3. Inventories
Inventories are summarized in the following table (in thousands):
|
|
|
October 31, |
|
|
July 31, |
|
||
|
|
|
2016 |
|
|
2016 |
|
||
|
Raw materials |
|
$ |
7,764 |
|
|
$ |
7,429 |
|
|
Work in process |
|
|
963 |
|
|
|
1,195 |
|
|
Supplies |
|
|
997 |
|
|
|
968 |
|
|
Finished products |
|
|
25,855 |
|
|
|
28,463 |
|
|
Less: reserve for inventory obsolescence |
|
|
(728 |
) |
|
|
(654 |
) |
|
Inventories, net |
|
$ |
34,851 |
|
|
$ |
37,401 |
|
8
4. Property, Plant and Equipment
Property, plant and equipment and related accumulated depreciation and amortization are summarized as follows (in thousands):
|
|
|
October 31, |
|
|
July 31, |
|
||
|
|
|
2016 |
|
|
2016 |
|
||
|
Land |
|
$ |
9,655 |
|
|
$ |
9,765 |
|
|
Buildings and improvements |
|
|
38,564 |
|
|
|
39,974 |
|
|
Equipment |
|
|
88,182 |
|
|
|
88,470 |
|
|
Leasehold improvements |
|
|
2,460 |
|
|
|
2,460 |
|
|
|
|
|
138,861 |
|
|
|
140,669 |
|
|
Less: accumulated depreciation and amortization |
|
|
(67,414 |
) |
|
|
(65,958 |
) |
|
|
|
|
71,447 |
|
|
|
74,711 |
|
|
Construction-in-progress |
|
|
6,259 |
|
|
|
5,028 |
|
|
Property, plant and equipment, net(1) |
|
$ |
77,706 |
|
|
$ |
79,739 |
|
|
|
|
(1) |
In fiscal year 2016, as part of the Company’s ongoing review of its Milan production facilities, the Company determined that certain other facilities had excess capacity sufficient to absorb the manufacturing operations of one of its Milan plants. As a result, the Company committed to sell properties with a total estimated fair value, less costs to sell, of approximately $4.3 million at July 31, 2016. Assets held for sale are included in Prepaid expenses and other in Current assets. The Company expects the sale of the properties to be completed during fiscal year 2017. The fair value measurements were based on recent valuation appraisals. |
5. Stock-Based Compensation
The Company has stock-based incentive plans which are described in more detail in the consolidated financial statements in the Company’s Annual Report on Form 10-K for fiscal year 2016. The Company recognized stock-based compensation costs of approximately $1.4 million and $939,000 for the three months ended October 31, 2016 and 2015, respectively. The Company also recognized the related tax benefits of $502,000 and $333,000 for the three months ended October 31, 2016 and 2015, respectively. Stock‑based compensation costs are recorded under selling, general and administrative expenses in the condensed consolidated statements of income.
As of October 31, 2016, the unrecognized compensation costs related to stock-based awards was approximately $8.5 million, which is expected to be recognized over a weighted-average period of 2.19 years.
9
At August 1, 2016, there were 328,731 non-vested performance shares outstanding which reflected the number of shares under the awards expected to vest. No performance share awards vested during the three months ended October 31, 2016. As of October 31, 2016, the non-vested performance-based stock awards consisted of Series 1, Series 3 and Series 4 awards granted to certain executives and employees in fiscal years 2017, 2016 and 2015 as summarized below reflecting the target number of shares under the awards.
|
|
|
|
|
Target |
|
|
|
|
|
|
|
|
Expected |
|
|
Shares |
|
|||
|
|
|
Series |
|
Award |
|
|
Grant Date |
|
|
Measurement |
|
Percentage of |
|
|
Expected |
|
||||
|
Date of Grant |
|
Award |
|
Shares |
|
|
Fair Value |
|
|
Period Ending |
|
Vesting(1) |
|
|
to Vest |
|
||||
|
Fiscal Year 2017 Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/21/2016 |
|
Series 3 |
|
|
14,000 |
|
|
$ |
29.11 |
|
|
7/31/2017 |
|
|
100 |
% |
|
|
14,000 |
|
|
10/21/2016 |
|
Series 4 |
|
|
88,674 |
|
|
$ |
29.11 |
|
|
7/31/2019 |
|
|
100 |
% |
|
|
88,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016 Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/10/2016 |
|
Series 1 |
|
|
14,625 |
|
|
$ |
21.89 |
|
|
10/31/2018 |
|
|
|
|
|
|
|
|
|
1/29/2016 |
|
Series 1 |
|
|
57,163 |
|
|
$ |
21.80 |
|
|
10/31/2018 |
|
|
|
|
|
|
|
|
|
|
|
Forfeitures(2) |
|
|
(5,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Series 1 |
|
|
66,438 |
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
66,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/19/2016 |
|
Series 3 |
|
|
82,938 |
|
|
$ |
20.89 |
|
|
7/31/2020 |
|
|
100 |
% |
|
|
82,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2015 Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/26/2015 |
|
Series 1 |
|
|
21,173 |
|
|
$ |
25.85 |
|
|
7/31/2017 |
|
|
|
|
|
|
|
|
|
12/9/2014 |
|
Series 1 |
|
|
103,499 |
|
|
$ |
17.81 |
|
|
7/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
Forfeitures(2) |
|
|
(11,685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Series 1 |
|
|
112,987 |
|
|
|
|
|
|
|
|
|
163 |
% |
|
|
184,310 |
|
|
|
|
(1) |
The percentage vesting for Series 1 performance share awards is currently estimated at 100% and 163% of the target award for the fiscal year 2016 and 2015 awards, respectively. The percentage vesting for Series 3 performance share awards is currently estimated at 100% of the target award for each of the fiscal year 2017 and 2016 awards. The percentage vesting for Series 4 performance share awards is currently estimated at 100% of the target award for the fiscal year 2017 awards. |
|
(2) |
Forfeitures include Series 1 awards that were granted in fiscal years 2016 and 2015 to certain employees that were forfeited at the termination of their employment. |
Series 1: For the fiscal year 2016 and 2015 awards, vesting is subject to performance requirements composed of certain objectives including average annual return on invested capital and annual compound growth rate in the Company’s diluted earnings per share. These objectives are assessed quarterly using the Company’s budget, actual results and long-term projections. For each of the Series 1 awards, the expected percentage of vesting is evaluated through October 31, 2016, and reflects the percentage of shares projected to vest for the respective awards at the end of their measurement periods. For the fiscal year 2016 and 2015 awards, shares vested may increase to a maximum of 200% and 167%, respectively, of the target award on achievement of maximum performance objectives.
Series 3: In fiscal year 2017, Mr. Fraser was awarded (i) a performance-based Series 3 award for 10,000 shares of common stock (at maximum) having a performance requirement related to debt payments during the fiscal year, and (ii) a performance-based Series 3 award for 4,000 shares of common stock having certain organizational objectives as a performance requirement, and in each case such awards vest and are measured over a one year period beginning August 1 and ending July 31. These awards are expected to vest at 100% of the target award. In fiscal year 2016, Mr. Fraser was awarded (i) a performance-based Series 3 award for 10,000 shares of common stock (at maximum) having a performance requirement related to debt payments during the fiscal year, and (ii) a performance-based Series 3 award for 4,000 shares of common stock having certain organizational objectives as a performance requirement, and in each case such awards vest and are measured over a one year period beginning August 1 and ending July 31. These awards fully vested as of July 31, 2016 and 14,000 shares were issued on August 5, 2016. Awards to Mr. Fraser for fiscal year 2015 included (i) a performance-based Series 3 award for 10,000 shares of common stock (at maximum) having a performance requirement related to debt payments during the fiscal year, and (ii) a performance-based Series 3 award for 4,000 shares of common stock having certain organizational objectives as a performance requirement, and in each case such awards vest and are measured over a one year period beginning August 1 and ending July 31. The award for fiscal year 2015 was fully vested and 14,000 shares were issued on October 1, 2015. In fiscal year 2016 Mr. Fraser was also awarded a performance-based Series 3 award for 82,938 shares of common stock (at target) having performance requirements related to cumulative revenue and total stockholder return. The
10
measurement period for the fiscal year 2016 award begins on November 1, 2015 and the award vests one-third (1/3) at July 31, 2018, 2019 and 2020. The shares vested may increase to a maximum of 200% of the target award on achievement of maximum performance objectives. These awards are expected to vest at 100% of the target award.
Series 4: For the fiscal year 2017 awards, each award includes two tranches. For the first tranche, vesting is subject to the achievement of an adjusted earnings before interest, taxes and depreciation and amortization (“EBITDA”) metric. For the second tranche, vesting is subject to performance requirements composed of certain objectives including average annual return on invested capital and annual compound growth rate in the Company’s diluted earnings per share. These objectives are assessed quarterly using the Company’s budget, actual results and long-term projections. For each of the Series 4 awards, the expected percentage vesting is evaluated through October 31, 2016, and reflects the percentage of shares projected to vest at the end of the measurement period. For the fiscal year 2017 awards, the shares vested in the second tranche may increase to a maximum of 200% of the target award on achievement of maximum performance objectives.
The weighted-average per share grant-date fair value of the target award shares for performance-based awards outstanding was $22.23 and $17.36 at October 31, 2016 and August 1, 2016, respectively.
The weighted-average per share grant-date fair value of the target award shares for performance-based awards granted during the three months ended October 31, 2016 and 2015 was $29.11 and $21.04, respectively.
The weighted-average per share grant-date fair value of awards forfeited during the three months ended October 31, 2015 was $19.63.
Time-Based Shares
A summary of activity for time-based stock awards for the three months ended October 31, 2016 is presented below:
|
|
|
Shares |
|
|
Weighted-Average Grant-Date Fair Value |
|
||
|
Non-vested on August 1, 2016 |
|
|
211,368 |
|
|
$ |
21.28 |
|
|
Granted (1) |
|
|
4,837 |
|
|
|
27.14 |
|
|
Vested(2) |
|
|
(11,587 |
) |
|
|
23.99 |
|
|
Non-vested on October 31, 2016 |
|
|
204,618 |
|
|
|
21.27 |
|
|
|
|
(1) |
Includes 4,837 shares granted to non-employee directors for service during the three month period ended October 31, 2016. |
|
(2) |
Includes 4,837 shares granted to non-employee directors for service for the three months ended October 31, 2016. The shares vest on the date of grant, and the Company recognizes compensation expense related to the awards over the respective service periods in accordance with GAAP. Includes 6,750 shares granted to certain employees and executives. |
The total fair value of time-based shares vested during the three months ended October 31, 2016 and 2015 was approximately $278,000 and $474,000, respectively.
11
Intangible assets are summarized as follows (in thousands):
|
|
|
Number of Years |
|
|
October 31, 2016 |
|
||||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
||
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
||
|
|
|
Amortization |
|
|
Original |
|
|
Accumulated |
|
|
Translation |
|
|
Carrying |
|
|||||
|
|
|
Period |
|
|
Cost |
|
|
Amortization |
|
|
Adjustment |
|
|
Amount |
|
|||||
|
Intangible assets subject to amortization (range of useful life): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic chemicals-related contracts (5-8 years) |
|
|
6.6 |
|
|
$ |
2,204 |
|
|
$ |
(1,170 |
) |
|
$ |
(144 |
) |
|
$ |
890 |
|
|
Electronic chemicals-related trademarks and patents (10-15 years) |
|
|
12.0 |
|
|
|
117 |
|
|
|
(91 |
) |
|
|
— |
|
|
|
26 |
|
|
Electronic chemicals-value of product qualifications (5-15 years) |
|
|
14.1 |
|
|
|
14,100 |
|
|
|
(4,836 |
) |
|
|
(1,198 |
) |
|
|
8,066 |
|
|
Other chemicals-customer relationships (15 years) |
|
|
15.0 |
|
|
|
10,291 |
|
|
|
(1,029 |
) |
|
|
— |
|
|
|
9,262 |
|
|
Other chemicals-Other related contracts (5 years) |
|
|
5.0 |
|
|
|
152 |
|
|
|
(46 |
) |
|
|
— |
|
|
|
106 |
|
|
Electronic chemicals-Tolling/License Agreements (1-3 years) |
|
|
1.4 |
|
|
|
328 |
|
|
|
(162 |
) |
|
|
(6 |
) |
|
|
160 |
|
|
Total intangible assets subject to amortization |
|
|
13.6 |
|
|
$ |
27,192 |
|
|
$ |
(7,334 |
) |
|
$ |
(1,348 |
) |
|
$ |
18,510 |
|
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other chemicals-penta product registrations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,765 |
|
|
Other chemicals-related trade name and trademark |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,885 |
|
|
Other chemicals-proprietary manufacturing process |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,808 |
|
|
Total intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,458 |
|
|
Total intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,968 |
|
|
|
|
Number of Years |
|
|
July 31, 2016 |
|
||||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
||
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
||
|
|
|
Amortization |
|
|
Original |
|
|
Accumulated |
|
|
Translation |
|
|
Carrying |
|
|||||
|
|
|
Period |
|
|
Cost |
|
|
Amortization |
|
|
Adjustment |
|
|
Amount |
|
|||||
|
Intangible assets subject to amortization (range of useful life): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic chemicals-related contracts (5-8 years) |
|
|
6.6 |
|
|
$ |
2,204 |
|
|
$ |
(1,104 |
) |
|
$ |
(117 |
) |
|
$ |
983 |
|
|
Electronic chemicals-related trademarks and patents (10-15 years) |
|
|
12.0 |
|
|
|
117 |
|
|
|
(87 |
) |
|
|
— |
|
|
|
30 |
|
|
Electronic chemicals-value of product qualifications (5-15 years) |
|
|
14.1 |
|
|
|
14,100 |
|
|
|
(4,616 |
) |
|
|
(831 |
) |
|
|
8,653 |
|
|
Other chemicals-customer relationships (15 years) |
|
|
15.0 |
|
|
|
10,291 |
|
|
|
(858 |
) |
|
|
— |
|
|
|
9,433 |
|
|
Other chemicals-other related contracts (5 years) |
|
|
5.0 |
|
|
|
152 |
|
|
|
(38 |
) |
|
|
— |
|
|
|
114 |
|
|
Electronic chemicals- Tolling/License Agreements (1-3 years) |
|
|
1.4 |
|
|
|
328 |
|
|
|
(93 |
) |
|
|
— |
|
|
|
235 |
|
|
Total intangible assets subject to amortization |
|
|
13.6 |
|
|
$ |
27,192 |
|
|
$ |
(6,796 |
) |
|
$ |
(948 |
) |
|
$ |
19,448 |
|
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other chemicals-penta product registrations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,765 |
|
|
Other chemicals-related trade name and trademark |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,885 |
|
|
Other chemicals-proprietary manufacturing process |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,808 |
|
|
Total intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,458 |
|
|
Total intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,906 |
|
Intangible assets subject to amortization are amortized over their estimated useful lives. Amortization expense was approximately $535,000 and $499,000 for the three month periods ended October 31, 2016 and 2015, respectively.
12
Dividends of approximately $0.35 million ($0.03 per share) and $0.35 million ($0.03 per share) were declared and paid in the first quarter of fiscal years 2016 and 2015, respectively. A dividend of $0.03 per share was approved by the Company’s board of directors on December 8, 2016 to be paid on January 5, 2017 to shareholders of record on December 23, 2016.
8. Segment Information
The Company has two reportable segments — electronic chemicals and other chemicals. In conjunction with the acquisition of the industrial lubricants business, the Company’s management, including the chief executive officer, who is the chief operating decision maker, determined that the Company’s operations should be reported as the electronic chemicals and other chemicals business segments.
|
|
|
Electronic Chemicals |
|
|
Other Chemicals |
|
|
Other Activities |
|
|
Consolidated |
|
||||
|
|
|
(Amounts in thousands) |
|
|||||||||||||
|
Three months ended October 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
66,921 |
|
|
$ |
9,574 |
|
|
$ |
||||||