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EX-32.1 - EX-32.1 - Williams Industrial Services Group Inc.glpw-20170930ex32111458a.htm
EX-31.3 - EX-31.3 - Williams Industrial Services Group Inc.glpw-20170930ex313277ab9.htm
EX-31.2 - EX-31.2 - Williams Industrial Services Group Inc.glpw-20170930ex31282607a.htm
EX-31.1 - EX-31.1 - Williams Industrial Services Group Inc.glpw-20170930ex311976b73.htm
EX-10.1 - EX-10.1 - Williams Industrial Services Group Inc.glpw-20170930ex101480519.htm

 

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 30, 2017

 

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

Picture 12

 


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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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 January 26, 2018, there were 17,946,386 shares of common stock of Global Power Equipment Group Inc. outstanding.

 

 

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

Table of Contents

 

 

Part I—FINANCIAL INFORMATION 

3

 

 

Item 1. Financial Statements 

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 

3

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) 

5

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2017 (unaudited) 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited) 

7

 

 

Notes to Condensed Consolidated Financial Statements (unaudited) 

8

 

 

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

23

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

35

 

 

Item 4. Controls and Procedures 

35

 

 

Part II—OTHER INFORMATION 

 

 

 

Item 1. Legal Proceedings 

35

 

 

Item 1A. Risk Factors 

35

 

 

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

36

 

 

Item 3. Defaults Upon Senior Securities 

36

 

 

Item 4. Mine Safety Disclosures 

36

 

 

Item 5. Other Information 

36

 

 

Item 6. Exhibits 

36

 

 

SIGNATURES 

38

 

 


 

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

(in thousands, except share data)

 

2017

  

2016

 

 

 

(unaudited)

 

 

(audited)

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents 

 

$

8,203

 

$

2,805

Restricted cash 

 

 

12,070

 

 

8,765

Accounts receivable, net of allowance of $1,513 and $1,289, respectively

 

 

42,081

 

 

35,083

Inventories:

 

 

 

 

 

 

Raw material

 

 

604

 

 

657

Inventory reserve

 

 

(321)

 

 

(312)

Costs and estimated earnings in excess of billings 

 

 

18,465

 

 

25,807

Other current assets 

 

 

5,945

 

 

5,304

Current assets of discontinued operations

 

 

56,029

 

 

57,301

Assets held for sale-Hetsco

 

 

 —

 

 

22,832

Total current assets 

 

 

143,076

 

 

158,242

 

 

 

 

 

 

 

Property, plant and equipment, net 

 

 

5,707

 

 

7,278

Goodwill 

 

 

35,400

 

 

35,400

Intangible assets, net 

 

 

22,826

 

 

24,801

Other long-term assets 

 

 

600

 

 

626

Long-term assets of discontinued operations

 

 

 —

 

 

8,016

Total assets 

 

$

207,609

 

$

234,363

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable 

 

$

17,368

 

$

13,470

Accrued compensation and benefits 

 

 

10,093

 

 

8,560

Billings in excess of costs and estimated earnings 

 

 

9,746

 

 

6,700

Accrued warranties 

 

 

1,215

 

 

1,307

Current portion of long-term debt, net

 

 

10,190

 

 

 —

Other current liabilities 

 

 

22,664

 

 

19,357

Current liabilities of discontinued operations

 

 

27,136

 

 

26,797

Liabilities related to assets held for sale-Hetsco

 

 

 —

 

 

1,151

Total current liabilities 

 

 

98,412

 

 

77,342

Long-term debt, net

 

 

45,061

 

 

45,341

Deferred tax liabilities

 

 

15,791

 

 

17,019

Other long-term liabilities 

 

 

2,331

 

 

2,509

Long-term liabilities of discontinued operations

 

 

2,985

 

 

5,018

Total liabilities 

 

 

164,580

 

 

147,229

Commitments and contingencies (Note 7 and 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 170,000,000 shares authorized and 19,189,764 and 18,855,409 shares issued, respectively, and 17,801,095 and 17,485,941 shares outstanding, respectively 

 

 

192

 

 

188

Paid-in capital 

 

 

78,567

 

 

76,708

Accumulated other comprehensive loss

 

 

(6,626)

 

 

(9,513)

Retained earnings (deficit)

 

 

(29,090)

 

 

19,764

Treasury stock, at par (1,388,669 and 1,369,468 common shares, respectively)

 

 

(14)

 

 

(13)

Total stockholders’ equity 

 

 

43,029

 

 

87,134

Total liabilities and stockholders’ equity 

 

$

207,609

 

$

234,363

 

See accompanying notes to condensed consolidated financial statements.

3

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(in thousands, except per share data)

  

 

2017

   

 

2016

 

 

2017

   

 

2016

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

39,040

 

$

47,364

 

$

138,253

 

$

171,902

Electrical Solutions

 

 

11,590

 

 

18,682

 

 

35,669

 

 

58,521

Total revenue

 

 

50,630

 

 

66,046

 

 

173,922

 

 

230,423

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

34,280

 

 

40,688

 

 

132,694

 

 

150,158

Electrical Solutions

 

 

17,475

 

 

16,070

 

 

45,205

 

 

53,947

Total cost of revenue

 

 

51,755

 

 

56,758

 

 

177,899

 

 

204,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross profit (loss)

 

 

(1,125)

 

 

9,288

 

 

(3,977)

 

 

26,318

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

 

995

 

 

1,382

 

 

2,872

 

 

4,551

General and administrative expenses

 

 

11,148

 

 

11,560

 

 

31,930

 

 

37,526

(Gain) loss on sale of business and net assets held for sale

 

 

 —

 

 

 9

 

 

(239)

 

 

8,202

Depreciation and amortization expense(1)

 

 

1,168

 

 

1,152

 

 

3,282

 

 

4,801

Total operating expenses

 

 

13,311

 

 

14,103

 

 

37,845

 

 

55,080

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(14,436)

 

 

(4,815)

 

 

(41,822)

 

 

(28,762)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

3,639

 

 

1,774

 

 

7,583

 

 

6,408

Other (income) expense, net

 

 

(9)

 

 

(89)

 

 

(9)

 

 

11

Total other (income) expenses, net

 

 

3,630

 

 

1,685

 

 

7,574

 

 

6,419

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income tax expense

 

 

(18,066)

 

 

(6,500)

 

 

(49,396)

 

 

(35,181)

Income tax expense (benefit)

 

 

317

 

 

266

 

 

(1,211)

 

 

1,154

Loss from continuing operations

 

 

(18,383)

 

 

(6,766)

 

 

(48,185)

 

 

(36,335)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations before income tax expense (benefit)

 

 

541

 

 

178

 

 

112

 

 

76

Income tax expense (benefit)

 

 

(855)

 

 

142

 

 

578

 

 

368

Income (loss) from discontinued operations

 

 

1,396

 

 

36

 

 

(466)

 

 

(292)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(16,987)

 

$

(6,730)

 

$

(48,651)

 

$

(36,627)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share  

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(1.04)

 

$

(0.39)

 

$

(2.74)

 

$

(2.10)

Earnings (loss) from discontinued operations

 

 

0.08

 

 

 —

 

 

(0.03)

 

 

(0.01)

Basic earnings (loss) per common share  

 

$

(0.96)

 

$

(0.39)

 

$

(2.77)

 

$

(2.11)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(1.04)

 

$

(0.39)

 

$

(2.74)

 

$

(2.10)

Earnings (loss) from discontinued operations

 

 

0.08

 

 

 —

 

 

(0.03)

 

 

(0.01)

Diluted loss per common share

 

$

(0.96)

 

$

(0.39)

 

$

(2.77)

 

$

(2.11)

 

(1)

Excludes depreciation and amortization expense for the three months ended September 30, 2017 and 2016 of $0.2 million and $0.3 million, respectively, and for the nine months ended September 30, 2017 and 2016 of $0.6 million and $0.9 million, respectively, included in cost of revenue.

 

See accompanying notes to condensed consolidated financial statements.

4

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

  

 

2017

  

 

2016

 

 

2017

  

 

2016

Net loss

 

$

(16,987)

 

$

(6,730)

 

$

(48,651)

 

$

(36,627)

Foreign currency translation adjustment

 

 

791

 

 

215

 

 

2,887

 

 

226

Comprehensive loss

 

$

(16,196)

 

$

(6,515)

 

$

(45,764)

 

$

(36,401)

 

See accompanying notes to condensed consolidated financial statements.

5

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 Per Share

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

Treasury Shares

 

 

 

(in thousands, except share data)

  

Shares

  

 

Amount

  

 

Capital

  

 

Income (Loss)

  

 

Earnings

  

Shares

  

 

Amount

  

 

Total

Balance, December 31, 2016

 

18,855,409

 

$

188

 

$

76,708

 

$

(9,513)

 

$

19,764

 

(1,369,468)

 

$

(13)

 

$

87,134

Issuance of restricted stock units

 

334,355

 

 

 4

 

 

(4)

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

(462)

 

 

 —

 

 

 —

 

(19,201)

 

 

(1)

 

 

(463)

Share-based compensation

 

 —

 

 

 —

 

 

2,131

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,131

Dividends

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9)

 

 —

 

 

 —

 

 

(9)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(48,651)

 

 —

 

 

 —

 

 

(48,651)

Adoption of ASU 2016-09 (Note 3)

 

 

 

 

 

 

 

194

 

 

 —

 

 

(194)

 

 —

 

 

 —

 

 

 —

Foreign currency translation

 

 —

 

 

 —

 

 

 —

 

 

2,887

 

 

 —

 

 —

 

 

 —

 

 

2,887

Balance, September 30, 2017

 

19,189,764

 

$

192

 

$

78,567

 

$

(6,626)

 

$

(29,090)

 

(1,388,669)

 

$

(14)

 

$

43,029

 

See accompanying notes to condensed consolidated financial statements.

6

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

(in thousands)

  

2017

  

2016

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(48,651)

 

$

(36,627)

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

 

 

 

 

 

 

Net loss from discontinued operations

 

 

466

 

 

292

Deferred income tax expense (benefit)

 

 

(1,228)

 

 

1,047

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

 

 

3,872

 

 

5,706

Amortization of deferred financing costs

 

 

526

 

 

173

Loss on disposals of property, plant and equipment

 

 

30

 

 

65

(Gain) loss on sale of business and net assets held for sale

 

 

(239)

 

 

8,202

Bad debt expense

 

 

190

 

 

(130)

Stock-based compensation

 

 

1,994

 

 

1,236

Payable-in-kind interest

 

 

2,004

 

 

 —

Changes in operating assets and liabilities, net of business sold:

 

 

 

 

 

 

Accounts receivable

 

 

(7,988)

 

 

19,423

Inventories

 

 

63

 

 

116

Costs and estimated earnings in excess of billings

 

 

7,821

 

 

(6,604)

Other current assets

 

 

3,328

 

 

(944)

Other assets

 

 

3,507

 

 

62

Accounts payable

 

 

3,861

 

 

6,309

Accrued and other liabilities

 

 

1,978

 

 

766

Accrued warranties

 

 

(92)

 

 

(1,094)

Billings in excess of costs and estimated earnings

 

 

3,046

 

 

1,409

Net cash provided by (used in) operating activities, continuing operations

 

 

(25,512)

 

 

(593)

Net cash provided by (used in) operating activities, discontinued operations

 

 

6,534

 

 

6,261

Net cash provided by (used in) operating activities

 

 

(18,978)

 

 

5,668

Investing activities:

 

 

 

 

 

 

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

 

 

20,206

 

 

 —

Net transfers of restricted cash

 

 

(19)

 

 

(8,405)

Proceeds from sale of property, plant and equipment

 

 

 —

 

 

19

Purchase of property, plant and equipment

 

 

(208)

 

 

(537)

Net cash provided by (used in) investing activities, continuing operations

 

 

19,979

 

 

(8,923)

Net cash provided by (used in) investing activities, discontinued operations

 

 

(56)

 

 

4,672

Net cash provided by (used in) investing activities

 

 

19,923

 

 

(4,251)

Financing activities:

 

 

 

 

 

 

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

 

 

(463)

 

 

(231)

Debt issuance costs

 

 

(1,872)

 

 

 —

Dividends paid

 

 

(9)

 

 

 —

Proceeds from long-term debt

 

 

171,599

 

 

32,200

Payments of long-term debt

 

 

(165,515)

 

 

(48,097)

Net cash provided by (used in) financing activities, continuing operations

 

 

3,740

 

 

(16,128)

Net cash provided by (used in) financing activities, discontinued operations

 

 

 —

 

 

 —

Net cash provided by (used in) financing activities

 

 

3,740

 

 

(16,128)

Effect of exchange rate change on cash, continuing operations

 

 

 —

 

 

 —

Effect of exchange rate change on cash, discontinued operations

 

 

713

 

 

287

Effect of exchange rate change on cash

 

 

713

 

 

287

Net change in cash and cash equivalents

 

 

5,398

 

 

(14,424)

Cash and cash equivalents, beginning of year

 

 

2,805

 

 

22,239

Cash and cash equivalents, end of quarter

 

$

8,203

 

$

7,815

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

Cash paid for interest

 

$

4,736

 

$

4,873

Cash paid for income taxes, net of refunds

 

$

1,259

 

$

1,201

Noncash repayment of revolving credit facility

 

$

(36,224)

 

$

 —

Noncash upfront fee related to senior secured term loan facility

 

$

4,550

 

$

 —

 

See accompanying notes to condensed consolidated financial statements.

7

 


 

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—BASIS OF PRESENTATION

Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended December 31, 2016 filed by Global Power Equipment Group Inc. and its wholly owned subsidiaries (“Global Power,” “we,” “us,” “our” or the “Company”) with the United States (the “U.S.”) Securities and Exchange Commission (“SEC”) on September 12, 2017 (the “2016 Form 10-K”) and include all normal recurring adjustments necessary to present fairly the unaudited condensed consolidated balance sheets and statements of operations, comprehensive loss, cash flows and stockholders’ equity for the periods indicated. All significant intercompany transactions have been eliminated. These notes should be read in conjunction with the audited consolidated financial statements included in the 2016 Form 10-K. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine month periods are not necessarily indicative of the results to be expected for the full year.

The Company reports on 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, the Company has continued to label its 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

 

 

2017

 

2016

Three Months Ended March 31

 

January 1, 2017 to April 2, 2017

 

January 1, 2016 to April 3, 2016

Three Months Ended June 30

 

April 3, 2017 to July 2, 2017

 

April 4, 2016 to July 3, 2016

Three Months Ended September 30

 

July 3, 2017 to October 1, 2017

 

July 4, 2016 to October 2, 2016

 

 

NOTE 2—LIQUIDITY

The Company’s condensed consolidated financial statements have been prepared on a going concern basis, which assumes that it will be able to meet its obligations and continue its operations during the next year. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

For the three and nine months ended September 30, 2017, the Company had a net loss from continuing operations of $18.4 million and $48.2 million, respectively, and negative cash flows from continuing operations of $25.5 million for the nine months ended September 30, 2017. Historically, the Company has funded its operations through cash on hand, asset sales and draws against its $150.0 million revolving credit facility (as amended or supplemented from time to time, the “Revolving Credit Facility”), as necessary. As a result of the Company’s continued non-compliance with the financial and certain other covenants under the Revolving Credit Facility, in July 2016, the administrative agent exercised its rights and assumed control over certain of the Company’s accounts by implementing a cash dominion process that used receipts of collateral to directly pay down debt, while allowing the Company to continue to borrow, subject to certain restrictions. As a result of this action, the Company’s liquidity under the Revolving Credit Facility was severely constrained from that time until its termination in June 2017. Since June 2017, the Company’s liquidity has remained very constrained as a result of continued losses, inconsistent cash flows from operations and its inability to borrow additional amounts for short-term working capital needs or issue additional standby letters of credit.

During 2017, the following series of significant events occurred:

·

During the first four months of 2017, the Company repatriated $10.0 million in cash from its former Netherlands subsidiary.

·

In June 2017, the Company refinanced the Revolving Credit Facility and entered into a $45.0 million, 4.5-year senior secured term loan facility (the “Initial Centre Lane Facility”) with an affiliate of Centre Lane Partners, LLC (“Centre Lane”).

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·

In August 2017, the Company entered into an amendment to the Initial Centre Lane Facility (the “Centre Lane Amendment” and, together with the Initial Centre Lane Facility, the “Centre Lane Facility”) to provide for a $10.0 million first-out term loan (the “First-Out Loan”), which matures on September 30, 2018. The remaining balance on the Centre Lane Facility does not mature until 2021.

·

After repayment of the Revolving Credit Facility and fees associated with both the Initial Centre Lane Facility and the Centre Lane Amendment, the Company’s net cash proceeds were $15.3 million.

·

On October 11, 2017, the Company sold substantially all of the operating assets and liabilities of its Mechanical Solutions segment for $43.3 million in cash, resulting in net proceeds of $40.9 million. The net proceeds were used to pay down $34.0 million of the Company’s outstanding debt, including full repayment of the First-Out Loan. In addition, this payment removed the minimum liquidity requirements under the Centre Lane Facility and satisfied the criteria necessary to avoid a payable-in-kind (“PIK”) rate increase on January 1, 2018.

·

On October 31, 2017, the Company completed the sale of its manufacturing facility in Mexico and auctioned the remaining production equipment and other assets for net proceeds of $3.6 million. Net proceeds of $1.9 million from the sale of the facility and equipment were used to reduce outstanding debt under the Centre Lane Facility. The manufacturing facility was included in the Company’s Mechanical Solutions reporting segment.

·

The remaining proceeds of $8.6 million from the sale of Mechanical Solutions and the sale of the Mexican manufacturing facility and equipment were used to fund working capital requirements.

Management, in conjunction with the Board of Directors of the Company, continues to assess and implement steps in its liquidity plan, which currently consists of the following. There is no assurance that the Company will be able to pursue these opportunities successfully.

·

Focusing on shortening the collection cycle time on the Company’s accounts receivables and lengthening the payment cycle time on its accounts payables;

·

Reducing ongoing operating expenses wherever possible, including workforce reductions and curtailments at underutilized facilities;

·

Seeking an asset-based lending facility that will enable the Company to issue letters of credit, as well as supplement its working capital needs and potentially reduce our outstanding term debt; and

·

Assessing strategic alternatives, including the potential complete divestiture of the Electrical Solutions segment in an effort to reduce our outstanding term debt.

NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements implemented by the Company during 2017 or requiring implementation in future periods are discussed below.

In the first quarter of 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU is intended to simplify various aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. As a result of the adoption of ASU 2016-09, excess tax benefits and tax deficiencies associated with option exercises and vested share awards are now recognized as income tax benefit or expense in the consolidated statement of operations instead of in additional paid-in capital. The previously unrecognized excess tax benefits as of December 31, 2016 were recorded as a decrease to deferred tax assets. However, given the valuation allowance placed on the Company’s deferred tax assets, the recognition of excess tax benefits and tax deficiencies upon adoption did not have an impact on the Company’s retained earnings. As a result of adopting the new standard utilizing the modified retrospective approach, the Company’s deferred tax assets increased $2.6 million, with a corresponding increase in its valuation allowance. Additionally, the excess tax benefits are now presented as an operating activity on the consolidated statement of cash flows, rather than as a financing activity. The adoption of the guidance affecting the cash flow presentation did not have an impact on the Company’s consolidated statements of cash flows. The Company also elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The adoption of this new guidance resulted in a cumulative-

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effect adjustment of $0.2 million decrease to retained earnings as of January 1, 2017, related to the accounting for forfeitures using the modified retrospective method.

In the first quarter of 2017, the Company adopted ASU 2015-11, “Simplifying the Measurement of Inventory.” This ASU requires an entity to measure inventory, other than that measured using last-in-first-out or the retail inventory method, at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of ASU 2015-11 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which is intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for annual and interim periods beginning after December 15, 2018 and should be applied on a retrospective basis for cash flow and net investment hedges existing on the date of adoption. The amendments to the presentation and disclosure guidance should be applied on a prospective basis. The Company does not expect the adoption of ASU 2017-12 to have a material impact on its financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU 2016-18, “Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” ASU 2016-18 requires an entity to include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. We do not expect the adoption of ASU 2016-18 to have a material impact on our financial position or results of operations. We are currently evaluating the impact adoption will have on our statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases.” The primary difference between the current requirement under generally accepted accounting principles in the U.S. and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. ASU 2016-02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases), while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. ASU 2016-02 must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company has not determined the potential impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which provides new guidance for revenue recognized from contracts with customers and will replace the existing revenue recognition guidance. ASU 2014-09 requires that revenue be recognized at an amount the Company is entitled to upon transferring control of goods or services to customers, as opposed to when risks and rewards transfer to a customer. In July 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 by one year, making it effective for the interim reporting periods within the annual reporting period beginning after December 15, 2017. This standard may be applied on a retrospective basis to all prior periods presented or on a modified retrospective basis with a cumulative adjustment to retained earnings in the year of adoption. The Company anticipates adopting the standard using the modified retrospective method. Although the Company does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated financial statements, it is still assessing the impact the adoption will have on its related disclosures and internal controls.

The FASB has issued several additional ASUs to provide implementation guidance on ASU 2014-09, including ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” issued in March 2016 and ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” issued in April 2016. The Company will consider this guidance in evaluating the impact of ASU 2014-09.

 

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NOTE 4—CHANGES IN BUSINESS

Discontinued Operations

During the third quarter of 2017, the Company made the decision to exit and sell substantially all of the operating assets and liabilities of its Mechanical Solutions segment in an effort to reduce the Company’s outstanding term debt. The Company determined that the decision to exit this segment met the definition of a discontinued operation. As a result, this segment, including TOG Manufacturing Company, Inc. which, along with TOG Holdings, Inc., was sold in July 2016, has been presented as a discontinued operation for all periods presented. The Mechanical Solutions segment was the only component of the business that qualified for discontinued operations for all periods presented.

On October 11, 2017, the Company sold substantially all of the operating assets and liabilities of its Mechanical Solutions segment and used a portion of the proceeds to pay down $34.0 million of the Company’s outstanding debt and related fees, including full repayment of the First-Out Loan. Additionally, on October 31, 2017, the Company completed the sale of its manufacturing facility in Mexico and auctioned the remaining production equipment and other assets for net proceeds of $3.6 million, of which $1.9 million was used to reduce the principal amount of the Initial Centre Lane Facility. The remainder was used to fund working capital requirements.

The Company’s gain on the sale of its Mechanical Solutions segment is currently being finalized for customary purchase price adjustments and will be included in discontinued operations in the consolidated statement of operations for the year ended December 31, 2017.

The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of discontinued operations:

 

 

 

 

 

 

 

(in thousands)

  

September 30, 2017

 

December 31, 2016

Assets:

 

 

 

 

 

 

Accounts receivable

 

$

17,301

 

$

24,197

Inventories, net

 

 

3,779

 

 

3,583

Cost and estimated earnings in excess of billings

 

 

25,051

 

 

26,890

Other current assets

 

 

2,127

 

 

2,631

Current assets of discontinued operations*

 

 

 

 

 

57,301

Property, plant and equipment, net

 

 

5,230

 

 

5,318

Goodwill and other intangible assets

 

 

1,055

 

 

1,055

Other long-term assets

 

 

1,486

 

 

1,643

Long-term assets of discontinued operations*

 

 

 

 

 

8,016

Total assets of discontinued operations

 

$

56,029

 

$

65,317

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,025

 

$

5,606

Accrued compensation and benefits 

 

 

1,894

 

 

2,080

Billings in excess of costs and estimated earnings 

 

 

2,355

 

 

54

Accrued warranties

 

 

2,921

 

 

4,499

Other current liabilities

 

 

12,789

 

 

14,558

Other long-term liabilities

 

 

2,152

 

 

 —

Current liabilities of discontinued operations

 

 

27,136

 

 

26,797

Other long-term Liabilities

 

 

 —

 

 

1,841

Liability for uncertain tax positions

 

 

2,985

 

 

3,177

Long-term liabilities of discontinued operations

 

 

2,985

 

 

5,018

Total liabilities of discontinued operations

 

$

30,121

 

$

31,815

* The total assets of discontinued operations were classified as current on the September 30, 2017 condensed consolidated balance sheet because either the sale has subsequently occurred and proceeds were collected within one year or it is expected to occur.  

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The following table presents a reconciliation of the major classes of line items constituting the net income or loss from discontinued operations. In accordance with GAAP, the amounts in the table below do not include an allocation of corporate overhead.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

  

2017

  

2016

  

2017

  

2016

Revenue

 

$

16,262

 

$

19,398

 

$

50,841

 

$

84,530

Cost of revenue

 

 

13,087

 

 

15,749

 

 

41,580

 

 

73,814

Selling and marketing expenses

 

 

690

 

 

744

 

 

2,507

 

 

2,792

General and administrative expenses

 

 

1,546

 

 

2,674

 

 

5,915

 

 

7,634

Other

 

 

398

 

 

53

 

 

727

 

 

214

Income (loss) from discontinued operations before income taxes

 

 

541

 

 

178

 

 

112

 

 

76

Income tax expense (benefit)

 

 

(855)

 

 

142

 

 

578

 

 

368

Income (loss) from discontinued operations 

 

$

1,396

 

$

36

 

$

(466)

 

$

(292)

Disposition of Hetsco

In June 2016, the Company engaged a financial advisor to assist with the sale of its wholly owned subsidiary, Hetsco, Inc. (“Hetsco”), in order to pay down debt. Hetsco was previously included in the Services segment. In connection with the Company’s decision to sell Hetsco, the net assets were adjusted to estimated fair value less estimated selling expenses which resulted in a write-down of $8.3 million in 2016. The assets and liabilities of Hetsco were reclassified to “assets held for sale-Hetsco” and “liabilities related to assets held for sale-Hetsco,” respectively, in the consolidated balance sheet for December 31, 2016.

On January 13, 2017, the Company sold the stock of Hetsco for $23.2 million in cash, inclusive of working capital adjustments. After transaction costs and an escrow withholding of $1.5 million, the net proceeds of $20.2 million were used to reduce debt. In connection with the Company’s decision to sell Hetsco, the net assets were adjusted to estimated fair value less estimated selling expenses which, resulted in a write-down of $8.3 million in 2016. In the first quarter of 2017, the Company recorded a $0.2 million adjustment, which reduced the $8.3 million loss recorded in 2016. Hetsco was previously included in the Services segment.

The significant assets and liabilities of Hetsco as of December 31, 2016 were as follows:

 

 

 

 

(in thousands)

 

December 31, 2016

Accounts receivable

 

$

4,739

Other assets

 

 

642

Property and equipment

 

 

1,230

Goodwill and other intangible assets

 

 

16,221

Assets held for sale-Hetsco

 

$

22,832

 

 

 

 

Accounts payable

 

$

355

Accrued liabilities

 

 

796

Liabilities related to assets held for sale-Hetsco

 

$

1,151

A summary of Hetsco’s income (loss) before income taxes for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

  

2017

  

2016

  

2017

  

2016

Income (loss) before income taxes

 

$

 —

 

$

883

 

$

489

 

$

(7,156)

 

 

NOTE 5—EARNINGS PER SHARE

As of September 30, 2017, the Company’s 17,801,095 shares outstanding included 15,279 shares of contingently issued but unvested restricted stock. As of September 30, 2016, the Company’s 17,466,756 shares outstanding included 36,073

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shares of contingently issued but unvested restricted stock. Restricted stock is excluded from the calculation of basic weighted average shares outstanding, but its impact, if dilutive, 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 are based on the weighted average common shares outstanding during the period, adjusted for the potential dilutive effect of common shares that would be issued upon the vesting and release of restricted stock awards and units.

Basic and diluted loss per common share from continuing operations are calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in thousands, except per share data)

  

2017

 

2016

  

2017

 

2016

Loss from continuing operations

 

$

(18,383)

 

$

(6,766)

 

$

(48,185)

 

$

(36,335)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

17,707,459

 

 

17,396,079

 

 

17,577,358

 

 

17,319,546

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(1.04)

 

$

(0.39)

 

$

(2.74)

 

$

(2.10)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

17,707,459

 

 

17,396,079

 

 

17,577,358

 

 

17,319,546

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted effect:

 

 

 

 

 

 

 

 

 

 

 

 

Unvested portion of restricted stock units and awards

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Weighted average diluted common shares outstanding

 

 

17,707,459

 

 

17,396,079

 

 

17,577,358

 

 

17,319,546