Attached files
file | filename |
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EX-4.4 - EX-4.4 - FURMANITE CORP | d72716exv4w4.htm |
EX-32.2 - EX-32.2 - FURMANITE CORP | d72716exv32w2.htm |
EX-31.1 - EX-31.1 - FURMANITE CORP | d72716exv31w1.htm |
EX-32.1 - EX-32.1 - FURMANITE CORP | d72716exv32w1.htm |
EX-31.2 - EX-31.2 - FURMANITE CORP | d72716exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from to |
Commission File Number 001-05083
FURMANITE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 74-1191271 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
2435 North Central Expressway | ||
Suite 700 | ||
Richardson, Texas | 75080 | |
(Address of principal executive offices) | (Zip Code) |
(972) 699-4000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former
Fiscal year, if changed since last report)
(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. þ Yes o 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).
o Yes o 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):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
There were 36,733,852 shares of the registrants common stock outstanding as of May 4, 2010.
FURMANITE CORPORATION AND SUBSIDIARIES
INDEX
INDEX
2
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this Report) may contain forward-looking statements within
the meaning of sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of historical facts included
in this report, including, but not limited to, statements regarding our future financial position,
business strategy, budgets, projected costs, savings and plans, and objectives of management for
future operations, are forward-looking statements. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as may, will, expect, intend,
estimate, anticipate, believe or continue or the negative thereof or variations thereon or
similar terminology. The Company bases its forward-looking statements on reasonable beliefs and
assumptions, current expectations, estimates and projections about itself and its industry. The
Company cautions that these statements are not guarantees of future performance and involve certain
risks and uncertainties that cannot be predicted. In addition, the Company based many of these
forward-looking statements on assumptions about future events that may prove to be inaccurate and
actual results may differ materially from those expressed or implied by the forward-looking
statements. You are cautioned not to place undue reliance on such statements, which speak only as
of the date of this report. Unless otherwise required by law, the Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or circumstances, or otherwise.
3
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
FURMANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 31,418 | $ | 36,117 | ||||
Accounts receivable, trade (net of allowance for doubtful accounts of $885 and $1,617
as of March 31, 2010 and December 31, 2009, respectively) |
52,838 | 52,021 | ||||||
Receivable from businesses distributed to common stockholders |
1,443 | 1,443 | ||||||
Inventories: |
||||||||
Raw materials and supplies |
17,412 | 18,226 | ||||||
Work-in-process |
10,177 | 8,231 | ||||||
Finished goods |
291 | 370 | ||||||
Prepaid expenses and other current assets |
6,597 | 7,642 | ||||||
Total current assets |
120,176 | 124,050 | ||||||
Property and equipment |
67,739 | 66,909 | ||||||
Less accumulated depreciation and amortization |
(37,318 | ) | (36,741 | ) | ||||
Property and equipment, net |
30,421 | 30,168 | ||||||
Goodwill |
13,148 | 13,148 | ||||||
Deferred tax assets |
3,489 | 3,707 | ||||||
Intangible and other assets |
3,794 | 3,916 | ||||||
Total assets |
$ | 171,028 | $ | 174,989 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | 155 | $ | 174 | ||||
Accounts payable |
17,511 | 17,077 | ||||||
Accrued expenses and other current liabilities |
23,154 | 25,599 | ||||||
Income taxes payable |
1,014 | 1,589 | ||||||
Total current liabilities |
41,834 | 44,439 | ||||||
Long-term debt, non-current |
30,107 | 30,139 | ||||||
Net pension liability |
11,571 | 12,358 | ||||||
Other liabilities |
2,713 | 2,723 | ||||||
Commitments and contingencies (Note 9) |
||||||||
Stockholders equity: |
||||||||
Series B Preferred Stock, unlimited shares authorized, none outstanding |
| | ||||||
Common stock, no par value; 60,000,000 shares authorized; 40,742,815 and 40,682,815 shares issued
as of March 31, 2010 and December 31, 2009, respectively |
4,723 | 4,723 | ||||||
Additional paid-in capital |
132,456 | 132,106 | ||||||
Accumulated deficit |
(21,468 | ) | (21,859 | ) | ||||
Accumulated other comprehensive loss |
(12,895 | ) | (11,627 | ) | ||||
Treasury stock, at cost (4,008,963 shares as of March 31, 2010 and December 31, 2009) |
(18,013 | ) | (18,013 | ) | ||||
Total stockholders equity |
84,803 | 85,330 | ||||||
Total liabilities and stockholders equity |
$ | 171,028 | $ | 174,989 | ||||
The accompanying notes are an integral part of these financial statements.
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FURMANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
(Unaudited)
For the Three Months | ||||||||
Ended March 31, | ||||||||
2010 | 2009 | |||||||
Revenues |
$ | 66,435 | $ | 63,032 | ||||
Costs and expenses: |
||||||||
Operating costs (exclusive of depreciation and amortization) |
45,662 | 42,578 | ||||||
Depreciation and amortization expense |
1,549 | 1,343 | ||||||
Selling, general and administrative expense |
18,763 | 17,471 | ||||||
Total costs and expenses |
65,974 | 61,392 | ||||||
Operating income |
461 | 1,640 | ||||||
Interest income and other income (expense), net |
342 | (94 | ) | |||||
Interest expense |
(241 | ) | (293 | ) | ||||
Income before income taxes |
562 | 1,253 | ||||||
Income tax expense |
(171 | ) | (373 | ) | ||||
Net income |
$ | 391 | $ | 880 | ||||
Earnings per common share: |
||||||||
Basic |
$ | 0.01 | $ | 0.02 | ||||
Diluted |
$ | 0.01 | $ | 0.02 | ||||
Weighted-average number of common and common equivalent shares used
in computing net income per common share: |
||||||||
Basic |
36,689 | 36,604 | ||||||
Diluted |
36,809 | 36,731 |
The accompanying notes are an integral part of these financial statements.
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Table of Contents
FURMANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
Three Months Ended March 31, 2010 (Unaudited) and Year Ended December 31, 2009
(in thousands, except share data)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Shares | Common | Paid-In | Accumulated | Comprehensive | Treasury | |||||||||||||||||||||||||||
Issued | Treasury | Stock | Capital | Deficit | Income (Loss) | Stock | Total | |||||||||||||||||||||||||
Balances at January 1, 2009 |
40,612,815 | 4,008,963 | $ | 4,715 | $ | 131,418 | $ | (19,029 | ) | $ | (7,774 | ) | $ | (18,013 | ) | $ | 91,317 | |||||||||||||||
Net loss |
| | | | (2,830 | ) | | | (2,830 | ) | ||||||||||||||||||||||
Stock-based compensation and stock
option exercises |
70,000 | | 8 | 688 | | | | 696 | ||||||||||||||||||||||||
Change in pension net actuarial loss and
prior service credit, net of tax |
| | | | | (8,918 | ) | | (8,918 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | 5,065 | | 5,065 | ||||||||||||||||||||||||
Balances at December 31, 2009 |
40,682,815 | 4,008,963 | $ | 4,723 | $ | 132,106 | $ | (21,859 | ) | $ | (11,627 | ) | $ | (18,013 | ) | $ | 85,330 | |||||||||||||||
Net income |
| | | | 391 | | | 391 | ||||||||||||||||||||||||
Stock-based compensation and stock
option exercises |
60,000 | | | 350 | | | | 350 | ||||||||||||||||||||||||
Change in pension net actuarial loss and
prior service credit, net of tax |
| | | | | 932 | | 932 | ||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | (2,200 | ) | | (2,200 | ) | ||||||||||||||||||||||
Balances at March 31, 2010 |
40,742,815 | 4,008,963 | $ | 4,723 | $ | 132,456 | $ | (21,468 | ) | $ | (12,895 | ) | $ | (18,013 | ) | $ | 84,803 | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
6
Table of Contents
FURMANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the Three Months | |||||||||||
Ended March 31, | |||||||||||
2010 | 2009 | ||||||||||
Operating activities: |
|||||||||||
Net income |
$ | 391 | $ | 880 | |||||||
Reconciliation of net income to net cash provided by operating activities: |
|||||||||||
Depreciation and amortization |
1,549 | 1,343 | |||||||||
Provision for doubtful accounts |
112 | 70 | |||||||||
Deferred income taxes |
35 | 84 | |||||||||
Stock-based compensation expense |
350 | 136 | |||||||||
Other, net |
136 | (40 | ) | ||||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable |
(930 | ) | 8,943 | ||||||||
Inventories |
(1,241 | ) | (842 | ) | |||||||
Prepaid expenses and other current assets |
672 | (192 | ) | ||||||||
Accounts payable |
200 | (4,240 | ) | ||||||||
Accrued expenses and other current liabilities |
(2,587 | ) | (184 | ) | |||||||
Income taxes payable |
(588 | ) | (248 | ) | |||||||
Other, net |
(47 | ) | 45 | ||||||||
Net cash (used in) provided by operating activities |
(1,948 | ) | 5,755 | ||||||||
Investing activities: |
|||||||||||
Capital expenditures |
(2,365 | ) | (1,410 | ) | |||||||
Acquisition of assets |
(200 | ) | | ||||||||
Proceeds from sale of assets |
164 | 12 | |||||||||
Net cash used in investing activities |
(2,401 | ) | (1,398 | ) | |||||||
Financing activities: |
|||||||||||
Payments on debt |
(52 | ) | (119 | ) | |||||||
Net cash used in financing activities |
(52 | ) | (119 | ) | |||||||
Effect of exchange rate changes on cash |
(298 | ) | (361 | ) | |||||||
(Decrease) increase in cash and cash equivalents |
(4,699 | ) | 3,877 | ||||||||
Cash and cash equivalents at beginning of period |
36,117 | 30,793 | |||||||||
Cash and cash equivalents at end of period |
$ | 31,418 | $ | 34,670 | |||||||
Supplemental cash flow information: |
|||||||||||
Cash paid for interest |
$ | 200 | $ | 320 | |||||||
Cash paid for income taxes, net of refunds received |
$ | 596 | $ | 484 |
The accompanying notes are an integral part of these financial statements.
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Table of Contents
FURMANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
For the Three Months | ||||||||
Ended March 31, | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 391 | $ | 880 | ||||
Other comprehensive loss: |
||||||||
Change in pension net actuarial loss and prior service credit, net of tax |
932 | 49 | ||||||
Foreign currency translation adjustments |
(2,200 | ) | (1,021 | ) | ||||
Total other comprehensive loss |
(1,268 | ) | (972 | ) | ||||
Comprehensive loss |
$ | (877 | ) | $ | (92 | ) | ||
The accompanying notes are an integral part of these financial statements.
8
Table of Contents
FURMANITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
March 31, 2010
(Unaudited)
1. General and Summary of Significant Accounting Policies
General
The consolidated interim financial statements include the accounts of Furmanite Corporation (the
Parent Company) and its subsidiaries (collectively, the Company). All intercompany transactions
and balances have been eliminated in consolidation. These unaudited consolidated interim financial
statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) for interim financial information, and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all the information and footnote disclosures required by U.S. GAAP for complete financial
statements. These financial statements should be read in conjunction with the consolidated
financial statements included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2009 as filed with the Securities and Exchange Commission (SEC). In the opinion of
management, all adjustments (consisting only of normal recurring adjustments) and accruals,
necessary for a fair presentation of the financial statements have been made. Interim results of
operations are not necessarily indicative of the results that may be expected for the full year.
On November 27, 2000, the Board of Directors of the Company authorized the distribution of its
pipeline, terminaling and product marketing business (the Distribution) to its stockholders in
the form of a new limited liability company, Kaneb Services LLC (KSL). On June 29, 2001, the
Distribution was completed, with each shareholder of the Company receiving one common share of KSL
for each three shares of the Companys common stock held on June 20, 2001, the record date for the
Distribution, resulting in the distribution of 10,850,000 KSL common shares. Pursuant to the
Distribution, the Company entered into an agreement (the Distribution Agreement) with KSL,
whereby KSL is obligated to pay the Company amounts equal to certain expenses and tax liabilities
incurred by the Company in connection with the Distribution. The Distribution Agreement also
requires KSL to pay the Company an amount calculated based on any income tax liability of the
Company that, in the sole judgment of the Company, (i) is attributable to increases in income tax
from past years arising out of adjustments required by federal and state tax authorities, to the
extent that such increases are properly allocable to the businesses that became part of KSL, or
(ii) is attributable to the distribution of KSLs common shares and the operations of KSLs
businesses prior to the Distribution date. In the event of an examination of the Company by federal
or state tax authorities, the Company will have unfettered control over the examination,
administrative appeal, settlement or litigation that may be involved, notwithstanding that KSL has
agreed to pay any additional tax. KSL was purchased by Valero L.P. in July 2005 and KSLs
obligations under the Distribution Agreement were assumed by Valero L.P. During 2006, accrued
income taxes and the receivable from businesses distributed to common stockholders were both
reduced by $4.6 million related to the expiration of statutes for previously provided tax
exposures. The receivable from businesses distributed to common stockholders was further reduced in
2006 by $0.5 million by adjusting retained earnings for KSL previously provided tax exposures. At
each of March 31, 2010 and December 31, 2009, $1.4 million was recorded as receivable from businesses
distributed to common stockholders pursuant to the provisions of the Distribution Agreement.
Revenue Recognition
Revenues are recorded in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 605, Revenue Recognition, when realized or realizable, and earned.
Revenues are based primarily on time and materials. Substantially all projects are generally short
term in nature. Revenues are recognized when persuasive evidence of an arrangement exists, services
to customers have been rendered or products have been delivered and risk of ownership has passed to
the customer, the selling price is fixed or determinable and collectability is reasonably assured.
Revenues are recorded, net of sales tax. The Company provides limited warranties to customers,
depending upon the service performed. Warranty claim costs were not material during either of the
three months ended March 31, 2010 or 2009.
Revenues under long-term service contracts, generally greater than six months, are accounted for
using a proportional performance method or on a straight-line basis. The Company recognizes
revenues on a proportional basis when a contract consists of milestones or activities that are
process-related and has no other material deliverables. The Company recognizes revenues on a
straight-line basis when billing terms and performance of the contract are substantially equivalent
throughout the life of the contract.
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Inventories
Inventories are valued at the lower of cost or market. Cost is determined using the weighted
average cost method. Inventory quantities on hand are reviewed regularly based on related service
levels and functionality, and carrying cost is reduced to net realizable value for inventories in
which their cost exceeds their utility, due to physical deterioration, obsolescence, changes in
price levels or other causes. Inventories consumed or products sold are included in operating
costs.
2. Earnings Per Share
Basic earnings per share are calculated as net income divided by the weighted-average number of
shares of common stock and restricted stock outstanding during the period. Diluted earnings per
share assumes issuance of the net incremental shares from stock options when dilutive. The
weighted-average common shares outstanding used to calculate diluted earnings per share reflect the
dilutive effect of common stock equivalents including options to purchase shares of common stock,
using the treasury stock method.
Basic and diluted weighted-average common shares outstanding and earnings per share include the
following (in thousands, except per share data):
For the Three Months | ||||||||
Ended March 31, | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 391 | $ | 880 | ||||
Basic weighted-average common shares outstanding |
36,689 | 36,604 | ||||||
Dilutive effect of common stock equivalents |
120 | 127 | ||||||
Diluted weighted-average common shares outstanding |
36,809 | 36,731 | ||||||
Earnings per share: |
||||||||
Basic |
$ | 0.01 | $ | 0.02 | ||||
Diluted |
$ | 0.01 | $ | 0.02 | ||||
Stock options excluded from diluted weighted-average common shares
outstanding because their inclusion would have an anti-dilutive effect: |
605 | 512 |
3. Accrued Expenses and Other Current Liabilities
Accrued expenses consist of the following (in thousands):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Compensation and benefits
1 |
$ | 10,881 | $ | 11,085 | ||||
Customer
deposit |
2,616 | 2,366 | ||||||
Estimated potential uninsured liability claims |
1,886 | 3,405 | ||||||
Value added tax payable |
1,333 | 1,612 | ||||||
Taxes other than income |
1,482 | 1,393 | ||||||
Professional, audit and legal fees |
949 | 948 | ||||||
Deferred
revenue |
678 | 365 | ||||||
Other employee related expenses |
527 | 634 | ||||||
Rent |
614 | 600 | ||||||
Payments due on purchased assets |
150 | 350 | ||||||
Interest |
41 | 42 | ||||||
Other2 |
1,997 | 2,799 | ||||||
$ | 23,154 | $ | 25,599 | |||||
1 | Includes restructuring accruals of $0.7 million as of March 31, 2010 and December 31, 2009 and $0.5 million of retirement related costs at March 31, 2010. | |
2 | Includes restructuring accruals of $0.2 million as of March 31, 2010. |
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4. Indebtedness
Long-term debt consists of the following (in thousands):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Borrowings under the revolving credit facility (the credit agreement) |
$ | 30,000 | $ | 30,000 | ||||
Capital leases |
262 | 313 | ||||||
Total long-term debt |
30,262 | 30,313 | ||||||
Less current portion of long-term debt |
(155 | ) | (174 | ) | ||||
Total long-term debt, non-current |
$ | 30,107 | $ | 30,139 | ||||
On August 4, 2009, Furmanite Worldwide, Inc. and subsidiaries (FWI), a wholly owned
subsidiary of the Parent Company, and certain foreign subsidiaries (the designated borrowers) of
FWI entered into a new credit agreement dated July 31, 2009 with Bank of America, N.A. (the
credit agreement). The credit agreement, which matures on January 31, 2013,
provides a revolving credit facility of up to $50.0 million. A portion of the amount available
under the credit agreement (not in excess of $20.0 million) is available for the issuance
of letters of credit. In addition, a portion of the amount available under the credit
agreement (not in excess of $5.0 million in the aggregate) is available for swing line loans to
FWI. The loans outstanding under the credit agreement may not exceed $35.0 million in the
aggregate to the designated borrowers.
The proceeds from the initial borrowing on the credit agreement were $35.0 million and
were used to pay the amounts outstanding under the previous loan agreement, which was scheduled to
mature in January 2010, at which time the previous loan agreement was terminated by the Company.
Letters of credit issued from the previous loan agreement were replaced with similar letters of
credit by the credit agreement. There were no material circumstances surrounding the
termination and no material early termination penalties were incurred by FWI.
At March 31, 2010 and December 31, 2009, $30.0 million was outstanding under the credit
agreement. Borrowings under the credit agreement bear interest at variable rates (based on
the prime rate, federal funds rate or Eurocurrency rate, at the option of the borrower, including a
margin above such rates, and subject to an adjustment based on a calculated funded debt to EBITDA
ratio (as defined in the credit agreement)) which was 2.5% at March 31, 2010 and December
31, 2009. The credit agreement contains a commitment fee, which ranges between 0.25% to
0.30% based on the funded debt to EBITDA ratio, and was 0.25% at March 31, 2010, based on the
unused portion of the amount available under the credit agreement. All obligations under
the credit agreement are guaranteed by FWI and certain of its subsidiaries under a
guaranty and collateral agreement, and are secured by a first priority lien on certain of FWI and
its subsidiaries assets (which approximates $118.8 million of current assets and property and
equipment as of March 31, 2010) and is without recourse to the Parent Company. FWI is subject to
certain compliance provisions including, but not limited to, maintaining certain funded debt and
fixed charge coverage ratios, tangible asset concentration levels, and capital expenditure
limitations as well as restrictions on indebtedness, guarantees and other contingent obligations
and transactions. Events of default under the credit agreement include customary events,
such as change of control, breach of covenants or breach of representations and warranties. At
March 31, 2010, FWI was in compliance with all covenants under the credit agreement.
Considering the outstanding borrowings of $30.0 million, and $3.6 million related to outstanding
letters of credit, the unused borrowing capacity under the credit agreement was $16.4
million at March 31, 2010, with a limit of $5.0 million of this capacity remaining for the
designated borrowers.
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5. Retirement Plan
Two of the Companys foreign subsidiaries have defined benefit pension plans, one plan covering
certain of its United Kingdom employees (the U.K. Plan) and the other covering certain of its
Norwegian employees (the Norwegian Plan). Since the Norwegian Plan represents approximately two
percent of the Companys total pension plan assets and liabilities, only the schedule of net
periodic pension cost includes combined amounts from the two plans, while assumption and narrative
information relates solely to the U.K. Plan.
Net pension cost for the U.K. and Norwegian Plans included the following components (in thousands):
For the Three Months | ||||||||
Ended March 31, | ||||||||
2010 | 2009 | |||||||
Service cost |
$ | 207 | $ | 111 | ||||
Interest cost |
900 | 744 | ||||||
Expected return on plan assets |
(882 | ) | (680 | ) | ||||
Amortization of prior service cost |
(23 | ) | (22 | ) | ||||
Amortization of net actuarial loss |
266 | 42 | ||||||
Net periodic pension cost |
$ | 468 | $ | 195 | ||||
The expected long-term rate of return on invested assets is determined based on the weighted
average of expected returns on asset investment categories as follows: 6.8% overall, 8.5% for
equities and 5.1% for bonds. Estimated annual pension plan contributions are assumed to be
consistent with the current expected contribution level of $0.8 million for 2010.
6. Stock-Based Compensation
The Company has stock option plans and agreements which allow for the issuance of stock options,
restricted stock awards and stock appreciation rights. For the three months ended March 31, 2010
and 2009, the total compensation cost charged against income and included in selling, general and
administrative expenses, for stock-based compensation arrangement was $0.4 million and $0.1
million, respectively. The expense for the three months ended March 31, 2010 includes $0.2 million
associated with accelerated vesting of awards in connection with the retirement of the former
Chairman and Chief Executive Officer of the Company. Tax effects from stock-based compensation are
insignificant due to the Companys current domestic tax position. The Company uses authorized but
unissued shares of common stock for stock option exercises and restricted stock issuances pursuant
to the Companys share-based compensation plan and treasury stock for issuances outside of the
plan. As of March 31, 2010, the total unrecognized compensation expense related to stock options
and restricted stock awards was $0.7 million and $0.6 million, respectively.
7. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the equity section of the consolidated balance sheets
includes the following (in thousands):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Net actuarial loss and prior service credit |
$ | (16,824 | ) | $ | (17,902 | ) | ||
Less: deferred tax benefit |
4,845 | 4,991 | ||||||
Net of tax |
(11,979 | ) | (12,911 | ) | ||||
Foreign currency translation adjustment |
(916 | ) | 1,284 | |||||
Total accumulated other comprehensive loss |
$ | (12,895 | ) | $ | (11,627 | ) | ||
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8.
Income Taxes
The Company maintains a valuation allowance to adjust the basis of net deferred tax assets in
accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 740 Income Taxes. As a result, substantially all domestic federal
income taxes, as well as certain state and foreign income taxes, recorded for the three months
ended March 31, 2010 and 2009 were fully offset by a corresponding change in valuation allowance.
The income tax expense recorded for the three months ended March 31, 2010 and 2009 consisted
primarily of income taxes due in foreign and state jurisdictions of the Company.
Income tax expense differs from the expected tax at statutory rates due primarily to the change in
valuation allowance for deferred tax assets and different tax rates in the various foreign
jurisdictions. Additionally, the aggregate tax expenses are not
always consistent when comparing periods
due to the changing income tax mix between domestic and foreign operations and within the foreign
operations. In concluding that a full valuation allowance on domestic federal and certain state and
foreign income taxes was required, the Company primarily considered such factors as the history of
operating losses and the nature of the deferred tax assets. Interim period income tax expense or
benefit is computed at the estimated annual effective tax rate, unless adjusted for specific
discrete items as required.
Income tax expense as a percentage of income before taxes was approximately 30% for each of the
three-month periods ended March 31, 2010 and 2009.
In accordance with FASB ASC 740, Income Taxes, the Company recognizes the tax benefit from
uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained
on examination by the applicable taxing authorities, based on the technical merits of the position.
The tax benefit recognized is based on the largest amount of tax benefit that is greater than 50
percent likely of being realized upon ultimate settlement with the taxing authority.
Uncertain tax positions in certain foreign jurisdictions would not impact the effective foreign tax
rate because non-current unrecognized tax benefits are offset by the foreign net operating loss
carryforwards, which are fully reserved. The Company recognizes interest expense on underpayments
of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of
the income tax provision. The Company incurred no significant interest or penalties for the three
months ended March 31, 2010 or 2009. Unrecognized tax benefits at March 31, 2010 and December 31,
2009 of $1.0 million for uncertain tax positions related to transfer pricing are included in other
liabilities on the consolidated balance sheets and would impact the effective foreign tax rate if
recognized.
A reconciliation of the change in the unrecognized tax benefits for the three months ended March
31, 2010 is as follows (in thousands):
Balance at December 31, 2009 |
$ | 1,007 | ||
Additions based on tax positions |
41 | |||
Reductions due to lapses of statutes of limitations |
(1 | ) | ||
Balance at March 31, 2010 |
$ | 1,047 | ||
9. Commitments and Contingencies
The operations of the Company are subject to federal, state and local laws and regulations in the
United States and various foreign locations relating to protection of the environment. Although the
Company believes its operations are in compliance with applicable environmental regulations, there
can be no assurance that costs and liabilities will not be incurred by the Company. Moreover, it is
possible that other developments, such as increasingly stringent environmental laws, regulations
and enforcement policies thereunder, and claims for damages to property or persons resulting from
operations of the Company, could result in costs and liabilities to the Company. The Company has
recorded, in other liabilities, an undiscounted reserve for environmental liabilities related to
the remediation of site contamination for properties in the United States in the amount of $1.2
million and $1.3 million at March 31, 2010 and December 31, 2009, respectively.
Furmanite America, Inc., a subsidiary of the Company, is involved in disputes with two customers,
who are each negotiating with a governmental regulatory agency and claim that the subsidiary failed
to provide them with satisfactory services at the customers facilities. On April 17, 2009, a
customer, INEOS USA LLC, initiated legal action against the subsidiary in the Common Pleas Court of
Allen County, Ohio, alleging that the subsidiary and one of its former employees, who performed
data services at one of the customers facilities, breached its contract with the customer and
failed to provide the customer with adequate and timely information to support the subsidiarys
work at the customers facility from 1998 through the second quarter of 2005. The customers
complaint seeks damages in an amount that the subsidiary believes represents the total proposed
civil penalty, plus the cost of unspecified supplemental environmental projects requested by the
regulatory agency to reduce air emissions at the customers facility, and also seeks unspecified
punitive damages. The subsidiary believes that it provided the customer with adequate and timely
information to support the subsidiarys work at the customers facilities and will vigorously
defend against the customers claim.
In the first quarter of 2008, a subsidiary of the Company filed an action seeking to vacate a $1.35
million arbitration award related to a sales brokerage agreement associated with a business that
the subsidiary sold in 2005. The subsidiary believes that the sales broker is an affiliate of
another company that in 2006 settled all of its claims, as well as all of the claims of its
affiliates, against the subsidiary. The action to vacate the arbitration award terminated and in
January 2010, the subsidiary paid the full amount of the arbitration award plus accrued interest to
the sales broker. In separate pending actions, the subsidiary is seeking to enforce the prior
settlement agreement executed by the sales brokers affiliate and obtain an equitable offset of the
arbitration award.
The Company has contingent liabilities resulting from litigation, claims and commitments incident
to the ordinary course of business. Management believes, after consulting with counsel, that the
ultimate resolution of such contingencies will not have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
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While the Company cannot make an assessment of the eventual outcome of all of these matters or
determine the extent, if any, of any potential uninsured liability or damage, reserves of $1.9
million and $3.4 million were recorded in accrued expenses as of March 31, 2010 and December 31,
2009, respectively.
10. Business Segment Data and Geographical Information
An operating segment is defined as a component of an enterprise about which separate financial
information is available that is evaluated regularly by the chief decision maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. For
financial reporting purposes, the Company operates in a single segment.
The technical services segment provides technical services to an international client base that
includes petroleum refineries, chemical plants, pipelines, offshore drilling and production
platforms, steel mills, food and beverage processing facilities, power generation, and other
flow-process industries.
Geographical areas are the United States, EMEA (which includes operations in
Europe, the Middle East and Africa) and Asia-Pacific. The following geographical
area information includes revenues by major service line based on the physical location of the
operations (in thousands):
United | Asia- | |||||||||||||||
States | EMEA | Pacific | Total | |||||||||||||
Three months ended March 31, 2010: |
||||||||||||||||
Under pressure services |
$ | 11,378 | $ | 9,555 | $ | 4,064 | $ | 24,997 | ||||||||
Turnaround services |
15,363 | 10,636 | 3,718 | 29,717 | ||||||||||||
Other services |
4,826 | 6,070 | 825 | 11,721 | ||||||||||||
Total revenues |
$ | 31,567 | $ | 26,261 | $ | 8,607 | $ | 66,435 | ||||||||
Three months ended March 31, 2009: |
||||||||||||||||
Under pressure services |
$ | 9,391 | $ | 9,731 | $ | 2,662 | $ | 21,784 | ||||||||
Turnaround services |
15,482 | 10,774 | 2,404 | 28,660 | ||||||||||||
Other services |
5,201 | 6,694 | 693 | 12,588 | ||||||||||||
Total revenues |
$ | 30,074 | $ | 27,199 | $ | 5,759 | $ | 63,032 | ||||||||
Historically, the Company has not allocated headquarter costs to its operating locations.
However, if the headquarter costs had been allocated to all the operating locations, the operating
income by geographical area based on physical location would have been as follows (in thousands):
United | Asia- | |||||||||||||||
States | EMEA | Pacific | Total | |||||||||||||
Three months ended March 31, 2010: |
||||||||||||||||
Operating income (loss)1 |
$ | (684 | ) | $ | (636 | ) | $ | 1,781 | $ | 461 | ||||||
Allocation of headquarter costs |
2,130 | (1,610 | ) | (520 | ) | | ||||||||||
Adjusted operating income (loss) |
$ | 1,446 | $ | (2,246 | ) | $ | 1,261 | $ | 461 | |||||||
Three months ended March 31, 2009: |
||||||||||||||||
Operating income (loss) |
$ | (905 | ) | $ | 2,075 | $ | 470 | $ | 1,640 | |||||||
Allocation of headquarter costs |
1,368 | (1,138 | ) | (230 | ) | | ||||||||||
Adjusted operating income |
$ | 463 | $ | 937 | $ | 240 | $ | 1,640 | ||||||||
1 | Includes the impact of restructuring charges totaling $0.2 million and $1.7 million in the United States and EMEA, respectively. |
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The following geographical area information includes total long-lived assets (which consist of
all non-current assets, other than goodwill, indefinite-lived intangible assets and deferred tax
assets) based on physical location (in thousands):
March 31 | December 31, | |||||||
2010 | 2009 | |||||||
United States |
$ | 17,429 | $ | 17,050 | ||||
EMEA |
11,147 | 11,248 | ||||||
Asia-Pacific |
3,577 | 3,717 | ||||||
$ | 32,153 | $ | 32,015 | |||||
11. Fair Value of Financial Instruments and Credit Risk
Fair value is defined under FASB ASC 820-10, Fair Value Measurement as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under FASB
ASC 820-10 must maximize the use of the observable inputs and minimize the use of unobservable
inputs. The standard established a fair value hierarchy based on three levels of inputs, of which
the first two are considered observable and the last unobservable.
| Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. |
| Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments. |
| Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entitys own assumptions about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. |
The Company currently does not have any assets or liabilities that would require valuation under
FASB ASC 820-10, except for pension assets. The Company does not have any derivatives or marketable
securities. The estimated fair value of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their carrying amounts due to the relatively short
period to maturity of these instruments. The estimated fair value of all debt as of March 31, 2010
and December 31, 2009 approximated the carrying value. These fair values were estimated based on
the Companys current incremental borrowing rates for similar types of borrowing arrangements, when
quoted market prices were not available. The estimates are not necessarily indicative of the
amounts that would be realized in a current market exchange.
The Company provides services to an international client base that includes petroleum refineries,
chemical plants, offshore energy production platforms, steel mills, nuclear power stations,
conventional power stations, pulp and paper mills, food and beverage processing plants, other flow
process facilities as well as the U.S. government. The Company does not believe that it has a
significant concentration of credit risk at March 31, 2010, as the Companys accounts receivable
are generated from these business industries with customers located throughout the United States,
EMEA and Asia-Pacific.
12. Restructuring
In the fourth quarter of 2009, the Company committed to a cost reduction initiative, including
planned workforce reductions and consolidation of certain functions. The Company has taken these
specific actions in order to strategically align the Companys operating, selling, general and administrative costs
relative to revenues. The Company has completed a substantial portion of these cost
reduction initiatives through first quarter of 2010, however additional costs are expected to be
recognized throughout 2010, although to a lesser extent.
In connection with this plan, the Company has recorded estimated expenses for severance, lease
cancellations, and other restructuring costs in accordance with FASB ASC 420-10, Exit or Disposal
Cost Obligations and FASB ASC 712-10, Nonretirement Postemployment Benefits.
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During the first quarter of 2010, the Company recorded $1.9 million in restructuring charges, which
included $1.2 million for severance and benefit costs, $0.3 million for lease costs, and $0.4
million for other restructuring costs. Of these charges, $0.2
million and $1.7 million were incurred in the United States and EMEA, respectively. Restructuring
costs of $0.7 million and $1.2 million are included in operating costs and selling, general and
administrative expenses, respectively. As of March 31, 2010, the Company has severance and benefit
liabilities of $0.7 million included in accrued compensation and benefits and $0.2 million included
in accrued other, which relates to 2010 charges expected to be paid during the second quarter of
2010.
The total amount of restructuring costs estimated to be incurred in connection with this cost
reduction initiative is $3.4 million. Through March 31, 2010, the Company has recorded total
cumulative restructuring charges of $3.0 million, which include $2.1 million for severance and
benefit costs, $0.3 million for lease costs, and $0.6 million for other restructuring costs. Of
the total charges, $0.6 million and $2.4 million were incurred in the United States and EMEA,
respectively, with only minimal restructuring costs incurred in Asia-Pacific. Approximately $0.4
million is estimated to be incurred during the remainder of 2010, relating to lease costs in
EMEA.
Total workforce reductions related to this cost reduction initiative, which began in the fourth
quarter of 2009, have included terminations for 101 employees, which include reductions of 27
employees in the United States, 73 employees in EMEA, and one employee in Asia-Pacific.
As the Company has continued to review its business for operating efficiencies during the first
quarter of 2010, other selling, general and administrative cost reduction opportunities have also
been identified, which are expected to result in further one-time restructuring costs. These
additional cost reduction opportunities will relate primarily to improving the operational and
administrative efficiency of our central European operations, while also expanding coverage within
this region. At this time, the Company cannot estimate the total amount or range of amounts
expected to be incurred in connection with the new initiative or the amount of charges that will
result in future cash expenditures.
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FURMANITE CORPORATION AND SUBSIDIARIES
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the unaudited consolidated financial
statements and notes thereto of Furmanite Corporation included in Item 1 of this Quarterly Report
on Form 10-Q.
Business Overview
Furmanite Corporation (the Parent Company) together with its subsidiaries (collectively the
Company) provides specialized technical services, including under pressure services such as leak
sealing, hot tapping, line stopping, line isolation, composite repair and valve testing. In
addition, the Company provides turnaround services including on-site machining, heat treatment,
bolting, valve repair, and other services including heat exchanger design and repair, concrete
repair and valve and other product manufacturing. These products and services are provided
primarily to electric power generating plants, petroleum refineries and other process industries in
Europe, the Middle East, Africa (collectively EMEA), North America, Latin America, and Asia-Pacific through Furmanite
Worldwide, Inc. and its domestic and international subsidiaries and affiliates (collectively,
Furmanite).
Financial Overview
For the three months ended March 31, 2010, consolidated revenues increased by $3.4 million, or
5.4%, to $66.4 million, compared to $63.0 million for the three months ended March 31, 2009,
primarily related to foreign currency exchange rate changes. The Companys net income for the three
months ended March 31, 2010 decreased $0.5 million as compared to the three months ended March 31,
2009. The decrease in net income was a direct result of restructuring costs incurred during the
quarter in connection with the cost reduction initiative, which was initiated in the fourth quarter
of 2009, and undertaken to strategically align the Companys operating, selling, general and
administrative costs relative to revenues. These restructuring costs negatively impacted operating
income and net income by $1.9 million and $1.6 million, respectively. The negative cost effect of
the restructuring was partially offset by operational improvements as the effects of the
restructuring began to be realized. In addition, interest income and other income (expense) was
favorably impacted based on the Companys reduced exposure to foreign currency exchange rate
changes.
The Companys diluted earnings per share for the three months ended March 31, 2010 were $0.01 as
compared to $0.02 for the three months ended March 31, 2009.
Results of Operations
For the Three Months | ||||||||
Ended March 31, | ||||||||
2010 | 2009 | |||||||
(in thousands, except per share data) | ||||||||
(Unaudited) | ||||||||
Revenues |
$ | 66,435 | $ | 63,032 | ||||
Costs and expenses: |
||||||||
Operating costs (exclusive of depreciation and amortization) |
45,662 | 42,578 | ||||||
Depreciation and amortization expense |
1,549 | 1,343 | ||||||
Selling, general and administrative expense |
18,763 | 17,471 | ||||||
Total costs and expenses |
65,974 | 61,392 | ||||||
Operating income |
461 | 1,640 | ||||||
Interest income and other income (expense), net |
342 | (94 | ) | |||||
Interest expense |
(241 | ) | (293 | ) | ||||
Income before income taxes |
562 | 1,253 | ||||||
Income tax expense |
(171 | ) | (373 | ) | ||||
Net income |
$ | 391 | $ | 880 | ||||
Earnings per share: |
||||||||
Basic |
$ | 0.01 | $ | 0.02 | ||||
Diluted |
$ | 0.01 | $ | 0.02 |
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Geographical information
For the Three Months | ||||||||
Ended March 31, | ||||||||
2010 | 2009 | |||||||
Revenues: |
||||||||
United States |
$ | 31,567 | $ | 30,074 | ||||
EMEA |
26,261 | 27,199 | ||||||
Asia-Pacific |
8,607 | 5,759 | ||||||
Total revenues |
66,435 | 63,032 | ||||||
Costs and expenses: |
||||||||
Operating costs (exclusive of depreciation and amortization) |
||||||||
United States |
20,764 | 20,236 | ||||||
EMEA |
19,927 | 18,623 | ||||||
Asia-Pacific |
4,971 | 3,719 | ||||||
Total operating costs (exclusive of depreciation and amortization) |
45,662 | 42,578 | ||||||
Depreciation and amortization expense |
||||||||
United States, including corporate |
812 | 790 | ||||||
EMEA |
467 | 351 | ||||||
Asia-Pacific |
270 | 202 | ||||||
Total depreciation and amortization expense |
1,549 | 1,343 | ||||||
Selling, general and administrative expense |
||||||||
United States, including corporate |
10,675 | 9,953 | ||||||
EMEA |
6,503 | 6,150 | ||||||
Asia-Pacific |
1,585 | 1,368 | ||||||
Total selling general and administrative expense |
18,763 | 17,471 | ||||||
Total costs and expenses |
$ | 65,974 | $ | 61,392 | ||||
Geographical areas are the United States, EMEA
and Asia-Pacific. The following discussion
and analysis, as it relates to geographic information, excludes any allocation of headquarter costs
to EMEA and Asia Pacific.
Revenues
For the three months ended March 31, 2010, consolidated revenues increased by $3.4 million, or
5.4%, to $66.4 million, compared to $63.0 million for the three months ended March 31, 2009.
Changes related to foreign currency exchange rates favorably impacted revenues by $3.3 million, of
which $1.8 million and $1.5 million were related to favorable impacts from EMEA and Asia-Pacific,
respectively. Excluding the foreign currency exchange rate impact, revenues increased by $0.1
million, or 0.1%, for the three months ended March 31, 2010 compared to the same period for the
prior year. This $0.1 million increase in revenues consisted of a $1.4 million increase in the
United States and a $1.4 million increase in Asia-Pacific, partially offset by a $2.7 million
decrease in EMEA. The increase in revenues in the United States was primarily due to increases in
underpressure services, which included volume increases in composite repair, leak sealing, and line
stopping of approximately 26% when compared to revenues in the same period for the prior year. The
increase in revenues in Asia-Pacific was attributable to increases in both underpressure and
turnaround services in Australia, which included volume increases in leak sealing, hot tapping and
bolting services. The decrease in revenues in EMEA was attributable to volume decreases in
underpressure services of approximately 9% and in turnaround services of approximately 7%, which
included decreases in hot tapping, heat treating and valve repair services, when compared to
revenues in the same period for the prior year.
Operating Costs (exclusive of depreciation and amortization)
For the
three months ended March 31, 2010, operating costs increased $3.1 million, or 7.2%, to $45.7
million, compared to $42.6 million for the three months ended March 31, 2009. The change related to
foreign currency exchange rates unfavorably impacted costs by $2.2 million, of which $1.2 million
and $1.0 million were related to unfavorable impacts from EMEA and Asia-Pacific, respectively.
Excluding the foreign currency exchange rate impact, operating costs increased $0.9 million, or
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2.1% for the three months ended March 31, 2010, compared to the same period for the prior year.
This change consisted of a $0.5 million, $0.3 million, and a $0.1 million increase in the United
States, Asia-Pacific and EMEA, respectively. The increase in operating costs in the United States
was attributable to higher labor and travel costs of approximately 2% when compared to the same
period for the prior year, which was consistent with the increase in revenue. The increase in
operating costs in Asia-Pacific was attributable to an increase in labor and material costs
associated with the increased revenues in Australia. The increase in EMEA was primarily due to
$0.7 million of severance related restructuring costs partially offset by decreased labor and
material costs, consistent with the decrease in revenue.
Operating costs as a percentage of revenue were 68.7% and 67.5% for the three months ended March
31, 2010 and 2009, respectively.
Depreciation and Amortization
For the three months ended March 31, 2010, depreciation and amortization expense increased $0.2
million, or 15.3% when compared to the same period for the prior year. The change related to
foreign currency exchange rates unfavorably impacted depreciation and amortization expense by $0.1
million for the three months ended March 31, 2010. Excluding the foreign currency exchange rate
impact, depreciation and amortization expense for the three months ended March 31, 2010 was $0.1
million higher compared to the same period for the prior year, due to capital expenditures of
approximately $7.5 million over the twelve-month period ended March 31, 2010.
Selling, General and Administrative
In late 2009, the Company undertook a cost reduction initiative to realign selling, general and
administrative costs with its current level of operations. The ongoing initiative has initially
resulted in additional severance and consolidation costs, but is expected to reduce ongoing expense levels.
As a result of the initiative, restructuring costs incurred in the three months ended March 31,
2010, totaled $1.2 million of which $0.2 million and $1.0 million were incurred in the United
States and EMEA, respectively. The costs incurred were primarily related to severance and related
costs of $0.5 million, lease termination costs of $0.3 million and other restructuring costs of
$0.4 million.
For the three months ended March 31, 2010, selling, general and administrative expenses increased
$1.3 million, or 7.4%, to $18.8 million compared to $17.5 million for the three months ended March
31, 2009. The portion of the change related to foreign currency exchange rates unfavorably impacted
costs by $0.7 million, of which $0.4 million and $0.3 million were
related to unfavorable impacts in EMEA and Asia-Pacific, respectively. Excluding the foreign
currency exchange rate differences, selling, general and administrative expenses increased $0.6
million, or 3.4%, for the three months ended March 31, 2010, compared to the same period for the
prior year. This $0.6 million increase in selling, general and administrative costs consisted of a
$0.7 million increase in the United States, partially offset by a $0.1 million decrease in EMEA.
The United States increase in selling, general and administrative expenses was primarily related to
$0.5 million of costs incurred in connection with the retirement of its former Chairman and Chief
Executive Officer during the first quarter of 2010, as well as restructuring charges of $0.2
million when compared to the same period for the prior year. Selling, general and administrative costs in EMEA remained relatively
flat when compared to the prior year, as the $1.0 million of restructuring expenses incurred in the
three months ended March 31, 2010 was fully offset by reduced selling, general and administrative
costs in the quarter resulting from reduced revenues for the period, as well as the beginning
effects of reduced ongoing costs as a result of restructuring initiative.
Interest Expense
For the three months ended March 31, 2010, consolidated interest expense decreased by $52.0
thousand when compared to the same period for the prior year. The decrease in interest expense for
the three-month period ended March 31, 2010, resulted from decrease in average outstanding debt and
interest rates.
Income Taxes
The Company maintains a valuation allowance to adjust the basis of net deferred tax assets in
accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 740 Income Taxes. As a result, substantially all domestic federal
income taxes, as well as certain state and foreign income taxes, recorded for the three months
ended March 31, 2010 and 2009 were fully offset by a corresponding change in valuation allowance.
The income tax expense recorded for the three months ended March 31, 2010 and 2009 consisted
primarily of income taxes due in foreign and state jurisdictions of the Company.
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Income tax expense differs from the expected tax at statutory rates due primarily to the change in
valuation allowance for deferred tax assets and different tax rates in the various foreign
jurisdictions. Additionally, the aggregate tax expenses are not
always consistent when comparing periods
due to the changing income tax mix between domestic and foreign operations and within the foreign
operations. In concluding that a full valuation allowance on domestic federal and certain state and
foreign income taxes was required, the Company primarily considered such factors as the history of
operating losses and the nature of the deferred tax assets. Interim period income tax expense or
benefit is computed at the estimated annual effective tax rate, unless adjusted for specific
discrete items as required.
Income tax
expense as a percentage of income before taxes was approximately 30%
for each of the three-month periods
ended March 31, 2010 and 2009.
Liquidity and Capital Resources
The Companys liquidity and capital resources requirements include the funding of working capital
needs, the funding of capital investments and the financing of internal growth.
Net cash used in operating activities was $1.9 million for the three months ended March 31, 2010
compared to net cash provided by operating activities of $5.7 million for the three months ended
March 31, 2009. The increases in net cash used in operating activities was primarily due to the
changes in operating assets and liabilities which were driven by accounts receivable and accounts
payable changes that decreased cash flows by $0.7 million for the three months ended March 31, 2010
compared to an increase of approximately $4.7 million in the three months ended March 31, 2009. The
slight decrease in the accounts as experienced in the first quarter of 2010 is typical for the
Companys first quarter, as working capital tends to build in connection with increased activity in
the spring months. The changes experienced in the first quarter of 2009 were a result of a strong
fourth quarter of 2008, followed by a significantly lower revenue level in the first quarter of
2009. In addition, the Company paid approximately $1.5 million in the first quarter of 2010 related
to an arbitration award settlement.
Net cash used in investing activities was $2.4 million for the three months ended March 31, 2010
compared to $1.4 million for the three months ended March 31, 2009. Investing activities primarily
consist of capital expenditures which totaled $2.3 million for the three months ended March 31, 2010
compared to $1.4 million for the same period in the prior year. The increase in capital
expenditures compared to the prior year is due to the deferment of some capital projects in 2009
due to the difficult economic environment, as well as expenditures in the current year associated with the
consolidation of certain facilities.
Consolidated capital expenditures for the calendar year 2010 have been budgeted at $9.0 to $11.0
million. Such expenditures, however, will depend on many factors beyond the Companys control,
including, without limitation, demand for services as well as domestic and foreign government
regulations. No assurance can be given that required capital expenditures will not exceed
anticipated amounts during 2010 or thereafter. Capital expenditures during the year are expected to
be funded from existing cash and anticipated cash flows from operations.
Net cash used in financing activities was $0.1 million for both of the three months ended March 31,
2010 and 2009. Financing activities primarily consisted of principal payments on long-term capital
leases.
While the markets in which the Company operates appear to be stabilizing, the effect of the global
financial crisis, which negatively affected the Companys results over the past year, continues to
impact the global economy in varying degrees, and as such, the Company believes that the risks to
its business and its customers remains heightened. Lower levels of liquidity and capital adequacy
affecting lenders, increases in defaults and bankruptcies by customers and suppliers, and
volatility in credit and equity markets could continue to negatively affect the Companys business,
operating results, cash flows or financial condition in a number of ways, including reductions in
revenues and profits, increased bad debts, and financial instability of suppliers and insurers.
On August 4, 2009, Furmanite Worldwide, Inc. and subsidiaries (FWI), a wholly owned subsidiary of
the Parent Company, and certain foreign subsidiaries (the designated borrowers) of FWI entered
into a new credit agreement dated July 31, 2009 with Bank of America, N.A. (the credit
agreement). The credit agreement, which matures on January 31, 2013, provides a revolving
credit facility of up to $50.0 million. A portion of the amount available under the credit
agreement (not in excess of $20.0 million) is available for the issuance of letters of credit. In
addition, a portion of the amount available under the credit agreement (not in excess of
$5.0 million in the aggregate) is available for swing line loans to FWI. The loans outstanding
under the credit agreement may not exceed $35.0 million in the aggregate to the designated
borrowers.
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The proceeds from the initial borrowing on the credit agreement were $35.0 million and
were used to pay the amounts outstanding under the previous loan agreement, which was scheduled to
mature in January 2010, at which time the previous loan agreement was terminated by the Company.
Letters of credit issued from the previous loan agreement were replaced with similar letters of
credit by the credit agreement. There were no material circumstances surrounding the
termination and no material early termination penalties were incurred by FWI.
At March 31, 2010 and December 31, 2009, $30.0 million was outstanding under the credit
agreement. Borrowings under the credit agreement bear interest at variable rates (based on
the prime rate, federal funds rate or Eurocurrency rate, at the option of the borrower, including a
margin above such rates, and subject to an adjustment based on a calculated funded debt to EBITDA
ratio (as defined in the credit agreement)) which was 2.5% at March 31, 2010 and December
31, 2009. The credit agreement contains a commitment fee, which ranges between 0.25% to
0.30% based on the funded debt to EBITDA ratio, and was 0.25% at March 31, 2010, based on the
unused portion of the amount available under the credit agreement. All obligations under
the credit agreement are guaranteed by FWI and certain of its subsidiaries under a
guaranty and collateral agreement, and are secured by a first priority lien on certain of FWI and
its subsidiaries assets (which approximates $118.8 million of current assets and property and
equipment as of March 31, 2010) and is without recourse to the Parent Company. FWI is subject to
certain compliance provisions including, but not limited to, maintaining certain funded debt and
fixed charge coverage ratios, tangible asset concentration levels, and capital expenditure
limitations as well as restrictions on indebtedness, guarantees and other contingent obligations
and transactions. Events of default under the credit agreement include customary events,
such as change of control, breach of covenants or breach of representations and warranties. At
March 31, 2010, FWI was in compliance with all covenants under the credit agreement.
Considering the outstanding borrowings of $30.0 million, and $3.6 million related to outstanding
letters of credit, the unused borrowing capacity under the credit agreement was $16.4
million at March 31, 2010, with a limit of $5.0 million of this capacity remaining for the
designated borrowers.
On November 27, 2000, the Board of Directors of the Company authorized the distribution of its
pipeline, terminaling and product marketing business (the Distribution) to its stockholders in
the form of a new limited liability company, Kaneb Services LLC (KSL). On June 29, 2001, the
Distribution was completed, with each shareholder of the Company receiving one common share of KSL
for each three shares of the Companys common stock held on June 20, 2001, the record date for the
Distribution, resulting in the distribution of approximately 10,850,000 KSL common shares. Pursuant
to the Distribution, the Company entered into an agreement (the Distribution Agreement) with KSL,
whereby KSL is obligated to pay the Company amounts equal to certain expenses and tax liabilities
incurred by the Company in connection with the Distribution.
The Distribution Agreement also requires KSL to pay the Company an amount calculated based on any
income tax liability of the Company that, in the sole judgment of the Company, (i) is attributable
to increases in income tax from past years arising out of adjustments required by federal and state
tax authorities, to the extent that such increases are properly allocable to the businesses that
became part of KSL, or (ii) is attributable to the distribution of KSLs common shares and the
operations of KSLs businesses prior to the Distribution date. In the event of an examination of
the Company by federal or state tax authorities, the Company will have unfettered control over the
examination, administrative appeal, settlement or litigation that may be involved, notwithstanding
that KSL has agreed to pay any additional tax. KSL was purchased by Valero L.P. in July 2005 and
KSLs obligations under the Distribution Agreement were assumed by Valero L.P. During 2006, accrued
income taxes and the receivable from businesses distributed to common stockholders were both
reduced by $4.6 million related to the expiration of statutes for previously provided tax
exposures. The receivable from businesses distributed to common stockholders was further reduced in
2006 by $0.5 million by adjusting retained earnings for KSL previously provided tax exposures. At
each of March 31, 2010 and December 31, 2009, $1.4 million was recorded as receivable from businesses
distributed to common stockholders pursuant to the provisions of the Distribution Agreement.
The Company does not anticipate paying any dividends as it believes investing earnings back into
the Company will provide a better long-term return to stockholders in increased per share value.
The Company believes that funds generated from operations, together with existing cash and
available credit under existing debt facilities, will be sufficient to finance current operations,
planned capital expenditure requirements and internal growth for the foreseeable future.
Critical Accounting Policies and Estimates
The preparation of the Companys financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Significant policies are presented in the Notes to the Consolidated Financial Statements
and under Item 7. Managements Discussion and
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Analysis of Financial Condition and Results of
Operations in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.
Critical accounting policies are those that are most important to the portrayal of the Companys
financial position and results of operations. These policies require managements most difficult,
subjective or complex judgments, often employing the use of estimates about the effect of matters
that are inherently uncertain. The Companys critical accounting policies and estimates, for which
no significant changes have occurred in the three months ended March 31, 2010, include revenue
recognition, allowance for doubtful accounts, goodwill and intangible assets, stock-based
compensation, income taxes, defined benefit pension plan, contingencies and restructuring accrual.
Critical accounting policies are discussed regularly, at least quarterly, with the Companys Audit
Committee.
Revenue Recognition
Revenues are recorded in accordance with FASB ASC 605, Revenue Recognition, when realized or
realizable, and earned.
Revenues are based primarily on time and materials. Substantially all projects are generally short
term in nature. Revenues are recognized when persuasive evidence of an arrangement exists, services
to customers have been rendered or products have been delivered and risk of ownership has passed to
the customer, the selling price is fixed or determinable and collectability is reasonably assured.
Revenues are recorded, net of sales tax. The Company provides limited warranties to customers,
depending upon the service performed.
Revenues under long-term service contracts, generally greater than six months, are accounted for
using a proportional performance method or on a straight-line basis. The Company recognizes
revenues on a proportional basis when a contract consists of milestones or activities that are
process-related and has no other material deliverables. The Company recognizes revenues on a
straight-line basis when billing terms and performance of the contract are substantially equivalent
throughout the life of the contract.
Allowance for Doubtful Accounts
Credit is extended to customers based on evaluation of the customers financial condition and
generally collateral is not required. Accounts receivable outstanding longer than contractual
payment terms are considered past due. The Company regularly evaluates and adjusts accounts
receivable as doubtful based on a combination of write-off history, aging analysis and information
available on specific accounts. The Company writes off accounts receivable when they become
uncollectible. Any payments subsequently received on such receivables are credited to the allowance
in the period the payment is received.
Goodwill, Intangible and Long-Lived Assets
The Company accounts for goodwill and other intangible assets in accordance with the provisions of
FASB ASC 350, Intangibles Goodwill and Other. Under FASB ASC 350, intangible assets with lives
restricted by contractual, legal or other means are amortized over their useful lives. At March 31,
2010 and December 31, 2009, the Company had no significant intangible assets subject to
amortization under FASB ASC 350. Goodwill and other intangible assets not subject to amortization
are tested for impairment annually, or more frequently if events or changes in circumstances
indicate that the assets might be impaired. Examples of such events or circumstances include a
significant adverse change in legal factors or in the business climate, an adverse action or
assessment by a regulator, or a loss of key personnel.
FASB ASC 350 requires a two-step process for testing goodwill impairment. First, the fair value of
each reporting unit is compared to its carrying value to determine whether an indication of
impairment exists. A reporting unit is an operating segment or one level below an operating segment
(referred to as a component). Two or more components of an operating segment shall be aggregated
and deemed a single reporting unit if the components have similar economic characteristics. The
Company has two reporting units, Furmanite and Xtria for the purpose of testing goodwill
impairment, as the operating results of these components are reviewed separately by management and
cannot be aggregated. All goodwill of the Company relates to Furmanite, accordingly, impairment of
goodwill is tested for that reporting unit. Second, if an impairment is indicated, the implied fair
value of the reporting units goodwill is determined by allocating the units fair value to its
assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had
been acquired in a business combination. The amount of impairment for goodwill and other intangible
assets is measured as the excess of the carrying value over the implied fair value.
The Company uses market capitalization as the basis for its measurement of fair value, and
reconciles the aggregate fair values of its reporting units to the enterprise market
capitalization. Management considers this approach the most meaningful
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measure as substantially
all of the Companys fair value is attributable to the Furmanite reporting unit and the quoted
market price provides the best evidence of fair value. In performing the reconciliation, the
Company uses the stock price on December 31 of each year as the valuation date. On December 31,
2009, Furmanites fair value substantially exceeded its carrying value.
The Company accounts for long-lived assets in accordance with the provisions of FASB ASC 360,
Property, Plant, and Equipment. Under FASB ASC 360, the Company reviews long-lived assets, which
consist of finite-lived intangible assets and property and equipment, for impairment whenever
events or changes in business circumstances indicate that the carrying amount of the assets may not
be fully recoverable or that the useful lives of these assets are no longer appropriate. Factors
that may affect recoverability include changes in planned use of equipment, closing of facilities
and discontinuance of service lines. Property and equipment to be held and used is reviewed at
least annually for possible impairment. The Companys impairment review is based on an estimate of
the undiscounted cash flow at the lowest level for which identifiable cash flows exist. Impairment
occurs when the carrying value of the assets exceeds the estimated future undiscounted cash flows
generated by the asset and the impairment is viewed as other than temporary. When impairment is
indicated, an impairment charge is recorded for the difference between the carrying value of the
asset and its fair market value. Depending on the asset, fair market value may be determined either
by use of a discounted cash flow model or by reference to estimated selling values of assets in
similar condition.
Stock-Based Compensation
All stock-based compensation is recognized as an expense in the financial statements and such costs
are measured at the fair value of the award at the date of grant. The fair value of stock-based
payment awards on the date of grant as determined by the Black-Scholes model is affected by the
Companys stock price on the date of the grant as well as other assumptions. Assumptions utilized
in the fair value calculations include the expected stock price volatility over the term of the
awards (estimated using the historical volatility of the Companys stock price), the risk free
interest rate (based on the U.S. Treasury Note rate over the expected term of the option), the
dividend yield (assumed to be zero, as the Company has not paid, nor anticipates paying any cash
dividends in the foreseeable future), and employee stock option exercise behavior and forfeiture assumptions (based on
historical experience and other relevant factors).
Income Taxes
The Company adopted the provisions of FASB ASC 740-10-65 on January 1, 2007. The adoption of FASB
ASC 740-10-65 had no net impact on the Companys tax reserves during 2007. Uncertain tax positions
in certain foreign jurisdictions would not impact the effective foreign tax rate because
unrecognized non-current tax benefits are offset by the foreign net operating
loss carryforwards, which are fully reserved. The Company recognizes interest expense on
underpayments of income taxes and accrued penalties related to unrecognized non-current tax
benefits as part of the income tax provision.
Deferred tax assets and liabilities result from temporary differences between the U.S. GAAP and tax
treatment of certain income and expense items. The Company must assess and make estimates regarding
the likelihood that the deferred tax assets will be recovered. To the extent that it is determined
the deferred tax assets will not be recovered, a valuation allowance must be established for such
assets. In making such a determination, the Company must take into account positive and negative
evidence including projections of future taxable income and assessments of potential tax planning
strategies.
Defined Benefit Pension Plan
Pension benefit costs and liabilities are dependent on assumptions used in calculating such
amounts. The primary assumptions include factors such as discount rates, expected investment return
on plan assets, mortality rates and retirement rates. These rates are renewed annually and adjusted
to reflect current conditions. These rates are determined based on reference to yields. The
compensation increase rate is based on historical experience. The expected return on plan assets is
derived from detailed periodic studies, which include a review of asset allocation strategies,
anticipated future long-term performance of individual asset classes, risks (standard deviations)
and correlations of returns among the asset classes that comprise the plans asset mix. While the
studies give appropriate consideration to recent plan performance and historical returns, the
assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates
are based on actual and anticipated plan experience. In accordance with U.S. GAAP, actual results
that differ from the assumptions are accumulated and amortized over future periods and, therefore,
generally affect recognized expense and the recorded obligation in future periods. While management
believes that the assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect pension and postretirement obligation and future expense.
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Contingencies
Environmental
Liabilities are recorded when site restoration or environmental remediation and cleanup obligations
are either known or considered probable and can be reasonably estimated. Recoveries of
environmental costs through insurance, indemnification arrangements or other sources are recognized
when such recoveries become certain.
The Company capitalizes environmental costs only if the costs are recoverable and the costs extend
the life, increase the capacity, or improve the safety or efficiency of property owned by the
Company as compared with the condition of that property when originally constructed or acquired, or
if the costs mitigate or prevent environmental contamination that has yet to occur and that
otherwise may result from future operations or activities and the costs improve the property
compared with its condition when constructed or acquired. All other environmental costs are
expensed.
Other
The Company establishes a liability for all other loss contingencies, when information indicates
that it is probable that an asset has been impaired or a liability has been incurred and the amount
of loss can be reasonably estimated.
Restructuring
In the fourth quarter of 2009, the Company committed to a cost reduction initiative, including
planned workforce reductions and consolidation of certain functions. The Company has taken these
specific actions in order to more favorably align its selling, general and administrative costs
with its current level of operations. The Company has completed a substantial portion of these cost
reduction actions through first quarter of 2010, however additional costs are expected throughout
2010, although to a lesser extent.
In connection with this plan, the Company has recorded estimated expenses for severance, lease
cancellations, and other restructuring costs in accordance with FASB ASC 420-10, Exit or Disposal
Cost Obligations and FASB ASC 712-10, Nonretirement Postemployment Benefits.
New Accounting Pronouncements
None
Off-Balance Sheet Transactions
The Company was not a party to any off-balance sheet transactions at March 31, 2010 or December 31,
2009, or for the three months ended March 31, 2010.
Inflation and Changing Prices
The Company does not operate or conduct business in hyper-inflationary countries nor enter into
long-term supply contracts that may impact margins due to inflation. Changes in prices of goods and
services are reflected on proposals, bids or quotes submitted to customers.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The Companys principal market risk exposures (i.e., the risk of loss arising from the adverse
changes in market rates and prices) are to changes in interest rates on the Companys debt and
investment portfolios and fluctuations in foreign currency.
The Company centrally manages its debt, considering investment opportunities and risks, tax
consequences and overall financing strategies. Based on the amount of variable rate debt, $30.0
million at March 31, 2010, a ten percent increase in interest rates would increase annual interest
expense by approximately $3.0 million.
A significant portion of the Companys business is exposed to fluctuations in the value of the U.S.
dollar as compared to foreign currencies as a result of the operations of the Company in Australia,
Bahrain, Belgium, Canada, China, France, Germany, Hong Kong, Malaysia, The Netherlands, New
Zealand, Nigeria, Norway, Singapore and the United Kingdom. Overall volatility in currency exchange
rates has increased over the past couple of years, and while currencies in the first quarter of
2010 were not as volatile as in recent periods, the Euro and British Pound did strengthen relative
to the U.S. dollar resulting in a favorable impact on the Companys U.S. dollar reported revenues
in the first quarter of 2010 when compared to the same period of 2009. The revenue impact was
somewhat mitigated with similar exchange effects on operating costs thereby reducing the exchange
rate effect on operating income. The Company does not use interest rate or foreign currency rate
hedges.
Based on the three months ended March 31, 2010, foreign currency-based revenues and operating
income of $35.7 million and $1.4 million, respectively, a ten percent fluctuation of all applicable
foreign currencies would result in a change in revenues and operating income of $3.6 million and
$0.1 million, respectively.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
The Companys principal executive officer and principal financial officer have evaluated our
disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)) as of March 31, 2010. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that the Companys
disclosure controls and procedures are effective to provide reasonable assurance that information
required to be disclosed in the reports that the Company files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified by the Securities
and Exchange Commissions rules and forms and is accumulated and communicated to the Companys
management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosures.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during the
quarter ended March 31, 2010, our most recently completed fiscal quarter, that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.
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FURMANITE CORPORATION AND SUBSIDIARIES
PART II Other Information
Item 1. | Legal Proceedings |
The operations of the Company are subject to federal, state and local laws and regulations in the
United States and various foreign locations relating to protection of the environment. Although the
Company believes its operations are in compliance with applicable environmental regulations, there
can be no assurance that costs and liabilities will not be incurred by the Company. Moreover, it is
possible that other developments, such as increasingly stringent environmental laws, regulations
and enforcement policies thereunder, and claims for damages to property or persons resulting from
operations of the Company, could result in costs and liabilities to the Company. The Company has
recorded, in other liabilities, an undiscounted reserve for environmental liabilities related to
the remediation of site contamination for properties in the United States in the amount of $1.2
million and $1.3 million at March 31, 2010 and December 31, 2009, respectively.
Furmanite America, Inc, a subsidiary of the Company, is involved in disputes with two customers,
who are each negotiating with a governmental regulatory agency and claim that the subsidiary failed
to provide them with satisfactory services at the customers facilities. On April 17, 2009, a
customer, INEOS USA LLC, initiated legal action against the subsidiary in the Common Pleas Court of
Allen County, Ohio, alleging that the subsidiary and one of its former employees, who performed
data services at one of the customers facilities, breached its contract with the customer and
failed to provide the customer with adequate and timely information to support the subsidiarys
work at the customers facility from 1998 through the second quarter of 2005. The customers
complaint seeks damages in an amount that the subsidiary believes represents the total proposed
civil penalty, plus the cost of unspecified supplemental environmental projects requested by the
regulatory agency to reduce air emissions at the customers facility, and also seeks unspecified
punitive damages. The subsidiary believes that it provided the customer with adequate and timely
information to support the subsidiarys work at the customers facilities and will vigorously
defend against the customers claim.
In the first quarter of 2008, a subsidiary of the Company filed an action seeking to vacate a $1.35
million arbitration award related to a sales brokerage agreement associated with a business that
the subsidiary sold in 2005. The subsidiary believes that the sales broker is an affiliate of
another company that in 2006 settled all of its claims, as well as all of the claims of its
affiliates, against the subsidiary. The action to vacate the arbitration award terminated and in
January 2010, the subsidiary paid the full amount of the arbitration award plus accrued interest to
the sales broker. In separate pending actions, the subsidiary is seeking to enforce the prior
settlement agreement executed by the sales brokers affiliate and obtain an equitable offset of the
arbitration award.
The Company has contingent liabilities resulting from litigation, claims and commitments incident
to the ordinary course of business. Management believes, after consulting with counsel, that the
ultimate resolution of such contingencies will not have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
While the Company cannot make an assessment of the eventual outcome of all of these matters or
determine the extent, if any, of any potential uninsured liability or damage, reserves of $1.9
million and $3.4 million were recorded in accrued expenses as of March 31, 2010 and December 31,
2009, respectively.
Item 1A. | Risk Factors |
During the quarter ended March 31, 2010, there were no material changes to the risk factors
reported in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.
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Item 6. | Exhibits |
3.1
|
Restated Certificate of Incorporation of the Registrant, dated September 26, 1979, incorporated by reference herein to Exhibit 3.1 to the Registrants Registration Statement on Form S-16. | |
3.2
|
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated April 30, 1981, incorporated by reference herein to Exhibit 3.2 to the Registrants Form 10-K for the year ended December 31, 1981. | |
3.3
|
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated May 28, 1985, incorporated by reference herein to Exhibit 4.1 to the Registrants Form 10-Q for the quarter ended June 30, 1985. | |
3.4
|
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated September 17, 1985, incorporated by reference herein to Exhibit 4.1 to the Registrants Form 10-Q for the quarter ended September 30, 1985. | |
3.5
|
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated July 10, 1990, incorporated by reference herein to Exhibit 3.5 to the Registrants Form 10-K for the year ended December 31, 1990. | |
3.6
|
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated September 21, 1990, incorporated by reference herein to Exhibit 3.5 to the Registrants Form 10-Q for the quarter ended September 30, 1990. | |
3.7
|
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated August 8, 2001, incorporated by reference herein to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed on August 22, 2001. | |
3.8
|
By-laws of the Registrant, as amended and restated June 14, 2007, filed as Exhibit 3.8 to the Registrants 10-K for the year then ended December 31, 2007, which exhibit is hereby incorporated by reference. | |
4.1
|
Certificate of Designation, Preferences and Rights related to the Registrants Series B Junior Participating Preferred Stock, filed as Exhibit 4.2 to the Registrants 10-K for the year ended December 31, 2008, which exhibit is incorporated herein by reference. | |
4.2
|
Rights Agreement, dated as of April 15, 2008, between the Registrant and The Bank of New York Trust Company, N.A., a national banking association, as Rights Agent, which includes as exhibits, the Form of Rights Certificate and the Summary of Rights to Purchase Stock, filed as Exhibit 4.1 to the Registrants Form 8-A/A filed on April 18, 2008, which exhibit is incorporated herein by reference. | |
4.3
|
Letters to stockholders of the Registrant, dated April 19, 2008 (incorporated by reference herein to Exhibit 4.2 to the Registrants Form 8-A/A filed on April 18, 2008). | |
4.4*
|
Consulting Agreement, dated April 7, 2010, among Furmanite Corporation and Michael L. Rose, the Companys former Chief Executive Officer, as Consultant. | |
10.1
|
Credit Agreement, dated July 31, 2009, among Furmanite Worldwide, Inc. and certain subsidiaries, as Borrowers, Bank of America, N.A. as Administrative Agent, Compass Bank as Syndication Agent and the Lenders party thereto, incorporated by reference herein to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on August 7, 2009. | |
10.2
|
Guaranty and Collateral Agreement, dated July 31, 2009, among Furmanite Worldwide, Inc. and each of the other grantors (as defined therein) in favor of Bank of America, N.A. as Administrative Agent incorporated by reference herein to Exhibit 10.2 to the Registrants Current Report on Form 8-K filed on August 7, 2009. | |
31.1*
|
Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated as of May 7, 2010. | |
31.2*
|
Certification of Principal Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated as of May 7, 2010. | |
32.1*
|
Certification of Chief Executive Officer, Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002, dated as of May 7, 2010. | |
32.2*
|
Certification of Principal Financial Officer, Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002, dated as of May 7, 2010. |
* | Filed herewith. |
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FURMANITE CORPORATION (Registrant) |
||||
/s/ ROBERT S. MUFF | ||||
Robert S. Muff | ||||
Chief Accounting Officer (Principal Financial Officer) |
||||
Date: May 7, 2010
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