Attached files
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8-K/A - FORM 8-K AMENDMENT NO.1 - Williams Industrial Services Group Inc. | d568025d8ka.htm |
EX-99.1 - EX-99.1 - Williams Industrial Services Group Inc. | d568025dex991.htm |
EX-23.1 - EX-23.1 - Williams Industrial Services Group Inc. | d568025dex231.htm |
EX-99.3 - EX-99.3 - Williams Industrial Services Group Inc. | d568025dex993.htm |
Exhibit 99.2
HETSCO HOLDINGS, INC. AND SUBSIDIARY
Greenwood, Indiana
Contents
Financial Statements |
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Condensed Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012 |
1 | |||
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2013 and 2012 (unaudited) |
2 | |||
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (unaudited) |
3 | |||
Notes to Condensed Consolidated Financial Statements (unaudited) |
4 |
HETSCO HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2013 and December 31, 2012
March 31, 2013 | December 31, 2012 | |||||||
(unaudited) | ||||||||
ASSETS |
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Current assets |
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Cash |
$ | 9,000 | $ | 9,000 | ||||
Accounts receivable |
9,719,142 | 8,375,582 | ||||||
Other receivables |
79,105 | 80,250 | ||||||
Costs and estimated earnings in excess of billings on contracts |
427,940 | 163,223 | ||||||
Unbilled accounts receivable |
246,589 | 570,396 | ||||||
Inventories |
289,762 | 302,338 | ||||||
Prepaid expenses |
316,852 | 387,337 | ||||||
Deferred income taxes |
668 | 25,571 | ||||||
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Total current assets |
11,089,058 | 9,913,697 | ||||||
Property and equipment, net |
796,060 | 739,389 | ||||||
Other assets |
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Deposits |
100 | 100 | ||||||
Financing fees, net of accumulated amortization |
58,244 | 72,470 | ||||||
Intangible assets, net |
2,131,397 | 2,156,098 | ||||||
Goodwill |
9,481,075 | 9,481,075 | ||||||
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Total other assets |
11,670,816 | 11,709,743 | ||||||
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$ | 23,555,934 | $ | 22,362,829 | |||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities |
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Checks in excess of bank balance |
$ | 322,207 | $ | 137,224 | ||||
Accounts payabletrade |
1,245,231 | 1,242,177 | ||||||
Billings in excess of costs and estimated earnings |
7,960 | 1,855,559 | ||||||
Current portion of long-term debt |
1,142,674 | 1,155,926 | ||||||
Note payablerevolving line of credit |
2,218,240 | 500,813 | ||||||
Accrued interest |
32,700 | 3,099 | ||||||
Accrued expenses and other liabilities |
624,428 | 613,235 | ||||||
Accrued compensation and benefits |
418,610 | 304,756 | ||||||
Accrued income taxes |
639,843 | 280,826 | ||||||
Fair value of derivative financial instrument |
24,001 | | ||||||
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Total current liabilities |
6,675,894 | 6,093,615 | ||||||
Long-term liabilities |
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Long-term debt, net of current portion |
6,473,695 | 6,656,822 | ||||||
Fair value of derivative financial instrument |
| 30,976 | ||||||
Deferred income taxes |
1,428,730 | 1,401,113 | ||||||
Other long-term liabilities |
2,667 | 2,667 | ||||||
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Total long-term liabilities |
7,905,092 | 8,091,578 | ||||||
Total liabilities |
14,580,986 | 14,185,193 | ||||||
Shareholders equity |
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Preferred series A stock, $0.01 par value ($7,278,250 liquidation preference at March 31, 2013 and December 31, 2012); 1,500 shares authorized and 1,000 shares issued and 987 shares outstanding |
10 | 10 | ||||||
Common stock, $0.01 par value; 1,500 shares authorized and 1,100 shares issued and 1,048 shares outstanding |
11 | 11 | ||||||
Additional paid in capital |
7,553,836 | 7,553,386 | ||||||
Retained earnings |
1,421,092 | 624,230 | ||||||
Treasury stock, at par, 76 shares |
(1 | ) | (1 | ) | ||||
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8,974,948 | 8,177,636 | |||||||
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$ | 23,555,934 | $ | 22,362,829 | |||||
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See accompanying notes to condensed consolidated financial statements.
1
HETSCO HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters Ended March 31, 2013 and 2012 (unaudited)
Three Months Ended March 31, |
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2013 | 2012 | |||||||
Net sales |
$ | 12,695,842 | $ | 4,472,879 | ||||
Cost of sales |
9,703,353 | 2,848,701 | ||||||
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Gross margin |
2,992,489 | 1,624,178 | ||||||
Operating expenses |
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General and administrative expenses |
1,329,361 | 945,152 | ||||||
Monitoring fees |
37,689 | 72,560 | ||||||
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1,367,050 | 1,017,712 | |||||||
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Operating income |
1,625,439 | 606,466 | ||||||
Other (income) expense |
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Interest expense |
116,399 | 56,268 | ||||||
Unrealized (gain) loss on derivative financial instrument |
(6,975 | ) | 7,541 | |||||
Other expense, net |
918 | | ||||||
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110,342 | 63,809 | |||||||
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Income before taxes |
1,515,097 | 542,657 | ||||||
Income tax expense |
574,664 | 219,253 | ||||||
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Net income |
$ | 940,433 | $ | 323,404 | ||||
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See accompanying notes to condensed consolidated financial statements.
2
HETSCO HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31, 2013 and 2012 (unaudited)
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities |
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Net income |
$ | 940,433 | $ | 323,404 | ||||
Adjustments to reconcile net income to net cash from operating activities |
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Deferred tax expense |
52,520 | 29,283 | ||||||
Depreciation and amortization |
98,892 | 80,237 | ||||||
Unrealized (gain) loss on derivative financial instrument |
(6,975 | ) | 7,541 | |||||
Gain on sale of property, plant and equipment |
| (6,542 | ) | |||||
Stock-based compensation expense |
450 | 762 | ||||||
Changes in assets and liabilities |
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Accounts receivable |
(1,343,560 | ) | 162,644 | |||||
Other receivables |
1,145 | (10,514 | ) | |||||
Costs and estimated earnings in excess of billings |
(264,717 | ) | (122,405 | ) | ||||
Unbilled accounts receivable |
323,807 | (98,884 | ) | |||||
Inventories |
12,576 | 2,864 | ||||||
Other current assets |
70,485 | 35,972 | ||||||
Other long-term assets |
| 17,500 | ||||||
Checks in excess of bank balance |
184,983 | 271,488 | ||||||
Accounts payable |
3,054 | (265,835 | ) | |||||
Billings in excess of costs and estimated earnings |
(1,847,599 | ) | 21,803 | |||||
Accrued liabilities and income tax |
367,427 | 378,418 | ||||||
Other long-term liabilities |
2,667 | | ||||||
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Net cash from operating activities |
(1,404,412 | ) | 827,736 | |||||
Cash flows from investing activities |
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Property and equipment purchased |
(116,636 | ) | (43,163 | ) | ||||
Proceeds from sale of property, plant and equipment |
| 28,082 | ||||||
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Net cash from investing activities |
(116,636 | ) | (15,081 | ) | ||||
Cash flows from financing activities |
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Payments on long-term borrowings |
(192,196 | ) | (276,066 | ) | ||||
Borrowings on note payablerevolving line of credit |
6,944,000 | 4,167,000 | ||||||
Payments on note payablerevolving line of credit |
(5,226,573 | ) | (4,573,724 | ) | ||||
Payments on capital lease obligations |
(4,183 | ) | | |||||
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Net cash from financing activities |
1,521,048 | (682,790 | ) | |||||
Increase in cash |
| 129,865 | ||||||
Cash at beginning of period |
9,000 | 1,500 | ||||||
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Cash at end of period |
$ | 9,000 | $ | 131,365 | ||||
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Cash paid during the period for: |
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Interest paid |
$ | 73,299 | $ | 46,981 | ||||
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Income taxes paid |
$ | 154,235 | $ | 2,460 | ||||
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Supplemental disclosure of noncash financing activities: |
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During the three months ended March 31, 2013 and 2012, the Company recorded accrued but unpaid Preferred Series A Stock dividends of $143,571 and $145,565, respectively. |
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See accompanying notes to condensed consolidated financial statements.
3
HETSCO HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Activity: Hetsco Holdings, Inc. and its wholly owned subsidiary, Hetsco, Inc. (the Company) is a leading independent provider of field repair for brazed aluminum plate-fin heat exchangers, specialized welding/maintenance and safety services for industrial gas processing, chemical and power generation facilities. The Company provides its services on a global basis to the worlds largest industrial gas and petrochemical companies. The Company also offers process equipment fabrication and provides its customers with construction and relocation services for industrial air separation facilities. Additionally, the Company provides safety, oversight and confined space monitoring, as well as inspection and testing of cryogenic process equipment.
Principles of Consolidation: The consolidated financial statements include the accounts of Hetsco Holdings, Inc. and its wholly owned subsidiary, Hetsco, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation: The accompanying condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have not been audited. These unaudited condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Companys financial position as of March 31, 2013 and its results of operations and cash flows for the periods presented herein. The unaudited condensed consolidated balance sheets do not include all disclosures, including notes required by accounting principles generally accepted in the United States of America (U.S. GAAP). The results of operations for the periods presented are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.
The unaudited condensed consolidated financial statements were prepared for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Exhibit 99.1.
The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in these unaudited condensed consolidated financial statements and accompanying notes. Significant estimates in these unaudited condensed consolidated financial statements include estimating uncollectible receivables, costs capitalized for internally developed software, valuations and assumptions used for impairment testing of long-lived assets, realization of deferred tax assets and valuation and recognition of revenue under percentage of completion contracts. Actual results could differ materially from those estimates under different assumptions or conditions.
Fair Value of Financial Instruments: Fair values of cash, accounts receivable and accounts payable approximate the carrying value recorded in the accompanying balance sheets due to the short maturity of these financial instruments. The carrying amount of debt approximates fair value due to either length of maturity or existence of interest rates that approximate prevailing rates. The Companys interest rate swap agreement is reported at fair value.
The Company determines the fair market values of its derivative contracts based on the fair value hierarchy established in U.S. GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Companys own assumptions based on market data and on assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. U.S. GAAP describes three Levels within its hierarchy that may be used to measure fair value:
| Level 1 Inputs: Quoted priced (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 Inputs: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and |
| Level 3 Inputs: Unobservable inputs (e.g. a reporting entitys own data). |
4
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The fair value of the Companys derivative are based upon valuation models using observable market data as of the measurement date (Level 2).
Credit Risk Concentration: The Company grants unsecured credit to its customers throughout the world. As of and for the three months ended March 31, 2013, two customers, Praxair and Westlake Chemical, accounted for 84% of accounts receivable and sales for three customers, Praxair, Westlake Chemical and Azota Gas Processing, accounted for 90% of revenue. For the three months ended March 31, 2012, sales for one customer, Praxair, accounted for 53% of revenue. As of December 31, 2012, four customers, Air Products, Praxair, Exxon Mobil and Westlake Chemical, accounted for 76% of accounts receivable.
NOTE 2LINE OF CREDIT
The Company has a revolving line of credit, as amended on December 20, 2012, with a financial institution for the principal sum of up to $4,500,000. Availability on the line is limited to 85% of eligible accounts receivable, 70% of unbilled accounts receivable, and 50% of inventory. The loan is secured by all assets of the Company. Interest accrues on the principal sum at a rate per annum equal to the financial institutions Index Rate plus the applicable margin ranging from 0.50% per annum to 2.0% per annum. The interest rate at both March 31, 2013 and December 31, 2012 was 4.75%. The note matures April 30, 2014. The Company had used $2,218,240 and $500,813 of the line of credit at March 31, 2013 and December 31, 2012, respectively. The Company is required to maintain a lock-box arrangement with the bank whereby remittances from the Companys customers are used to reduce the outstanding revolver balance. In addition, the line of credit agreement contains subjective acceleration provisions. As a result, the revolver balance has been classified as current.
NOTE 3LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt consisted of the following at March 31, 2013 and December 31, 2012:
March 31, 2013 | December 31, 2012 | |||||||
Term note, as amended on December 20, 2012, payable $92,932 per month, plus interest at a rate per annum equal to LIBOR plus the applicable margin ranging from 3.25% per annum to 4.75% per annum, or 4.45% and 4.46% on March 31, 2013 and December 31, 2012, respectively. An additional principal payment ranging from 50 percent to 75 percent of excess cash flow is due April 30 of each year. All unpaid principal and interest is due April 30, 2014. Note is secured by all assets of the Company. |
$ | 7,530,821 | $ | 7,716,684 | ||||
Note payable with monthly principal payments of $545 including monthly interest payments at a rate of 9.74% through August 2013. |
1,749 | 3,297 | ||||||
Note payable with monthly principal payments of $562 including monthly interest payments at a rate of 6.90% through February 2016. |
17,921 | 18,834 | ||||||
Capital lease with monthly payments including interest and sales tax of $1,015 through September 2015. |
30,629 | 33,673 | ||||||
Capital lease with monthly payments including interest and sales tax of $380 through October 2015. |
11,778 | 12,917 | ||||||
Note payable with monthly principal payments of $1,311 including monthly interest payments at a rate of 7.94% through November 2013 |
9,512 | 11,964 | ||||||
Note payable with monthly principal payments of $628 including monthly interest payments at a rate of 11.79% through July 2015. |
13,959 | 15,379 | ||||||
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Total long-term debt |
7,616,369 | 7,812,748 | ||||||
Less current portion |
(1,142,674 | ) | (1,155,926 | ) | ||||
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$ | 6,473,695 | $ | 6,656,822 | |||||
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5
The line of credit and term note agreement required the Company to meet certain negative covenants prohibiting or restricting certain transactions and various positive covenants related to certain financial ratios. At March 31, 2013 and December 31, 2012, the Company was in compliance with all of its covenants. The line of credit, term note and notes payable were paid in full on April 30, 2013 in connection with the sale of the Company. The long-term debt has been classified in the balance sheet based on its original maturity schedule.
NOTE 4INTEREST RATE SWAP AGREEMENT
The swap agreement is a contract to exchange the debt obligations variable rate interest payments for fixed rate interest payments. The notional amount of the interest rate swap agreement is used to measure interest to be charged and does not represent the amount of exposure of credit loss, but rather the amount exchanged is determined by reference to the notional amount and the other terms of the interest rate swap. The interest charged under the interest rate swap agreement was recognized as an adjustment to interest expense. During the three months ended March 31, 2013 and 2012, the Company recorded $6,972 and $7,972, respectively, in interest expense related to this agreement.
The agreement carries a notional amount of $1,500,000, and matures on January 1, 2014. The Company will pay a fixed rate of 2.11% and will receive a floating rate based upon three month LIBOR. The Companys interest rate swap agreement did not meet all of the required criteria to be designated as a cash flow hedge. As a result, the change in the estimated fair value liability as of March 31, 2013 and 2012 was recognized as an unrealized gain in the accompanying statements of income and cash flows. Additionally, at March 31, 2013 and December 31, 2012, the Company recorded the fair value of the interest rate swap agreement of $24,001 in short-term liabilities and $30,976 in long-term liabilities, respectively, on the accompanying balance sheets. The interest rate swap agreement was settled on April 30, 2013 in connection with the sale of the Company.
NOTE 5RELATED PARTY TRANSACTIONS
PRV Management, L.P. (PRV) and its affiliates own 98.7% of the Company. The Company is under contractual agreement with PRV to provide monitoring services to the Company. The agreement dated September 3, 2008 calls for an aggregate annual monitoring fee of $150,000 per year, plus out of pocket expenses, payable in equal quarterly installments. The agreement is in effect until the earlier of the twelfth anniversary date of the effective date, the date on which PRV and its affiliates own less than 10% of the number of shares of common stock of the Company, the date of a qualified initial public offering, and such earlier date as mutually agreed by the Company and PRV. The Company incurred $37,689 and $41,309 in monitoring fees, plus out of pocket expenses, for the three months ended March 31, 2013 and 2012, respectively. The agreement was canceled on April 30, 2013 in connection with the sale of the Company.
During the three months ended March 31, 2012, the Company was under contractual agreement with an affiliate to provide monitoring services to the Company for a fee totaling $31,250. There were no amounts incurred during the three months ended March 31, 2013 as this agreement was terminated on December 31, 2012.
NOTE 6 INCOME TAXES
The overall effective income tax rate during the three months ended March 31, 2013 and 2012 was as follows:
March 31, 2013 | March 31, 2012 | |||||||
Effective income tax rate |
37.9 | % | 40.4 | % |
The effective income tax rate differs from the statutory federal income tax rate of 34% primarily because of state income taxes and permanent differences.
The Company records unrecognized tax liability, interest, and penalties related to income tax matters in income tax expense. A reconciliation of the unrecognized tax liability, including penalties and interest, is as follows:
March 31, 2013 | December 31, 2012 | |||||||
Beginning balance |
$ | 2,667 | $ | | ||||
Increase in unrecognized tax liability positions |
| 2,667 | ||||||
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Ending balance |
$ | 2,667 | $ | 2,667 | ||||
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The combined amount of accrued interest and penalties related to income tax positions taken and included in accrued expenses and other liabilities at both March 31, 2013 and December 31, 2012 was $643. For both the three months ended March 31, 2013 and 2012, there were no interest and penalties related to uncertain tax positions recorded in income tax expense.
NOTE 7SUBSEQUENT EVENT
On April 30, 2013, the Company was purchased for $33.3 million in cash, subject to certain adjustments as provided for in the purchase agreement.
6