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Exhibit 99.2

 

Krestmark Industries, L.P. and Affiliates

 

Combined Financial Statements

 

For the Six Months Ended June 30, 2016

 



 

GRAPHIC

 



 

Krestmark Industries, L.P. and Affiliates

 

Contents

 

Combined Financial Statements (Unaudited)

 

 

 

 

 

 

 

Balance Sheets (Unaudited)

 

1

 

 

 

 

 

Statements of Income (Unaudited)

 

2

 

 

 

 

 

Statements of Cash Flows (Unaudited)

 

3

 

 

 

 

 

Notes to Financial Statements (Unaudited)

 

4

 

 



 

Krestmark Industries, L.P. and Affiliates

Combined Balance Sheets

June 30, 2016 and December 31, 2015

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

$

10,405,629

 

$

10,147,543

 

Accounts receivable, net of allowance, 2016 – $90,079 and 2015 – $122,743

 

11,201,125

 

9,477,253

 

Inventories

 

7,318,266

 

6,905,101

 

Prepaid expenses and other current assets

 

1,880,923

 

2,618,762

 

 

 

 

 

 

 

Total current assets

 

30,805,943

 

29,148,659

 

 

 

 

 

 

 

Property and Equipment, at Cost

 

 

 

 

 

Machinery and equipment

 

11,528,555

 

9,545,691

 

Leasehold improvements

 

872,977

 

847,445

 

Computer equipment and software

 

646,093

 

635,478

 

Furniture and fixtures

 

83,757

 

83,756

 

 

 

13,131,382

 

11,112,370

 

Less accumulated depreciation and amortization

 

7,709,215

 

7,236,235

 

 

 

 

 

 

 

 

 

5,422,167

 

3,876,135

 

 

 

 

 

 

 

Other Assets

 

13,673

 

30,932

 

 

 

 

 

 

 

Total assets

 

$

36,241,783

 

$

33,055,726

 

 

 

 

 

 

 

Liabilities and Partners’ Capital

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

 

$

3,463,214

 

2,134,314

 

Accrued employee wages and benefits

 

620,975

 

315,038

 

State income taxes payable

 

203,529

 

316,979

 

Other accrued liabilities

 

1,299,924

 

1,374,593

 

 

 

 

 

 

 

Total current liabilities

 

5,587,642

 

4,140,924

 

 

 

 

 

 

 

Deferred Rent

 

350,829

 

351,361

 

 

 

 

 

 

 

Partners’ Capital

 

30,303,312

 

28,563,441

 

 

 

 

 

 

 

Total liabilities and partners’ capital

 

$

36,241,783

 

$

33,055,726

 

 

See Notes to Combined Financials Statements

 

1



 

Krestmark Industries, L.P. and Affiliates

Combined Statements of Income

Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Net Sales

 

$

59,412,605

 

$

44,555,701

 

 

 

 

 

 

 

Cost of Goods Sold

 

36,954,413

 

28,333,090

 

 

 

 

 

 

 

Gross Profit

 

22,458,192

 

16,222,611

 

 

 

 

 

 

 

Selling, General and Administrative Expenses

 

6,360,793

 

5,131,319

 

 

 

 

 

 

 

Operating Income

 

16,097,399

 

11,091,292

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

Interest income

 

15,876

 

10,735

 

Interest expense

 

 

(15,181

)

 

 

 

 

 

 

 

 

15,876

 

(4,446

)

 

 

 

 

 

 

Income Before Income Taxes

 

16,113,275

 

11,086,846

 

 

 

 

 

 

 

Provision for State Income Taxes

 

210,433

 

171,475

 

 

 

 

 

 

 

Net Income

 

$

15,902,842

 

$

10,915,371

 

 

See Notes to Combined Financials Statements

 

2



 

Krestmark Industries, L.P. and Affiliates

Combined Statements of Cash Flows

Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

Operating Activities

 

 

 

 

 

Net income

 

$

15,902,842

 

$

10,915,371

 

Items not requiring (providing) cash

 

 

 

 

 

Depreciation and amortization

 

472,982

 

392,265

 

Loss on disposal of property and equipment

 

 

11,504

 

Changes in

 

 

 

 

 

Accounts receivable

 

(1,723,872

)

(2,084,164

)

Inventories

 

(413,165

)

(542,332

)

Prepaid expenses and other assets

 

755,098

 

(1,793,584

)

Accounts payable and accrued liabilities

 

1,559,636

 

93,569

 

State income taxes payable

 

(113,450

)

(36,000

)

 

 

 

 

 

 

Net cash provided by operating activities

 

16,440,071

 

6,956,629

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchase of property and equipment

 

(2,019,014

)

(635,035

)

 

 

 

 

 

 

Net cash used in investing activities

 

(2,019,014

)

(635,035

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Principal payments on long-term debt

 

 

(2,153,700

)

Partner distributions

 

(14,162,971

)

(8,141,061

)

 

 

 

 

 

 

Net cash used in financing activities

 

(14,162,971

)

(10,294,761

)

 

 

 

 

 

 

Increase (Decrease) in Cash and Cash Equivalents

 

258,086

 

(3,973,167

)

 

 

 

 

 

 

Cash and Cash Equivalents, Beginning of Period

 

10,147,543

 

8,066,436

 

 

 

 

 

 

 

Cash and Cash Equivalents, End of Period

 

$

10,405,629

 

$

4,093,269

 

 

 

 

 

 

 

Supplemental Cash Flows Information

 

 

 

 

 

Interest paid

 

$

 

$

15,181

 

Income taxes paid

 

$

323,883

 

$

375,300

 

 

See Notes to Combined Financials Statements

 

3


 


 

Krestmark Industries, L.P. and Affiliates

Notes to Combined Financial Statements

June 30, 2016

 

Note 1:                                     Nature of Operations and Summary of Significant Accounting Policies

 

Nature of Operations

 

Krestmark Industries, L.P. (Krestmark) was formed in the state of Texas as a limited partnership on April 1, 2004.  Krestmark earns revenues predominately from the manufacturing of aluminum and vinyl windows and doors.  Products are sold primarily to builders and distributors in the central and southern United States.  The combined affiliates are Crest Vinyl Extrusions, L.L.C. (Crest) and Legacy Vinyl Windows, LP (Legacy).  Crest was formed in the state of Texas as a limited liability company on July 18, 2013.  Crest earns revenues predominately from the manufacturing of vinyl window components.  To date the majority of Crest revenues have been generated through the sale of products to Krestmark.  Legacy was formed in the state of Texas as a limited partnership on September 10, 2014.  Legacy, which began operations in 2015, manufactures windows.  Krestmark, Crest and Legacy (collectively, the Company) have common management and ownership and therefore management has elected to present combined financial statements.

 

Principles of Combination

 

All significant intercompany accounts and transactions of the Company have been eliminated in the combined financial statements.

 

Use of Estimates

 

The preparation of 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 disclosure 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.

 

Cash and Cash Equivalents

 

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.  At June 30, 2016, cash equivalents consisted primarily of money market accounts.

 

At June 30, 2016, the Company’s cash accounts exceeded federally insured limits by approximately $9,987,000.

 

4



 

Krestmark Industries, L.P. and Affiliates

Notes to Combined Financial Statements

June 30, 2016

 

Accounts Receivable

 

Accounts receivable are stated at the amount the Company expects to collect.  The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions.  Accounts receivable are ordinarily due 30 days after the issuance of the invoice.  Accounts past due more than 120 days are considered delinquent.  Interest is generally not charged on overdue receivables.  Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.

 

If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.

 

Inventory Pricing

 

Inventories consist of raw materials, work-in-process and finished goods.  Inventories include costs of materials, labor and overhead.  Inventories are stated at the lower of cost or market.  If needed, the Company records a reserve for obsolete and slow-moving inventory based on current inventory levels and historical and expected future sales levels.

 

Property and Equipment

 

Property and equipment acquisitions are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization is charged to expense on the straight-line basis over the estimated useful life of each asset.  Leasehold improvements are amortized over the shorter of the lease term or their respective estimated useful lives.

 

The estimated useful lives for each major depreciable classification of property and equipment are as follows:

 

Leasehold improvements

 

5 – 10 years

 

Machinery and equipment

 

5 – 7 years

 

Computer equipment and software

 

3 – 5 years

 

Furniture and fixtures

 

3 – 5 years

 

 

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized.  Expenditures for maintenance and repairs are charged to expenses as incurred.

 

5



 

Krestmark Industries, L.P. and Affiliates

Notes to Combined Financial Statements

June 30, 2016

 

Long-lived Asset Impairment

 

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.  If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.  No asset impairment was recognized during the six-month periods ended June 30, 2016 and 2015.

 

Income Taxes

 

The Company is not a tax paying entity for federal or state (except Texas) income tax purposes.  Therefore, taxable income or loss is reported to the individual partners and members for inclusion in their respective tax returns and no provision for federal income is included in these statements.

 

The Company is subject to a franchise tax in the state of Texas.  Although the subject legislation states that the franchise tax is not an income tax, it has the characteristics of an income tax as it is determined by applying a tax rate to a base that considers both revenues and expenses.  Therefore, the Company accounts for the Texas franchise tax as an income tax.

 

With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2011.

 

Revenue Recognition

 

Revenues are generally recorded at the time products are delivered and are reported net of returns and allowances.

 

Taxes Collected from Customers and Remitted to Governmental Authorities

 

Taxes collected from customers and remitted to governmental authorities are presented in the accompanying combined statements of income on a net basis.

 

Shipping and Handling Costs

 

Shipping and handling costs are included in cost of goods sold.

 

Deferred Rent

 

The Company’s operating leases for its warehouses and office space contain free rent periods and escalating payments during the lease terms.  For these leases, the Company recognizes rent expense on a straight-line basis over the minimum lease terms and records the difference between the amounts charged to expense and the rent paid as deferred rent.

 

6



 

Krestmark Industries, L.P. and Affiliates

Notes to Combined Financial Statements

June 30, 2016

 

Note 2:                                     Inventories

 

Inventories consist of the following at June 30, 2016 and December 31, 2015:

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Raw materials

 

$

5,598,448

 

$

5,066,877

 

Work-in-process

 

366,978

 

303,808

 

Finished goods

 

1,352,840

 

1,534,416

 

 

 

 

 

 

 

 

 

$

7,318,266

 

$

6,905,101

 

 

Note 3:                                     Long-term Debt

 

In November 2013, Krestmark entered into a promissory note agreement with a financial institution for $5,000,000.  The note payable was repaid in full during 2015.

 

The Company has a $195,000 letter of credit with a financial institution related to its workers’ compensation insurance policy.

 

Note 4:                                     Operating Leases

 

The Company leases warehouses and office space under operating lease agreements.  The lease agreements require the Company to pay all executory costs (property taxes, maintenance and insurance).  Total rental expense was approximately $940,000 and $850,000 for the six-month periods ended June 30, 2016 and 2015, respectively.  The following is a schedule of future minimum lease payments at June 30, 2016:

 

2016 (6 months)

 

$

735,200

 

2017

 

1,518,855

 

2018

 

1,167,055

 

2019

 

984,182

 

2020

 

875,710

 

2021

 

903,958

 

Thereafter

 

2,768,373

 

 

 

 

 

 

 

$

8,953,333

 

 

The Company has a $228,000 letter of credit with a bank related to these leases.

 

7



 

Krestmark Industries, L.P. and Affiliates

Notes to Combined Financial Statements

June 30, 2016

 

Note 5:                                     Subsequent Events

 

On August 19, 2016, substantially all assets of the Company were sold to a third party.

 

Subsequent events have been evaluated through October 26, 2016, which is the date the combined financial statements were available to be issued.

 

8