Attached files
| file | filename |
|---|---|
| EX-99.4 - EXHIBIT 99.4 - Nexeo Solutions, Inc. | exh994doc.htm |
| EX-99.2 - EXHIBIT 99.2 - Nexeo Solutions, Inc. | exh992.htm |
| EX-99.1 - EXHIBIT 99.1 - Nexeo Solutions, Inc. | exh991.htm |
| 8-K/A - 8-K/A ULTRA CHEM PRO FORMAS - Nexeo Solutions, Inc. | a8-kaxultrachemproformas.htm |
Ultra Chem Group
Unaudited Condensed
Combined Financial
Statements as of March 31,
2017 and for the three
months ended March 31,
2017 and 2016
Ultra Chem Group
Unaudited Condensed Combined Financial
Statements as of March 31, 2017 and for the
three months ended March 31, 2017 and 2016
Table of Contents Page
Unaudited Condensed Combined Balance Sheets 1
Unaudited Condensed Combined Statements of Income and Other Comprehensive Income 2
Unaudited Condensed Combined Statements of Stockholders' Equity 3
Unaudited Condensed Combined Statements of Cash Flows 4
Notes to the Unaudited Condensed Combined Financial Statements 6
1
Ultra Chem Group
Unaudited Condensed Combined Balance Sheets
As of March 31, 2017 and December 31, 2016
(In U.S. dollars)
Assets March 31, 2017 December 31, 2016
Current assets:
Cash and cash equivalents $ 484,166 $ 291,742
Accounts receivable – Net of allowance of doubtful accounts of
$724,646 and $724,646 for the three months ended March 31, 2017
and December 31, 2016, respectively (note 3) 14,522,208 12,885,454
Other receivables 3,182 1,749
Recoverable taxes (note 5) 1,883,768 831,784
Inventories (note 6) 9,314,469 8,605,713
Advanced payments 261,723 176,134
Total current assets 26,469,516 22,792,576
Non-current assets:
Machinery and equipment – Net (note 7) 367,253 347,898
Deferred income taxes 258,886 256,172
Total non-current assets 626,139 604,070
Total assets $ 27,095,655 $ 23,396,646
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowing (note 8) $ 894,242 $ -
Current portion of long-term borrowing (note 8) - 74,204
Accounts payable 12,877,430 10,344,957
Other payables 255,505 80,644
Accrued liabilities 500 1,070
Income taxes payable 1,203,543 1,239,281
Statutory employee profit sharing 46,673 42,255
VAT due pending collection 2,275,255 1,826,146
Total current liabilities 17,553,148 13,608,557
Long-term borrowing (note 8) - 98,937
Employee benefits 98,811 86,515
Contingencies - -
Total Liabilities $ 17,651,959 $ 13,794,009
Stockholders' equity:
Common stock 1,112,664 1,112,664
Accumulated other comprehensive loss (206,377) (263,293)
Retained earnings 7,616,638 4,954,960
Income for the period 920,771 3,798,306
Total stockholders' equity 9,443,696 9,602,637
Total liabilities and stockholders’ equity $ 27,095,655 $ 23,396,646
The accompanying notes are an integral part of these unaudited condensed combined financial statements.
2
Ultra Chem Group
Unaudited Condensed Combined Statements of
Income and Comprehensive Income
For the three month ended March 31, 2017 and March 31, 2016
(In U.S. dollars)
March 31, 2017 March 31, 2016
Net sales $ 18,250,750 $ 13,427,211
Cost of sales 15,288,990 10,984,265
Gross profit 2,961,760 2,442,946
General expenses 200,987 191,737
Administrative expenses 841,087 659,831
Operating expenses 177,022 149,281
Operating income 1,742,664 1,442,097
Other income (expense):
Interest expense – Net (35,052) (33,918)
Other income - Net 12,667 102,054
Foreign currency exchange loss – Net (356,268) (596,864)
Income before income taxes 1,364,011 913,369
Income taxes 443,240 488,837
Net income $ 920,771 $ 424,532
Other comprehensive income (the tax effects for each component is not
material)
Foreign currency translation adjustment 56,916 (710)
Employee benefits - 1,419
Total comprehensive income $ 977,687 $ 425,241
The accompanying notes are an integral part of these unaudited condensed combined financial statements.
3
Ultra Chem Group
Unaudited Condensed Combined Statements of Stockholders' Equity
For the three months ended March 31, 2017 and December 31, 2016
(In U.S. dollars)
Common
Stock
Retained Earnings Accumulated Other
Comprehensive Loss
Total Stockholders'
Equity
December 31, 2015 $ 1,112,664 $ 5,686,111 $ (158,145) $ 6,640,630
Comprehensive income:
Net income - 3,798,306 - 3,798,306
Other comprehensive loss - - (105,148) (105,148)
Dividends paid - (731,151) - (731,151)
December 31, 2016 $ 1,112,664 $ 8,753,266 $ (263,293) $ 9,602,637
Comprehensive income:
Net income - 920,771 - 920,771
Other comprehensive income - - 56,916 56,916
Dividends paid - (1,136,628) - (1,136,628)
March 31, 2017 $ 1,112,664 $ 8,537,409 $ (206,377) $ 9,443,696
The accompanying notes are an integral part of these unaudited condensed combined financial statements.
4
Ultra Chem Group
Unaudited Condensed Combined Statements of Cash
Flows
For the three months ended March 31, 2017 and March 31, 2016
(In U.S. dollars)
March 31, 2017 March 31, 2016
Cash flows from operating activities:
Net income $ 920,771 $ 424,533
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation expense 34,323 80,252
Employee benefits 2,987 5,057
Loss on the sale of machinery and equipment 512 -
Deferred income taxes - 88,883
Changes in operating assets and liabilities:
Accounts receivable (1,566,548) (511,590)
Other receivables (1,256) 17,823
Recoverable taxes (1,047,444) (238,459)
Advance payments (76,710) (41,373)
Inventories (699,281) (523,913)
Accounts payable 1,672,759 376,679
Other payables 174,695 376,360
Accrued liabilities 641,039 339,579
Income taxes payable (97,232) (711,252)
Net cash used in operating activities (41,385) (317,421)
Cash flows from investing activities:
Proceeds from the sale of machinery and equipment 3,176 -
Acquisitions of machinery and equipment (45,865) (37,452)
Net cash used in investing activities (42,689) (37,452)
Cash flows from financing activities:
Proceeds from notes payable 6,101,396 2,778,011
Repayments of notes payable (5,410,387) (1,893,361)
Dividends paid (1,136,628) (169,569)
Net cash (used in) provided by financing activities (445,619) 715,081
5
Ultra Chem Group
Unaudited Condensed Combined Statements of Cash
Flows
For the three months ended March 31, 2017 and March 31, 2016
(In U.S. dollars)
March 31, 2017 March 31, 2016
Effect of exchange rate changes on cash and cash equivalents 722,117 42,377
Increase in cash and cash equivalents 192,424 402,585
Cash and cash equivalents - Beginning of year 291,742 176,906
Cash and cash equivalents - End of year 484,166 $ 579,491
Supplemental disclosures of cash flow information:
Interest paid $ 34,155 $ 146,634
Income taxes paid $ 730,932 $ 316,635
The accompanying notes are an integral part of these unaudited condensed combined financial statements
6
Ultra Chem Group
Notes to the Unaudited Condensed Combined
Financial Statements
As of March 31, 2017 and for the year ended December 31, 2016
(Amounts in tables are in U.S. dollars)
1. Basis of Presentation and Nature of Operations
Basis of Presentation - The accompanying combined financial statements present the financial position of
Ultra Chem, S de R.L. de C.V., together with its subsidiaries Ultra Chem Costa Rica Ltda. and Ultra Chem
Centroamerica, S.A. (“Ultra Chem”), Global Chem, S de R.L. de C.V. (“Global Chem”), and Chem Servicios,
S de R.L. de C.V. (“Chem Servicios”) (together on a combined basis, "Ultra Chem Group") as of March 31,
2017 and December 31, 2016, and the results of its operations and its cash flows for the three months ended
March 31, 2017 and March 31, 2016. In these notes to our unaudited condensed combined financial
statements, the terms "Companies," "we," "our," and "us" refer to Ultra Chem, S de R.L. de C.V. and
subsidiaries, Global Chem, S de R.L. de C.V., and Chem Servicios, S de R.L. de C.V. on a combined basis, as
the context may require.
Ultra Chem, S de R.L. de C.V. was formed as a limited liability company on May 23, 2000, pursuant to and in
accordance with the Act. N. 50,791. Global Chem, S de R.L. de C.V. was formed as a limited liability
company on March 28, 2007, pursuant to and in accordance with the Act. N. 130,637. Chem Servicios, S de
R.L. de C.V. was formed as a limited liability company on March 7, 2007, pursuant to and in accordance with
the Act. N.130,558. Ultra Chem Costa Rica, Ltda. was formed as a limited liability corporation, of which
Ultra Chem, S de R.L. de C.V. owns 99.99%. Ultra Chem Centroamerica, S.A. was formed as a corporation,
of which Ultra Chem, S de R.L. de C.V. owns 100%. Our fiscal year end is December 31.
Nature of Operations - Ultra Chem is a distributor of chemicals and plastics in Mexico, United States, Costa
Rica and Guatemala. In connection with the distribution of chemicals products, Ultra Chem provides value-
added services such as custom blending, packaging and re-packaging and private-label manufacturing. Global
Chem manufactures chemicals and plastics and sells mainly to Ultra Chem their products within Mexico.
Chem Servicios provides personnel and management services to Ultra Chem and Global Chem.
2. Significant Accounting Policies and Recent Accounting Pronouncements
Significant Accounting Policies
Principles of Combination – The accompanying combined financial statements include all the accounts of the
Companies with significant intercompany transactions and balances having been eliminated upon
combination.
Use of Estimates – Our combined financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. These principles require management to make
estimates and assumptions that affect the amounts reported and disclosed in our combined financial
statements.
We provide allowances for doubtful accounts, which are based upon a specific review of certain outstanding
receivables and consider factors such as customer credit, historical and recent transactions with the customers.
In determining the amounts of the allowances, we are required to make certain estimates and assumptions.
Accruals for potential liabilities related to any lawsuits or claims brought against us, determination of fair
value of financial instruments, calculation of income tax assets, income tax liabilities and uncertain tax
positions, valuation allowance on deferred tax assets, as well as other liabilities, require that we apply
significant judgment in determining the appropriate assumptions for use in the calculation of financial
estimates. We also must estimate the useful lives assigned to our assets. Actual results may differ from these
estimates and assumptions.
Fair Value Measurements - In accordance with the authoritative guidance on fair value measurements and
disclosures, Ultra Chem Group measures nonfinancial assets and liabilities subject to nonrecurring
7
measurement and financial assets and liabilities subject to recurring measurement based on a hierarchy that
prioritizes inputs to valuation techniques used to measure the fair value. Inputs used in determining fair value
should be from the highest level available in the following hierarchy:
Level 1 - Inputs based on quoted market prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access
Level 2 - Inputs based on quoted prices for similar assets or liabilities, quoted market prices in markets that
are not active, or other inputs that are observable or can be corroborated by observable data for substantially
the full term of the assets or liabilities
Level 3 - Inputs are unobservable for the asset or liability and typically based on an entity's own assumptions
as there is little, if any, related market activity
At March 31, 2017 and December 31, 2016, the Companies had assets that under certain conditions would be
subject to measurement at fair value on a nonrecurring basis, such as long-lived assets subject to fair value
measurement when an impairment loss is recorded. Recognition of these assets at their fair value would be
determined utilizing Level 3 inputs.
Cash and Cash Equivalents – Cash and cash equivalents, mainly consists of bank balances in Mexico in
Pesos and U.S. dollars, balances in Guatemala in Quetzales and U.S. dollars, and other highly liquid
investments with minor risks by change in value.
Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are recorded net of
discounts and allowance for doubtful accounts. The Companies perform ongoing credit evaluations of its
customers and generally does not require collateral from them. In the event of the collectability of a
receivable is in doubt, we will record an increase in our allowance for doubtful accounts or record a direct
write-off of the receivable after exhaustive efforts at collection.
Inventories - Inventories are carried at the lower of cost or market using the weighted average cost method.
Provisions have been made to reduce excess or obsolete inventories to their estimated market value.
Advance payments – Advance payments consists primarily of prepaid insurance, prepaid taxes, prepaid
operating supplies and guarantee deposits.
Machinery and Equipment - Machinery and equipment is stated at cost and their components are depreciated
over the estimated useful lives reported below using the straight-line method.
Estimated Useful
Lives
Furniture and fixtures 10 years
Machinery and plant equipment 10 years
Vehicles 4 years
Computer equipment 3-4 years
Improvements 5 years
Expenditures for renewals and betterments, which increase the estimated useful life or capacity of the assets,
are capitalized. Repairs and maintenance that do not extend the useful life of the asset are expensed as
incurred. Gains and losses on dispositions of machinery and equipment are included in costs and expenses in
the accompanying combined statements of operations.
Leases – Ultra Chem Group leases certain machinery and equipment in the ordinary course of business. The
leases are classified as operating leases and are recognized as an expense in the combined statements of
operations on a straight-line basis over the lease term.
Contingencies- Liabilities for loss contingencies arising from claims, assessments, litigation, fines and
penalties and other sources are recorded when it is probable that a liability has been incurred and the amount
of such liability can be reasonably estimated. Gain contingencies are not recorded until management
determines it is certain that the future event will become or does become a reality.
8
Accumulated Other Comprehensive Loss - Accumulated other comprehensive loss includes unrealized losses
relating to employee benefits’ actuarial gains and losses. It also includes foreign currency translation
adjustments from Mexican Peso to the U.S. dollar, because the functional currency of Global Chem and Chem
Servicios is the Mexican Peso.
Revenue Recognition - Revenue generated from our operations is recognized when the benefits are
transferred to our customers, which occurs when products are delivered in fulfillment of their orders.
Deposits collected in advance are deferred in accrued liabilities and are recognized as revenue when the
benefits are transferred to our customers.
Income Taxes - The Ultra Chem Group is subject to Mexican, Guatemalan and Costa Rican income taxes as
levied by the respective taxing authority. Realization of future tax benefits related to deferred tax assets is
dependent on many factors, including the Ultra Chem Group’s ability to generate future taxable income. The
valuation allowance is adjusted in the period we determine it is more likely than not that deferred tax assets
will or will not be realized.
Foreign currency financial statements - The accompanying combined financial statements, have been
adjusted to conform with accounting principles generally accepted in the United States of America (U.S.
GAAP) and have been translated into U.S. dollars as discussed below.
The financial statements are translated into US dollars (presentation currency), considering the following
methodologies:
Global Chem and Chem Servicios, whose functional currency and local currency is the same (Mexican Peso),
convert their financial statements to the presentation currency using the following exchange rates: 1) closing
for assets and liabilities; 2) historical for stockholders' equity and 3) the date of accrual for income, costs and
expenses. The conversion effects are recorded in other comprehensive income.
Ultra Chem, S. de R.L. de C.V., Ultra Chem Costa Rica Ltda., and Ultra Chem Centroamerica, S.A., whose
local currency (Mexican Peso, Costa Rican Colon and Guatemalan Quetzal, respectively), is different from its
functional currency (US dollar), convert their financial statements from the local currency to the functional
currency, using the following exchange rates: 1) closing for monetary assets and liabilities; 2) historical for
non-monetary assets, non-monetary liabilities and stockholders' equity, and 3) the date of accrual for income,
costs and expenses, except for those that come from non-monetary items that are converted at the historical
exchange rates. The conversion effects, are recorded in the foreign exchange gain (loss).
Recent Accounting Pronouncements - In May 2014 the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2014-09, Revenue Recognition (Topic 606) Revenue from
Contracts with Customers. This ASU prescribes a single comprehensive model for entities to use in the
accounting of revenue arising from contracts with customers and requires expanded disclosures surrounding
the Company’s revenue transactions. Entities are required to adopt this ASU in annual reporting periods
beginning after December 15, 2018 with early adoption permitted only as of annual reporting periods
beginning after December 15, 2016. There are two transition options available to entities: the full
retrospective approach or the modified retrospective approach. Under the full retrospective approach, the
Ultra Chem Group would restate prior periods in compliance with Accounting Standards Codification 250,
Accounting Changes and Error Corrections. Alternatively, the Ultra Chem Group may elect the modified
retrospective approach, which allows for the new revenue standard to be applied to existing contracts as of the
effective date and record a cumulative catch-up adjustment to retained earnings. The Companies are in the
process of evaluating the potential effects of this standard and believes it may have a significant impact on its
combined financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items
(Subtopic 225-20). The amendments in this ASU eliminate the concept of extraordinary items and will no
longer require separate classification of them within the statement of operations. Presentation and disclosure
guidance for items that are unusual in nature or occur infrequently are retained and are expanded to include
items that are both unusual in nature and infrequently occurring. The guidance in this ASU is effective for
fiscal years beginning after December 15, 2015. The adoption of this ASU did not have a material impact on
the Companies’ combined financial statements.
9
In November 2015, the FASB issued ASU 2015-17-Income Taxes (Topic 740). Balance Sheet Classification
of Deferred Taxes. This ASU requires an entity to classify all deferred tax assets and liabilities as non-current.
These amendments are effective for fiscal years beginning after December 15, 2017 and interim periods
within annual periods beginning after December 15, 2018, although early adoption is permitted. The
Companies adopted this standard during fiscal year 2015.
In February 2016, the FASB issued ASU 2016-02-Leases (Topic 842). This ASU requires all leases with
terms greater than 12 months, whether finance or operating, to be recorded on the balance sheet, reflecting a
liability to make lease payments and a right-to-use asset representing the right to use the underlying asset for
the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a
lease by a lessee will not significantly change from current U.S. GAAP. These amendments are effective for
the reporting periods beginning after December 15, 2019 with early adoption permitted. An entity will be
required to recognize and measure leases at the beginning of the earliest period presented using a modified
retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal
year of adoption. The Companies are in the process of evaluating the potential effects of this standard and
believes it may have a significant impact on its combined financial statements due, in part, to its substantial
number of operating leases.
3. Accounts receivable, net of allowance for doubtful accounts
A summary of accounts receivable, net at March 31, 2017 and December 31, 2016 was:
March 31, 2017 December 31, 2016
Accounts receivable $ 15,246,854 $ 13,610,100
Allowance for doubtful accounts (724,646) (724,646)
Accounts receivable, net $ 14,522,208 $ 12,885,454
There were no write-offs during the three months ended March 31, 2017 and March 31, 2016.
4. Related-party transactions
A summary of amounts incurred to related parties during 2017 and 2016 is presented below:
March 31, 2017 December 31, 2016
Accounts receivable:
Owed from Chem Servicios to Ultra Chem $ 1,813,833 $ 1,702,996
Owed from Chem Servicios to Global Chem 105,065 54,843
Total $ 1,918,898 $ 1,757,839
10
Accounts payable:
Owed to Chem Servicios from Ultra Chem $ 864,073 $ 856,175
Owed to Global Chem from Ultra Chem 301,306 147,024
Owed to Ultra Chem from Global Chem 753,519 754,640
Total $ 1,918,898 $ 1,757,839
For the three months ended in March 31, 2017 and March 31, 2016, Ultra Chem Group entered into the
following related party transactions:
2017
Ultra Chem Chem Servicios Global Chem
Services:
Sale/purchase of inventories $ 372,131 $ - $ 372,131
Administrative services 1,221,516 1,268,020 46,504
2016
Ultra Chem Chem Servicios Global Chem
Services:
Sale/purchase of inventories $ 324,771 $ - $ 324,771
Administrative services 909,408 943,090 33,682
5. Recoverable taxes
Recoverable taxes at March 31, 2017 and December 31, 2016 are presented below:
March 2017 December 2016
Income taxes $ 697,590 $ 14,343
VAT receivable 1,186,178 817,441
$ 1,883,768 $ 831,784
6. Inventories
A summary of amounts of inventories at March 31, 2017 and December 31, 2016 is presented below:
March 31, 2017 December 31, 2016
Inventories $ 9,357,216 $ 8,648,460
Obsolete inventory reserve (42,747) (42,747)
Total $ 9,314,469 $ 8,605,713
There were no write-offs during the three months ended March 31, 2017 and March 31, 2016.
11
7. Machinery and equipment
Machinery and equipment at March 31, 2017 and December 31, 2016 are presented below:
March 31, 2017 December 31, 2016
Machinery and plant equipment $ 185,823 $ 160,936
Vehicles 464,476 451,058
Furniture and fixtures 114,847 108,403
Computer equipment 101,216 96,930
Improvements 8,720 8,720
Total 875,082 826,047
Less accumulated depreciation (507,829) (478,149)
Machinery and equipment – net $ 367,253 $ 347,898
Depreciation expense for the three months ended March 31, 2017 and March 31, 2016 was $34,323 and
$80,252, respectively
8. Borrowings
Since February 13, 2008, Ultra Chem has a short-term loan with Banco Nacional de México S.A. de C.V. the
borrowing amount as of December 31, 2014, was $382,676 (USD equivalent). Additionally on December 11
and 16, 2014, Ultra Chem subscribed three notes payable for the amount of $1,017,998 total (USD
equivalent) $339,333 (USD equivalent) each one, at a stated interest rate of 7%. On May 20, 2015, Ultra
Chem signed a contract with Banco Nacional de México S.A. de C.V. in which the short-term loan was
converted into a line of credit up to $1,441,770 (USD equivalent as of December 31, 2015) with a maturity
date of May 27, 2016. In May 2016, the limit was increased up to $1,623,579 (USD equivalent). The annual
interest rate was TIIE (Interbank equilibrium rate by its acronym in Spanish) plus an applicable margin of
4.0% for fiscal year ended December 31, 2016. The outstanding borrowing balances for this line of credit as
of March 31, 2017 was $894,242 and weighted average interest rate of 6.94%.
On April 1, 2016, Ultra Chem signed a line of credit with Banco del Bajío, S.A. up to $242,014 (USD
equivalent) with a due date up to three years from the date of the first draw. The interest rate may be fixed or
variable based on the agreement reached at the time of each draw. For fixed rates the bank will determine the
percentage, and variable rates will be based on TIIE plus a margin determined at the date of the draw. The
outstanding borrowing balance for this line of credit as of March 31, 2017 and December 31, 2016 was $0 and
$173,141 (USD equivalent) respectively, with an interest rate of TIIE (not to exceed 8.0%) plus a margin of
6.8%.
9. Commitments, contingencies and litigation
Operating Leases
We are a lessee of office buildings, transportation equipment, and warehouses under operating lease
agreements that expire at various dates. Rent expense was $205,392 and $188,643 for the periods ended
March 31, 2017 and March 31, 2016, respectively.
From time to time, we are involved in certain litigation and claims incidental to our business. We do not
believe, based on currently available information, that these matters will have a material adverse effect on our
financial position, results of operations, or cash flows.