UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) June 24, 2005 (April 11, 2005)
GLOBAL POWER EQUIPMENT GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
| 001-16501 | 73-1541378 | |
| (Commission File Number) | (IRS Employer Identification No.) |
| 6120 S. Yale, Suite 1480, Tulsa, Oklahoma | 74136 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(918) 488-0828
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A amends the Current Report on Form 8-K filed on April 15, 2005, by Global Power Equipment Group Inc. (the “Company”, “we” or “our”) to include the historical financial statements of Williams Industrial Services Group (“WISG”) and the related pro forma financial information of the Company, in accordance with Item 9.01 of Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Set forth below are the financial statements appearing in this report:
WILLIAMS INDUSTRIAL SERVICES GROUP
INDEX TO COMBINED FINANCIAL STATEMENTS
(b) Pro Forma Financial Information.
Set forth below is the pro forma financial information appearing in this report:
GLOBAL POWER EQUIPMENT GROUP INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
2
(c) Exhibits.
The following documents are included as exhibits to this Form 8-K. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed herewith.
| 2.1 | Purchase Agreement dated November 23, 2004, between the Company and Williams Group International LLC (filed as Exhibit 2 to the Company’s Current Report on Form 8-K dated November 23, 2004). |
| 2.2 | Amendment to Purchase Agreement dated April 11, 2005, among the Company, Williams Industrial Services Group, L.L.C. and Williams Group International LLC (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated April 11, 2005). |
| 23.1 | Consent of Independent Registered Public Accounting Firm. |
SIGNATURES
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 hereunto duly authorized.
| GLOBAL POWER EQUIPMENT GROUP INC. | ||||
| Date: June 24, 2005 | By: | /s/ Candice L. Cheeseman | ||
| Candice L. Cheeseman | ||||
| General Counsel and Secretary | ||||
3
Report of Independent Registered Public Accounting Firm
Member and Board of Managers
Williams Industrial Services Group
We have audited the accompanying combined balance sheets of William Industrial Services Group (WISG), a wholly-owned subsidiary of Williams Group International, LLC, as of March 31, 2005 and 2004, and the related combined statements of income, member’s capital, and cash flows for each of the three years in the period ended March 31, 2005. These financial statements are the responsibility of WISG’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. WISG is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of WISG’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of William Industrial Services Group as of March 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Atlanta, Georgia
May 22, 2005
F-1
Williams Industrial Services Group
Combined Balance Sheets
(Dollars in thousands)
| March 31, |
2005 |
2004 | ||||
| Assets |
||||||
| Current assets |
||||||
| Contracts receivable, net of allowances of $179 and $516 (Note 6) |
$ | 17,993 | $ | 15,110 | ||
| Costs and estimated earnings in excess of billings on contracts in progress (Notes 3 and 6): |
||||||
| Fixed-price and unit price contracts |
757 | 524 | ||||
| Cost-plus and cost-plus incentive contracts |
2,916 | 2,123 | ||||
| Insurance claims receivable (Note 9) |
593 | 210 | ||||
| Other current assets |
700 | 114 | ||||
| Total current assets |
22,959 | 18,081 | ||||
| Insurance claims receivable, less current portion (Note 9) |
1,597 | 1,229 | ||||
| Equipment, net (Note 4) |
215 | 290 | ||||
| Total assets |
$ | 24,771 | $ | 19,600 | ||
See accompanying notes to combined financial statements.
F-2
Williams Industrial Services Group
Combined Balance Sheets, continued
(Dollars in thousands)
| March 31, |
2005 |
2004 | ||||
| Liabilities and Member’s Capital |
||||||
| Current liabilities |
||||||
| Bank overdrafts |
$ | 2,208 | $ | 1,950 | ||
| Accounts payable |
2,393 | 3,013 | ||||
| Accrued payroll and benefits (Note 10) |
6,708 | 5,395 | ||||
| Accrued insurance claims (Note 9) |
2,118 | 2,411 | ||||
| Billings in excess of costs and estimated earnings on contracts in progress (Notes 3 and 6): |
||||||
| Fixed-price and unit price contracts |
895 | 937 | ||||
| Cost-plus and cost-plus incentive contracts |
270 | 190 | ||||
| Other accrued liabilities |
656 | 45 | ||||
| Total current liabilities |
15,248 | 13,941 | ||||
| Accrued insurance claims, less current portion (Note 9) |
3,755 | 3,654 | ||||
| Total liabilities |
19,003 | 17,595 | ||||
| Commitments and contingencies (Notes 3, 5, 11 and 12) |
||||||
| Member’s capital (Note 1) |
5,768 | 2,005 | ||||
| Total liabilities and member’s capital |
$ | 24,771 | $ | 19,600 | ||
See accompanying notes to combined financial statements.
F-3
Williams Industrial Services Group
Combined Statements of Income
(Dollars in thousands)
| Years ended March 31, |
2005 |
2004 |
2003 | ||||||
| Revenues (Note 6) |
$ | 140,349 | $ | 160,957 | $ | 201,548 | |||
| Cost of revenues |
121,857 | 142,471 | 179,711 | ||||||
| Gross margin |
18,492 | 18,486 | 21,837 | ||||||
| Other operating costs and expenses |
|||||||||
| Direct selling, general and administrative expenses (Note 7) |
3,453 | 3,765 | 3,809 | ||||||
| Allocated selling, general and administrative expenses from Parent Company (Note 7) |
1,742 | 1,704 | 1,667 | ||||||
| Impairment of goodwill (Note 2) |
— | 863 | — | ||||||
| Total other operating costs and expenses |
5,195 | 6,332 | 5,476 | ||||||
| Income before provision for income taxes |
13,297 | 12,154 | 16,361 | ||||||
| Provision for income taxes (Note 8) |
5,336 | 5,280 | 6,564 | ||||||
| Net income |
$ | 7,961 | $ | 6,874 | $ | 9,797 | |||
See accompanying notes to combined financial statements.
F-4
Williams Industrial Services Group
Combined Statements of Member’s Capital
(Dollars in thousands)
| Member’s Capital |
||||
| Balance, April 1, 2002 |
$ | 8,374 | ||
| Net income |
9,797 | |||
| Dividends deemed paid to Parent Company |
(10,372 | ) | ||
| Balance, March 31, 2003 |
7,799 | |||
| Net income |
6,874 | |||
| Dividends deemed paid to Parent Company |
(12,668 | ) | ||
| Balance, March 31, 2004 |
2,005 | |||
| Net income |
7,961 | |||
| Dividends deemed paid to Parent Company |
(4,198 | ) | ||
| Balance, March 31, 2005 |
$ | 5,768 | ||
See accompanying notes to combined financial statements.
F-5
Williams Industrial Services Group
Combined Statements of Cash Flows
(Dollars in thousands)
| Years ended March 31, |
2005 |
2004 |
2003 |
|||||||||
| Operating activities |
||||||||||||
| Net income |
$ | 7,961 | $ | 6,874 | $ | 9,797 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation |
38 | 59 | 68 | |||||||||
| Impairment of goodwill |
— | 863 | — | |||||||||
| Loss on disposal of equipment |
68 | 38 | — | |||||||||
| Changes in operating assets and liabilities: |
||||||||||||
| Contracts receivable, net |
(2,883 | ) | 8,340 | (3,580 | ) | |||||||
| Costs and estimated earnings in excess of billings on contracts in progress |
(1,026 | ) | 1,413 | (2,419 | ) | |||||||
| Insurance claims receivable |
(751 | ) | 452 | (461 | ) | |||||||
| Other current assets |
(586 | ) | 777 | (258 | ) | |||||||
| Bank overdrafts and accounts payable |
(362 | ) | 1,658 | 949 | ||||||||
| Accrued payroll and benefits |
1,313 | (6,144 | ) | 3,401 | ||||||||
| Other accrued liabilities |
611 | (502 | ) | 448 | ||||||||
| Accrued self-insurance liabilities |
(192 | ) | (266 | ) | 1,007 | |||||||
| Billings in excess of costs and estimated earnings on contracts in progress |
38 | (803 | ) | 1,546 | ||||||||
| Net cash provided by operating activities |
4,229 | 12,759 | 10,498 | |||||||||
| Investing activity |
||||||||||||
| Purchases of equipment |
(31 | ) | (91 | ) | (126 | ) | ||||||
| Financing activity |
||||||||||||
| Dividends deemed paid to Parent Company |
(4,198 | ) | (12,668 | ) | (10,372 | ) | ||||||
| Net change in cash |
— | — | — | |||||||||
| Cash and cash equivalents, at beginning of year |
— | — | — | |||||||||
| Cash and cash equivalents, at end of year |
$ | — | $ | — | $ | — | ||||||
| Supplemental Disclosure of Cash Flow Information |
||||||||||||
| Interest paid - net (Note 5) |
— | — | — | |||||||||
| Taxes deemed paid to Parent Company - net (Note 8) |
$ | 5,336 | $ | 5,280 | $ | 6,564 | ||||||
See accompanying notes to combined financial statements.
F-6
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
1. Nature of Organization and Business
Combined Operations
The accompanying combined financial statements of Williams Industrial Services Group (“WISG” or the “Companies”) include the accounts of Williams Specialty Services, Williams Plant Services and Williams Industrial Services.
Prior to January 1, 2004, Williams Specialty Services and Williams Plant Services were operating divisions of Williams Service Group, Inc., a subsidiary of Williams Group International, LLC (the “Parent Company” and formerly Williams Group International, Inc.). To present the comparative financial position, results of operations, and changes in cash flows for all accounts comprising WISG in the accompanying combined financial statements before January 1, 2004, the accounts of Williams Specialty Services and Williams Plant Services were carved out and separated from other accounts belonging to Williams Service Group, Inc. that were unrelated to the operations of these two divisions during the period beginning April 1, 2002 and ending on December 31, 2003 (the “carve out period”).
During fiscal 2004, each of the divisions (Williams Specialty Services and Williams Plant Services) and the Parent’s subsidiary (Williams Industrial Services) were converted to limited liability companies (“LLC’s”). Member’s capital includes net assets of the divisions prior to their conversion to LLC’s and equity in the Parent’s subsidiary prior to its conversion to an LLC.
The combined financial statements of WISG are presented as if the legal entities had been established on April 1, 2002 and continuously operated as a combined group through March 31, 2005. All intercompany transactions have been eliminated.
F-7
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
Companies’ Activities and Operating Cycles
The Companies conduct their business in accordance with the provisions of their operating agreements. The Companies operate in one segment in accordance with the aggregation criteria defined in Statement of Financial Accounting Standards No. 131; “Disclosures about Segments of an Enterprise and Related Information” as each of the combined entities possess similar economic characteristics and use similar methods to provide their services to a similar customer base. The Companies provide a wide range of specialized industrial services throughout the United States, primarily to the nuclear, fossil and hydro power generation industries, pulp and paper manufacturers, and as a subcontractor to prime contractors performing demolition of buildings containing hazardous materials for governmental agencies, principally the Department of Energy.
The primary services provided by the Companies are industrial coatings, corrosion control, machinery and equipment installation, mechanical and structural repair, general maintenance and related engineering services. The work is performed under fixed-price, cost-plus, unit-price and cost-plus incentive contracts. The length of contracts varies but is typically less than one year, although some cost-plus contracts may be for periods up to three years with options for further extensions.
Approximately 75% of the Companies’ employees belong to unions. The Companies have collective bargaining agreements for these employees, which expire in the future at either specified dates, upon written notice by one party or upon completion of certain ongoing projects. 96% of these collective bargaining agreements expire within the next twelve months, which includes 52% that are renewed annually unless canceled by one of the parties with 60-day notice.
Fiscal Periods
All references herein to “2005” “2004” and “2003” mean the fiscal years ended March 31, 2005, 2004 and 2003, respectively.
F-8
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
2. Summary of Significant Accounting Policies
Accounting Estimates
The preparation of the combined 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 amounts reported in the financial statements and accompanying notes. The Companies evaluate their estimates on an on-going basis, including those related to bad debts and the associated allowance for doubtful accounts and profit assumptions on percentage-of-completion contracts. The Companies base their estimates on historical experience and various other assumptions that are believed to be reasonable. Actual results could differ from those estimates.
Management made numerous accounting assumptions to carve out the accounts of Williams Specialty Services and Williams Plant Services from Williams Service Group, Inc. in 2004 and 2003. See Note 7 to these combined financial statements.
Revenue Recognition
In general, the Companies recognize revenue at the time the services are performed. On cost reimbursable contracts, revenue is recognized as costs are incurred and includes applicable fees earned through the date services are provided.
For other than cost reimbursable contracts, revenues are recorded using the percentage-of-completion method in accordance with AICPA Statement of Position No. 81-1, “Accounting for Performance of Construction–Type and Certain Production–Type Contracts,” by relating contract costs incurred to date to the total estimated contract costs at completion. Contract costs include both direct and indirect project costs. Direct costs on contracts include labor and associated payroll taxes and benefits and, to a lesser extent, materials and equipment rentals. Indirect costs on contracts include on-site administrative support, supplies and utilities associated with the job site. Contract losses are provided for in their entirety in the period they become known without regard to the percentage-of-completion. As a contract progresses, estimates of total revenues and costs are reviewed and revised by management when necessary. The cumulative effect of the revisions to the estimates is included in operations when determined. Incentives on all contracts are recognized when they are earned.
F-9
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
Costs and estimated earnings in excess of billings on contracts in progress represent revenues recognized in excess of amounts billed to date. Billings in excess of costs and estimated earnings on contracts in progress represent billings in excess of revenues recognized to date.
Cash and Cash Equivalents
The Parent Company collects cash as the Companies receive it from their customers and provides cash as needed to support the operations of the Companies. Consequently, the accompanying combined financial statements do not include any cash balances. The Parent Company maintains a line of credit to finance operations of all of its subsidiaries.
Because the Companies have historically generated and transferred more cash to the Parent Company than they needed from the Parent Company to operate their businesses, the Companies have treated such excess cash transferred to the Parent Company as dividends.
Contracts Receivable
Contracts receivable are recorded at the time the customer is billed under the legally binding terms of the contract with the customer.
The Companies generally begin reserving for doubtful receivables when the balances become 120 days old and fully reserve for any such balances that are 365 days old. Based upon management’s knowledge of the customers and the status of the projects, the reserve for doubtful accounts could be adjusted to increase the reserve for any receivable whose collectibility is uncertain regardless of the age of the receivable. Likewise, management may conclude that no reserves for doubtful accounts are required under some circumstances even if the amounts are over 365 days old.
Generally, receivables are not charged off until management believes that the write off is justified due to disagreements with customers or to maintain good customer relations. When management does not believe that a write off is justified, the receivables remain on the balance sheet until a settlement of a formal claim against the customer has been negotiated or arbitrators or a court with jurisdiction has issued an award. When it becomes necessary to pursue collection of claims against customers, management continuously evaluates the amounts that will most likely be collected and reserves for those claims are adjusted as necessary to reflect estimates of the ultimate amounts that will be collected.
F-10
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
| Equipment |
Equipment is stated at cost. Upon retirement or sale of equipment, the net book value is removed from the accounts and any gain or loss is recognized in income. Expenditures for maintenance and repairs are charged to expense and renewals and improvements are capitalized.
The Companies provide depreciation for financial reporting purposes over the estimated useful lives of the assets using the straight-line method. The useful lives used for computation of depreciation range from 2 to 7 years.
Goodwill
The adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, required the Companies to perform an initial assessment of all goodwill for impairment as of March 31, 2003. Williams Industrial Services was the only entity that carried goodwill on its separate balance sheet as of March 31, 2003. In this initial impairment assessment, management compared the fair value of Williams Industrial Services with its carrying value. The fair value was determined based on discounted future cash flows that were consistent with its internal planning. Based on management’s analysis of fair value, no impairment indicators were noted in 2003. As of March 31, 2003, the Companies had goodwill related to Williams Industrial Services of approximately $863, which was net of accumulated amortization of $547. In the 2004 annual impairment assessment, management determined, primarily due to decreased sales, that the discounted future cash flows of Williams Industrial Services were insufficient to justify the goodwill carrying value and an impairment loss of $863 was recognized in that fiscal year.
Insurance Liability
The Companies were primarily insured for workers compensation and general liability costs under large deductible paid loss insurance policies that were provided by the Parent Company from April 1, 2002 until January 13, 2005, at which time the Companies contracted for one year directly with an insurance company for the necessary coverages. The provisions of the policies provide a $250 per occurrence deductible or self-insurance retention in all states where the Companies conduct business except for Washington, West Virginia and Ohio, which are known as “monopolistic” (insurance) states.
F-11
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
In monopolistic states, the Companies pay fixed premiums into state-controlled workers compensation plans and have no additional exposure for prior claims. From time to time, the monopolistic states adjust future insurance premiums to reflect the state’s overall payments of claims for all participants in the plans and the states could increase premiums if the actual loss experiences are more adverse than expected or they could issue refunds of prior premiums if the actual loss experiences are more favorable. The Companies accrue and pay liabilities for workers compensation insurance premiums in monopolistic states at the rates per hour prescribed by the states for the type of work performed.
For all general liability claims and workers compensation claims in non-monopolistic states, the Companies use a case-by-case approach to estimate the ultimate liabilities and recognize expenses for open claims and potential reopened claims up to the self-insurance retention for each case with an additional provision for claims incurred but not reported. The Companies recognize expenses for administrative costs associated with the self-insurance retention and for the insurance premiums associated with the coverage in excess of the self-insurance retention as man-hours are worked.
For workers compensation insurance in all non-monopolistic states and general liability insurance in all states where the Companies do business, either the Parent Company or WISG contract with insurance companies to provide certificates of insurance and to pay all claims. To the extent of the self-insurance retention, either the Parent Company or WISG is obligated to reimburse the insurance companies for all claims paid. Upon providing the certificates, the insurance companies require the Parent Company or WISG to post collateral in the form of standby letters of credit issued in favor of the insurance companies to guarantee payment of each claim up to the self-insurance retention.
F-12
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
The Parent Company has paid and will continue to pay losses up to the limits of the self-insurance retention on all claims arising prior to January 13, 2005 pertaining to its subsidiaries, including WISG, on a “pay when paid” basis as the Parent Company receives bills from the insurance companies for payments they made to injured parties on claims. On January 13, 2005, the Companies contracted directly for workers compensation and general liability insurance and began paying and will continue to pay losses up to the limits of the self-insurance retention as bills are received from the insurance company for payments it made to injured parties on claims arising on and after that date. In preparing the combined financial statements, self-insurance expenses and liabilities have been determined based on an estimate of the Companies’ share of the Parent Company’s expenses and liabilities, including a provision for claims incurred but not reported. Receivables for expected insurance recoveries are included within current assets in the accompanying combined balance sheets.
Income Taxes
The Companies’ accounts were included in the Parent Company’s consolidated federal income tax return and the consolidated income tax provision or benefit was allocated to each subsidiary or division in the consolidated group as if the subsidiary/division filed on a separate-company basis. On March 31, 2004, the Parent Company converted from a corporation subject to federal and state income taxes to a Georgia limited liability company, which pays no taxes but passes through all taxable income and deductions to its members, who are now responsible for all tax consequences of the Parent Company’s consolidated operations after March 31, 2004.
The accompanying combined financial statements do not include current income tax liabilities or deferred income tax accounts because the Companies are “disregarded entities” and are deemed to have immediately paid the Parent Company for all current or deferred income tax expense or immediately received payment from the Parent Company for any current or deferred income tax benefits and, accordingly, are treated as capital transactions.
F-13
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
3. Costs and Earnings on Contracts In Progress
Costs, estimated earnings and billings on contracts in progress include the following at March 31:
| 2005 |
2004 |
|||||||
| Costs incurred on contracts in progress |
$ | 23,107 | $ | 48,068 | ||||
| Estimated earnings |
2,298 | 6,559 | ||||||
| 25,405 | 54,627 | |||||||
| Billings to date |
(22,897 | ) | (53,107 | ) | ||||
| $ | 2,508 | $ | 1,520 | |||||
The above net amounts are included in the accompanying combined balance sheets under the following captions at March 31:
| 2005 |
2004 |
|||||||
| Costs and estimated earnings in excess of billings on contracts in progress: |
||||||||
| Fixed-price and unit price contracts |
$ | 757 | $ | 524 | ||||
| Cost-plus and cost-plus incentive contracts |
2,916 | 2,123 | ||||||
| Billings in excess of costs and estimated earnings on contracts in progress: |
||||||||
| Fixed-price and unit price contracts |
(895 | ) | (937 | ) | ||||
| Cost-plus and cost-plus incentive contracts |
(270 | ) | (190 | ) | ||||
| $ | 2,508 | $ | 1,520 | |||||
F-14
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
4. Equipment, net
Equipment consists of the following at March 31:
| 2005 |
2004 |
|||||||
| Operating equipment |
$ | 1,579 | $ | 1,550 | ||||
| Furniture, office equipment and improvements |
524 | 542 | ||||||
| 2,103 | 2,092 | |||||||
| Accumulated depreciation |
(1,888 | ) | (1,802 | ) | ||||
| Equipment, net |
$ | 215 | $ | 290 | ||||
5. Financing Agreements
The Companies, together with members of the Parent Company and all other subsidiaries of the Parent Company, have guaranteed borrowings and standby letters of credit arranged by the Parent Company under a revolving credit facility with a commercial bank comprised of a primary line of credit that expires on August 31, 2005, and an additional, temporary over-line of credit that has been extended from time to time but was voluntarily terminated by the Parent Company on November 1, 2004. Borrowings under the revolving credit agreements bear interest at the London Interbank Offering Rate plus 1.2%. The Parent Company also pays a fee of twenty basis points (0.2%) per annum on the daily portion of the credit facility that is not used.
Under the terms of the revolving credit facility, the Parent Company is not permitted to declare or pay any cash dividends to its members without prior approval from the commercial bank. The Parent Company is permitted to distribute cash to its members in amounts representing their current, personal income tax liabilities arising from the consolidated operations of the Parent Company and its subsidiaries.
Its members guarantee the Parent Company’s credit facility. The credit facility also requires the Parent Company (on a consolidated basis) to comply with two restrictive covenants: a fixed charge coverage ratio and a leverage ratio.
F-15
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
For the years ended March 31, effective interest rates, available funds, outstanding borrowings, standby letters of credit and maximum borrowings on the Parent Company’s credit facility were as follows:
| 2005 |
2004 |
2003 |
||||||||||
| Effective interest rate |
2.8 | % | 3.5 | % | 5.0 | % | ||||||
| Available funds |
||||||||||||
| Primary credit facility |
$ | 40,000 | $ | 40,000 | $ | 40,000 | ||||||
| Additional temporary over-line facility |
— | 5,000 | 5,000 | |||||||||
| Total revolving credit facility |
40,000 | 45,000 | 45,000 | |||||||||
| Outstanding borrowings under credit facility |
(7,723 | ) | (13,382 | ) | (12,391 | ) | ||||||
| Standby letters of credit collateralized by credit facility |
(25,188 | ) | (22,963 | ) | (16,717 | ) | ||||||
| Remaining unused credit facility |
$ | 7,089 | $ | 8,655 | $ | 15,892 | ||||||
| Maximum credit facility used during the years ended March 31, |
$ | 36,964 | $ | 42,737 | $ | 36,028 | ||||||
No portion of the Parent Company’s line of credit was specifically established to support the operations of the Companies. The Companies have historically provided more cash to the Parent Company than they have temporarily borrowed from the Parent Company to support cash requirements of their operations. Such net transfers of cash to the Parent Company are reflected as if dividends were paid and charged against the Companies’ capital accounts. Consequently, the accompanying combined statements of income include no interest income from the Parent Company on the net cash provided by the Companies, or interest expense on temporary use of cash provided by the Parent Company. Furthermore, because the accounts of Williams Specialty Services and Williams Plant Services were carved out and included in the combined financial statements of WISG, it is impractical to determine the average daily balance of the net cash advances from, or cash provided to, the Parent Company before January 1, 2004.
F-16
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
At March 31, 2005, the Parent Company had arranged standby letters of credit in the names of the Companies guaranteeing performance of jobs totaling $1,526, and guaranteeing self-insurance retention liabilities totaling $450. At March 31, 2004, the Parent Company had arranged no standby letters of credit in the names of the Companies.
6. Concentration of Credit Risk
Financial instruments that potentially subject the Companies to significant concentrations of credit risk consist principally of receivables and costs and earnings in excess of billings, net, both of which are unsecured, and relate primarily to contracts for customers doing business in the following industries as of March 31:
| 2005 |
2004 |
|||||||
| Fossil and hydro power generation |
$ | 6,717 | $ | 5,742 | ||||
| Nuclear power generation |
9,902 | 7,037 | ||||||
| Department of Energy |
1,801 | 2,274 | ||||||
| Pulp and paper manufacturing |
1,387 | 1,764 | ||||||
| Other customers |
873 | 329 | ||||||
| Less allowance for doubtful accounts |
(179 | ) | (516 | ) | ||||
| $ | 20,501 | $ | 16,630 | |||||
| Retainage receivable from customers included in the amounts above |
$ | — | $ | 28 | ||||
The Companies have certain customers that represent more than ten percent of combined revenues. The revenue for those customers as a percent of combined revenue for the years ended March 31 was as follows:
| 2005 |
2004 |
2003 |
|||||||
| Southern Company |
36.3 | % | 36.2 | % | 33.7 | % | |||
| Entergy Nuclear |
— | 9.9 | % | 17.1 | % | ||||
| Tennessee Valley Authority |
12.5 | % | 19.6 | % | 13.1 | % | |||
| Washington Group International |
0.1 | % | 2.7 | % | 10.6 | % | |||
| FPL Energy |
16.9 | % | 7.5 | % | 0.4 | % |
F-17
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
Each of the customers noted above had the following percentage of the combined receivables and costs and earnings in excess of billings as of March 31:
| 2005 |
2004 |
|||||
| Southern Company |
13.8 | % | 31.7 | % | ||
| Entergy Nuclear |
— | 1.8 | % | |||
| Tennessee Valley Authority |
5.2 | % | 11.0 | % | ||
| Washington Group International |
— | 1.9 | % | |||
| FPL Energy |
17.9 | % | 6.0 | % |
The carrying amounts reported in the combined balance sheets for contracts receivable, costs and estimated earnings in excess of billings, accounts payable, and all accrued liabilities approximate their fair values.
7. Related Party Transactions
Prior to 2005, the Parent Company charged overhead costs to the Companies’ based on their revenue as a portion of the Parent Company’s consolidated revenue without regard to the amount of such costs that the Companies would have actually needed if they operated autonomously and acquired the necessary services from third parties. Beginning in 2005, the Parent Company charged overhead costs to the Companies based upon actual costs for the items that would be necessary to operate the Companies autonomously. These costs were primarily comprised of the payroll and related payroll burden for the employees who were necessary to support the operations of the Companies; the lease of office space and the associated common area maintenance from the building lease that the Companies entered into with a third party effective April 11, 2005; charges for local and long-distance telephone service and high-speed communication lines; the annual cost of software licenses; and certain leases of office equipment that were specifically used by the Companies in 2005.
F-18
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
Because the Parent Company allocated overhead costs prior to 2005 without regard to the services actually used or the fair value of those services, management has only included in the accompanying combined statements of income for 2004 and 2003 the amounts they believed would have been necessary to operate the Companies autonomously. Management used the actual costs for substantially all overhead expenses in 2005, considering inflation and salary adjustments, as the basis for the estimated amounts of such costs that would have been required for the years ended March 31:
| 2005 |
2004 |
2003 | |||||||
| Management’s determination of categories of selling, general and administrative expenses required from the Parent Company: |
|||||||||
| Corporate accounting and tax services |
$ | 490 | $ | 482 | $ | 474 | |||
| Payroll and human resources management |
326 | 316 | 307 | ||||||
| Legal services |
311 | 306 | 301 | ||||||
| Chief operating officer |
251 | 245 | 239 | ||||||
| Safety and risk management services |
187 | 182 | 178 | ||||||
| Information systems’ management and development |
177 | 173 | 168 | ||||||
| Total allocated selling, general and administrative expenses from Parent Company |
$ | 1,742 | $ | 1,704 | $ | 1,667 | |||
| Selling, general and administrative expenses incurred directly by the Companies |
$ | 3,415 | $ | 3,706 | $ | 3,741 | |||
| Depreciation expense |
38 | 59 | 68 | ||||||
| Total direct selling, general and administrative expenses |
$ | 3,453 | $ | 3,765 | $ | 3,809 | |||
There are no compensating balances or other financial instruments maintained by the Companies or the Parent Company for the benefit of affiliates, officers or members of the limited liability companies. In addition to personal guarantees of the credit facility, the Parent Company’s members have agreed to maintain liquid, personal assets equal to at least sixty-five percent of the total funds committed under the credit facility.
The members of the Parent Company control certain other corporations and partnerships that supply goods and services to the Companies. In the opinion of the Companies’ management, these related-party transactions are conducted under terms which approximate those which could be obtained from unrelated third parties.
F-19
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
8. Income Taxes
Because of their LLC status, the Companies are not currently income tax paying entities. The following provisions (benefits) for income taxes attributable to the Companies’ continuing operations have been recorded in the accompanying combined statements of income as if they were tax paying entities. Under tax sharing agreements with the Parent Company, the net current expenses has been deemed paid to, and net deferred benefit has been deemed received from, the Parent Company for the years ended March 31:
| 2005 |
2004 |
2003 |
|||||||||
| Current income tax expense |
$ | 4,825 | $ | 5,296 | $ | 6,690 | |||||
| Deferred income tax expense (benefit) |
511 | (16 | ) | (126 | ) | ||||||
| $ | 5,336 | $ | 5,280 | $ | 6,564 | ||||||
Under the liability method of determining income taxes, the net cumulative deferred tax benefits of the following temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes have been deemed collected from the Parent Company at March 31:
| 2005 |
2004 |
|||||||
| Deferred tax assets |
||||||||
| Self-insurance liabilities |
$ | 1,399 | $ | 1,758 | ||||
| Accrued expenses |
90 | 111 | ||||||
| Allowance for doubtful accounts |
68 | 196 | ||||||
| Deferred tax assets |
1,557 | 2,065 | ||||||
| Deferred tax liabilities |
||||||||
| Depreciation and amortization |
(24 | ) | (21 | ) | ||||
| Net deferred tax assets deemed collected from the Parent Company under tax sharing agreements |
$ | 1,533 | $ | 2,044 | ||||
F-20
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
The following items comprise the reconciliation of the federal statutory tax rate to the Companies’ effective tax rate for the years ended March 31:
| 2005 |
2004 |
2003 |
|||||||
| Statutory federal income tax rate |
35 | % | 35 | % | 35 | % | |||
| State income taxes, net of federal tax benefit |
4 | % | 5 | % | 4 | % | |||
| Goodwill impairment |
— | 2 | % | — | |||||
| Non-deductible meals and entertainment expenses |
1 | % | 1 | % | 1 | % | |||
| 40 | % | 43 | % | 40 | % | ||||
9. Self-Insurance Retention Liabilities
Based on the Companies estimated share of the Parent Company’s self-insurance retention liabilities prior to January 13, 2005, plus the estimate of the liabilities incurred directly by the Companies on claims occurring after that date through March 31, 2005, the Companies have the following liabilities at March 31:
| 2005 |
2004 |
|||||||
| Gross insurance claims liability |
$ | 5,873 | $ | 6,065 | ||||
| Insurance claims receivable for excess over self-insured retention amounts covered by insurance policies |
(2,190 | ) | (1,439 | ) | ||||
| Net accrued self-insurance liability |
$ | 3,683 | $ | 4,626 | ||||
The gross insurance claims liability is classified in the accompanying combined balance sheets as follows at March 31:
| 2005 |
2004 | |||||
| Accrued insurance claims |
||||||
| Current portion |
$ | 2,118 | $ | 2,411 | ||
| Non-current portion |
3,755 | 3,654 | ||||
| $ | 5,873 | $ | 6,065 | |||
F-21
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
The insurance claims receivable is classified in the accompanying combined balance sheets as follows at March 31:
| 2005 |
2004 | |||||
| Insurance claims receivable |
||||||
| Current portion |
$ | 593 | $ | 210 | ||
| Non-current portion |
1,597 | 1,229 | ||||
| $ | 2,190 | $ | 1,439 | |||
10. Accrued Payroll and Benefits
At March 31 of each year, the Companies have the following accrued payroll and benefits:
| 2005 |
2004 | |||||
| Payroll |
$ | 1,475 | $ | 1,570 | ||
| Payroll taxes |
1,095 | 1,434 | ||||
| Employee benefits |
4,138 | 2,391 | ||||
| $ | 6,708 | $ | 5,395 | |||
11. Retirement Plan
The Parent Company maintains a defined contribution plan (the “Plan”) covering all employees. The Plan provides for participant-elective deferral contributions, employer matching contributions and discretionary employer contributions. Discretionary contributions, if applicable, are allocated to each participant based upon the participant’s annual pay relative to the pay of all participants. At the direction of the Parent Company, the Companies made the following contributions to the Plan for the years ended March 31:
| 2005 |
2004 |
2003 | |||||||
| Employer’s contribution to plan |
$ | 195 | $ | 200 | $ | 207 | |||
F-22
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
12. Commitments and Contingencies
Litigation
Claims against customers, counter claims from customers against the Companies, and other legal actions involving the Companies arise in the ordinary course of business. Although the outcome of any such legal actions cannot be predicted, in the opinion of management, resolution of any currently pending or threatened actions will not have a material adverse affect upon the combined financial position or results of operations of the Companies. The Companies are not party to any material claims initiated against the Parent Company.
Leases
The Parent Company leases automobiles, trucks, office equipment and real property for use by the Companies under agreements that were noncancellable and expire at various dates. The portion of the Parent Company’s rental expense under all operating leases necessary to operate the Companies autonomously was as follows for the years ended March 31:
| 2005 |
2004 |
2003 | |||||||
| Rent expense, including operating costs for real property lease |
$ | 681 | $ | 682 | $ | 840 | |||
Future minimum annual lease payments, including operating costs for the real property lease, under noncancellable operating leases necessary to operate the Companies autonomously at March 31, 2005 are as follows:
| Year |
Amount | ||
| 2006 |
$ | 640 | |
| 2007 |
665 | ||
| 2008 |
603 | ||
| 2009 |
614 | ||
| 2010 |
595 | ||
| $ | 3,117 | ||
F-23
Williams Industrial Services Group
Notes to Combined Financial Statements
(Dollars in thousands)
Environmental Contingencies
The Companies frequently provide services at customer locations to remove or contain various forms of hazardous materials, primarily asbestos and lead paint. The Companies also perform services at nuclear power plants and other locations, which may require handling of low-level radioactive materials. The Companies adhere to all guidelines promulgated by OSHA or other regulatory authorities for protection of employees and safe handling of such materials. Under the provisions of each contract to perform these services, the customer retains title to all such hazardous materials even if the Companies dispose of the materials for the customer at properly licensed landfills.
The Companies own equipment contaminated with low-level radiation. Such equipment is stored at properly licensed facilities while not in use on projects in radioactive environments. The net book value of such equipment is not significant.
13. Subsequent Event
On November 23, 2004, the Parent Company signed a definitive agreement to sell the Companies (excluding selected assets and liabilities) to Global Power Equipment Group Inc. (“GPEG”), a publicly-held corporation. The Parent Company made the normal and customary representations and warranties about the Companies and agreed to accept $65,000 in cash, subject to certain customary adjustments, plus up to $900 of additional consideration based on the Companies’ actual operating results for the year ending December 31, 2005. On April 11, 2005, the Parent Company completed the sale of the Companies to GPEG.
F-24
Unaudited Pro Forma Condensed Combined Financial Statements – Introductory Paragraph
The following unaudited pro forma condensed combined financial statements are based on our historical consolidated financial statements as of and for the three months ended March 31, 2005 and for the year ended December 31, 2004, and the historical combined financial statements of WISG, which we acquired on April 11, 2005, as of and for the year ended March 31, 2005 and for the three months ended March 31, 2004. Since WISG’s fiscal year ends on March 31, and the Company’s ends on December 31, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2004 presents WISG’s results for the year ended December 31, 2004 to be comparable. The unaudited pro forma condensed combined financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2004, our unaudited condensed consolidated financial statements and related notes as of and for the three months ended March 31, 2005, and the audited combined financial statements and related notes of WISG as of and for the year ended March 31, 2005 and for the year ended March 31, 2004.
The unaudited pro forma condensed combined statements of operations give effect to the WISG acquisition as if it had occurred on January 1, 2004. The unaudited pro forma condensed combined balance sheet gives effect to the WISG acquisition as if it had occurred on March 31, 2005. The acquisition of WISG has been accounted for as a purchase in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” The total cost of the acquisition has been allocated to the preliminary estimates of assets acquired and liabilities assumed based on their respective estimated fair values as of April 11, 2005. The excess of the purchase price over the preliminary fair values of the net assets acquired has been allocated to goodwill. The preliminary allocation of the purchase price is subject to adjustment until it is finalized, which is expected to occur no later than March 31, 2006, at which time any additional contingent consideration under the purchase agreement should be known. Accordingly, the final purchase price allocation and the resulting effect on income from operations may differ from the pro forma amounts included in this Form 8-K. The unaudited pro forma condensed combined financial statements do not give effect to the final working capital purchase price adjustment provided for in the purchase agreement, the amount of which is expected to be finalized by August 31, 2005.
The unaudited pro forma condensed combined financial statements reflect pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions our management believes are reasonable, but are subject to change. We have made, in the opinion of our management, all adjustments that are necessary to present fairly the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial statements do not purport to represent what our results of operations actually would have been had the acquisition and related transactions occurred on the dates indicated or to project our results of operations for any future period.
P-1
GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2005
(in thousands, except shares and per share amounts)
| Global Power Equipment Group Inc. |
WISG |
Pro Forma Adjustments |
Pro Forma |
||||||||||||
| ASSETS |
|||||||||||||||
| Current assets: |
|||||||||||||||
| Cash and cash equivalents |
$ | 24,682 | $ | — | $ | (2,328 | )(a) | $ | 22,354 | ||||||
| Restricted cash |
16,720 | — | (7,650 | )(a) | 9,070 | ||||||||||
| Accounts receivable, net of allowance |
37,693 | 17,993 | — | 55,686 | |||||||||||
| Inventories |
11,102 | — | — | 11,102 | |||||||||||
| Costs and estimated earnings in excess of billings |
61,303 | 3,673 | — | 64,976 | |||||||||||
| Deferred income taxes |
10,189 | — | 90 | (b) | 10,279 | ||||||||||
| Other current assets |
17,459 | 1,293 | (593 | )(b) | 18,159 | ||||||||||
| Total current assets |
179,148 | 22,959 | (10,481 | ) | 191,626 | ||||||||||
| Property, plant and equipment, net |
22,409 | 215 | — | 22,624 | |||||||||||
| Deferred income taxes |
52,237 | — | — | 52,237 | |||||||||||
| Goodwill |
45,000 | — | 36,471 | (b) | 81,471 | ||||||||||
| Intangible assets |
4,658 | — | 23,400 | (b) | 28,058 | ||||||||||
| Restricted cash |
58,000 | — | (58,000 | )(a) | — | ||||||||||
| Other assets |
8,269 | 1,597 | (1,597 | )(b) | 6,835 | ||||||||||
| (1,434 | )(a) | ||||||||||||||
| Total assets |
$ | 369,721 | $ | 24,771 | $ | (11,641 | ) | $ | 382,851 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||||||
| Current liabilities: |
|||||||||||||||
| Current maturities of long-term debt |
$ | 18,054 | $ | — | $ | — | $ | 18,054 | |||||||
| Accounts payable |
28,130 | 2,393 | — | 30,523 | |||||||||||
| Accrued compensation and employee benefits |
4,572 | 8,826 | (2,118 | )(b) | 11,280 | ||||||||||
| Accrued warranty |
9,954 | — | — | 9,954 | |||||||||||
| Billings in excess of costs and estimated earnings |
55,266 | 1,165 | — | 56,431 | |||||||||||
| Other current liabilities |
7,967 | 2,864 | — | 10,831 | |||||||||||
| Total current liabilities |
123,943 | 15,248 | (2,118 | ) | 137,073 | ||||||||||
| Other long-term liabilities |
4,102 | 3,755 | (3,755 | )(b) | 4,102 | ||||||||||
| Long-term debt, net of current maturities |
77,500 | — | — | 77,500 | |||||||||||
| Minority interest |
1,639 | — | — | 1,639 | |||||||||||
| Stockholders’ equity: |
|||||||||||||||
| Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding |
— | — | — | — | |||||||||||
| Common stock, $0.01 par value, 100,000,000 shares authorized, 46,918,235 shares issued and outstanding |
469 | — | — | 469 | |||||||||||
| Member's capital |
— | 5,768 | (5,768 | )(b) | — | ||||||||||
| Paid-in capital deficit |
(17,034 | ) | — | — | (17,034 | ) | |||||||||
| Deferred compensation |
(77 | ) | — | — | (77 | ) | |||||||||
| Accumulated comprehensive income |
3,104 | — | — | 3,104 | |||||||||||
| Retained earnings |
176,075 | — | — | 176,075 | |||||||||||
| Total stockholders’ equity |
162,537 | 5,768 | (5,768 | ) | 162,537 | ||||||||||
| Total liabilities and stockholders' equity |
$ | 369,721 | $ | 24,771 | $ | (11,641 | ) | $ | 382,851 | ||||||
The accompanying notes are an integral part of the
unaudited pro forma condensed combined financial statements.
P-2
GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(in thousands, except per share amounts)
| Global Power Equipment Group Inc. |
WISG |
Pro Forma Adjustments |
Pro Forma |
||||||||||||
| Product revenues |
$ | 233,692 | $ | — | $ | — | $ | 233,692 | |||||||
| Service revenues |
— | 137,306 | — | 137,306 | |||||||||||
| Total revenues |
233,692 | 137,306 | — | 370,998 | |||||||||||
| Cost of product revenues |
194,435 | — | — | 194,435 | |||||||||||
| Cost of service revenues |
— | 119,813 | — | 119,813 | |||||||||||
| Gross profit |
39,257 | 17,493 | — | 56,750 | |||||||||||
| Selling and administrative expenses |
39,162 | 5,048 | 2,100 | (c) | 46,310 | ||||||||||
| Operating income |
95 | 12,445 | (2,100 | ) | 10,440 | ||||||||||
| Interest expense |
1,281 | — | 3,092 | (d)(e) | 4,373 | ||||||||||
| Income (loss) before income taxes and minority interest |
(1,186 | ) | 12,445 | (5,192 | ) | 6,067 | |||||||||
| Income tax provision/(benefit) |
(451 | ) | 4,993 | (2,097 | )(f) | 2,445 | |||||||||
| Income (loss) before minority interest |
(735 | ) | 7,452 | (3,095 | ) | 3,622 | |||||||||
| Minority interest |
(30 | ) | — | — | (30 | ) | |||||||||
| Net income (loss) available to common stockholders |
$ | (705 | ) | $ | 7,452 | $ | (3,095 | ) | $ | 3,652 | |||||
| Earnings per weighted average common share (Note 3): |
|||||||||||||||
| Basic: |
|||||||||||||||
| Net income (loss) available to common stockholders |
$ | (0.02 | ) | $ | 0.08 | ||||||||||
| Weighted average number of shares of common stock outstanding-basic |
46,195 | 46,195 | |||||||||||||
| Diluted: |
|||||||||||||||
| Net income (loss) available to common stockholders |
$ | (0.02 | ) | $ | 0.08 | ||||||||||
| Weighted average number of shares of common stock outstanding-diluted |
46,195 | 46,921 | |||||||||||||
The accompanying notes are an integral part of the
unaudited pro forma condensed combined financial statements.
P-3
GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(in thousands, except per share amounts)
| Global Power Equipment Group Inc. |
WISG |
Pro Forma Adjustments |
Pro Forma | |||||||||||
| Product revenues |
$ | 67,387 | $ | — | $ | — | $ | 67,387 | ||||||
| Service revenues |
— | 45,804 | — | 45,804 | ||||||||||
| Total revenues |
67,387 | 45,804 | — | 113,191 | ||||||||||
| Cost of product revenues |
57,606 | — | — | 57,606 | ||||||||||
| Cost of service revenues |
— | 39,426 | — | 39,426 | ||||||||||
| Gross profit |
9,781 | 6,378 | — | 16,159 | ||||||||||
| Selling and administrative expenses |
8,916 | 1,368 | 440 | (c) | 10,724 | |||||||||
| Operating income |
865 | 5,010 | (440 | ) | 5,435 | |||||||||
| Interest expense |
896 | — | (352 | )(e) | 544 | |||||||||
| Income (loss) before income taxes and minority interest |
(31 | ) | 5,010 | (88 | ) | 4,891 | ||||||||
| Income tax provision/(benefit) |
(11 | ) | 2,010 | (84 | )(f) | 1,915 | ||||||||
| Income (loss) before minority interest |
(20 | ) | 3,000 | (4 | ) | 2,976 | ||||||||
| Minority interest |
10 | — | — | 10 | ||||||||||
| Net income (loss) available to common stockholders |
$ | (30 | ) | $ | 3,000 | $ | (4 | ) | $ | 2,966 | ||||
| Earnings per weighted average common share (Note 3): |
||||||||||||||
| Basic: |
||||||||||||||
| Net income (loss) available to common stockholders |
$ | — | $ | 0.06 | ||||||||||
| Weighted average number of shares of common stock outstanding-basic |
46,813 | 46,813 | ||||||||||||
| Diluted: |
||||||||||||||
| Net income (loss) available to common stockholders |
$ | — | $ | 0.06 | ||||||||||
| Weighted average number of shares of common stock outstanding-diluted |
46,813 | 47,312 | ||||||||||||
The accompanying notes are an integral part of the
unaudited pro forma condensed combined financial statements.
P-4
GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. THE ACQUISITION
On April 11, 2005, Global Power Equipment Group Inc. and Subsidiaries (the Company or GPEG) completed the purchase of all of the outstanding limited liability company interests of Williams Specialty Services, LLC, Williams Plant Services, LLC and Williams Industrial Services, LLC, all Georgia limited liability companies collectively referred to as Williams Industrial Services Group, or “WISG.”
The purchase price consisted of an “Equity Purchase Price” of $65.0 million, subject to a working capital adjustment, and a “Deferred Purchase Price.” Of the total Equity Purchase Price, including a preliminary working capital adjustment of $3.0 million, $61.0 million was paid in cash to the seller at closing, $6.5 million was deposited by the Company with an escrow agent as an “Indemnity Escrow Amount” to be held and released pursuant to the terms and provisions of the purchase agreement for WISG and an escrow agreement entered into at closing, and an additional $0.5 million was placed into escrow to be released upon a final determination of the Equity Purchase Price. Payment of the Deferred Purchase Price is contingent on the attainment by WISG of certain gross profit targets for 2005. The Deferred Purchase Price to the seller will range from zero to $0.9 million and will be payable by the Company in cash in 2006. In addition, the Company entered into award agreements with several members of WISG management whereas the Company will pay up to $2.1 million in restricted stock granted under the Company’s 2004 Incentive Stock Plan to the employees based upon attainment of the same gross profit targets noted above. Restricted stock issued to employees under these agreements will be recorded as compensation expense over the vesting period. Any restricted stock forfeited by the WISG employees during the earnout period will be payable to the seller of WISG in the form of cash in accordance with the purchase agreement. In addition, approximately $1.4 million of direct transaction costs have been incurred for the acquisition. The Company used the proceeds from the issuance of the convertible senior subordinated notes and cash on hand to fund the purchase of WISG.
The final purchase price will be determined based upon a final working capital adjustment and the Deferred Purchase Price of up to $0.9 million which are expected to be determined no later than August 31, 2005 and March 31, 2006, respectively. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands), subject to the final purchase price adjustments as noted above:
| Current assets |
$ | 21,555 | ||
| Property, plant and equipment |
215 | |||
| Goodwill |
35,007 | |||
| Intangible assets |
23,400 | |||
| Total assets acquired |
80,177 | |||
| Total current liabilities assumed |
(10,765 | ) | ||
| Net assets acquired |
$ | 69,412 | ||
P-5
GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
2. PRO FORMA ADJUSTMENTS
The accompanying unaudited Pro Forma Condensed Combined Financial Statements include the following adjustments:
| (a) | To record the cash and restricted cash paid for the acquisition under the terms of the purchase agreement and reclassify approximately $1.4 million of direct acquisition costs incurred by the Company from other assets. |
| (b) | To record the fair value of assets acquired, eliminate certain assets and liabilities of WISG which were retained by the seller of WISG and eliminate the historical member’s capital of WISG. The resulting goodwill on a pro forma basis as of March 31, 2005 is approximately $1,464,000 higher than the estimated amount on the date of acquisition, due to lower working capital of this same amount. |
| (c) | To record the amortization expense related to certain identifiable intangible assets (backlog and customer relationships) recorded on a straight-line basis over their estimated useful lives of one year and five years, respectively. |
| (d) | To record additional interest expense related to the $69 million of convertible senior subordinated notes that were issued to finance the acquisition. Assuming the acquisition occurred on January 1, 2004, approximately $2,909,000 of additional interest expense, including amortization of debt issuance costs, would have been incurred for the year ended December 31, 2004. |
| (e) | To eliminate the interest income earned on $65,650,000 of the proceeds from the convertible senior subordinated notes which was recorded as restricted cash prior to using the cash to fund the acquisition. |
| (f) | To adjust income tax expense for the change in income before income taxes due to the pro forma adjustments and to adjust the overall combined statutory tax rate for each period based upon the total level of income before income taxes. |
P-6
GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
3. EARNINGS PER SHARE
Basic and diluted earnings per common share are calculated as follows (in thousands, except share and per share data):
| Year Ended December 31, 2004 |
Three Months Ended | |||||
| Basic earnings per common share: |
||||||
| Numerator: |
||||||
| Net income |
$ | 3,652 | $ | 2,966 | ||
| Denominator: |
||||||
| Weighted average shares outstanding |
46,195,357 | 46,813,119 | ||||
| Basic earnings per common share |
$ | 0.08 | $ | 0.06 | ||
| Diluted earnings per common share: |
||||||
| Numerator: |
||||||
| Net income |
$ | 3,652 | $ | 2,966 | ||
| Denominator: |
||||||
| Weighted average shares outstanding |
46,195,357 | 46,813,119 | ||||
| Dilutive effect of options to purchase common stock * |
725,476 | 499,104 | ||||
| Weighted average shares outstanding assuming dilution |
46,920,833 | 47,312,223 | ||||
| Diluted earnings per common share |
$ | 0.08 | $ | 0.06 | ||
| * | There were 1,169,500 and 409,500 of anti-dilutive stock options excluded from this calculation for the year ended December 31, 2004 and the three months ended March 31, 2005, respectively. The Company must also include the impact of the conversion of the convertible notes (issued in November 2004) in its earnings per share calculation, unless the effect would be anti-dilutive. As of December 31, 2004 and March 31, 2005, the $69.0 million of convertible notes are convertible into 6,503,299 common shares. The Company did not present the dilutive effect of the convertible shares for the year ended December 31, 2004 and the three months ended March 31, 2005, as the effect would have been anti-dilutive. |
P-7
Exhibit Index
The following documents are included as exhibits to this Form 8-K. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed herewith.
| Exhibit Number |
Description | |
| 2.1 | Purchase Agreement dated November 23, 2004, between the Company and Williams Group International LLC (filed as Exhibit 2 to the Company’s Current Report on Form 8-K dated November 23, 2004). | |
| 2.2 | Amendment to Purchase Agreement dated April 11, 2005, among the Company, Williams Industrial Services Group, L.L.C. and Williams Group International LLC (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated April 15, 2005). | |
| 23.1 | Consent of Independent Registered Public Accounting Firm. | |