UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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): November 3, 2014
CECO Environmental Corp.
(Exact Name of registrant as specified in its charter)
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Delaware |
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000-7099 |
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13-2566064 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
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4625 Red Bank Road,
Cincinnati, OH |
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45227 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: 513-458-2600
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:
¨ |
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
CECO Environmental Corp. (the Company) filed a current report on Form 8-K on November 6, 2014 (the Original 8-K) to report, among
other things, the completion of its acquisition of Emtrol LLC (Emtrol). This Current Report on Form 8-K/A amends and restates in its entirety Item 9.01 of the Original Form 8-K to include the required financial statements and to
present certain unaudited pro forma financial information in connection with the acquisition, which are filed as exhibits 99.1 and 99.2 hereto, respectively. The information previously reported in the Original 8-K is not hereby amended and is hereby
incorporated by reference into this Form 8-K/A.
Item 9.01 |
Financial Statements and Exhibits. |
(a) Financial statements of businesses acquired.
The audited consolidated financial statements of Emtrol as of and for the years ended December 31, 2013 and 2012 and the unaudited condensed consolidated
financial statements of Emtrol as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013 are being filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.
(b) Pro forma financial information.
The unaudited pro
forma condensed combined financial information relating to the Companys acquisition of Emtrol is filed as Exhibit 99.2 to this Current Report on Form 8-K/A and is incorporated herein by reference.
(d) Exhibits.
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Exhibit No. |
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Description |
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23.1 |
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Consent of Kutz & Company, Inc., Independent Certified Public Accountants. |
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99.1 |
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Audited consolidated financial statements of Emtrol as of and for the years ended December 31, 2013 and 2012 and the unaudited condensed consolidated financial statements of Emtrol as of September 30, 2014 and for the
nine-month periods ended September 30, 2014 and 2013. |
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99.2 |
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Unaudited Pro Forma Condensed Combined Financial Information. |
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.
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Date: January 16, 2015 |
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CECO Environmental Corp. |
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By: |
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/s/ Edward J. Prajzner |
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Edward J. Prajzner |
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Chief Financial Officer and Secretary |
EXHIBIT INDEX
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Exhibit No. |
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Description |
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23.1 |
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Consent of Kutz & Company, Inc., Independent Certified Public Accountants. |
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99.1 |
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Audited consolidated financial statements of Emtrol as of and for the years ended December 31, 2013 and 2012 and the unaudited condensed consolidated financial statements of Emtrol as of September 30, 2014 and for the
nine-month periods ended September 30, 2014 and 2013. |
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99.2 |
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Unaudited Pro Forma Condensed Combined Financial Information. |
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 12, 2014, with respect to the consolidated financial statements of Emtrol LLC and its subsidiary
for the years ended December 31, 2013 and 2012 included in the Current Report of CECO Environmental Corp. on Form 8-K/A. We hereby consent to the incorporation by reference of the aforementioned report in the Registration Statements of CECO
Environmental Corp. on Forms S-3 (File No. 333-130294 and File No. 333-183275) and on Forms S-8 (File No. 333-33270, File No. 333-143527, File No. 333-159948 and File No. 333-200000).
/s/ Kutz & Company, Inc.
Great Neck, New York
January 16, 2015
Exhibit 99.1
FINANCIAL STATEMENTS
EMTROL LLC
AND SUBSIDIARY
DECEMBER 31, 2013
C O N T E N T S
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Page |
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ACCOUNTANTS LETTER |
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3-4 |
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CONSOLIDATED BALANCE SHEET |
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5 |
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CONSOLIDATED STATEMENT OF INCOME AND MEMBERS EQUITY |
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6 |
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CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS EQUITY |
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7 |
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CONSOLIDATED STATEMENT OF CASH FLOWS |
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8 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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9-14 |
KUTZ & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
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185 Great Neck Rd. - Suite 450
Great Neck, NY 11021 Telephone
(516) 482-1158 Fax (516) 829-5312 |
ANDREW B. KUTZ
PAUL J. KUTZ
Managing Member
Emtrol LLC and
Subsidiary
Islandia, New York 11749
We have audited the accompanying consolidated financial statements of Emtrol LLC and its subsidiary, which comprise the consolidated balance
sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in members equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United State of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Emtrol LLC and its subsidiary as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally
accepted in the United State of America.
/s/ Kutz & Company, Inc.
Great Neck, New York
February 12, 2014
EMTROL LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31st
ASSETS
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2013 |
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2012 |
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CURRENT ASSETS |
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Cash including temporary investments |
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$ |
8,680,589 |
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$ |
8,252,768 |
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Accounts receivable, less allowance for doubtful accounts of $0 |
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9,051,107 |
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8,131,878 |
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Costs incurred on uncompleted projects (Note B-4) |
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0 |
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0 |
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Inventories (Note B-6) |
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8,673 |
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16,255 |
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Other current assets |
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153,349 |
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128,721 |
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TOTAL CURRENT ASSETS |
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17,893,718 |
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16,529,622 |
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FIXTURES AND EQUIPMENT (NET) (Note C) |
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119,303 |
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82,776 |
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GOODWILL (NET) (Note A) |
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2,992,430 |
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2,992,430 |
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$ |
21,005,451 |
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$ |
19,604,828 |
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LIABILITIES AND MEMBERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
9,145,658 |
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$ |
7,943,626 |
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Accrued expenses |
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479,291 |
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670,737 |
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Customer deposits (Note B-5) |
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277,328 |
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159,917 |
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Income taxes payable (Note E) |
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184,192 |
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156,334 |
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Due to member - Emtrol Corp. |
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0 |
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239,730 |
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TOTAL CURRENT LIABILITIES |
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10,086,469 |
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9,170,344 |
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OTHER LIABILITIES |
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Long Term Debt (Note J) |
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15,663 |
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0 |
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TOTAL LIABILITIES |
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10,102,132 |
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9,170,344 |
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MEMBERS EQUITY |
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Equity adjustment resulting from foreign currency conversion (Note G) |
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500,550 |
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520,877 |
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Members equity |
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10,402,769 |
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9,913,607 |
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TOTAL MEMBERS EQUITY |
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10,903,319 |
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10,434,484 |
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TOTAL LIABILITIES & MEMBERS EQUITY |
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$ |
21,005,451 |
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$ |
19,604,828 |
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See accountants audit report.
-5-
EMTROL LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND MEMBERS EQUITY FOR
THE YEAR ENDED DECEMBER 31, 2013
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2013 |
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2012 |
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REVENUES |
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$ |
33,371,470 |
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$ |
35,453,505 |
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COSTS AND EXPENSES |
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Cost of goods sold |
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27,207,964 |
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29,451,741 |
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Selling expenses |
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2,117,220 |
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2,159,088 |
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General and administrative expenses |
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1,543,231 |
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1,477,322 |
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Administrators salaries |
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219,154 |
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220,846 |
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Pension plan expense |
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305,577 |
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257,569 |
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TOTAL COSTS & EXPENSES |
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31,393,146 |
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33,566,566 |
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NET OPERATING EARNINGS (LOSS) |
|
|
1,978,324 |
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|
1,886,939 |
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OTHER INCOME AND (EXPENSES) |
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Interest and dividend income |
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|
6,895 |
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|
8,248 |
|
Gain (loss) on foreign currency transactions (Note G) |
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|
119,141 |
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|
|
(82,531 |
) |
Miscellaneous Income |
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|
0 |
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|
|
74,045 |
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|
|
|
|
|
|
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OTHER INCOME AND (EXPENSES) |
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|
126,036 |
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|
|
(238 |
) |
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EARNINGS (LOSS) BEFORE INCOME TAXES |
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|
2,104,360 |
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|
1,886,701 |
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INCOME TAX PROVISION (Note E) |
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|
178,927 |
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|
146,195 |
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NET EARNINGS (LOSS) |
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1,925,433 |
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|
1,740,506 |
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MEMBERS EQUITY JANUARY 1ST |
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|
9,913,607 |
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|
9,303,581 |
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SUBTOTAL |
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11,839,040 |
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|
11,044,087 |
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LESS: DISTRIBUTION TO MEMBERS |
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|
(1,436,271 |
) |
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(1,130,480 |
) |
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MEMBERS EQUITY DECEMBER 31ST |
|
$ |
10,402,769 |
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|
$ |
9,913,607 |
|
|
|
|
|
|
|
|
|
|
See accountants audit report.
-6-
EMTROL LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS EQUITY
YEAR ENDED DECEMBER 31, 2013
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Totals |
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Managing Member |
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Non-managing Members |
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BEGINNING MEMBERS |
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EQUITY - January 1, 2012 |
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$ |
9,303,581 |
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|
$ |
9,303,581 |
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$ |
0 |
|
Net Income (Loss) for the year - 2012 |
|
$ |
1,740,506 |
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|
1,740,506 |
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0 |
|
Add: Guaranteed Payments to non-managing members deducted to arrive at Net Income (Loss) for the year 2012 |
|
$ |
2,099,208 |
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0 |
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2,099,208 |
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|
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|
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Subtotal |
|
$ |
13,143,295 |
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|
$ |
11,044,087 |
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|
$ |
2,099,208 |
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DISTRIBUTIONS TO MEMBERS |
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Non-managing Members |
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(2,099,208 |
) |
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0 |
|
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|
(2,099,208 |
) |
Managing Member |
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|
(1,130,480 |
) |
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|
(1,130,480 |
) |
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|
0 |
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|
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|
|
|
|
|
|
|
|
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Total Distributions |
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(3,229,688 |
) |
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|
(1,130,480 |
) |
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(2,099,208 |
) |
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ENDING MEMBERS EQUITY |
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December 31, 2012 |
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$ |
9,913,607 |
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|
$ |
9,913,607 |
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|
$ |
0 |
|
Net Income (Loss) - 2013 |
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|
1,925,433 |
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|
|
1,925,433 |
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|
|
0 |
|
Add: Guaranteed Payments to non-managing members deducted to arrive at Net Income (Loss) for 2013 |
|
|
2,273,595 |
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|
|
0 |
|
|
|
2,273,595 |
|
|
|
|
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|
|
|
|
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|
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Subtotal |
|
$ |
14,112,635 |
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|
$ |
11,839,040 |
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|
$ |
2,273,595 |
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DISTRIBUTIONS TO MEMBERS |
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|
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Non Managing Members |
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|
(2,273,595 |
) |
|
|
0 |
|
|
|
(2,273,595 |
) |
Managing Member |
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|
(1,436,271 |
) |
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|
(1,436,271 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions |
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|
(3,709,866 |
) |
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|
(1,436,271 |
) |
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|
(2,273,595 |
) |
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|
|
|
|
|
|
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|
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ENDING MEMBERS EQUITY |
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|
|
|
|
|
|
|
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|
December 31, 2013 |
|
$ |
10,402,769 |
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|
$ |
10,402,769 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accountants audit report.
-7-
EMTROL LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2013
|
|
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2013 |
|
|
2012 |
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CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,925,433 |
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|
$ |
1,740,506 |
|
|
|
|
|
|
|
|
|
|
Adjustment to reconcile cash flow: Depreciation and amortization |
|
|
37,908 |
|
|
|
34,170 |
|
Equity adjustment resulting from foreign currency conversion |
|
|
(20,327 |
) |
|
|
42,707 |
|
Decrease (increase) in current assets |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(919,229 |
) |
|
|
6,361,190 |
|
Costs incurred on incomplete contracts |
|
|
0 |
|
|
|
16,509 |
|
Inventories |
|
|
7,582 |
|
|
|
359 |
|
Other current assets and prepayments |
|
|
(24,628 |
) |
|
|
1,970 |
|
Increase (decrease) in current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
1,202,032 |
|
|
|
(6,724,612 |
) |
Accrued expenses |
|
|
(191,446 |
) |
|
|
(65,912 |
) |
Customer deposits |
|
|
117,411 |
|
|
|
(183,204 |
) |
Income taxes payable |
|
|
27,858 |
|
|
|
(97,461 |
) |
|
|
|
|
|
|
|
|
|
TOTAL ADJUSTMENTS |
|
|
237,161 |
|
|
|
(614,284 |
) |
|
|
|
|
|
|
|
|
|
Cash provided (used) by operations |
|
|
2,162,594 |
|
|
|
1,126,222 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of fixed assets (net of removals) |
|
|
(74,435 |
) |
|
|
(67,899 |
) |
|
|
|
|
|
|
|
|
|
Cash provided (used) by investing |
|
|
(74,435 |
) |
|
|
(67,899 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Long Term Debt Incurred |
|
|
15,663 |
|
|
|
0 |
|
Advance from Member - Emtrol Corp. |
|
|
(239,730 |
) |
|
|
341,677 |
|
(Distributions) to Managing Member |
|
|
(1,436,271 |
) |
|
|
(1,130,480 |
) |
|
|
|
|
|
|
|
|
|
Cash provided (used) by financing |
|
|
(1,660,338 |
) |
|
|
(788,803 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
427,821 |
|
|
|
269,520 |
|
Cash at beginning of year |
|
|
8,252,768 |
|
|
|
7,983,248 |
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
$ |
8,680,589 |
|
|
$ |
8,252,768 |
|
|
|
|
|
|
|
|
|
|
See accountants audit report
-8-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2013
NOTE A -
ORGANIZATION
Emtrol Corporation was incorporated May 23, 1973, under the law of the State of Delaware, and is engaged in
the design and sale of pollution control equipment. The equipment is fabricated by various subcontractors in accordance with customer contracts and specifications. The equipment is used primarily by companies engaged in the petroleum, chemical,
mining, and other heavy industries.
As of January 1, 1999, Emtrol Corporation transferred substantially all of its assets subject to
liabilities, to Emtrol LLC, (a New York Limited Liability Company) in exchange for a 100% interest in newly formed Emtrol LLC, which continues to operate the business. Certain key employees of the corporation have been granted minority member
interests in the new LLC, which will entitle them to participate in any increase in the equity of the business, after certain priority distributions, as well as participate in the proceeds of any sale of the business.
NOTE B - PRINCIPLES OF ACCOUNTING
(1) CONSOLIDATION
The
consolidated financial statements include the operations and changes in financial position of Emtrol LLC (both United States and United Kingdom divisions), as well as those of its Canadian subsidiary Emtrol, Ltd. All significant intercompany
balances and transactions have been eliminated.
-9-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2013
NOTE B -
PRINCIPLES OF ACCOUNTING (CONTINUED)
(2) REVENUE RECOGNITION
These financial statements have been prepared on the accrual basis of accounting. Expenses are recognized when incurred. Revenue is recognized
on the percentage of completion basis on the sale of pollution control equipment, which comprises the vast majority of the companys revenue. Revenue is recognized in proportion to the ratio that costs expended on current contracts bears to the
total estimated cost of such contracts.
(3) DEPRECIATION
Depreciation is computed at the maximum allowable amounts for both financial reporting and income tax purposes, in accordance with regulations
established by the Internal Revenue Service in the United States, and the Inland Revenue of the United Kingdom.
(4) COSTS INCURRED ON
UNCOMPLETED CONTRACTS
Costs Incurred on Uncompleted Contracts represents charges from subcontractors who fabricate pollution control
equipment for Emtrols customers, in excess of customer billings on these contracts.
(5) CUSTOMER DEPOSITS
Customer deposits represent advance payments to Emtrol LLC by its customers on incomplete contracts. These deposits are recognized as revenue
as the contracts progress.
(6) INVENTORIES
Inventories consist of spare parts and supplies, and are valued at a lower of cost or market value, applied on a first in, first out (FIFO)
basis. Inventories are not a material income producing factor.
(7) RESEARCH AND DEVELOPMENT
The company expenses currently all research and development costs for financial reporting purposes, and for income tax purposes pursuant to
Section 174 of the Internal Revenue Code. Such costs amounted to $9,576 in 2013 and $30,397 in 2012.
-10-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2013
NOTE B -
PRINCIPLES OF ACCOUNTING (CONTINUED)
(8) GUARANTEED PAYMENTS TO MEMBERS
Guaranteed payments to the non managing members that are intended as compensation for services rendered are accounted for as expenses of the
LLC rather than as allocations of LLC net income. Guaranteed payments to the managing members that are intended as payments for capital contributed are not accounted for as expenses of the LLC, but rather, as part of the allocation of net income.
NOTE C - FIXTURES AND EQUIPMENT
Fixtures and equipment consisted of the following at December 31st:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Furniture, office equipment, and computers |
|
$ |
420,506 |
|
|
$ |
344,649 |
|
Vehicles |
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
420,506 |
|
|
|
344,649 |
|
Less: Accumulated Depreciation |
|
|
(301,203 |
) |
|
|
(261,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
119,303 |
|
|
$ |
82,776 |
|
|
|
|
|
|
|
|
|
|
Fixtures and equipment, which are recorded at cost, are being depreciated using the double declining and
straight-line methods over useful lives ranging from 5 to 7 years. Depreciation and amortization expense was $37,908 in 2013 and $34,170 in 2012.
Obsolete and fully depreciated equipment in the amount of $649,058 was written off in 2012.
-11-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2013
NOTE D - BUSINESS SEGMENTS INFORMATION
The following is a breakdown, by geographical area, of certain key amounts included in these consolidated financial statements, shown in
thousands of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
TOTAL |
|
|
UNITED STATES |
|
|
UNITED KINGDOM |
|
|
CANADA |
|
Total Assets |
|
$ |
21,005 |
|
|
|
15,904 |
|
|
|
4,132 |
|
|
|
969 |
|
Liabilities |
|
|
10,102 |
|
|
|
6,285 |
|
|
|
3,078 |
|
|
|
739 |
|
Revenues |
|
|
33,371 |
|
|
|
23,718 |
|
|
|
8,075 |
|
|
|
1,578 |
|
Net Income (Loss) |
|
|
1,925 |
|
|
|
1,310 |
|
|
|
550 |
|
|
|
65 |
|
NOTE E - INCOME TAXES
The company is not a taxpaying entity for federal income tax purposes, and thus, no federal income tax expense has been recorded in the
financial statements. The income of the company is taxed directly to the members, on their respective tax returns.
New York State, in
which the Company is organized, has similar provisions that recognize an LLC as a non taxpaying entity. Consequently, no New York State income taxes have been provided for in the financial statements. The Company is subject to a small per-member
filing fee imposed annually by the State of New York.
Provisions have been made in these financial statements for United Kingdom and
Canadian income taxes, where applicable.
-12-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2013
NOTE F - PENSION AND PROFIT SHARING PLANS
The Company has established a defined contribution pension plan covering all eligible employees. Employees are eligible to participate in the
plan after completing one year of service and attaining age 21. Employer profit sharing contributions are allocated on a pro rata formula based on compensation. Participants in the plan become vested on a graduated basis, with 100% vesting after six
years of service. Normal retirement age under the plan is 65. The Company has amended and restated the existing profit sharing plan of Emtrol Corporation, effective January 1, 1995 to Emtrol LLC as of January 1, 1999. The contributions to
the plan were $305,577 for 2013 and $257,569 for 2012.
NOTE G - FOREIGN CURRENCY TRANSLATION
The Company has adopted Financial Accounting Standards Board (FASB) Statement No. 52, covering the currency translation of financial
statements of multinational operations. Accordingly, foreign statements of operations for the years ended December 31, 2013 and 2012 were translated into U.S. dollars using average currency exchange rates in effect during the period, and
financial position balances were translated at exchange rates in effect at year end. Currency effect changes resulting from the differences in translation rates used to translate such financial statements into U.S. dollars are included as a
component of the stockholders equity section of the consolidated balance sheets at December 31, 2013 and 2012. Transactional gains and losses resulting from currency exchange fluctuations are included in the consolidated statement of
operations. Currency effect changes resulted in a loss of $(20,327) for 2013 and a gain of $42,707 for 2012, while transactional currency fluctuations resulted in a gain of $119,141 for 2013 and a loss of $(82,531) for 2012.
NOTE H - COMMITMENT AND CONTINGENCIES
LETTERS OF CREDIT
The
company has a credit facility with M&T Bank, whereby the bank will provide letters of credit up to $10,000,000, plus a line of credit for operations of up to $1,000,000.
At December 31, 2013, the Company has 17 outstanding letters of credit totaling $5,802,735. The letters of credit serve as guarantees of
customer advanced payments for contract performance and equipment warranty to Emtrol LLCs customers. To date, no losses have been incurred under this letter of credit arrangement.
-13-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2013
NOTE I - LEASES
The Company leases its main facility at 1440 Veterans Memorial Highway, Islandia, New York from a partnership which is owned by several
of the beneficial owners of Emtrol LLC. The current lease runs September 1, 2013 through August 31, 2014. The rent payable under the lease is $13,835 per month. Rent expense under this lease was $163,191 for 2013 and $158,093 for 2012.
The Company also leases space in the United Kingdom, from an unrelated party, at the rate of $24,912 per annum.
The Company also leases several automobiles and pieces of office equipment under operating lease agreements.
NOTE J - LONG TERM DEBT
The
Company purchased a piece of office equipment under a capitalized lease arrangement in 2013. The lease calls for monthly payments of $347 including interest at 12.78% through February of 2019. The breakdown of the current and non-current portion of
the long term debt is as follows:
|
|
|
|
|
|
|
2013 |
|
Current portion of long term debt |
|
$ |
2,287 |
|
Non-current portion |
|
|
13,376 |
|
|
|
|
|
|
Total Long Term Debt |
|
$ |
15,663 |
|
|
|
|
|
|
-14-
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
EMTROL LLC
AND SUBSIDIARY
SEPTEMBER 30, 2014
CONTENTS
|
|
|
|
|
PAGE |
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
3 |
|
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND MEMBERS EQUITY |
|
4 |
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
5 |
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
|
6 |
EMTROL LLC AND SUBSIDIARY
CONDENSED CONSOLIDATED
BALANCE SHEETS
September 30, 2014 and December 31, 2013
(unaudited)
ASSETS
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,947,373 |
|
|
$ |
8,680,589 |
|
Accounts receivable, less allowance for doubtful accounts |
|
|
8,382,960 |
|
|
|
2,081,007 |
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
|
4,803,573 |
|
|
|
6,970,100 |
|
Inventories |
|
|
7,895 |
|
|
|
8,673 |
|
Other current assets |
|
|
341,652 |
|
|
|
153,349 |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
22,483,453 |
|
|
|
17,893,718 |
|
|
|
|
|
|
|
|
|
|
FIXTURES AND EQUIPMENT (NET) |
|
|
125,838 |
|
|
|
119,303 |
|
|
|
|
|
|
|
|
|
|
GOODWILL (NET) |
|
|
2,992,430 |
|
|
|
2,992,430 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
25,601,721 |
|
|
$ |
21,005,451 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
9,974,987 |
|
|
$ |
9,145,658 |
|
Accrued expenses |
|
|
2,213,397 |
|
|
|
479,291 |
|
Customer deposits |
|
|
2,299,364 |
|
|
|
277,328 |
|
Income taxes payable |
|
|
236,929 |
|
|
|
184,192 |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
$ |
14,724,677 |
|
|
$ |
10,086,469 |
|
|
|
|
|
|
|
|
|
|
LONG TERM DEBT |
|
|
18,909 |
|
|
|
15,663 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
14,743,586 |
|
|
|
10,102,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY |
|
|
|
|
|
|
|
|
Equity adjustment resulting from foreign currency conversion |
|
|
415,651 |
|
|
|
500,550 |
|
Members equity |
|
|
10,442,484 |
|
|
|
10,402,769 |
|
|
|
|
|
|
|
|
|
|
TOTAL MEMBERS EQUITY |
|
|
10,858,135 |
|
|
|
10,903,319 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES & MEMBERS EQUITY |
|
$ |
25,601,721 |
|
|
$ |
21,005,451 |
|
|
|
|
|
|
|
|
|
|
-3-
EMTROL LLC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND MEMBERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 and 2013
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
REVENUES |
|
$ |
29,836,617 |
|
|
$ |
25,839,879 |
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
24,731,055 |
|
|
$ |
21,012,430 |
|
Selling expenses |
|
|
1,693,559 |
|
|
|
1,405,527 |
|
General and administrative expenses |
|
|
1,377,134 |
|
|
|
1,102,647 |
|
Administrators salaries |
|
|
159,901 |
|
|
|
165,000 |
|
Pension plan expense |
|
|
304,676 |
|
|
|
26,243 |
|
|
|
|
|
|
|
|
|
|
TOTAL COSTS & EXPENSES |
|
$ |
28,266,325 |
|
|
$ |
23,711,847 |
|
|
|
|
|
|
|
|
|
|
NET OPERATING EARNINGS |
|
|
1,570,292 |
|
|
|
2,128,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND (EXPENSES) |
|
|
|
|
|
|
|
|
Interest income |
|
|
2,792 |
|
|
|
5,279 |
|
Gain on foreign currency transactions |
|
|
90,122 |
|
|
|
71,577 |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND (EXPENSES) |
|
|
92,914 |
|
|
|
76,856 |
|
|
|
|
|
|
|
|
|
|
EARNINGS BEFORE INCOME TAXES |
|
|
1,663,206 |
|
|
|
2,204,888 |
|
|
|
|
INCOME TAX PROVISION |
|
|
240,492 |
|
|
|
77,432 |
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
|
1,422,714 |
|
|
|
2,127,456 |
|
|
|
|
MEMBERS EQUITY JANUARY 1st |
|
|
10,402,769 |
|
|
|
9,913,607 |
|
|
|
|
|
|
|
|
|
|
SUBTOTAL |
|
|
11,825,483 |
|
|
|
12,041,063 |
|
|
|
|
LESS: DISTRIBUTIONS TO MEMBERS |
|
|
(1,382,999 |
) |
|
|
(1,082,271 |
) |
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY SEPTEMBER 30th |
|
$ |
10,442,484 |
|
|
$ |
10,958,792 |
|
|
|
|
|
|
|
|
|
|
-4-
EMTROL LLC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2014 and 2013
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,422,714 |
|
|
$ |
2,127,456 |
|
|
|
|
|
|
|
|
|
|
Adjustment to reconcile cash flow |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
31,780 |
|
|
|
26,560 |
|
Equity adjustment resulting from foreign currency conversion |
|
|
(84,899 |
) |
|
|
(21,065 |
) |
Decrease (increase) in current assets |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(4,135,426 |
) |
|
|
(4,477,077 |
) |
Costs incurred on incomplete contracts |
|
|
0 |
|
|
|
0 |
|
Inventories |
|
|
778 |
|
|
|
7,402 |
|
Other current assets and prepayments |
|
|
(188,303 |
) |
|
|
(42,134 |
) |
Increase (decrease) in current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
829,329 |
|
|
|
2,632,308 |
|
Accrued expenses |
|
|
1,734,106 |
|
|
|
(63,676 |
) |
Customer deposits |
|
|
2,022,036 |
|
|
|
1,050,133 |
|
Income taxes payable |
|
|
52,737 |
|
|
|
(72,964 |
) |
|
|
|
|
|
|
|
|
|
TOTAL ADJUSTMENTS |
|
$ |
262,138 |
|
|
$ |
(960,513 |
) |
|
|
|
|
|
|
|
|
|
Cash provided by operations |
|
$ |
1,684,852 |
|
|
$ |
1,166,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of fixed assets |
|
|
(38,314 |
) |
|
|
(51,211 |
) |
|
|
|
|
|
|
|
|
|
Cash provided (used) by investing |
|
|
(38,314 |
) |
|
|
(51,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Long term debt incurred (paid) |
|
|
3,245 |
|
|
|
0 |
|
Advance from Member repaid - Emtrol Corp. |
|
|
0 |
|
|
|
(239,730 |
) |
Distributions to Member |
|
|
(1,382,999 |
) |
|
|
(1,082,271 |
) |
|
|
|
|
|
|
|
|
|
Cash used by financing |
|
|
(1,379,754 |
) |
|
|
(1,322,001 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
266,784 |
|
|
|
(206,269 |
) |
Cash at beginning of period ( January 1st) |
|
|
8,680,589 |
|
|
|
8,252,768 |
|
|
|
|
|
|
|
|
|
|
Cash at end of period (September 30th) |
|
$ |
8,947,373 |
|
|
$ |
8,046,499 |
|
|
|
|
|
|
|
|
|
|
-5-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE A - ORGANIZATION
Emtrol Corporation was incorporated May 23, 1973, under the law of the State of Delaware, and is engaged in the design and sale of
pollution control equipment. The equipment is fabricated by various subcontractors in accordance with customer contracts and specifications. The equipment is used primarily by companies engaged in the petroleum, chemical, mining, and other heavy
industries.
As of January 1, 1999, Emtrol Corporation transferred substantially all of its assets subject to liabilities, to Emtrol
LLC, (a New York Limited Liability Company) in exchange for a 100% interest in newly formed Emtrol LLC, which continues to operate the business. Certain key employees of the corporation have been granted minority member interests in the new LLC,
which will entitle them to participate in any increase in the equity of the business, after certain priority distributions, as well as participate in the proceeds of any sale of the business.
NOTE B - PRINCIPLES OF ACCOUNTING
(1) CONSOLIDATION
These
condensed consolidated financial statements have been prepared for the nine month periods ended September 30, 2014 and 2013. Certain footnote disclosures normally included in the financial statements and prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted.
The condensed consolidated financial statements
include the operations and changes in financial position of Emtrol LLC (both United States and United Kingdom divisions), as well as those of its Canadian subsidiary Emtrol, Ltd. All significant intercompany balances and transactions have been
eliminated.
-6-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE B - PRINCIPLES OF ACCOUNTING
(2) REVENUE RECOGNITION
These financial statements have been prepared on the accrual basis of accounting. Expenses are recognized when incurred. Revenue is recognized
on the percentage of completion basis on the sale of pollution control equipment, which comprises the vast majority of the companys revenue. Revenue is recognized in proportion to the ratio that costs expended on current contracts bears to the
total estimated cost of such contracts.
(3) DEPRECIATION
Depreciation is computed at the maximum allowable amounts for both financial reporting and income tax purposes, in accordance with regulations
established by the Internal Revenue Service in the United States, and the Inland Revenue of the United Kingdom.
(4) COSTS AND
ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
Costs and Estimated Earnings in Excess of Billings on Uncompleted
Contracts represents charges from subcontractors who fabricate pollution control equipment for Emtrols customers plus the estimated earnings on those costs in excess of customer billings on these contracts.
(5) CUSTOMER DEPOSITS
Customer deposits represent advance payments to Emtrol LLC by its customers on incomplete contracts. These deposits are recognized as revenue
as the contracts progress.
(6) INVENTORIES
Inventories consist of spare parts and supplies, and are valued at a lower of cost or market value, applied on a first in, first out (FIFO)
basis. Inventories are not a material income producing factor.
(7) RESEARCH AND DEVELOPMENT
The company expenses currently all research and development costs for financial reporting purposes, and for income tax purposes pursuant to
Section 174 of the Internal Revenue Code.
-7-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE B - PRINCIPLES OF ACCOUNTING
(8) GUARANTEED PAYMENTS TO MEMBERS
Guaranteed payments to the non managing members that are intended as compensation for services rendered are accounted for as expenses of the
LLC rather than as allocations of LLC net income. Guaranteed payments to the managing members that are intended as payments for capital contributed are not accounted for as expenses of the LLC, but rather, as part of the allocation of net income.
NOTE C - FIXTURES AND EQUIPMENT
Fixtures and equipment, which are recorded at cost, are being depreciated using the double declining and straight-line methods over useful
lives ranging from 5 to 7 years.
NOTE D - INCOME TAXES
The company is not a taxpaying entity for federal income tax purposes, and thus, no federal income tax expense has been recorded in the
financial statements. The income of the company is taxed directly to the members, on their respective tax returns.
New York State, in
which the Company is organized, has similar provisions that recognize an LLC as a non taxpaying entity. Consequently, no New York State income taxes have been provided for in the financial statements. The Company is subject to a small per-member
filing fee imposed annually by the State of New York.
Provisions have been made in these financial statements for United Kingdom and
Canadian income taxes, where applicable.
NOTE E - PENSION AND PROFIT SHARING PLANS
The Company has established a defined contribution pension plan covering all eligible employees. Employees are eligible to participate in the
plan after completing one year of service and attaining age 21. Employer profit sharing contributions are allocated on a pro rata formula based on compensation. Participants in the plan become vested on a graduated basis, with 100% vesting after six
years of service. Normal retirement age under the plan is 65. The Company has amended and restated the existing profit sharing plan of Emtrol Corporation, effective January 1, 1995 to Emtrol LLC as of January 1, 1999.
NOTE F - FOREIGN CURRENCY TRANSLATION
The Company has adopted Financial Accounting Standards Board (FASB) Statement No. 52, covering the currency translation of financial
statements of multinational operations. Accordingly, foreign statements of operations for the periods ended September 30, 2014 and 2013 were translated into U.S. dollars using average currency exchange rates in effect during the period, and
financial position balances were translated at exchange rates in effect at year end. Currency effect changes resulting from the differences in translation rates used to translate such financial statements into U.S. dollars are included as a
component of the members equity section of the condensed consolidated balance sheets. Transactional gains and losses resulting from currency exchange fluctuations are included in the condensed consolidated statement of operations.
-8-
EMTROL LLC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE G - COMMITMENT AND CONTINGENCIES
LETTERS OF CREDIT
The
company has a credit facility with M&T Bank, whereby the bank will provide letters of credit up to $10,000,000, plus a line of credit for operations of up to $1,000,000. At September 30, 2014, the Company has 22 outstanding letters of
credit totaling $7,185,880. The letters of credit serve as guarantees of customer advanced payments for contract performance and equipment warranty to Emtrol LLCs customers. To date, no losses have been incurred under this letter of credit
arrangement.
NOTE H - LEASES
The Company leases its main facility at 1440 Veterans Memorial Highway, Islandia, New York from a partnership which is owned by several
of the beneficial owners of Emtrol LLC.
The Company also leases space in the United Kingdom, from an unrelated party.
The Company also leases several automobiles and pieces of office equipment under operating lease agreements.
NOTE I - LONG TERM DEBT
The
Company purchased a piece of office equipment under a capitalized lease arrangement in 2013. The lease calls for monthly payments of $347 including interest at 12.78% through February of 2019. The entire obligation is classified as long term debt on
the condensed consolidated balance sheet.
-9-
Exhibit 99.2
CECO Environmental Corp. and Subsidiaries
Unaudited Pro Forma
Condensed Combined Financial Information
In thousands, except share data
On November 3, 2014 (the Closing Date), CECO Environmental Corp., through its subsidiary Fisher-Klosterman, Inc.
(collectively, the Company or CECO), acquired 100% of the membership interests of Emtrol LLC (Emtrol), a New York limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement
(MIPA) among CECO and each of the members of Emtrol (the Sellers). Emtrol and its subsidiary are engaged in the business of designing and manufacturing of fluid catalytic cracking (FCC) and industrial cyclone
technology for a variety of industries including the refinery, petrochemical, and chemical sectors.
The Company paid cash at closing of
$32,000, which was financed with additional debt. The Company also issued 453,858 shares of the Companys common stock with an agreed upon value of $6,000 computed based on the average closing price of the Companys common stock for the
thirty trading days immediately preceding the Closing Date. The shares of common stock issued to the Sellers contain restrictions on sale or transfer for periods ranging from one to two years from the Closing Date. Accordingly, the preliminary fair
value of the common stock issued has been determined to be $5,435, which reflects the estimated fair value of the shares based on the closing price of the Companys common stock on the Closing Date and a discount related to the sale and
transfer restrictions.
The unaudited pro forma condensed combined balance sheet as of September 30, 2014 is presented as if the
acquisition of Emtrol had occurred on that date. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2013 and nine months ended September 30, 2014 are presented as if the Emtrol acquisition had
occurred on January 1, 2013.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes
only and is not necessarily indicative of the consolidated financial position or results of operations that would have actually been reported had the acquisition occurred as of the dates indicated, nor is it necessarily indicative of future
consolidated financial position or results of operations. The unaudited pro forma condensed combined financial information does not include, nor does it assume, any benefits from cost savings or synergies of the combined operations or the costs
necessary to achieve these cost savings, or synergies, and such differences may be material.
The unaudited pro forma condensed combined
financial information was prepared using the acquisition method of accounting and was based on the audited financial statements of CECO and Emtrol as of and for the year ended December 31, 2013, and interim financial results of CECO and Emtrol
as of September 30, 2014 and for the nine months then ended. The estimated fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates
and assumptions could change significantly during the purchase price measurement period as we finalize the valuations of the assets acquired and liabilities assumed, and the related tax balances. Such changes could result in material variances
between the Companys future financial results and the amounts presented in the unaudited pro forma information, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.
The unaudited pro forma condensed combined financial information should be read in conjunction with the Companys historical consolidated
financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and with Emtrols historical
consolidated financial statements and notes thereto included in the Companys Current Report on Form 8-K/A to which this document is filed as an exhibit.
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts) |
|
Historical CECO |
|
|
Historical Emtrol |
|
|
Notes |
|
|
Pro Forma Adjustments |
|
|
Pro Forma Condensed Combined |
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
18,039 |
|
|
$ |
8,947 |
|
|
|
|
|
|
$ |
|
|
|
$ |
26,986 |
|
Accounts receivable, net |
|
$ |
47,639 |
|
|
$ |
4,804 |
|
|
|
|
|
|
$ |
|
|
|
$ |
52,443 |
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
$ |
13,999 |
|
|
$ |
8,383 |
|
|
|
|
|
|
$ |
|
|
|
$ |
22,382 |
|
Inventories, net |
|
$ |
26,541 |
|
|
$ |
8 |
|
|
|
|
|
|
$ |
|
|
|
$ |
26,549 |
|
Prepaid expenses and other current assets |
|
$ |
6,594 |
|
|
$ |
342 |
|
|
|
|
|
|
$ |
|
|
|
$ |
6,936 |
|
Prepaid income taxes |
|
$ |
8,471 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
8,471 |
|
Assets held for sale |
|
$ |
4,210 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
4,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
$ |
125,493 |
|
|
$ |
22,484 |
|
|
|
|
|
|
$ |
|
|
|
$ |
147,977 |
|
Property, plant and equipment, net |
|
$ |
18,173 |
|
|
$ |
126 |
|
|
|
|
|
|
$ |
|
|
|
$ |
18,299 |
|
Goodwill |
|
$ |
144,267 |
|
|
$ |
2,992 |
|
|
|
C |
|
|
$ |
10,827 |
|
|
$ |
158,086 |
|
Intangible assets finite life, net |
|
$ |
40,399 |
|
|
$ |
|
|
|
|
D |
|
|
$ |
15,750 |
|
|
$ |
56,149 |
|
Intangible assets indefinite life |
|
$ |
18,169 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
18,169 |
|
Deferred charges and other assets |
|
$ |
4,051 |
|
|
$ |
|
|
|
|
F |
|
|
$ |
70 |
|
|
$ |
4,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
350,552 |
|
|
$ |
25,602 |
|
|
|
|
|
|
$ |
26,647 |
|
|
$ |
402,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
$ |
8,236 |
|
|
$ |
|
|
|
|
A |
|
|
$ |
529 |
|
|
$ |
8,765 |
|
Accounts payable and accrued expenses |
|
$ |
33,565 |
|
|
$ |
14,488 |
|
|
|
F |
|
|
$ |
370 |
|
|
|
48,766 |
|
|
|
|
|
|
|
|
|
|
|
|
G |
|
|
$ |
343 |
|
|
|
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
$ |
12,812 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
12,812 |
|
Income taxes payable |
|
$ |
1,131 |
|
|
$ |
237 |
|
|
|
|
|
|
$ |
|
|
|
$ |
1,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
$ |
55,744 |
|
|
$ |
14,725 |
|
|
|
|
|
|
$ |
1,242 |
|
|
$ |
71,711 |
|
Other liabilities |
|
$ |
11,180 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
11,180 |
|
Debt, less current portion |
|
$ |
76,074 |
|
|
$ |
19 |
|
|
|
A |
|
|
$ |
31,471 |
|
|
$ |
107,264 |
|
|
|
|
|
|
|
|
|
|
|
|
F |
|
|
$ |
(300 |
) |
|
|
|
|
Deferred income tax liability, net |
|
$ |
29,690 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
29,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
$ |
172,688 |
|
|
$ |
14,744 |
|
|
|
|
|
|
$ |
32,413 |
|
|
$ |
219,845 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Common stock, $0.01 par value; 100,000,000 shares authorized, 25,865,569 and 26,319,427 shares issued as of September 30, 2014 and
pro forma, respectively |
|
$ |
259 |
|
|
$ |
|
|
|
|
B |
|
|
$ |
5 |
|
|
$ |
264 |
|
Capital in excess of par value |
|
$ |
161,360 |
|
|
$ |
|
|
|
|
B |
|
|
$ |
5,430 |
|
|
$ |
166,790 |
|
Accumulated earnings |
|
$ |
18,754 |
|
|
$ |
10,442 |
|
|
|
E |
|
|
$ |
(10,442 |
) |
|
$ |
18,411 |
|
|
|
|
|
|
|
|
|
|
|
|
G |
|
|
$ |
( 343 |
) |
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(2,153 |
) |
|
$ |
416 |
|
|
|
E |
|
|
$ |
(416 |
) |
|
$ |
(2,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
178,220 |
|
|
$ |
10,858 |
|
|
|
|
|
|
$ |
(5,766 |
) |
|
$ |
183,312 |
|
Less treasury stock, at cost, 137,920 shares as of September 30, 2014 and pro forma |
|
$ |
(356 |
) |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY |
|
$ |
177,864 |
|
|
$ |
10,858 |
|
|
|
|
|
|
$ |
(5,766 |
) |
|
$ |
182,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
350,552 |
|
|
$ |
25,602 |
|
|
|
|
|
|
$ |
26,647 |
|
|
$ |
402,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2013
(amounts in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical CECO |
|
|
Historical Emtrol |
|
|
|
|
|
Pro Forma Adjustments |
|
|
Pro Forma Condensed Combined |
|
Net sales |
|
$ |
197,317 |
|
|
$ |
33,371 |
|
|
|
|
|
|
$ |
|
|
|
$ |
230,688 |
|
Cost of sales |
|
$ |
135,762 |
|
|
$ |
27,208 |
|
|
|
|
|
|
$ |
|
|
|
$ |
162,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
$ |
61,555 |
|
|
$ |
6,163 |
|
|
|
|
|
|
$ |
|
|
|
$ |
67,718 |
|
Selling and administrative expenses |
|
$ |
37,098 |
|
|
$ |
4,185 |
|
|
|
|
|
|
$ |
|
|
|
$ |
41,283 |
|
Acquisition and integration expenses |
|
$ |
7,224 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
7,224 |
|
Amortization and earnout expenses |
|
$ |
6,761 |
|
|
$ |
|
|
|
|
D |
|
|
$ |
2,310 |
|
|
$ |
9,071 |
|
Legal reserves |
|
$ |
3,500 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
$ |
6,972 |
|
|
$ |
1,978 |
|
|
|
|
|
|
$ |
(2,310 |
) |
|
$ |
6,640 |
|
Other (expense) income, net |
|
$ |
982 |
|
|
$ |
126 |
|
|
|
|
|
|
$ |
|
|
|
$ |
1,108 |
|
Interest expense |
|
$ |
(1,499 |
) |
|
$ |
|
|
|
|
F |
|
|
$ |
(72 |
) |
|
$ |
(2,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
H |
|
|
$ |
(714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES |
|
$ |
6,455 |
|
|
$ |
2,104 |
|
|
|
|
|
|
$ |
(3,096 |
) |
|
$ |
5,463 |
|
Income tax (benefit) expense |
|
$ |
(102 |
) |
|
$ |
179 |
|
|
|
I |
|
|
$ |
(1,053 |
) |
|
$ |
(481 |
) |
|
|
|
|
|
|
|
|
|
|
|
J |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
6,557 |
|
|
$ |
1,925 |
|
|
|
|
|
|
$ |
(2,538 |
) |
|
$ |
5,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.29 |
|
Diluted net income per share |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.28 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
20,116,991 |
|
|
|
|
|
|
|
B |
|
|
|
453,858 |
|
|
|
20,570,849 |
|
Diluted |
|
|
20,719,951 |
|
|
|
|
|
|
|
B |
|
|
|
453,858 |
|
|
|
21,173,809 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(amounts in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical CECO |
|
|
Historical Emtrol |
|
|
|
|
|
Pro Forma Adjustments |
|
|
Pro Forma Condensed Combined |
|
Net sales |
|
$ |
187,111 |
|
|
$ |
29,837 |
|
|
|
|
|
|
$ |
|
|
|
$ |
216,948 |
|
Cost of sales |
|
$ |
124,875 |
|
|
$ |
24,731 |
|
|
|
|
|
|
$ |
|
|
|
$ |
149,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
$ |
62,236 |
|
|
$ |
5,106 |
|
|
|
|
|
|
$ |
|
|
|
$ |
67,342 |
|
Selling and administrative expenses |
|
$ |
36,402 |
|
|
$ |
3,536 |
|
|
|
|
|
|
$ |
|
|
|
$ |
39,938 |
|
Acquisition and integration expenses |
|
$ |
321 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
321 |
|
Amortization and earnout expenses |
|
$ |
7,288 |
|
|
$ |
|
|
|
|
D |
|
|
$ |
1,733 |
|
|
$ |
9,021 |
|
Legal reserves |
|
$ |
300 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
$ |
17,925 |
|
|
$ |
1,570 |
|
|
|
|
|
|
$ |
(1,733 |
) |
|
$ |
17,762 |
|
Other (expense) income, net |
|
$ |
(1,686 |
) |
|
$ |
93 |
|
|
|
|
|
|
$ |
|
|
|
$ |
(1,593 |
) |
Interest expense |
|
$ |
(2,255 |
) |
|
$ |
|
|
|
|
F |
|
|
$ |
(54 |
) |
|
$ |
(2,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
H |
|
|
$ |
(535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES |
|
$ |
13,984 |
|
|
$ |
1,663 |
|
|
|
|
|
|
$ |
(2,322 |
) |
|
$ |
13,325 |
|
Income tax expense |
|
$ |
2,767 |
|
|
$ |
240 |
|
|
|
I |
|
|
$ |
(789 |
) |
|
$ |
2,462 |
|
|
|
|
|
|
|
|
|
|
|
|
J |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
11,217 |
|
|
$ |
1,423 |
|
|
|
|
|
|
$ |
(1,777 |
) |
|
$ |
10,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.42 |
|
Diluted net income per share |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.41 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
25,647,561 |
|
|
|
|
|
|
|
B |
|
|
|
453,858 |
|
|
|
26,101,419 |
|
Diluted |
|
|
26,105,415 |
|
|
|
|
|
|
|
B |
|
|
|
453,858 |
|
|
|
26,559,273 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(amounts in thousands, except share data)
1. Description of Transaction
On
November 3, 2014 (the Closing Date), CECO Environmental Corp., through its subsidiary Fisher-Klosterman, Inc. (collectively, the Company or CECO), acquired 100% of the membership interests of Emtrol LLC
(Emtrol), a New York limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement (MIPA) among CECO and each of the members of Emtrol (the Sellers). Emtrol and its subsidiary are
engaged in the business of designing and manufacturing of fluid catalytic cracking (FCC) and industrial cyclone technology for a variety of industries including the refinery, petrochemical, and chemical sectors.
The Company paid cash at closing of $32,000, which was financed with additional debt. The Company also issued 453,858 shares of the
Companys common stock with an agreed upon value of $6,000 computed based on the average closing price of the Companys common stock for the thirty trading days immediately preceding the Closing Date. The shares of common stock issued to
the Sellers contain restrictions on sale or transfer for periods ranging from one to two years from the Closing Date. Accordingly, the preliminary fair value of the common stock issued has been determined to be $5,435, which reflects the estimated
fair value of the shares based on the closing price of the Companys common stock on the Closing Date and a discount related to the sale and transfer restrictions.
2. Basis of Presentation
The
unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the audited financial statements of CECO and Emtrol as of and for the year ended December 31, 2013, and
interim financial results of CECO and Emtrol as of September 30, 2014 and for the nine months then ended. Certain reclassifications were made to the overall presentation of the historical Emtrol consolidated financial statements to conform to
CECOs presentation. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2013 and nine months ended September 30, 2014 are presented as if the Emtrol acquisition had occurred on
January 1, 2013.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is
not necessarily indicative of the consolidated financial position or results of operations that would have actually been reported had the acquisition occurred as of January 1, 2013 or September 30, 2014, nor is it necessarily indicative of
future consolidated financial position or results of operations. The unaudited pro forma condensed combined financial information does not include, nor does it assume, any benefits from cost savings or synergies of the combined operations or the
costs necessary to achieve these cost savings, or synergies, and such differences may be material.
The estimated fair values of the
assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as we
finalize the valuations of the assets acquired and liabilities assumed, and the related tax balances. Such changes could result in material variances between the Companys future financial results and the amounts presented in the unaudited pro
forma information, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.
The unaudited pro forma condensed combined financial information should be read in conjunction with the Companys historical consolidated
financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and with Emtrols historical
consolidated financial statements and notes thereto included in the Companys Current Report on Form 8-K/A to which this document is filed as an exhibit.
Acquisition-related transaction costs are not included as a component of consideration
transferred but are accounted for as expenses in the periods in which such costs are incurred. The unaudited pro forma condensed combined statements of income do not include Emtrol acquisition-related transaction costs.
3. Assets Acquired and Liabilities Assumed
A summary of the total purchase price consideration to be allocated by CECO in the acquisition of Emtrol is provided below.
|
|
|
|
|
Cash payments at Closing |
|
$ |
32,000 |
|
Value of common stock transferred |
|
|
5,435 |
|
|
|
|
|
|
Total purchase price consideration to be allocated |
|
$ |
37,435 |
|
The preliminary estimated assets acquired and liabilities assumed by CECO in the acquisition of Emtrol,
reconciled to the consideration transferred, are provided below and are presented as if the acquisition had occurred on September 30, 2014.
|
|
|
|
|
Book value of net assets acquired |
|
$ |
10,858 |
|
Adjustment for elimination of historical goodwill |
|
|
(2,992 |
) |
|
|
|
|
|
Adjusted book value of net tangible assets acquired |
|
|
7,866 |
|
Adjustments to: |
|
|
|
|
Goodwill |
|
|
13,819 |
|
Intangible assetsfinite life |
|
|
15,750 |
|
|
|
|
|
|
Total purchase price consideration to be allocated |
|
$ |
37,435 |
|
4. Pro Forma Adjustments
This note should be read in conjunction with Note 1. Description of Transaction; Note 2 Basis of Presentation; and Note 3. Assets Acquired and Liabilities
Assumed.
Adjustments under the heading Pro Forma Adjustments represent the following:
A. |
To record the cash consideration paid at closing of $32,000 consisting of current debt of $529 and long-term debt of $31,471. |
B. |
To record the issuance of 453,858 shares of CECO common stock with an estimated value of $5,435. |
C. |
To record the preliminary estimated residual goodwill of $13,819 and eliminate the Emtrol historical goodwill of $2,992. |
D. |
To record the preliminary estimated fair value of intangible assets acquired from Emtrol. CECO engaged a third party valuation specialist to assist management. Based on the preliminary assessment, the acquired
intangible asset categories, fair value and average amortization periods are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Average Amortization Method/Period |
|
Estimated Annual Amortization Expense |
|
Intangible assetsfinite life Customer relationships |
|
$ |
13,000 |
|
|
Cash flow |
|
$ |
1,950 |
|
Intangible assetsfinite life Tradename |
|
$ |
1,900 |
|
|
10 years |
|
$ |
190 |
|
Intangible assetsfinite life Non-compete agreements |
|
$ |
850 |
|
|
5 years |
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,750 |
|
|
|
|
$ |
2,310 |
|
|
The preliminary estimated fair value of customer relationships and non-compete agreements are based upon pro forma cash flows using historical and market participant data. The preliminary estimated fair value of the
tradename is based on the relief from royalty method. |
E. |
To eliminate shareholders equity of Emtrol as of the date of the acquisition. |
F. |
To record approximately $370 of deferred charges related to debt issuance costs associated with the debt facilities and record the expense of $72 annually, or $54 for the nine-month period. |
G. |
To record the accrual and offsetting charge to retained earnings for the estimated acquisition related expenses totaling approximately $343 that will be incurred and paid in 2014. No adjustment has been made to the
unaudited pro forma condensed combined statement of income for these costs as they are non-recurring. |
H. |
To record interest on the term loan facility in connection with the Emtrol acquisition at Eurocurrency (as defined in the credit agreement) rate plus 200 basis points (2.25%, which is the market rate as of the date of
this filing). |
I. |
To record the recognition of the income tax consequences of the pro forma adjustments herein. The adjustments have been tax effected at estimated statutory rates. Emtrol LCC is a single member LLC, therefore, for
federal tax purposes, this acquisition is treated as an asset acquisition. As such, book and tax basis of assets and liabilities acquired will equal resulting in no additional deferred tax assets or liabilities. |
J. |
To record US Federal and New York State taxes of Emtrol LLC at a combined rate of 36%, as the US entity is now taxed as a C-Corporation. |
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