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): December 6, 2018
ALLIED MOTION TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in its Charter)
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Colorado |
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0-04041 |
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84-0518115 |
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(State or Other Jurisdiction |
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(Commission File Number) |
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(IRS Employer |
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of Incorporation) |
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Identification No.) |
495 Commerce Drive, Suite 3
Amherst, New York 14228
(Address of Principal Executive Offices, including zip code)
(716) 242-8634
(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):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Explanatory Note
This Amendment No. 1 on Form 8-K/A amends and supplements the Current Report on Form 8-K of Allied Motion Technologies Inc. (the “Company”), filed with the Securities and Exchange Commission on December 11, 2018 (the “Initial Form 8-K”) to include financial statements and pro forma financial information permitted pursuant to Item 9.01 of Form 8-K to be excluded from the Initial Form 8-K and filed by amendment to the Initial Form 8-K no later than 71 days after the date on which the Initial Form 8-K was required to be filed. As previously reported in the Initial Form 8-K, effective as of December 6, 2018 the Company completed the acquisition of TCI, LLC pursuant to a Unit Purchase Agreement dated as of December 6, 2018.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The audited financial statements of TCI, LLC for the year ended December 31, 2017 and the related Independent Auditors Report thereon are included as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference. The unaudited condensed consolidated balance sheet as of September 30, 2018 and the related unaudited condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2018 and 2017 of TCI, LLC are filed as Exhibit 99.2 and incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma consolidated statements of operations for the nine-month period ended September 30, 2018 and the year ended December 31, 2017 and the unaudited pro forma consolidated balance sheet as of September 30, 2018 together with related explanatory notes, showing the pro forma effect on the Company’s financial statements of the Company’s acquisition of TCI, LLC are included as Exhibit 99.3 hereto and are incorporated herein by reference.
(d) Exhibits.
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23.1 |
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99.1 |
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99.2 |
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99.3 |
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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.
Date: February 15, 2019
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ALLIED MOTION TECHNOLOGIES INC. | |
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By: |
/s/ MICHAEL R. LEACH |
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Michael R. Leach |
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Chief Financial Officer |
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Allied Motion Technologies Inc.:
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-149279, 333-155889, 333-170563, 333-187369, and 333-217654) and in the Registration Statements on Form S-3 (Nos. 333-229029 and 333-119090) of Allied Motion Technologies Inc. of our report dated February 21, 2018, with respect to the financial statements of TCI, LLC as of and for the year ended December 31, 2017, which appears in this Current Report on Form 8-K/A.
/s/ Baker Tilly Virchow Krause, LLP
Milwaukee, Wisconsin
February 15, 2019
TCI, LLC
Germantown, Wisconsin
CONSOLIDATED FINANCIAL STATEMENTS
Including Independent Auditors’ Report
As of and for the Year Ended December 31, 2017
TCI, LLC
TABLE OF CONTENTS
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Independent Auditors’ Report |
1 - 2 |
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Consolidated Financial Statements |
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Consolidated Balance Sheet |
3 |
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Consolidated Statement of Operations |
4 |
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Consolidated Statement of Members’ Equity |
5 |
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Consolidated Statement of Cash Flows |
6 |
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Notes to Consolidated Financial Statements |
7 - 17 |
INDEPENDENT AUDITORS’ REPORT
Members and Board of Directors
TCI, LLC
Germantown Wisconsin
We have audited the accompanying consolidated financial statements of TCI, LLC, which comprise the consolidated balance sheet as of December 31, 2017, and the related consolidated statement of operations, members’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States 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 entity’s 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 entity’s 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.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TCI, LLC as of December 31, 2017 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Baker Tilly Virchow Krause, LLP
Milwaukee, Wisconsin
February 21, 2018
TCI, LLC
CONSOLIDATED BALANCE SHEET
As of December 31, 2017
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2017 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
1,028,502 |
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Accounts receivable, net |
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4,174,029 |
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Inventories, net |
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3,479,156 |
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Prepaid expenses |
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130,909 |
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Total Current Assets |
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8,812,596 |
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PROPERTY AND EQUIPMENT, NET |
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2,134,216 |
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INTANGIBLE ASSETS |
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Other intangibles, net |
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481,368 |
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Goodwill |
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9,928,818 |
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TOTAL ASSETS |
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$ |
21,356,998 |
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LIABILITIES AND MEMBERS’ EQUITY |
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CURRENT LIABILITIES |
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Current maturities of long-term debt |
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$ |
2,020,784 |
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Accounts payable |
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2,261,269 |
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Accrued salaries, wages and bonuses |
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1,068,095 |
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Accrued management fees |
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22,500 |
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Accrued vacation |
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575,856 |
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Other accrued expenses |
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470,290 |
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Distributions payable |
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339,691 |
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Total Current Liabilities |
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6,758,485 |
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LONG-TERM LIABILITIES |
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Long-term debt |
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2,180,654 |
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Total Liabilities |
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8,939,139 |
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MEMBERS’ EQUITY |
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12,417,859 |
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TOTAL LIABILITIES AND MEMBERS’ EQUITY |
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$ |
21,356,998 |
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See accompanying notes to consolidated financial statements.
TCI, LLC
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
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2017 |
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Percent |
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NET SALES |
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$ |
34,314,778 |
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100.0 |
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COST OF GOODS SOLD |
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20,781,561 |
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60.6 |
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Gross Profit |
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13,533,217 |
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39.4 |
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OPERATING EXPENSES |
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Selling and administrative expenses |
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9,964,026 |
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29.1 |
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Amortization expense |
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366,972 |
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1.1 |
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Management fees |
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100,000 |
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0.3 |
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Total Operating Expenses |
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10,430,998 |
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30.4 |
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Operating Income |
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3,102,219 |
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9.0 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
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(263,682 |
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(0.8 |
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Other expense, net |
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(15,192 |
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— |
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Net Other Expense |
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(278,874 |
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(0.8 |
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NET INCOME |
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$ |
2,823,345 |
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8.2 |
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See accompanying notes to consolidated financial statements.
TCI, LLC
CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY
For the Year Ended December 31, 2017
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Common |
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Incentive |
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Members’ |
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Units Outstanding, December 31, 2016 |
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6,671 |
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436 |
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Units issued |
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— |
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4 |
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Units exercised |
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94 |
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(94 |
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Units Outstanding, December 31, 2017 |
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6,765 |
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346 |
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BALANCES, December 31, 2016 |
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$ |
10,096,883 |
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$ |
260,018 |
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$ |
10,356,901 |
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Net Income |
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2,823,345 |
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— |
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2,823,345 |
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Cash portion for incentive units exercised |
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33,126 |
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— |
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33,126 |
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Exercise of incentive units |
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57,533 |
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(57,533 |
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— |
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Incentive units compensation |
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— |
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51,583 |
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51,583 |
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Distributions |
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(847,096 |
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— |
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(847,096 |
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BALANCES, December 31, 2017 |
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$ |
12,163,791 |
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$ |
254,068 |
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$ |
12,417,859 |
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See accompanying notes to consolidated financial statements.
TCI, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2017
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2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
2,823,345 |
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Adjustments to reconcile net income to net cash flows from operating activities |
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Depreciation |
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822,338 |
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Amortization of intangible assets |
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366,972 |
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Change in allowance for doubtful accounts |
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5,210 |
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Provision for inventory |
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(2,824 |
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Straight line rent adjustment |
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38,576 |
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Incentive units compensation expense |
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51,583 |
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Changes in assets and liabilities |
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Accounts receivable |
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(1,259,477 |
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Inventories |
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191,513 |
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Prepaid expenses |
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51,967 |
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Accounts payable |
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832,500 |
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Accrued salaries, wages and bonuses |
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841,266 |
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Accrued vacation |
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89,138 |
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Other accrued expenses |
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20,898 |
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Net Cash Flows from Operating Activities |
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4,873,005 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
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(279,310 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Checks issued in excess of bank balance |
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— |
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Principal payments on long-term debt |
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(2,855,208 |
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Repayment of capital lease obligations |
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— |
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Member contributions |
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33,126 |
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Distributions to members |
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(861,671 |
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Net Cash Flows from Financing Activities |
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(3,683,753 |
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Net Change in Cash and Cash Equivalents |
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909,942 |
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CASH AND CASH EQUIVALENTS - Beginning of Year |
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118,560 |
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CASH AND CASH EQUIVALENTS - END OF YEAR |
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$ |
1,028,502 |
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Supplemental cash flow disclosures |
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Cash paid for interest |
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$ |
263,682 |
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Noncash financing activities |
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Accrued distributions - net change |
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$ |
(14,578 |
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See accompanying notes to consolidated financial statements.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 1 - Summary of Significant Accounting Policies
Nature of Operations
TCI, LLC (the Company) is engaged in the manufacture and sale of harmonic filter (active and passive), reactors, and other line filter products for AC and DC drives. The Company grants credit to its customers which are primarily original equipment manufacturers and distributors located throughout the United States, Canada and Mexico.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the parent company, TCI, LLC, and its wholly-owned subsidiary, TCI International, Inc. (DISC). Significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as highly liquid, short-term investments with a maturity at the date of acquisition of three months or less.
Accounts Receivable
In the normal course of business, the Company extends limited unsecured credit to its customers. Accounts receivable are uncollateralized customer obligations resulting from the sale of its products. Accounts receivable are due in a variety of payment terms ranging from 30 to 60 days after the issuance of the invoice. Payments of accounts receivable are applied to the specific invoices identified on the customer’s remittance advice, or if unspecified, to the earliest unpaid invoices. Uncollected receivables are considered past-due after 30 days of the agreed-upon due date. Receivables are written-off only after all collection attempts have failed and are based on the individual credit evaluation and specific circumstances of the customer. Recoveries of receivables previously written-off are recorded when received.
The Company uses the allowance method to account for uncollectable accounts receivable. Accounts receivable have been adjusted for all known uncollectable accounts. The Company provides for an allowance for doubtful accounts, when appropriate, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions, on a per customer basis. Accounts receivable are presented net of an allowance for doubtful accounts of $5,210 at December 31, 2017.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market. Manufacturing related labor and overhead costs are capitalized into work in process and finished goods.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives. Major expenditures for property and equipment are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income. For income tax reporting purposes, depreciation is calculated using applicable accelerated methods.
Other Intangible Assets
Other intangible assets relate to trade name, patented technology, customer lists and customer/vendor relationships acquired with the acquisition of Trans-Coil, Inc. in 2008. The cost of the intangible assets are amortized on a straight-line basis over their estimated lives ranging from 10-15 years. Total amortization expense related to the intangible assets was $366,972 for the year ended December 31, 2017.
The following table presents detail of the company’s amortizable intangible assets at December 31, 2017:
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Life |
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Gross |
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Accumulated Amortization |
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Balance |
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Customer relationships |
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15 |
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$ |
802,000 |
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$ |
503,478 |
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$ |
298,522 |
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Patents |
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10 |
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1,334,000 |
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1,256,183 |
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77,817 |
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Tradename |
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10 |
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1,801,000 |
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1,695,971 |
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105,029 |
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Total |
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$ |
3,937,000 |
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$ |
3,455,632 |
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$ |
481,368 |
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Future amortization expense of the intangible assets will be as follows for the years ending December 31:
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2018 |
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$ |
236,342 |
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2019 |
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53,467 |
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2020 |
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53,467 |
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2021 |
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53,467 |
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2022 |
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53,467 |
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Thereafter |
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31,158 |
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Total |
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$ |
481,368 |
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The Company accounts for intangible assets acquired during acquisition in accordance with accounting guidance related to business combinations. Accordingly, intangible assets acquired in a business combination are recognized apart from goodwill if the intangible asset meets the separate recognition criteria, as defined in the accounting guidance.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Goodwill
The Company has allocated a portion of the purchase price of the business acquired to goodwill. Goodwill is considered impaired to the extent it has been determined that carrying value is in excess of its fair value and is not recoverable. The Company reviews for impairment annually based on a qualitative analysis of the business, the customer segments, the economy, competition, and other such factors. Management believes there has been no impairment of the Company’s goodwill as of December 31, 2017.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, and intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. No such impairments were recognized for the year ended December 31, 2017.
Revenues
Revenue is recognized when products are shipped and title transfers to or services are performed for customers and payment is reasonably assured.
Shipping and Handling Costs
Shipping and handling costs charged to customers have been included in net sales. Shipping and handling costs incurred by the Company have been included in cost of goods sold.
Advertising
Advertising costs are charged to operations when incurred. Advertising expense was $196,249 for the year ended December 31, 2017.
Research and Development
Research and development costs are expensed as incurred and were $1,323,545 for the year ended December 31, 2017.
Product Warranties
The Company offers a standard one-year warranty against manufacturer’s defects on all products. Estimated costs for product warranties are accrued and charged to operations when revenue is recognized. Warranty expenses were $47,948 for the year ended December 31, 2017.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Income Taxes
The Company is treated as a Partnership for federal and state income tax purposes. As such, the Company’s income, losses, and credits are included in the income tax returns of its members.
The Company recognizes the tax effects from uncertain tax positions only if the positions are more likely than not to be sustained under examination by a tax authority, based solely on the technical merits of the position. As of December 31, 2017 the Company was not aware of any uncertain tax positions. The Company’s policy is to record interest and penalties related to income tax liabilities in income tax expense. The Company is not currently under examination by any taxing jurisdiction.
Distributions and Distributions Payable
The Company pays quarterly tax distributions based on the current year’s estimate of income tax obligations to be incurred by the members of the Company. To calculate the total tax distributions required, management estimates income tax obligations using the highest effective income tax brackets at the individual level and the anticipated Company taxable income, net of income tax credits. Management records distributions payable at each year end related to estimated income tax obligations resulting from that year’s activity. As of December 31, 2017, a distribution payable of $339,691 was recorded relating to taxable income generated during the year ended December 31, 2017.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The Company has evaluated subsequent events through February 21, 2018, which is the date that the consolidated financial statements were available for issue.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 2 - Future Accounting Standards
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
During January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU No. 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU No. 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the effect that ASU No. 2017-04 will have on its results of operations, financial position and cash flows.
ASU No. 2016-02, Leases (Topic 842)
During February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the effect that ASU No. 2016-02 will have on its consolidated financial position.
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and Other ASUs Issued Amending Topic 606
During May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. During 2015 and 2016, the FASB also issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09; ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, which clarifies the implementation guidance on principal versus agent considerations in Topic 606; ASU No. 2016-10, “Identifying Performance Obligations and Licensing”, which clarifies the identification of performance obligations and the licensing implementation guidance; ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients” and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606”, which both affect narrow aspects of Topic 606. Topic 606 (as amended) is effective for fiscal years beginning after December 15, 2018. The Company may elect to apply the guidance earlier, but has not elected to do so. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently assessing the effect that Topic 606 (as amended) will have on its results of operations, financial position and cash flows.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 3 - Inventories
Inventories consist of the following at December 31:
|
|
|
2017 |
| |
|
Raw materials |
|
$ |
2,508,010 |
|
|
Work in process |
|
53,180 |
| |
|
Finished goods |
|
917,966 |
| |
|
Total Inventory |
|
3,479,156 |
| |
|
Less: reserve for excess and obsolescence |
|
— |
| |
|
Total Inventories, net |
|
$ |
3,479,156 |
|
NOTE 4 - Property and Equipment
The major categories of property and equipment at December 31 are summarized as follows:
|
|
|
Depreciable |
|
2017 |
| |
|
|
|
|
|
|
| |
|
Machinery and equipment |
|
3-10 yrs. |
|
$ |
2,151,706 |
|
|
Office furniture and equipment |
|
3-10 yrs. |
|
1,531,229 |
| |
|
Leasehold improvements |
|
7-10 yrs. |
|
1,983,387 |
| |
|
Software |
|
5 yrs. |
|
503,093 |
| |
|
Assets in progress |
|
N/A |
|
184,288 |
| |
|
Total Property and Equipment |
|
|
|
6,353,703 |
| |
|
Less: accumulated depreciation |
|
|
|
(4,219,487 |
) | |
|
Net Property and Equipment |
|
|
|
$ |
2,134,216 |
|
NOTE 5 - Line of Credit
The Company has a loan agreement with a bank which provides a line of credit totaling $7,000,000 subject to a percentage of eligible assets as defined in the agreement. Borrowings bear interest at the rate of the one month London Interbank Offered Rate (LIBOR) plus applicable margin based on the Company’s funded debt to EBITDA ratio, as defined (4.74% at December 31, 2017). There were no outstanding borrowings on the line of credit at December 31, 2017. The bank debt (including the bank term note payable) is collateralized by substantially all business assets under a general business security agreement. The line of credit expires in 2020, and the Company’s line of credit agreement meets other accounting requirements to be classified as a long-term obligation.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 6 - Long-Term Debt
Long-term debt consists of the following at December 31:
|
|
|
2017 |
| |
|
Bank term note - Original amount of $7,500,000. Interest payments are due monthly and principal payments are due in quarterly installments of $180,852 through February 1, 2020 and a final lump sum payment of remaining principal and interest due on February 12, 2020. Interest is computed at LIBOR plus applicable margin based on the Company’s funded debt to EBITDA ratio, as defined (4.99% at December 31, 2017). |
|
$ |
3,617,033 |
|
|
|
|
|
|
|
|
Note payable - bank, original amount of $688,700, for the purchase of certain equipment and leasehold improvements. The note is due in monthly installments of $12,858 including interest at 4.48%, through January 26, 2018 and a final lump sum payment of the remaining principal and interest due on February 26, 2018, secured by the related equipment and leasehold improvements as identified in the agreement. |
|
317,379 |
| |
|
|
|
|
| |
|
Note payable - Washington County, which is administered through the Washington County Economic Development Corporation (EDWC), original amount of $500,000, payments due in monthly installments of $5,726, including interest at 2.40% through December 1, 2018 and a final lump sum payment of remaining principal and interest due on January 1, 2019, secured by certain equipment, as identified in the agreement. |
|
267,026 |
| |
|
|
|
|
| |
|
Totals |
|
4,201,438 |
| |
|
|
|
|
| |
|
Less: Current portion |
|
(2,020,784 |
) | |
|
|
|
|
| |
|
Long-Term Portion |
|
$ |
2,180,654 |
|
Principal requirements on long-term debt for years ending after December 31, 2017 are as follows:
|
2018 |
|
$ |
2,020,784 |
|
|
2019 |
|
927,435 |
| |
|
2020 |
|
1,253,219 |
| |
|
|
|
|
| |
|
Total |
|
$ |
4,201,438 |
|
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 6 - Long-Term Debt (cont.)
Applicable Margin
For the line of credit, the applicable margin ranges from LIBOR plus 3.25% to LIBOR plus 3.50%. For the Bank term note, the applicable margin ranges from LIBOR plus 3.50% to LIBOR plus 3.75%.
Financial Covenants
The bank debt agreements contain financial covenants which, among others, require the maintenance of certain financial covenants related to the Company’s debt service coverage ratio and EBITDA levels. The Company was in compliance with these covenants at December 31, 2017.
Mandatory Prepayment of Debt
The line of credit and bank term note agreements contain mandatory prepayment terms which require the payment of principal in the amounts of net cash received from certain events relating to asset dispositions, issuance of capital securities, excess cash flow, or receipt of proceeds from life insurance policies as defined in the agreement. For the year ended December 31, 2017, the Company calculated the mandatory prepayment to be approximately $917,000. This amount will be paid within 90 days of December 31, 2017, as required in the debt agreement. This payment is reflected in the principal requirements schedule above.
NOTE 7 - Members’ Equity
Common Units
The Company has 7,111 common units authorized to be issued, of which 711 were reserved as incentive units. As of December 31, 2017, 365 of the incentive unit options have been exercised and converted into common units. The number of common units outstanding at December 31, 2017 was 6,765. See below for more discussion of the incentive units.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 7 - Members’ Equity (cont.)
Incentive Units
Pursuant to the First Amendment to the TCI, LLC 2008 Common Unit Option Plan, the Company has reserved 711 common units for issuance to officers or directors of the Company in connection with a non-qualified equity incentive plan. The options typically became exercisable over a 5 year vesting period from the effective date of grant, but exceptions can be made at the discretion of the board. No options may be exercised more than 10 years from the date of grant. Additionally, an option holder may not exercise their options more than 30 or 90 days after their employment terminates depending on the reason for termination.
The Company uses the modified prospective method to account for the incentive units. All equity-based payments to employees, including grants of incentive units, are recognized as expense in the statements of operations based on an estimated fair value. The amount of compensation expense is determined based on the fair value of the incentive units when granted and is expensed over the required service period, which is normally the vesting period. The assumptions used to determine compensation expense were as follows:
|
Year |
|
Number of |
|
Number of |
|
Volatility |
|
Risk Free |
|
|
2011 |
|
135 |
|
— |
|
58 |
% |
1.10 |
% |
|
2012 |
|
120 |
|
— |
|
49 |
% |
0.56 |
% |
|
2013 |
|
50 |
|
10 |
|
49 |
% |
0.56 |
% |
|
2014 |
|
217 |
|
46 |
|
40 |
% |
1.00 |
% |
|
2015 |
|
50 |
|
30 |
|
40 |
% |
1.10 |
% |
|
2016 |
|
— |
|
— |
|
— |
% |
— |
% |
|
2017 |
|
4 |
|
4 |
|
40 |
% |
1.10 |
% |
The following is a summary of incentive units activity for the year ended December 31:
|
|
|
2017 |
| |||
|
|
|
Units |
|
Weighted |
| |
|
Units outstanding - beginning |
|
436 |
|
$ |
3,107 |
|
|
Units granted |
|
4 |
|
2,253 |
| |
|
Units exercised |
|
(94 |
) |
(352 |
) | |
|
|
|
|
|
|
| |
|
Units outstanding - ending |
|
346 |
|
$ |
3,915 |
|
Compensation expense recognized was $51,583 for the year ended December 31, 2017. At December 31, 2017, future compensation expense related to vested and unvested units will be approximately $96,000 and is expected to be recognized as expense through 2021. At December 31, 2017, 90 of the 346 units outstanding were unvested.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 8 - Leases
Operating Leases
In April 2014 the Company began leasing its manufacturing and office facilities in Germantown, Wisconsin under an operating lease that expires in April 2026. The real estate lease provides for monthly rental payments of approximately $45,000 with incremental 2.5% annual increases. Total rent payments for the term of the lease are expensed on a straight-line basis. The rent expense under the lease was $611,000 for the year ended December 31, 2017. The Company is responsible for repairs and maintenance of the premises. The difference between lease payments made and the straight line expense was $194,544 at December 31, 2017. This amount is included as “Other accrued expenses” on the balance sheet.
Total rent expense related to all operating leases was $614,318 for the year ended December 31, 2017. The following is a schedule of future minimum lease payments under the operating lease agreements as of December 31, 2017:
|
Future minimum lease payments due in |
|
|
| |
|
|
|
|
| |
|
2018 |
|
$ |
584,836 |
|
|
2019 |
|
597,635 |
| |
|
2020 |
|
611,082 |
| |
|
2021 |
|
624,831 |
| |
|
2022 |
|
638,890 |
| |
|
Thereafter |
|
2,180,918 |
| |
|
|
|
|
| |
|
Total Future Minimum Lease Payments |
|
$ |
5,238,192 |
|
NOTE 9 - Related Party Transactions
Management Fee
In 2008, the Company entered into agreements with two of the Company’s members to provide financial and management consulting services. During 2017, the Company entered into an agreement with a third member to provide management consulting services and concurrently modified the two existing agreements to keep the annual fee at $100,000.
Two agreements each called for the Company to pay a quarterly management fee of $10,000 and reimbursement of any direct expenses related to the management services provided. The final agreement called for the Company to pay a quarterly management fee of $5,000 and reimbursement of any direct expenses. The term of the agreements shall continue until the occurrence of certain events. The agreements are subordinate to the senior debt. The Company expensed management fees under these agreements totaling $100,000 for the year ended December 31, 2017. Management fees of $22,500 were accrued as of December 31, 2017.
TCI, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Year Ended December 31, 2017
NOTE 10 - Benefit Plan
The Company maintains a retirement savings and profit-sharing plan for substantially all employees meeting certain eligibility requirements. The plan includes a provision, under Section 401(k) of the Internal Revenue Code, which allowed employees to contribute a portion of their compensation to the plan. The Company matches 100% of employee contributions for contributions up to 3% of the employee’s compensation, plus 50% of employee contributions in excess of 3% but not in excess of 5% of the employee’s compensation. The Company matching contribution was $287,707 for the year ended December 31, 2017. The plan also allows for discretionary “profit sharing” contributions, and none were made during the year ended December 31, 2017.
NOTE 11 - Concentrations
Cash Balance
The Company maintains its cash balances primarily in one area bank. At times, cash balances may exceed federally insured limits. The Company has not experienced any losses in such accounts, and believes it is not exposed to any significant risk on cash.
Major Customers
One customer accounted for 13% of net sales for the year ended December 31, 2017. Accounts receivable from this customer totaled 19% of total receivables as of December 31, 2017.
TCI, LLC
Germantown, Wisconsin
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2018 and December 31, 2017 and for the
Nine Months Ended September 30, 2018 and 2017
TCI, LLC
TABLE OF CONTENTS
|
Condensed Consolidated Financial Statements |
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet |
|
1 |
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations |
|
2 |
|
|
|
|
|
|
|
Condensed Consolidated Statement of Members’ Equity |
|
3 |
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows |
|
4 |
|
|
|
|
|
|
|
Notes to Condensed Consolidated Financial Statements |
|
5 - 10 |
|
TCI, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2018 |
|
2017 |
| ||
|
ASSETS |
| ||||||
|
|
|
|
|
|
| ||
|
CURRENT ASSETS |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
950,046 |
|
$ |
1,028,502 |
|
|
Accounts receivable, net |
|
6,399,858 |
|
4,174,029 |
| ||
|
Inventories |
|
3,639,577 |
|
3,479,156 |
| ||
|
Prepaid expenses |
|
104,839 |
|
130,909 |
| ||
|
Total Current Assets |
|
11,094,320 |
|
8,812,596 |
| ||
|
|
|
|
|
|
| ||
|
PROPERTY AND EQUIPMENT, NET |
|
1,672,139 |
|
2,134,216 |
| ||
|
|
|
|
|
|
| ||
|
INTANGIBLE ASSETS |
|
|
|
|
| ||
|
Other intangibles, net |
|
304,112 |
|
481,368 |
| ||
|
Goodwill |
|
9,928,818 |
|
9,928,818 |
| ||
|
|
|
|
|
|
| ||
|
TOTAL ASSETS |
|
$ |
22,999,389 |
|
$ |
21,356,998 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND MEMBERS’ EQUITY |
| ||||||
|
|
|
|
|
|
| ||
|
CURRENT LIABILITIES |
|
|
|
|
| ||
|
Current maturities of long-term debt |
|
$ |
948,099 |
|
$ |
2,020,784 |
|
|
Accounts payable |
|
2,787,252 |
|
2,261,269 |
| ||
|
Accrued salaries, wages and bonuses |
|
944,125 |
|
1,068,095 |
| ||
|
Accrued management fees |
|
25,000 |
|
22,500 |
| ||
|
Accrued vacation |
|
560,987 |
|
575,856 |
| ||
|
Other accrued expenses |
|
444,008 |
|
470,290 |
| ||
|
Distributions payable |
|
127,639 |
|
339,691 |
| ||
|
Total Current Liabilities |
|
5,837,110 |
|
6,758,485 |
| ||
|
|
|
|
|
|
| ||
|
LONG-TERM LIABILITIES |
|
|
|
|
| ||
|
Long-term debt |
|
1,434,560 |
|
2,180,654 |
| ||
|
|
|
|
|
|
| ||
|
Total Liabilities |
|
7,271,670 |
|
8,939,139 |
| ||
|
|
|
|
|
|
| ||
|
MEMBERS’ EQUITY |
|
15,727,719 |
|
12,417,859 |
| ||
|
|
|
|
|
|
| ||
|
TOTAL LIABILITIES AND MEMBERS’ EQUITY |
|
$ |
22,999,389 |
|
$ |
21,356,998 |
|
See accompanying notes to unaudited condensed consolidated financial statements
TCI, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
For the nine months ended September 31, |
| ||||||||
|
|
|
2018 |
|
Percent |
|
2017 |
|
Percent |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES |
|
$ |
33,611,933 |
|
100.0 |
|
$ |
25,190,426 |
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
20,414,629 |
|
60.7 |
|
15,009,506 |
|
59.6 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Gross Profit |
|
13,197,304 |
|
39.3 |
|
10,180,920 |
|
40.4 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| ||
|
Selling and administrative expenses |
|
8,609,356 |
|
25.6 |
|
7,238,494 |
|
28.7 |
| ||
|
Amortization expense |
|
177,256 |
|
0.5 |
|
275,229 |
|
1.1 |
| ||
|
Management fees |
|
75,000 |
|
0.2 |
|
75,000 |
|
0.3 |
| ||
|
Total Operating Expenses |
|
8,861,612 |
|
26.4 |
|
7,588,723 |
|
30.1 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Operating Income |
|
4,335,692 |
|
12.9 |
|
2,592,197 |
|
10.3 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
| ||
|
Interest expense |
|
(134,479 |
) |
(0.4 |
) |
(208,818 |
) |
(0.8 |
) | ||
|
Other expense, net |
|
(17,074 |
) |
(0.1 |
) |
(15,206 |
) |
(0.1 |
) | ||
|
Net Other Expense |
|
(151,553 |
) |
(0.5 |
) |
(224,024 |
) |
(0.9 |
) | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
NET INCOME |
|
$ |
4,184,139 |
|
12.4 |
|
$ |
2,368,173 |
|
9.4 |
|
See accompanying notes to unaudited condensed consolidated financial statements
TCI, LLC
CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(Unaudited)
|
|
|
Common |
|
Incentive |
|
Members’ |
| |||
|
BALANCES, December 31, 2017 |
|
$ |
12,163,791 |
|
$ |
254,068 |
|
$ |
12,417,859 |
|
|
|
|
|
|
|
|
|
| |||
|
Net Income |
|
4,184,139 |
|
— |
|
4,184,139 |
| |||
|
Distributions |
|
(874,279 |
) |
— |
|
(874,279 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
BALANCES, September 30, 2018 |
|
$ |
15,473,651 |
|
$ |
254,068 |
|
$ |
15,727,719 |
|
See accompanying notes to unaudited condensed consolidated financial statements
TCI, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the nine months ended |
| ||||
|
|
|
2018 |
|
2017 |
| ||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
|
Net income |
|
$ |
4,184,139 |
|
$ |
2,368,173 |
|
|
Adjustments to reconcile net income to net cash flows from operating activities |
|
|
|
|
| ||
|
Depreciation |
|
638,590 |
|
636,110 |
| ||
|
Amortization of intangible assets |
|
177,256 |
|
275,229 |
| ||
|
Change in allowance for doubtful accounts |
|
7,951 |
|
5,000 |
| ||
|
Provision for inventory |
|
50,026 |
|
25,551 |
| ||
|
Changes in assets and liabilities |
|
|
|
|
| ||
|
Accounts receivable |
|
(2,233,781 |
) |
(1,552,818 |
) | ||
|
Inventories |
|
(210,445 |
) |
276,921 |
| ||
|
Prepaid expenses |
|
26,052 |
|
89,671 |
| ||
|
Accounts payable |
|
506,016 |
|
875,653 |
| ||
|
Accrued salaries, wages and bonuses |
|
(123,970 |
) |
491,851 |
| ||
|
Accrued vacation |
|
(14,869 |
) |
578 |
| ||
|
Other accrued expenses |
|
101,228 |
|
6,201 |
| ||
|
Net Cash Flows from Operating Activities |
|
3,050,577 |
|
3,498,120 |
| ||
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Capital expenditures |
|
(176,514 |
) |
(199,721 |
) | ||
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Principal payments on long-term debt |
|
(1,818,779 |
) |
(2,524,551 |
) | ||
|
Member contributions |
|
— |
|
30,336 |
| ||
|
Distributions to members |
|
(1,191,356 |
) |
(861,674 |
) | ||
|
Net Cash Flows from Financing Activities |
|
(3,010,135 |
) |
(3,355,889 |
) | ||
|
|
|
|
|
|
| ||
|
Net Change in Cash and Cash Equivalents |
|
(78,456 |
) |
(57,490 |
) | ||
|
|
|
|
|
|
| ||
|
CASH AND CASH EQUIVALENTS - Beginning of Year |
|
1,028,502 |
|
118,560 |
| ||
|
|
|
|
|
|
| ||
|
CASH AND CASH EQUIVALENTS - END OF YEAR |
|
$ |
950,046 |
|
$ |
61,070 |
|
|
|
|
|
|
|
| ||
|
Noncash financing activities |
|
|
|
|
| ||
|
Accrued distributions - net change |
|
$ |
(317,077 |
) |
$ |
— |
|
See accompanying notes to unaudited condensed consolidated financial statements
TCI, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — Basis of Preparation and Presentation
Nature of Operations
TCI, LLC (the Company) is engaged in the manufacture and sale of harmonic filter (active and passive), reactors, and other line filter products for AC and DC drives. The Company grants credit to its customers which are primarily original equipment manufacturers and distributors located throughout the United States, Canada and Mexico.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the parent company, TCI, LLC, and its wholly-owned subsidiary, TCI International, Inc. (DISC). Significant intercompany accounts and transactions have been eliminated.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the Consolidated Financial Statements including Independent Auditors’ Report as of and for the year ended December 31, 2017 that are included in this filing as Exhibit 99.1.
NOTE 2 — Other Intangible Assets
The following table presents detail of the company’s amortizable intangible assets at September 30, 2018:
|
|
|
Life |
|
Gross |
|
Accumulated |
|
Balance |
| |||
|
Customer relationships |
|
15 |
|
$ |
802,000 |
|
$ |
543,578 |
|
$ |
258,422 |
|
|
Patents |
|
10 |
|
1,334,000 |
|
1,314,548 |
|
19,452 |
| |||
|
Tradename |
|
10 |
|
1,801,000 |
|
1,774,762 |
|
26,238 |
| |||
|
Total |
|
|
|
$ |
3,937,000 |
|
$ |
3,632,888 |
|
$ |
304,112 |
|
TCI, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents detail of the company’s amortizable intangible assets at December 31, 2017:
|
|
|
Life |
|
Gross |
|
Accumulated |
|
Balance |
| |||
|
Customer relationships |
|
15 |
|
$ |
802,000 |
|
$ |
503,478 |
|
$ |
298,522 |
|
|
Patents |
|
10 |
|
1,334,000 |
|
1,256,183 |
|
77,817 |
| |||
|
Tradename |
|
10 |
|
1,801,000 |
|
1,695,971 |
|
105,029 |
| |||
|
Total |
|
|
|
$ |
3,937,000 |
|
$ |
3,455,632 |
|
$ |
481,368 |
|
Total amortization expense related to the intangible assets was $177,256 and $275,229 for the nine months ended September 30, 2018 and 2017, respectively.
NOTE 3 — Distributions and Distributions Payable
The Company pays quarterly tax distributions based on the current year’s estimate of income tax obligations to be incurred by the members of the Company. To calculate the total tax distributions required, management estimates income tax obligations using the highest effective income tax brackets at the individual level and the anticipated Company taxable income, net of income tax credits. Management records distributions payable at each year end related to estimated income tax obligations resulting from that year’s activity. As of September 30, 2018, a distribution payable of $127,639 was recorded related to taxable income generated during the nine months ended September 30, 2018. As of December 31, 2017, a distribution payable of $339,691 was recorded relating to taxable income generated during the year ended December 31, 2017.
Actual results could differ from those estimates.
NOTE 4 - Inventories
Inventories consist of the following as of September 30, 2018 and December 31, 2017:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2018 |
|
2017 |
| ||
|
Raw materials |
|
$ |
2,590,481 |
|
$ |
2,508,010 |
|
|
Work in process |
|
94,559 |
|
53,180 |
| ||
|
Finished goods |
|
1,004,563 |
|
917,966 |
| ||
|
Total Inventory |
|
3,689,603 |
|
3,479,156 |
| ||
|
Less: reserve for excess and obsolescence |
|
(50,026 |
) |
— |
| ||
|
Total Inventories, net |
|
$ |
3,639,577 |
|
$ |
3,479,156 |
|
Inventories are stated at the lower of cost (first-in, first-out method) or market. Manufacturing related labor and overhead costs are capitalized into work in process and finished goods.
TCI, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - Property and Equipment
The major categories of property and equipment at September 30, 2017 and December 31, 2017 are summarized as follows:
|
|
|
Depreciable |
|
September 30, |
|
December 31, |
| ||
|
|
|
Lives |
|
2018 |
|
2017 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Machinery and equipment |
|
3-10 yrs. |
|
$ |
2,245,264 |
|
$ |
2,151,706 |
|
|
Office furniture and equipment |
|
3-10 yrs. |
|
1,618,273 |
|
1,531,229 |
| ||
|
Leasehold improvements |
|
7-10 yrs. |
|
1,983,387 |
|
1,983,387 |
| ||
|
Software |
|
5 yrs. |
|
503,093 |
|
503,093 |
| ||
|
Assets in progress |
|
N/A |
|
— |
|
184,288 |
| ||
|
Total Property and Equipment |
|
|
|
6,530,217 |
|
6,353,703 |
| ||
|
Less: accumulated depreciation |
|
|
|
(4,858,078 |
) |
(4,219,487 |
) | ||
|
Net Property and Equipment |
|
|
|
$ |
1,672,139 |
|
$ |
2,134.216 |
|
Total depreciation expense related to property plant and equipment was $638,590 and $636,110 for the nine months ended September 30, 2018 and 2017, respectively.
NOTE 6 - Long-Term Debt
Long-term debt consisted of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2018 |
|
2017 |
| ||
|
Line of credit - (5.35% at September 30, 2018). |
|
— |
|
— |
| ||
|
Bank term note - (5.60% at September 30, 2018). |
|
$ |
2,382,659 |
|
$ |
3,617,033 |
|
|
Note payable |
|
— |
|
317,379 |
| ||
|
Note payable - Washington County. Balance was paid in full in January 2018. |
|
— |
|
267,026 |
| ||
|
Totals |
|
2,382,659 |
|
4,201,438 |
| ||
|
Less: Current portion |
|
(948,099 |
) |
(2,020,784 |
) | ||
|
Long-Term Portion |
|
$ |
1,434,560 |
|
$ |
2,180,654 |
|
Financial Covenants
The bank debt agreements contain financial covenants which, among others, require the maintenance of certain financial covenants related to the Company’s debt service coverage ratio and EBITDA levels. The Company was in compliance with these covenants at September 30, 2018 and December 31, 2017.
TCI, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - Members’ Equity
Common Units
The Company has 7,111 common units authorized to be issued, of which 711 were reserved as incentive units. As of September 30, 2018 and December 31, 2017, 365 of the incentive unit options have been exercised and converted into common units, respectively. The number of common units outstanding at September 30, 2018 and December 31, 2017 was 6,765.
Compensation expense recognized was approximately $36,311 and $38,687 for the nine months ending September 30, 2018 and 2017, respectively. At December 31, 2017, future compensation expense related to vested and unvested units will be approximately $96,000 and is expected to be recognized as expense through 2021. At September 30, 2018 and December 31, 2017, 90 of the 346 units outstanding were unvested.
NOTE 9 - Related Party Transactions
Management Fee
In 2008, the Company entered into agreements with two of the Company’s members to provide financial and management consulting services. During 2017, the Company entered into an agreement with a third member to provide management consulting services and concurrently modified the two existing agreements to keep the annual fee at $100,000.
Two agreements each called for the Company to pay a quarterly management fee of $10,000 and reimbursement of any direct expenses related to the management services provided. The final agreement called for the Company to pay a quarterly management fee of $5,000 and reimbursement of any direct expenses. The term of the agreements shall continue until the occurrence of certain events. The agreements are subordinate to the senior debt. The Company expensed management fees under these agreements totaling $75,000 for the nine months ended September 31, 2018 and 2017. Management fees of $25,000 and $22,500 were accrued as of September 30, 2018 and December 31, 2017, respectively.
TCI, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 - Concentrations
Cash Balance
The Company maintains its cash balances primarily in one area bank. At times, cash balances may exceed federally insured limits. The Company has not experienced any losses in such accounts, and believes it is not exposed to any significant risk on cash.
Major Customers
One customer accounted for 12% and 11% of net sales for the nine months ended September 30, 2018 and 2017, respectively. Accounts receivable from this customer totaled 12% and 19% of total receivables as of September 30, 2018 and December 31, 2017, respectively.
UNAUDITED PROFORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
On December 6, 2018, Allied Motion Technologies Inc., a Colorado corporation (the “Company” or “Allied Motion”) entered into a Unit Purchase Agreement (the “Purchase Agreement”) with TCI, LLC, a Wisconsin limited liability company (“TCI”), and the members of TCI (“Sellers”), pursuant to which Allied Motion acquired 100% of the issued and outstanding common units of TCI from Sellers (the “Acquisition”) in a transaction valued at $64,100. The Acquisition consideration is subject to adjustments based on a determination of closing net working capital, cash, indebtedness and other TCI liabilities. A portion of the Acquisition consideration was placed in escrow to secure payment of any post-closing adjustments to the purchase price and to secure the Sellers’ indemnification obligations to Allied Motion. Cash consideration was funded from borrowings on the Company’s existing credit facilities.
The unaudited pro forma combined consolidated balance sheet is presented to show how Allied Motion may have looked had the acquisition occurred as of September 30, 2018. The unaudited pro forma combined consolidated statements of operations and comprehensive income for the year ended December 31, 2017 and the nine months ended September 30, 2018 are presented to show how Allied Motion might have looked had the acquisition occurred as of January 1, 2017, the beginning of the earliest period presented.
This pro forma information is based on, and should be read in conjunction with, the following:
· The historical audited financial statements of Allied Motion as of and for the fiscal year ended December 31, 2017, included in Form 10-K filed on March 14, 2018;
· The historical unaudited financial statements of Allied Motion as of and for the nine months ended September 30, 2018, included in Form 10-Q filed on October 31, 2018;
· The historical audited financial statements of TCI, LLC as of and for the fiscal year ended December 31, 2017, included as Exhibit 99.1 in this Form 8-K/A.
· The historical unaudited financial statements of TCI, LLC as of and for the nine months ended September 30, 2018 included as Exhibit 99.2 in this Form 8-K/A.
The unaudited pro forma combined consolidated financial information was prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited pro forma adjustments reflecting the acquisition have been prepared in accordance with the business combination accounting guidance and reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon the estimate of fair values, using the assumptions set forth in the notes to the unaudited pro forma combined consolidated financial information. The detailed assumptions used to prepare the unaudited pro forma combined consolidated financial information are contained in the notes hereto and such assumptions should be reviewed in their entirety.
The unaudited pro forma combined consolidated financial information is provided for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had been completed as of the dates set forth above, nor is it indicative of the future results or financial position of the combined company. In connection with the unaudited pro forma combined consolidated financial information, the total purchase consideration was allocated based on the best estimates of fair value. The allocation is dependent upon certain valuations and other analysis that are not yet final. Accordingly, the pro forma acquisition price adjustments are subject to further adjustments as additional information becomes available and as additional analyses are performed. There can be no assurances that the final valuations will not result in material changes to the estimated purchase price allocation. The unaudited pro forma combined financial information also does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the transaction or any integration costs. Furthermore, the unaudited pro forma combined consolidated statements of operations and comprehensive income do not include certain nonrecurring charges which resulted directly from the acquisition as described in the accompanying notes.
Allied Motion Technologies Inc.
Pro Forma Combined Consolidated Balance Sheet
As of September 30, 2018
(In thousands, except per share data)
(Unaudited)
|
|
|
Historical Results |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
Allied Motion |
|
TCI, LLC |
|
Combined |
|
Pro Forma |
|
Note 3. |
|
Unaudited |
| |||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cash and cash equivalents |
|
$ |
11,357 |
|
$ |
950 |
|
$ |
12,307 |
|
$ |
(5,421 |
) |
B, J, K |
|
$ |
6,886 |
|
|
Trade receivables, net of allowance for doubtful accounts |
|
45,230 |
|
6,400 |
|
51,630 |
|
— |
|
|
|
51,630 |
| |||||
|
Inventories |
|
44,887 |
|
3,640 |
|
48,527 |
|
277 |
|
E |
|
48,804 |
| |||||
|
Prepaid expenses and other assets |
|
3,490 |
|
104 |
|
3,594 |
|
— |
|
|
|
3,594 |
| |||||
|
Total current assets |
|
104,964 |
|
11,094 |
|
116,058 |
|
(5,144 |
) |
|
|
110,914 |
| |||||
|
Property, plant and equipment, net |
|
43,026 |
|
1,672 |
|
44,698 |
|
1,792 |
|
F |
|
46,490 |
| |||||
|
Deferred income taxes |
|
129 |
|
— |
|
129 |
|
— |
|
|
|
129 |
| |||||
|
Intangible assets, net |
|
33,075 |
|
304 |
|
33,379 |
|
36,096 |
|
A, G |
|
69,475 |
| |||||
|
Goodwill |
|
34,938 |
|
9,929 |
|
44,867 |
|
7,854 |
|
A, D, E, F, G, K, L |
|
52,721 |
| |||||
|
Other long-term assets |
|
5,981 |
|
— |
|
5,981 |
|
— |
|
|
|
5,981 |
| |||||
|
Total Assets |
|
$ |
222,113 |
|
$ |
22,999 |
|
$ |
245,112 |
|
$ |
40,598 |
|
|
|
$ |
285,710 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Debt obligations |
|
$ |
437 |
|
$ |
948 |
|
$ |
1,385 |
|
$ |
(948 |
) |
B |
|
$ |
437 |
|
|
Accounts payable |
|
24,587 |
|
2,787 |
|
27,374 |
|
— |
|
|
|
27,374 |
| |||||
|
Accrued liabilities |
|
18,051 |
|
2,101 |
|
20,152 |
|
(1 |
) |
C, I |
|
20,151 |
| |||||
|
Total current liabilities |
|
43,075 |
|
5,836 |
|
48,911 |
|
(949 |
) |
|
|
47,962 |
| |||||
|
Long-term debt |
|
62,021 |
|
1,435 |
|
63,456 |
|
58,122 |
|
B, H, J |
|
121,578 |
| |||||
|
Deferred income taxes |
|
3,164 |
|
— |
|
3,164 |
|
— |
|
|
|
3,164 |
| |||||
|
Pension and post-retirement obligations |
|
4,238 |
|
— |
|
4,238 |
|
— |
|
|
|
4,238 |
| |||||
|
Other long-term liabilities |
|
9,132 |
|
— |
|
9,132 |
|
— |
|
|
|
9,132 |
| |||||
|
Total liabilities |
|
121,630 |
|
7,271 |
|
128,901 |
|
57,173 |
|
|
|
186,074 |
| |||||
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Common stock, no par value |
|
32,867 |
|
— |
|
32,867 |
|
— |
|
|
|
32,867 |
| |||||
|
Preferred stock, par value $1.00 per share |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
| |||||
|
Additional paid-in capital |
|
— |
|
6,747 |
|
6,747 |
|
(6,747 |
) |
D |
|
— |
| |||||
|
Retained earnings |
|
74,366 |
|
8,981 |
|
83,347 |
|
(9,828 |
) |
D |
|
73,519 |
| |||||
|
Accumulated other comprehensive loss |
|
(6,750 |
) |
— |
|
(6,750 |
) |
— |
|
|
|
(6,750 |
) | |||||
|
Total Stockholders’ equity |
|
100,483 |
|
15,728 |
|
116,211 |
|
(16,575 |
) |
|
|
99,636 |
| |||||
|
Total Liabilities and Stockholders’ Equity |
|
$ |
222,113 |
|
$ |
22,999 |
|
$ |
245,112 |
|
$ |
40,598 |
|
|
|
$ |
285,710 |
|
See accompanying notes to pro forma combined consolidated financial statements
Allied Motion Technologies Inc.
Pro Forma Combined Consolidated Statement of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2018
(In thousands, except per share data)
Unaudited
|
|
|
Historical Results |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
Allied Motion |
|
TCI, LLC |
|
Combined |
|
Pro Forma |
|
Note 3. |
|
Unaudited |
| |||||
|
Revenues |
|
$ |
236,649 |
|
$ |
33,612 |
|
$ |
270,261 |
|
$ |
— |
|
|
|
$ |
270,261 |
|
|
Cost of goods sold |
|
166,816 |
|
20,415 |
|
187,231 |
|
(336 |
) |
M |
|
186,895 |
| |||||
|
Gross profit |
|
69,833 |
|
13,197 |
|
83,030 |
|
336 |
|
|
|
83,366 |
| |||||
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Selling |
|
8,402 |
|
3,540 |
|
11,942 |
|
(159 |
) |
M |
|
11,783 |
| |||||
|
General and administrative |
|
23,969 |
|
3,863 |
|
27,832 |
|
(103 |
) |
M, Q |
|
27,729 |
| |||||
|
Engineering and development |
|
14,610 |
|
1,050 |
|
15,660 |
|
(52 |
) |
M |
|
15,608 |
| |||||
|
Business development |
|
349 |
|
232 |
|
581 |
|
(232 |
) |
L |
|
349 |
| |||||
|
Amortization of intangible assets |
|
2,634 |
|
177 |
|
2,811 |
|
1,509 |
|
M, O |
|
4,320 |
| |||||
|
Total operating costs and expenses |
|
49,964 |
|
8,862 |
|
58,826 |
|
963 |
|
|
|
59,789 |
| |||||
|
Operating income |
|
19,869 |
|
4,335 |
|
24,204 |
|
(627 |
) |
|
|
23,577 |
| |||||
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense |
|
1,839 |
|
134 |
|
1,973 |
|
1,335 |
|
N, P |
|
3,308 |
| |||||
|
Other expense (income), net |
|
(118 |
) |
17 |
|
(101 |
) |
— |
|
|
|
(101 |
) | |||||
|
Total other expense (income) , net |
|
1,721 |
|
151 |
|
1,872 |
|
1,335 |
|
|
|
3,207 |
| |||||
|
Income before income taxes |
|
18,148 |
|
4,184 |
|
22,332 |
|
(1,962 |
) |
|
|
20,370 |
| |||||
|
Provision for income taxes |
|
(4,859 |
) |
— |
|
(4,859 |
) |
(622 |
) |
R |
|
(5,481 |
) | |||||
|
Net income |
|
$ |
13,289 |
|
$ |
4,184 |
|
$ |
17,473 |
|
$ |
(2,584 |
) |
|
|
$ |
14,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings per share |
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
$ |
1.61 |
| |||
|
Basic weighted average common shares |
|
9,251 |
|
|
|
|
|
|
|
|
|
9,251 |
| |||||
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings per share |
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
$ |
1.59 |
| |||
|
Diluted weighted average common shares |
|
9,337 |
|
|
|
|
|
|
|
|
|
9,337 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income |
|
$ |
13,289 |
|
|
|
|
|
|
|
|
|
$ |
14,889 |
| |||
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Foreign currency translation adjustment |
|
(2,152 |
) |
|
|
|
|
|
|
|
|
(2,152 |
) | |||||
|
Change in accumulated loss on derivatives |
|
988 |
|
|
|
|
|
|
|
|
|
988 |
| |||||
|
Comprehensive income |
|
$ |
12,125 |
|
|
|
|
|
|
|
|
|
$ |
13,725 |
| |||
See accompanying notes to pro forma combined consolidated financial statements
Allied Motion Technologies Inc.
Pro Forma Combined Consolidated Statement of Operations and Comprehensive Income
For the Year Ended December 31, 2017
(In thousands, except per share data)
(Unaudited)
|
|
|
Historical Results |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
Allied Motion |
|
TCI, LLC |
|
Combined |
|
Pro Forma |
|
Note 3. |
|
Unaudited |
| |||||
|
Revenues |
|
$ |
252,012 |
|
$ |
34,315 |
|
$ |
286,327 |
|
$ |
— |
|
|
|
$ |
286,327 |
|
|
Cost of goods sold |
|
176,333 |
|
20,782 |
|
197,115 |
|
(351 |
) |
M |
|
196,764 |
| |||||
|
Gross profit |
|
75,679 |
|
13,533 |
|
89,212 |
|
351 |
|
|
|
89,563 |
| |||||
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Selling |
|
10,979 |
|
3,821 |
|
14,800 |
|
(167 |
) |
M |
|
14,633 |
| |||||
|
General and administrative |
|
24,926 |
|
4,850 |
|
29,776 |
|
(62 |
) |
M, Q |
|
29,714 |
| |||||
|
Engineering and development |
|
17,542 |
|
1,384 |
|
18,926 |
|
(70 |
) |
M |
|
18,856 |
| |||||
|
Business development |
|
213 |
|
9 |
|
222 |
|
(9 |
) |
L |
|
213 |
| |||||
|
Amortization of intangible assets |
|
3,219 |
|
367 |
|
3,586 |
|
1,882 |
|
M, O |
|
5,468 |
| |||||
|
Total operating costs and expenses |
|
56,879 |
|
10,431 |
|
67,310 |
|
1,574 |
|
|
|
68,884 |
| |||||
|
Operating income |
|
18,800 |
|
3,102 |
|
21,902 |
|
(1,223 |
) |
|
|
20,679 |
| |||||
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense |
|
2,474 |
|
264 |
|
2,738 |
|
1,493 |
|
N, P |
|
4,231 |
| |||||
|
Other expense, net |
|
190 |
|
15 |
|
205 |
|
— |
|
|
|
205 |
| |||||
|
Total other expense, net |
|
2,664 |
|
279 |
|
2,943 |
|
1,493 |
|
|
|
4,436 |
| |||||
|
Income before income taxes |
|
16,136 |
|
2,823 |
|
18,959 |
|
(2,716 |
) |
|
|
16,243 |
| |||||
|
Provision for income taxes |
|
(8,100 |
) |
— |
|
(8,100 |
) |
(42 |
) |
R |
|
(8,142 |
) | |||||
|
Net income |
|
$ |
8,036 |
|
$ |
2,823 |
|
$ |
10,859 |
|
$ |
(2,758 |
) |
|
|
$ |
8,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings per share |
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
$ |
0.89 |
| |||
|
Basic weighted average common shares |
|
9,153 |
|
|
|
|
|
|
|
|
|
9,153 |
| |||||
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings per share |
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
$ |
0.87 |
| |||
|
Diluted weighted average common shares |
|
9,275 |
|
|
|
|
|
|
|
|
|
9,275 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income |
|
$ |
8,036 |
|
|
|
|
|
|
|
|
|
$ |
8,101 |
| |||
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Foreign currency translation adjustment |
|
6,314 |
|
|
|
|
|
|
|
|
|
6,314 |
| |||||
|
Change in accumulated loss on derivatives |
|
226 |
|
|
|
|
|
|
|
|
|
226 |
| |||||
|
Pension adjustments |
|
(123 |
) |
|
|
|
|
|
|
|
|
(123 |
) | |||||
|
Comprehensive income |
|
$ |
14,453 |
|
|
|
|
|
|
|
|
|
$ |
14,518 |
| |||
See accompanying notes to pro forma combined consolidated financial statements
ALLIED MOTION TECHNOLOGIES INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
1. BASIS OF PRO FORMA PRESENTATION
On December 6, 2018, Allied Motion Technologies Inc., a Colorado corporation (the “Company” or “Allied Motion”) entered into a Unit Purchase Agreement (the “Purchase Agreement”) with TCI, LLC, a Wisconsin limited liability company (“TCI”), and the members of TCI (“Sellers”), pursuant to which Allied Motion acquired 100% of the issued and outstanding common units of TCI from Sellers (the “Acquisition”) in a transaction valued at $64,100. The Acquisition consideration is subject to adjustments based on a determination of closing net working capital, cash, indebtedness and other TCI liabilities. A portion of the Acquisition consideration was placed in escrow to secure payment of any post-closing adjustments to the purchase price and to secure the Sellers’ indemnification obligations to Allied Motion. Cash consideration was funded from borrowings on the Company’s existing credit facilities.
On October 28, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) for a $125,000 revolving credit facility (the “Revolver”), with an initial term of five years. On December 6, 2018, the Company and certain of its subsidiaries entered into a Second Amendment to Credit Agreement to exercise the $50 million accordion feature of its existing senior secured revolving credit facility and to add TCI as an additional guarantor.
The Company’s credit facility, which matures in October 2021, increased capacity from $125 million to $175 million with the additional borrowing capacity being provided by the existing lenders. The effective interest rate on the credit facility is currently 3.75% and the commitment fee on the unused portion of the credit facility is 1.25%. Other terms and conditions under the credit facility remain unchanged.
The unaudited pro forma combined consolidated balance sheet as of September 30, 2018 is based on historical financial statements of Allied Motion and the historical financial statements of TCI after giving effect to the acquisition adjustments. The unaudited pro forma combined consolidated balance sheet as of September 30, 2018 is presented as if the acquisition had occurred on September 30, 2018.
The unaudited pro forma combined consolidated statements of operations and comprehensive income for the year ended December 31, 2017 and for the nine months ended September 30, 2018 is based on the historical financial statements of Allied Motion and TCI for the respective periods then ended after giving effect to the acquisition adjustments. The unaudited pro forma combined consolidated statements of operations and comprehensive income are presented as if the acquisition had occurred on January 1, 2017.
The historical financial information has been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined consolidated statements of operations and comprehensive income, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effects of the transaction and certain other adjustments.
Under the acquisition method, acquisition-related transaction costs (e.g. advisory, legal, valuation and other professional fees) are not included as consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. These costs are not presented in the unaudited pro forma combined consolidated statements of operations and comprehensive income because they will not have a continuing impact on the combined results.
2. PURCHASE PRICE ALLOCATION
The purchase price was approximately $64,100 excluding cash acquired as of September 30, 2018 and was funded using existing cash and Revolver borrowings.
The allocation of the purchase price paid for TCI is based on estimated fair values of the assets acquired and liabilities assumed of TCI as of September 30, 2018. The allocation of the purchase price is preliminary as the valuation of both the tangible and identifiable intangible assets is being finalized. While the final amounts allocated to assets and liabilities could change from the information presented in the unaudited pro forma combined condensed financial statements, the Company does not expect changes to be material. Cost and fees incurred by Allied Motion associated with the acquisition of TCI are estimated to be approximately $413.
ALLIED MOTION TECHNOLOGIES INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
The preliminary allocation of purchase price based on estimated fair values (in thousands):
|
|
|
|
| |
|
Inventory |
|
$ |
3,917 |
|
|
Other assets, net |
|
2,536 |
| |
|
Property, plant and equipment |
|
3,464 |
| |
|
Amortizable intangible assets |
|
36,400 |
| |
|
Goodwill |
|
17,783 |
| |
|
Net purchase price |
|
$ |
64,100 |
|
Intangible assets
The fair value of identifiable intangible assets of $36,400 has been allocated to the following asset categories (in thousands):
|
|
|
Preliminary |
|
Initial 12 |
|
Amortization |
|
Estimated |
| ||
|
Customer relationships |
|
22,200 |
|
1,388 |
|
Straight line |
|
16 years |
| ||
|
Technology |
|
8,100 |
|
540 |
|
Straight line |
|
15 years |
| ||
|
Trade name |
|
$ |
6,100 |
|
$ |
321 |
|
Straight line |
|
19 years |
|
|
|
|
$ |
36,400 |
|
$ |
2,249 |
|
|
|
|
|
3. UNAUDITED PRO FORMA ADJUSTMENTS
The unaudited pro forma combined consolidated balance sheet as of September 30, 2018 and unaudited proforma combined consolidated statements of operations and comprehensive income for the nine months ended September 30, 2018 and for the year ended December 31, 2017 gives effect to the following adjustments (in thousands):
A. To reflect the removal of TCI’s intangible assets ($304) and goodwill ($9,929) at the date of purchase.
B. To remove historical debt ($2,383) paid prior to the acquisition.
C. To remove liabilities not assumed as part of the acquisition. Includes distributions payable ($128) accrued profit sharing ($767) and accrued management fees ($25).
D. To reflect the removal of TCI’s historical equity ($15,728) at the date of purchase.
E. To reflect the estimated purchase accounting adjustment for capitalization of estimated manufacturing profit in inventory acquired. (Note: The unaudited pro forma combined consolidated statement of operations and comprehensive income does not reflect the impact of the one-time adjustment to costs of products sold during the periods when this inventory will be sold.)
F. To reflect the fair value of property, plant and equipment acquired in the business combination.
G. To reflect the fair value of the purchased intangible assets and goodwill resulting from the acquisition.
H. To reflect the borrowings on revolving line of credit facility related to the acquisition.
I. To reflect accrued transaction costs and accrued interest related to the acquisition and the incurrence of related debt. This adjustment reflects the accrual of expected transaction costs as of September 30, 2018.
ALLIED MOTION TECHNOLOGIES INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
J. To reflect the new debt issuance costs resulting from the amendment of the credit agreement to allow for increased Revolver borrowings for the acquisition.
K. To reflect the fair value of the purchased cash, intangible assets and goodwill resulting from the acquisition.
L. To reflect the removal of TCI’s transaction costs ($232 and $9 for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively) incurred that were directly attributable to the acquisition.
M. To remove TCI non-recurring expenses. For the nine months ended September 30, 2018, amount includes $767 partner bonuses, $75 management fees and $177 amortization of historical intangible assets. For the year ended December 31, 2017, amount includes $788 partner bonuses, $100 management fees and $367 amortization of historical intangible assets.
N. To reflect the interest expense ($1,451 and $1,733, for the nine months ended September 30, 2018 and the year ended December 31, 2017 respectively) on the acquisition debt incurred on the revolving line of credit, calculated using the historical interest rates in effect for the periods presented. Also reflects the removal of historical TCI interest expense of $134 for the nine months ended September 30, 2018 and $264 for the year ended December 31, 2017 as TCI’s existing debt was paid prior to the acquisition.
O. To reflect the amortization expense of finite lived purchased intangible assets, which lives are nineteen years for trade names, fifteen years for technology and sixteen years for customer relationships.
P. To reflect the amortization of new debt issuance costs as interest expense ($18 and $24 for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively), for which the amortization period is three years.
Q. To reflect the depreciation expense ($192 and $255 for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively) of purchased property, plant and equipment, which depreciable life is seven years for machinery and equipment.
R. To reflect the recognition of income taxes at a 28% and 39% statutory rate for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively, on the combined income before income taxes as adjusted for the income statement pro forma adjustments and the previously untaxed income of TCI as a passthrough entity.
4. UNAUDITED PRO FORMA COMBINED CONSOLIDATED NET INCOME PER SHARE
The pro forma basic and diluted net income per share amounts presented are based upon the weighted average number of common shares outstanding during the periods presented. The basic and diluted earnings per share and the information of the number of shares used to compute basic and diluted earnings per share.