10-Q 1 kmg-10q_20160430.htm 10-Q kmg-10q_20160430.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2016

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 .

Commission file number: 001-35577

 

KMG CHEMICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Texas

 

75-2640529

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

300 Throckmorton Street,

Fort Worth, Texas

 

76102

(Address of principal executive offices)

 

(Zip Code)

(817)-761-6100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

  

¨

  

 

 

Accelerated filer

  

x

 

 

 

 

 

Non-accelerated filer

  

¨

  

(Do not check if a smaller reporting company)

 

Smaller reporting company

  

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨     No  x

As of June 7, 2016, there were 11,735,793 shares of the registrant’s common stock outstanding.

 

 

 

 


TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

3

 

ITEM 1. FINANCIAL STATEMENTS

3

 

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF APRIL 30, 2016 AND JULY 31, 2015

3

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2016 AND 2015

4

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2016 AND 2015

5

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED APRIL 30, 2016 AND 2015

6

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

18

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

24

 

ITEM 4. CONTROLS AND PROCEDURES

24

 

PART II — OTHER INFORMATION

 

 

ITEM 1. LEGAL PROCEEDINGS

26

 

ITEM 1A. RISK FACTORS

26

 

ITEM 6. EXHIBITS

26

 

SIGNATURES

27

 

 

 

 

2


PART I — FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

 

 

 

April 30,

 

 

July 31,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,546

 

 

$

7,517

 

Accounts receivable

 

 

 

 

 

 

 

 

Trade, net of allowances of $154 at April 30, 2016 and $144

   at July 31, 2015

 

 

33,952

 

 

 

36,887

 

Other

 

 

6,242

 

 

 

3,668

 

Inventories, net

 

 

39,345

 

 

 

42,082

 

Current deferred tax assets

 

 

 

 

 

2,953

 

Prepaid expenses and other

 

 

3,151

 

 

 

3,738

 

Total current assets

 

 

93,236

 

 

 

96,845

 

Property, plant and equipment, net

 

 

85,582

 

 

 

80,589

 

Deferred tax assets

 

 

707

 

 

 

131

 

Goodwill

 

 

22,403

 

 

 

22,408

 

Intangible assets, net

 

 

35,062

 

 

 

36,560

 

Restricted cash

 

 

1,000

 

 

 

1,000

 

Other assets, net

 

 

4,843

 

 

 

4,826

 

Total assets

 

$

242,833

 

 

$

242,359

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

28,789

 

 

$

35,980

 

Accrued liabilities

 

 

11,571

 

 

 

9,602

 

Employee incentive accrual

 

 

4,714

 

 

 

4,852

 

Total current liabilities

 

 

45,074

 

 

 

50,434

 

Long-term debt

 

 

41,800

 

 

 

53,000

 

Deferred tax liabilities

 

 

10,188

 

 

 

13,075

 

Other long-term liabilities

 

 

4,628

 

 

 

2,429

 

Total liabilities

 

 

101,690

 

 

 

118,938

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

 

 

 

 

 

 

Common stock, $0.01 par value, 40,000,000 shares authorized, 11,735,793

   shares issued and outstanding at April 30, 2016 and 11,690,439 shares

   issued and outstanding at July 31, 2015

 

 

117

 

 

 

117

 

Additional paid-in capital

 

 

35,349

 

 

 

31,676

 

Accumulated other comprehensive loss

 

 

(9,497

)

 

 

(9,667

)

Retained earnings

 

 

115,174

 

 

 

101,295

 

Total stockholders’ equity

 

 

141,143

 

 

 

123,421

 

Total liabilities and stockholders’ equity

 

$

242,833

 

 

$

242,359

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

3


KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except for per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

April 30,

 

 

April 30,

 

 

 

 

2016

 

 

 

2015

 

 

 

2016

 

 

 

2015

 

Net sales

 

$

75,168

 

 

$

73,964

 

 

$

222,677

 

 

$

244,505

 

Cost of sales

 

 

46,010

 

 

 

47,149

 

 

 

136,026

 

 

 

161,544

 

Gross profit

 

 

29,158

 

 

 

26,815

 

 

 

86,651

 

 

 

82,961

 

Distribution expenses

 

 

9,177

 

 

 

11,700

 

 

 

28,125

 

 

 

37,721

 

Selling, general and administrative expenses

 

 

12,575

 

 

 

9,257

 

 

 

36,512

 

 

 

28,164

 

Restructuring charges

 

 

377

 

 

 

27

 

 

 

1,398

 

 

 

900

 

Realignment charges

 

 

 

 

 

1,070

 

 

 

130

 

 

 

5,429

 

Operating income

 

 

7,029

 

 

 

4,761

 

 

 

20,486

 

 

 

10,747

 

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(201

)

 

 

(111

)

 

 

(605

)

 

 

(1,098

)

Gain on purchase of NFC

 

 

2,069

 

 

 

 

 

 

2,069

 

 

 

 

Gain (loss) on sale of creosote distribution business, net

 

 

 

 

 

(234

)

 

 

 

 

 

5,448

 

Other, non-operating expense

 

 

 

 

 

(1,250

)

 

 

 

 

 

(1,250

)

Other, net

 

 

(375

)

 

 

(339

)

 

 

(243

)

 

 

(498

)

Total other (expense) income, net

 

 

1,493

 

 

 

(1,934

)

 

 

1,221

 

 

 

2,602

 

Income before income taxes

 

 

8,522

 

 

 

2,827

 

 

 

21,707

 

 

 

13,349

 

Provision for income taxes

 

 

(2,160

)

 

 

(692

)

 

 

(6,775

)

 

 

(4,539

)

Net income

 

$

6,362

 

 

$

2,135

 

 

$

14,932

 

 

$

8,810

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share basic

 

$

0.54

 

 

$

0.18

 

 

$

1.27

 

 

$

0.75

 

Net income per common share diluted

 

$

0.53

 

 

$

0.18

 

 

$

1.25

 

 

$

0.75

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

11,729

 

 

 

11,680

 

 

 

11,714

 

 

 

11,669

 

Diluted

 

 

11,990

 

 

 

11,819

 

 

 

11,923

 

 

 

11,758

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

4


KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

April 30,

 

 

April 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

 

$

6,362

 

 

$

2,135

 

 

$

14,932

 

 

$

8,810

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation income (loss)

 

 

2,569

 

 

 

650

 

 

 

170

 

 

 

(8,752

)

Total comprehensive income

 

$

8,931

 

 

$

2,785

 

 

$

15,102

 

 

$

58

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

5


KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

April 30,

 

 

 

 

2016

 

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

14,932

 

 

$

8,810

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,606

 

 

 

9,951

 

Non-cash restructuring and realignment charges

 

 

295

 

 

 

5,640

 

Amortization of loan costs

 

 

125

 

 

 

111

 

Stock-based compensation expense

 

 

3,659

 

 

 

1,970

 

Allowance for excess and obsolete inventory

 

 

173

 

 

 

760

 

Gain on sale of creosote distribution business

 

 

 

 

 

(5,448

)

Gain on purchase of NFC

 

 

(2,069

)

 

 

 

Deferred income tax expense (benefit)

 

 

(219

)

 

 

(4,374

)

Other

 

 

28

 

 

 

(10

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable — trade

 

 

5,022

 

 

 

95

 

Accounts receivable — other

 

 

(2,515

)

 

 

(1,756

)

Inventories

 

 

2,798

 

 

 

965

 

Other current and noncurrent assets

 

 

541

 

 

 

(1,386

)

Accounts payable

 

 

(7,257

)

 

 

(4,897

)

Accrued liabilities and other

 

 

3,234

 

 

 

(2,219

)

Net cash provided by operating activities

 

 

29,353

 

 

 

8,212

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(11,377

)

 

 

(10,751

)

Purchase of NFC, net of cash acquired

 

 

(2,572

)

 

 

 

Disposals of property, plant and equipment

 

 

 

 

 

2,561

 

Proceeds from sale of creosote distribution business

 

 

 

 

 

14,899

 

Net cash (used in) provided by investing activities

 

 

(13,949

)

 

 

6,709

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net payments under revolving credit agreement

 

 

 

 

 

(41,100

)

Principal payments on term loan

 

 

 

 

 

(20,000

)

Borrowings under credit facility

 

 

2,800

 

 

 

59,100

 

Payments under credit facility

 

 

(14,000

)

 

 

(23,000

)

Tax benefit from stock-based awards

 

 

38

 

 

 

10

 

Payment of dividends

 

 

(1,053

)

 

 

(1,050

)

Net cash used in financing activities

 

 

(12,215

)

 

 

(26,040

)

Effect of exchange rate changes on cash

 

 

(160

)

 

 

(1,293

)

Net increase (decrease) in cash and cash equivalents

 

 

3,029

 

 

 

(12,412

)

Cash and cash equivalents at beginning of period

 

 

7,517

 

 

 

19,252

 

Cash and cash equivalents at end of period

 

$

10,546

 

 

$

6,840

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

482

 

 

$

1,097

 

Cash paid for income taxes, net

 

$

8,162

 

 

$

7,289

 

Supplemental disclosure of non-cash investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment through accounts payable

 

$

256

 

 

$

868

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

6


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Basis of Presentation

The consolidated balance sheet as of July 31, 2015, which has been derived from audited consolidated financial statements, and the unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting. As permitted under those requirements, certain footnotes or other financial information that are normally required by generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information not misleading and in the opinion of management reflect all adjustments, including those of a normal recurring nature, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of results of operations to be expected for the full year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2015.

These condensed consolidated financial statements are prepared using certain estimates by management and include the accounts of KMG Chemicals, Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016‑09, “Improvements to Employee Share-based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the standard and the impact on its consolidated financial statements and footnote disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability of accounting for lease transactions. The ASU will require all leases with lease terms exceeding one year to be recognized on the balance sheet as lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. The guidance is effective beginning January 1, 2019 with an option to early adopt. The Company is evaluating whether to early adopt and the effect that ASU 2016-02 will have on its consolidated financial statements, and footnote disclosures.

In November 2015, the FASB issued ASU No. 2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes, which requires deferred tax liabilities and assets to be classified as noncurrent in the Balance Sheet. The standard will be effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for financial statements that have not been previously issued. The ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company adopted this ASU on a prospective basis in the second quarter of fiscal year 2016. The change in accounting principles does not have an impact on the Company’s results of operations, cash flow or stockholders’ equity.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year to the first quarter of 2018 to provide companies sufficient time to implement the standards. Early adoption will be permitted, but not before the first quarter of 2017. Adoption can occur using one of two prescribed transition methods. In March and April 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” which provide supplemental adoption guidance and clarification to ASC 2014-09. ASU 2016-08 and ASU 2016-10 must be adopted concurrently with the adoption of ASU 2014-09. The Company is currently evaluating the impact that these new standards will have on its consolidated financial statements and footnote disclosures.

 

7


2. Acquisitions

On April 4, 2016, the Company completed the acquisition of Nagase Finechem Singapore (Pte) Ltd. (“NFC”), a Singapore‑based manufacturer of electronic chemicals, for a cash purchase price of $2.8 million, including $1.1 million of estimated net working capital. NFC’s five-acre Singapore site comprises a manufacturing and packaging facility, warehouse, laboratory and cleanroom. The acquired company manufactures wet process chemicals, including solvents, acids and custom blends for the liquid crystal display, electronics and semiconductor markets, and provides recycling and refining services for certain customers. The Company completed the acquisition by borrowing $2.8 million on the revolving loan under its revolving credit facility. See Note 11 for further discussion of the Company’s revolving credit facility. The Company expensed transaction and acquisition-related costs of approximately $0.2 million in the fiscal quarter ended April 30, 2016, which is included in selling, general and administrative expenses on the Company’s consolidated statement of income.

The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the consolidated balance sheets at the acquisition date (in thousands):

Cash

 

$

228

 

Accounts receivable

 

 

1,862

 

Other assets

 

 

283

 

Property, plant and equipment, net

 

 

3,242

 

Intangible assets

 

 

 

 

Licensing agreement

 

 

73

 

Toll manufacturing agreement

 

 

255

 

Total assets acquired

 

$

5,943

 

Total current liabilities assumed

 

 

1,086

 

Fair value of net assets acquired

 

$

4,857

 

The preliminary aggregate fair value of the working capital (assets and liabilities), property, plant and equipment and intangible assets acquired were determined by management to exceed the consideration paid for the acquisition, resulting in a bargain purchase gain under GAAP. In reaching that conclusion, management noted that there were no other liabilities being assumed in connection with the acquisition, including no environmental liabilities. Management believes the seller had determined to perform the transaction as part of an overall repositioning of its business. Based on these considerations, the Company has recorded a gain of $2.1 million in connection with the bargain purchase during the three months ended April 30, 2016. This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and calculation of acquired asset retirement obligations associated with certain leased property. Any subsequent adjustments to the preliminary purchase price allocation will result in a corresponding change in the amount of the bargain purchase gain recorded in earnings. The pro forma impact on consolidated results is immaterial for the three and nine month periods ended April 30, 2016.

On May 1, 2015, the Company completed the acquisition of Valves Incorporated of Texas, a privately held Texas corporation, pursuant to the terms of a previously announced Agreement and Plan of Merger. The acquired company manufactures and distributes industrial sealants and lubricants, primarily to the oil and gas, storage, pipeline and gas distribution markets, as well as related products, such as lubrication equipment and fittings. The pro forma impact on consolidated results for the fiscal year ended July 31, 2015 is immaterial.

3. Disposition of Business

On January 16, 2015, the Company sold its creosote distribution business, part of the wood treating chemicals segment, to Koppers Inc. pursuant to an asset purchase agreement. The transaction closed concurrently with the signing of the asset purchase agreement. Assets that were sold in the transaction included the Company’s United States Environmental Protection Agency (“EPA”) registrations for creosote, creosote inventory, railcar and tank terminal leases and various customer agreements. The adjusted sale price for the assets was approximately $14.9 million.

The following table summarizes the cost of assets sold in conjunction with the sale of the creosote distribution business (in thousands):

Creosote product registrations

 

$

5,339

 

Inventory

 

 

3,009

 

Other assets

 

 

168

 

 

 

$

8,516

 

 

8


The Company allocated goodwill of approximately $662,000 within the wood treating reporting unit to the sale of the creosote distribution business. The Company recognized a gain of $5.4 million on the sale of the creosote distribution business, net of closing and other transaction expenses.

 

4. Earnings Per Share

Basic earnings per share have been computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share have been computed by dividing net income by the weighted average shares outstanding plus potentially dilutive common shares. There were approximately 261,000 and 209,000 dilutive shares related to stock-based awards for the three and nine months ended April 30, 2016, respectively. There were approximately 139,000 and 89,000 dilutive shares related to stock-based awards for the three and nine months ended April 30, 2015, respectively.

Outstanding stock-based awards are not included in the computation of diluted earnings per share under the treasury stock method if including them would be anti-dilutive. There were 16,000 and 15,000 potentially dilutive securities that were not included for the three months and nine months ended April 30, 2016. There were no such shares of potentially dilutive securities not included in the computation of diluted earnings per share for the three and nine months ended April 30, 2015.

5. Inventories

Inventories are summarized in the following table (in thousands):

 

 

April 30,

 

 

July 31,

 

 

 

2016

 

 

2015

 

Raw materials

 

$

7,547

 

 

$

8,723

 

Work in process

 

 

1,254

 

 

 

780

 

Supplies

 

 

1,078

 

 

 

525

 

Finished products

 

 

30,121

 

 

 

32,535

 

Less: reserve for inventory obsolescence

 

 

(655)

 

 

 

(481

)

Inventories, net

 

$

39,345

 

 

$

42,082

 

 

6. Property, Plant and Equipment

Property, plant and equipment and related accumulated depreciation and amortization are summarized as follows (in thousands):

 

 

 

April 30,

 

 

July 31,

 

 

 

2016

 

 

2015

 

Land

 

$

13,688

 

 

$

13,257

 

Buildings and improvements

 

 

40,543

 

 

 

38,036

 

Equipment

 

 

87,750

 

 

 

84,273

 

Leasehold improvements

 

 

2,414

 

 

 

193

 

 

 

 

144,395

 

 

 

135,759

 

Less: accumulated depreciation and amortization

 

 

(64,171

)

 

 

(61,936

)

 

 

 

80,224

 

 

 

73,823

 

Construction-in-progress

 

 

5,358

 

 

 

6,766

 

Property, plant and equipment, net

 

$

85,582

 

 

$

80,589

 

 

 

 

 

7. Stock-Based Compensation

The Company has stock-based incentive plans which are described in more detail in the consolidated financial statements in the Company’s Annual Report on Form 10-K for fiscal year 2015. The Company recognized stock-based compensation costs of approximately $1.4 million and $832,000 for the three months ended April 30, 2016 and 2015, respectively, and $3.7 million and $2.0 million for the nine months ended April 30, 2016 and 2015, respectively. The Company also recognized the related tax benefits of $467,000 and $310,000 for the three months ended April 30, 2016 and 2015, respectively, and $1.3 million and $743,000 for the nine months ended April 30, 2016 and 2015, respectively. Stock-based compensation costs are recorded under selling, general and administrative expenses in the condensed consolidated statements of income.

 

9


As of April 30, 2016, the unrecognized compensation costs related to stock-based awards was approximately $8.0 million, which is expected to be recognized over a weighted-average period of 2.35 years.

Performance Shares

On August 1, 2015, there were 244,790 non-vested performance shares outstanding which reflected the maximum number of shares under the awards. No performance share awards vested during the nine months ended April 30, 2016. As of April 30, 2016, the non-vested performance-based stock awards consisted of Series 1 awards granted to certain executives and employees in fiscal years 2016, 2015 and 2014 as summarized below reflecting the target number of shares under the awards.

 

 

 

 

 

Target

 

 

 

 

 

 

 

 

Expected

 

 

Shares

 

 

 

Series

 

Award

 

 

Grant Date

 

 

Measurement

 

Percentage of

 

 

Expected

 

Date of Grant

 

Award

 

Shares

 

 

Fair Value

 

 

Period Ending

 

Vesting(1)

 

 

to Vest

 

Fiscal Year 2016 Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      3/10/2016

 

Series 1

 

 

14,500

 

 

$

21.89

 

 

10/31/2018

 

 

 

 

 

 

 

 

1/29/2016

 

Series 1

 

 

57,163

 

 

$

21.80

 

 

10/31/2018

 

 

 

 

 

 

 

 

 

 

Forfeitures(2)

 

 

(250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Series 1

 

 

71,413

 

 

 

 

 

 

 

 

 

100

%

 

 

71,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/19/2016

 

Series 3

 

 

82,938

 

 

$

20.89

 

 

7/31/2020

 

 

100

%

 

 

82,938

 

12/11/2015

 

Series 3

 

 

10,000

 

 

$

19.03

 

 

7/31/2016

 

 

100

%

 

 

10,000

 

12/11/2015

 

Series 3

 

 

4,000

 

 

$

19.03

 

 

7/31/2016

 

 

100

%

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year 2015 Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3/26/2015

 

Series 1

 

 

21,173

 

 

$

25.85

 

 

7/31/2017

 

 

 

 

 

 

 

 

12/9/2014

 

Series 1

 

 

103,499

 

 

$

17.81

 

 

7/31/2017

 

 

 

 

 

 

 

 

 

 

Forfeitures(2)

 

 

(1,872

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Series 1

 

 

122,800

 

 

 

 

 

 

 

 

 

136

%

 

 

166,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year 2014 Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/25/2014

 

Series 1

 

 

127,315

 

 

$

14.88

 

 

7/31/2016

 

 

 

 

 

 

 

 

 

 

Forfeitures(2)

 

 

(8,109

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Series 1

 

 

119,206

 

 

 

 

 

 

 

 

 

110

%

 

 

131,127

 

 

 

 

(1)

The percentage vesting for Series 1 performance share awards is currently estimated at 100%, 136% and 110% of the target award for the fiscal year 2016, 2015 and 2014 awards, respectively. The percentage vesting for Series 3 performance share awards is currently estimated at 100% for the fiscal year 2016 awards.

(2)

Forfeitures include Series 1 awards that were granted in fiscal years 2016, 2015 and 2014 to certain employees that were forfeited at the termination of their employment.

Series 1: For the fiscal year 2016, 2015 and 2014 awards, vesting is subject to performance requirements composed of certain objectives including average annual return on invested capital and annual compound growth rate in the Company’s diluted earnings per share. These objectives are assessed quarterly using the Company’s budget, actual results and long-term projections. For each of the Series 1 awards, the expected percentage of vesting is evaluated through April 30, 2016, and reflects the percentage of shares projected to vest for the respective awards at the end of their measurement periods. For the fiscal year 2016, 2015 and 2014 awards, shares vested may increase to a maximum of 200%, 167% and 150%, respectively, of the target award on achievement of maximum performance objectives.  

Series 2: None outstanding.

Series 3: The table includes certain performance-based awards that are granted to Christopher T. Fraser according to his employment agreement. In fiscal year 2016, Mr. Fraser was awarded (i) a performance-based Series 3 award for 10,000 shares of common stock (at maximum) having a performance requirement related to debt payments during the fiscal year, and (ii) a performance-based Series 3 award for 4,000 shares of common stock having certain organizational objectives as a performance requirement, and in each case such awards vest and are measured over a one year period beginning August 1 and ending July 31. In fiscal year 2016 Mr. Fraser was also awarded a performance-based Series 3 award for 82,938 shares of common stock (at target) having performance requirements related to cumulative revenue and total stockholder return. The measurement period for the fiscal

 

10


year 2016 award begins on November 1, 2015 and the award vests one-third (1/3) at July 31, 2018, 2019 and 2020. The shares vested may increase to a maximum of 200% of the target award on achievement of maximum performance objectives. Awards to Mr. Fraser for fiscal year 2015 included (i) a performance-based Series 3 award for 10,000 shares of common stock (at maximum) having a performance requirement related to debt payments during the fiscal year, and (ii) a performance-based Series 3 award for 4,000 shares of common stock having certain organizational objectives as a performance requirement, and in each case such awards vest and are measured over a one year period beginning August 1 and ending July 31. The award for fiscal year 2015 was fully vested and 14,000 shares were issued on October 1, 2015  

The weighted-average per share grant-date fair value of the target award shares for performance-based awards outstanding was $18.64 and $17.36 at April 30, 2016 and August 1, 2015, respectively.

The weighted-average per share grant-date fair value of the target award shares for performance-based awards granted during the nine months ended April 30, 2016 and 2015 was $21.13 and $18.92, respectively.

The weighted-average per share grant-date fair value of awards forfeited during the nine months ended April 30, 2016 was $20.82.

Time Based Shares

A summary of activity for time-based stock awards for the nine months ended April 30, 2016 is presented below:

 

 

 

Shares

 

 

Weighted-Average Grant-Date

Fair Value

 

Non-vested on August 1, 2015

 

 

82,688

 

 

$

19.66

 

Granted (1)

 

 

173,037

 

 

 

21.81

 

Vested(2)

 

 

(32,170

)

 

 

20.08

 

Forfeited(3)

 

 

(1,315

)

 

 

20.82

 

Non-vested on April 30, 2016

 

 

222,240

 

 

 

21.26

 

 

 

(1)

Includes 14,870 shares granted to non-employee directors for service during the nine month period ended April 30, 2016. Includes 6,500 share awards granted to certain employees vesting over one or two years from the date of grant. Includes 57,167 share awards granted to certain employees and executives which are expected to vest on October 31, 2018. Also includes 80,000 shares granted to Mr. Fraser which vest over a service period of five years beginning on August 1, 2015. The shares are to vest one third (1/3) at the end of years three, four and five of the service period.

(2)

Includes 14,870 shares granted to non-employee directors for service for the nine months ended April 30, 2016. The shares vest on the date of grant, and the Company recognizes compensation expense related to the awards over the respective service periods in accordance with GAAP. Includes 11,300 shares granted to certain employees and executives. The vested amount includes 6,000 shares granted to Mr. Fraser.

(3)

Forfeitures include Series 1 awards that were granted in fiscal years 2016 and 2015 to certain employees that were forfeited at the termination of their employment.

The total fair value of shares vested during the nine months ended April 30, 2016 and 2015 was approximately $646,000 and $575,000, respectively.  

 

 

11


8. Intangible Assets

Intangible assets are summarized as follows (in thousands):

 

 

 

Number of Years

 

 

April 30, 2016

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Currency

 

 

 

 

 

 

 

Amortization

 

 

Original

 

 

Accumulated

 

 

Translation

 

 

Carrying

 

 

 

Period

 

 

Cost

 

 

Amortization

 

 

Adjustment

 

 

Amount

 

Intangible assets subject to amortization (range of

   useful life), excluding acquired NFC intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic chemicals-related contracts (5-8 years)

 

 

6.6

 

 

$

2,204

 

 

$

(1,037

)

 

$

(85

)

 

$

1,082

 

Electronic chemicals-related trademarks and patents

   (10-15 years)

 

 

12.0

 

 

 

117

 

 

 

(85

)

 

 

 

 

 

32

 

Electronic chemicals-value of product qualifications

   (5-15 years)

 

 

14.1

 

 

 

14,100

 

 

 

(4,384

)

 

 

(284

)

 

 

9,432

 

Other chemicals-customer relationships (15 years)

 

 

15.0

 

 

 

10,291

 

 

 

(686

)

 

 

 

 

 

9,605

 

Other chemicals-Other related contracts (5 years)

 

 

5.0

 

 

 

152

 

 

 

(30

)

 

 

 

 

 

122

 

Total intangible assets subject to amortization

 

 

13.8

 

 

$

26,864

 

 

$

(6,222

)

 

$

(369

)

 

$

20,273

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other chemicals-penta product registrations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,765

 

Other chemicals-related trade name and trademark

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,885

 

Other chemicals-proprietary manufacturing process

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,808

 

Total intangible assets not subject to amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,458

 

Total intangible assets, net, excluding acquired NFC intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

34,731

 

Approximately $328,000 of definite-lived intangible assets were acquired through the NFC acquisition in April 2016 and are not included in the table above, but are included in intangible assets on the condensed consolidated balance sheet at April 30, 2016. The Company is still finalizing the estimated useful lives for these assets and they have not been included in the table due to the timing of the preliminary value determination. See Note 2 for a discussion of the NFC acquisition and preliminary purchase price allocation.

 

 

Number of Years

 

 

July 31, 2015

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Foreign