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.