We compute basic net earnings per share using the weighted average number of shares outstanding. Diluted net earnings per share include
the effect of common stock equivalents, if any, for each period. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless their effect is
anti-dilutive. The following table computes basic and diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands,
except per share data)
|
|
Net earnings
|
|
$
|
10,045
|
|
$
|
10,535
|
|
$
|
9,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
22,785
|
|
|
18,727
|
|
|
17,899
|
|
Weighted average common shares of non-vested stock
|
|
|
(3,707
|
)
|
|
(1,613
|
)
|
|
(2,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the computation of basic net earnings per share
|
|
|
19,078
|
|
|
17,114
|
|
|
15,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per sharebasic
|
|
$
|
0.53
|
|
$
|
0.62
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Shares used in the computation of basic net earnings per share
|
|
|
19,078
|
|
|
17,114
|
|
|
15,803
|
|
Employee and non-employee director stock options
|
|
|
8
|
|
|
60
|
|
|
87
|
|
Restricted stock that has not vested
|
|
|
252
|
|
|
317
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the computation of diluted net earnings per share
|
|
|
19,338
|
|
|
17,491
|
|
|
16,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per sharediluted
|
|
$
|
0.52
|
|
$
|
0.60
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
excluded the following restricted stock grants that have not vested and options to purchase shares of common stock from the computation of diluted earnings per share as their effect
would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Non-vested common stock
|
|
|
61,000
|
|
|
9,000
|
|
|
128,000
|
|
Options to purchase shares of common stock
|
|
|
|
|
|
|
|
|
|
|
52
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair value for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous
market in which it would transact and the assumptions that market participants would use when pricing the asset or liability. We apply fair value measurements for both financial and nonfinancial
assets and liabilities. We have no nonfinancial assets or liabilities that require measurement at fair value on a recurring basis as of December 31, 2013.
The
fair value of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, line of credit and accrued expenses,
approximate cost because of their short maturities.
We
use the three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair values. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy are described below:
-
-
Level 1Unadjusted quoted prices available in active markets for the identical assets or liabilities at
the measurement date.
-
-
Level 2Significant other observable inputs available at the measurement date, other than quoted prices
included in Level 1, either directly or indirectly.
-
-
Level 3Significant unobservable inputs that we cannot corroborate by observable market data and thus
reflect the use of significant management judgment. We generally determine these values using pricing models based on assumptions our management believes other market participants would make.
The
fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair
value hierarchy, we determine the fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a
particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following table sets forth, by level
within the fair value hierarchy, the accounting of our financial assets and/or liabilities at fair value on a recurring basis according to the valuation techniques we used to determine their fair
value(s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total at Fair
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
At December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,871
|
|
$
|
24,871
|
|
$
|
|
|
$
|
|
|
Short-term investments
|
|
|
51,214
|
|
|
15,239
|
|
|
35,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
76,085
|
|
$
|
40,110
|
|
$
|
35,975
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,315
|
|
$
|
10,315
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
10,315
|
|
$
|
10,315
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
2. Acquisitions:
Strategic Technologies, Inc.
On October 4, 2012, we purchased substantially all of the assets and liabilities of Strategic Technologies, Inc.
("StraTech") from StraTech and Midas Medici Group
Holdings, Inc. ("Midas," parent company of StraTech, and, together with StraTech, the "Sellers"). StraTech is an IT services and solutions firm that shares our focus on optimizing enterprise
data centers and IT infrastructure through a common product and services portfolio designed to help customers increase business agility. We purchased StraTech for a purchase price of approximately
$11.9 million, comprised of a cash payment of approximately $13.2 million, which is offset by a receivable due from the Sellers of approximately $3.3 million, resulting from the
preliminary tangible net asset adjustment as defined by the asset purchase agreement. In addition, we issued 269,783 shares of our common stock with a value of approximately $2.0 million. Of
those shares, 242,805 shares were deposited in an escrow account as security for certain indemnification obligations of the Sellers.
Pursuant
to the asset purchase agreement, Sellers were obligated to pay us an amount equal to the difference between the actual tangible net assets on the closing date and the Sellers'
good faith estimated net tangible assets as set forth in the asset purchase agreement. We initially recorded a receivable due from Sellers of approximately $4.2 million related to this payment
at the acquisition date. The Sellers provided us with a "Notice of Disagreement," which stated that they disputed the amount owed to us in connection with this reconciliation payment. The asset
purchase agreement contained an arbitration provision for disputes over the value of tangible net assets. During the measurement period (up to one year from the acquisition date), the final tangible
net asset adjustment was agreed to and the net effect was a decrease in the receivable due from Sellers of $936,000 and an increase in the purchase price for the same amount as reflected above.
We
estimated the fair value of the assets acquired and liabilities assumed of StraTech primarily using a discounted cash flow approach with respect to identified intangible assets and
goodwill. We based this approach upon our estimates of future cash flows from the acquired assets and liabilities and utilized a discount rate consistent with the inherent risk associated with the
acquired assets and liabilities assumed. As of December 31, 2012, the fair value of the acquired assets was provisional as we had not yet finalized net working capital adjustments that are
included within the "Notice of Disagreement" discussed above. The total purchase price has been allocated to StraTech's net tangible and identifiable intangible assets based on their estimated fair
values as of October 4, 2012, and has been adjusted through the measurement period (up to one year from the acquisition date). Adjustments to provisional amounts during the measurement period
that were the result of information that existed as of the acquisitions date require the revision of comparative prior period financial information when reissued in subsequent financial statements.
Accordingly, our 2012 balance sheet has been retroactively adjusted to account for those changes. The changes did not impact our Statement of Operations.
54
The
following table summarizes the final allocation of the purchase price including measurement period adjustments:
|
|
|
|
|
|
|
(in thousands)
|
|
Assets acquired at their fair value:
|
|
|
|
|
Accounts receivable, net
|
|
$
|
9,539
|
|
Deferred revenue costs
|
|
|
8,521
|
|
Equipment
|
|
|
432
|
|
Finite-lived intangibles
|
|
|
15,920
|
|
Goodwill
|
|
|
5,334
|
|
Other assets
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
40,374
|
|
Liabilities assumed at their fair value:
|
|
|
|
|
Accounts payable
|
|
|
17,599
|
|
Deferred revenue
|
|
|
10,289
|
|
Accrued expenses
|
|
|
567
|
|
Other liabilities
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
28,484
|
|
|
|
|
|
|
|
|
|
|
Net purchase price
|
|
$
|
11,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fair value of the assets acquired included a finite-lived intangible asset consisting of customer relationships that have an estimated life of five years and an indefinite-lived
asset consisting of goodwill of approximately $5.0 million which will be deductible for tax purposes over a 15-year period. We are amortizing the finite-lived intangible asset we acquired in
the StraTech acquisition over its useful life using an accelerated amortization method, to match the pattern in which the economic benefits of that asset are expected to be consumed. We paid a premium
over the fair value of the net tangible and
identified intangible assets acquired (i.e. goodwill) because this acquisition expanded our market share and physical presence across the Eastern seaboard of the United States and allows us to
diversify our product offerings from certain manufacturers and expand our high-margin professional and managed services business lines. We expect to experience operational synergies and efficiencies
through combined general and administrative corporate functions.
The
following table provides a reconciliation of the net purchase price for StraTech as compared to the cash payment for purchase:
|
|
|
|
|
|
|
(in thousands)
|
|
Payment in cash for purchase
|
|
$
|
13,172
|
|
Less receivable due from seller
|
|
|
(3,307
|
)
|
Plus value of shares issued
|
|
|
2,025
|
|
|
|
|
|
|
|
|
|
|
Net purchase price
|
|
$
|
11,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration
costs for 2013 and 2012 include salaries, benefits and retention bonuses of exiting employees, some of whom assisted with the initial integration of StraTech. In addition,
transaction costs for 2012 include legal, audit and other outside service fees necessary to complete our acquisition of StraTech, which were expensed. Total integration and transaction costs were
$95,000 and $359,000 during 2013 and 2012, respectively.
In
January 2014, we reached a settlement agreement with the former owners of StraTech regarding the disputed amount owed to us in connection with the reconciliation payment mentioned
above. Under the terms of the agreement, the former owners of StraTech agreed to release the entire 242,805
55
shares
of Datalink common stock that were being held in escrow in exchange for a payment of $100,000 and the release of certain other claims. As of December 31, 2013, the remaining
$3.3 million receivable due from the Sellers was deemed to be uncollectible and written down to the estimated realizable value, which is the fair value of the shares in escrow on
December 31, 2013. The remaining receivable of $2,647,000 was reclassified from accounts receivable to equity within the December 31, 2013 balance sheet. The results for 2013 include a
$611,000 charge for the write-down of the account receivable due from the Sellers to the fair value of the stock on December 31, 2013 and reported as a non-operating expense on the statement of
operations. Based on the value of our common stock on the date of the settlement agreement in January 2014, we will record a gain before tax of approximately $877,000 during the first quarter of 2014
as a result of the increase in our stock price from December 31, 2013 to the date we repossessed the shares in escrow.
In October 2011, we entered into an asset purchase agreement with Midwave Corporation ("Midwave") and its shareholders. Under the asset
purchase agreement we purchased and acquired from Midwave substantially all of the assets used in Midwave's business. Midwave is an information technology consulting firm that offers both professional
services and sells products to business' information technology organizations utilizing the product portfolios of certain information technology manufacturers, in the specific domains of data center
services, networking services, managed services and advisory services. We paid a purchase price of approximately $19.1 million, comprised of a cash payment of approximately $16.1 million
and issued 220,988 shares of our common stock with a value of approximately $1.6 million delivered at closing and approximately $1.4 million related to working capital adjustments
subsequent to closing.
We
estimated the fair value of the assets acquired and liabilities assumed of Midwave primarily using a discounted cash flow approach with respect to identified intangible assets and
goodwill. We based this approach upon our estimates of future cash flows from the acquired assets and liabilities and utilized a discount rate consistent with the inherent risk associated with the
acquired assets and liabilities assumed.
The
fair value of the assets acquired included finite-lived intangible assets, which consisted of covenants not to compete, order backlog and customer relationships having estimated
lives of three years, three months and five years, respectively, and goodwill of approximately $9.3 million which will be deductible for tax purposes over a 15-year period. We paid a premium
over the fair value of the net tangible and identified intangible assets acquired (i.e. goodwill), because we believe this acquisition makes us the dominant data center services and
infrastructure provider in Minnesota. We also believe this acquisition
doubles our Cisco technology and services revenue, expands our managed services portfolio, adds an established security practice and doubles the size of our consulting services team. We have begun to
realize operational synergies and efficiencies through combined general and administrative and corporate functions in 2012.
56
The
following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired:
|
|
|
|
|
|
|
(in thousands)
|
|
Assets acquired at their fair value:
|
|
|
|
|
Accounts receivable, net
|
|
$
|
11,575
|
|
Deferred revenue costs
|
|
|
33
|
|
Equipment
|
|
|
1,270
|
|
Finite-lived intangibles
|
|
|
6,635
|
|
Goodwill
|
|
|
9,300
|
|
Other assets
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
29,037
|
|
Liabilities assumed at their fair value:
|
|
|
|
|
Accounts payable
|
|
|
8,933
|
|
Customer deposits
|
|
|
122
|
|
Deferred revenue
|
|
|
16
|
|
Accrued expenses
|
|
|
860
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
9,931
|
|
|
|
|
|
|
|
|
|
|
Net purchase price
|
|
$
|
19,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table provides a reconciliation of the net purchase price for Midwave as compared to the cash payment for purchase:
|
|
|
|
|
|
|
(in thousands)
|
|
Net purchase price
|
|
$
|
19,106
|
|
Less value of shares issued
|
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
Payment in cash for purchase
|
|
$
|
17,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration
costs for 2011 include salaries, benefits and retention bonuses of exiting employees, some of whom assisted with the initial integration of Midwave. In addition, transaction
costs for 2011 include legal, audit and other outside service fees necessary to complete our acquisition of Midwave, which were expensed. Total integration and transaction costs were $454,000 during
2011. We recognized no integration and transactions costs related to the Midwave acquisition during 2012 and 2013.
3. Short Term Investments:
The following table summarizes our short term investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
35,979
|
|
|
5
|
|
|
9
|
|
$
|
35,975
|
|
Corporate bonds
|
|
|
15,422
|
|
|
|
|
|
183
|
|
|
15,239
|
|
Our
$51.2 million of short term investments are comprised of commercial paper and corporate bonds with maturities within one year and interest rates ranging from 0.8% to 5.5%. As
of December 31, 2012, we had no short-term investments.
57
4. Intangibles:
We had goodwill assets with a recorded value of $37.8 million as of December 31, 2013 and 2012, respectively. Goodwill activity is summarized as
follows:
|
|
|
|
|
|
|
(in thousands)
|
|
January 1, 2012
|
|
$
|
32,446
|
|
Additions
|
|
|
5,334
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 and 2013
|
|
$
|
37,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
had finite-lived intangible assets with a net book value of $13.5 million and $20.8 million as of December 31, 2013 and 2012, respectively. The change in the net
carrying amount of intangibles during 2013 and 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
20,760
|
|
$
|
9,035
|
|
Recognized in connection with acquisitions
|
|
|
|
|
|
15,920
|
|
Amortization
|
|
|
(7,251
|
)
|
|
(4,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
13,509
|
|
$
|
20,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identified
finite-lived intangible asset balances are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
As of December 31, 2012
|
|
|
|
Amortizable
Period
(years)
|
|
Gross
Assets
|
|
Accumulated
Amortization
|
|
Net
Assets
|
|
Gross
Assets
|
|
Accumulated
Amortization
|
|
Net
Assets
|
|
Customer relationships
|
|
5-8
|
|
$
|
29,133
|
|
|
(15,743
|
)
|
$
|
13,390
|
|
$
|
29,133
|
|
|
(8,665
|
)
|
$
|
20,468
|
|
Services agreement
|
|
4
|
|
|
67
|
|
|
(67
|
)
|
|
|
|
|
67
|
|
|
(54
|
)
|
|
13
|
|
Certification
|
|
2
|
|
|
467
|
|
|
(467
|
)
|
|
|
|
|
467
|
|
|
(467
|
)
|
|
|
|
Covenant not to compete
|
|
3
|
|
|
478
|
|
|
(359
|
)
|
|
119
|
|
|
478
|
|
|
(199
|
)
|
|
279
|
|
Trademarks
|
|
3
|
|
|
263
|
|
|
(263
|
)
|
|
|
|
|
263
|
|
|
(263
|
)
|
|
|
|
Order backlog
|
|
3 months-
1 year
|
|
|
2,162
|
|
|
(2,162
|
)
|
|
|
|
|
2,162
|
|
|
(2,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets
|
|
|
|
$
|
32,570
|
|
|
(19,061
|
)
|
$
|
13,509
|
|
$
|
32,570
|
|
|
(11,810
|
)
|
$
|
20,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to finite-lived intangible assets for 2013, 2012 and 2011 was $7.3 million, $4.2 million and $2.8 million, respectively. In 2013,
amortization expense increased due a full year of amortization related to the StraTech acquisition in late 2012. The finite-lived intangible asset we acquired in the StraTech acquisition consisted of
customer relationships having an estimated life of 5 years that we are amortizing over the useful life of the asset using an accelerated amortization method, to match the pattern in which the
economic benefits are expected to be consumed. In 2011, amortization expense increased due to the acquisition of Midwave. The finite-lived intangibles we acquired in the Midwave acquisition consisted
of covenants not to compete, order backlog and
58
customer
relationships having estimated lives of three years, three months and five years, respectively. Expected amortization in each of the next five years is as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
|
$
|
5,293
|
|
2015
|
|
|
3,963
|
|
2016
|
|
|
2,937
|
|
2017
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Income Taxes:
The reconciliation of the U.S. federal statutory tax rate to our effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Tax expense at U.S. statutory rates
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State tax expense, net of federal tax effect
|
|
|
3.3
|
|
|
5.0
|
|
|
5.2
|
|
Meals and entertainment
|
|
|
1.7
|
|
|
1.0
|
|
|
1.0
|
|
Other
|
|
|
(0.2
|
)
|
|
(0.4
|
)
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.8
|
%
|
|
40.6
|
%
|
|
41.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets (liabilities) consist of the following components as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
133
|
|
$
|
97
|
|
Compensation accrual
|
|
|
2,350
|
|
|
1,685
|
|
Inventories
|
|
|
42
|
|
|
128
|
|
Deferred revenue
|
|
|
16,608
|
|
|
12,542
|
|
Net operating loss carryovers
|
|
|
50
|
|
|
65
|
|
Bonuses
|
|
|
1,932
|
|
|
1,360
|
|
Deferred rent
|
|
|
135
|
|
|
162
|
|
Tenant allowance
|
|
|
189
|
|
|
227
|
|
Intangibles
|
|
|
2,280
|
|
|
744
|
|
Other
|
|
|
73
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
23,792
|
|
|
17,032
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(382
|
)
|
|
(212
|
)
|
Deferred costs
|
|
|
(14,916
|
)
|
|
(17,581
|
)
|
Deferred commission
|
|
|
(1,547
|
)
|
|
(2,537
|
)
|
Section 481(a) adjustment
|
|
|
(664
|
)
|
|
(1,065
|
)
|
Property and equipment
|
|
|
(861
|
)
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(18,370
|
)
|
|
(21,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets (liabilities)
|
|
$
|
5,422
|
|
$
|
(4,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
The
deferred tax amounts above have been classified in the accompanying balance sheets as follows for 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Current deferred tax liability
|
|
$
|
(1,694
|
)
|
$
|
(9,034
|
)
|
Noncurrent deferred tax asset
|
|
|
7,116
|
|
|
4,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
5,422
|
|
$
|
(4,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
tax expense for 2013 and 2012 consists of the following:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Current income tax expense:
|
|
|
|
|
|
|
|
United States federal
|
|
|
14,142
|
|
|
5,773
|
|
State and local
|
|
|
2,485
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
$
|
16,627
|
|
$
|
6,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) expense:
|
|
|
|
|
|
|
|
United States federal
|
|
|
(8,886
|
)
|
|
162
|
|
State and local
|
|
|
(1,099
|
)
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) expense
|
|
|
(9,985
|
)
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
6,642
|
|
$
|
7,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that we will realize some portion or all of the deferred tax assets. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of
December 31, 2013, we have no federal net operating carryforwards. As of December 31, 2013, we have state net operating loss carryforwards of approximately $820,000, which are available
to offset future state taxable income. If not used, the state net operating loss carryforwards will expire between 2014 and 2028. For 2013 we recorded approximately $885,000 to equity for tax expenses
associated with the exercise of stock options. For 2012 we recorded approximately $781,000 to equity for tax expenses associated with the exercise of
stock options. In future periods of taxable earnings, we expect to report an income tax provision using an effective tax rate of approximately 40% to 42%.
The
tax years 2008-2012 remain open to examination by both the Federal government and by other major income taxing jurisdictions to which we are subject.
Our
ability to utilize a portion of our net operating loss carryforwards to offset future taxable income may be subject to certain limitations under Section 382 of the Internal
Revenue Code due to changes in our equity ownership. We do not believe that an ownership change under Section 382 has occurred, and therefore, no such limitations exist.
6. Lease Commitments:
Our corporate headquarters including our principal technical and support services operations, are located in an office and warehouse facility in Eden Prairie,
Minnesota. As of December 31, 2013, our
60
other
29 leased locations, housing sales and technical staff, are small to medium sized offices. We have regional hubs located in the Northeast, South, Mid Central, North Central and West.
As
a result of our acquisition of StraTech in October 2012, we are the successor in interest to six leases where StraTech was the tenant. These facilities provide us with approximately
27,000 additional square feet of office space available for our operations in Georgia, Alabama, North Carolina, Florida, Maryland, and Tennessee.
As
a result of our acquisition of certain assets of Midwave in October 2011, as tenant, we are the successor interest to a lease ("Original Lease") dated August 9, 2010. The
Original Lease was for 20,851 square feet of office space. In December 2011, we entered into a First Amendment to Lease (the "Amendment") to the Original Lease for approximately 32,906 additional
square feet of office space ("Expansion Space"), which provides us with approximately 54,000 total square feet available for our operations. We moved our corporate headquarters to this new location in
April 2012. Under the terms of the Amendment, the term of the Original Lease was extended for 42 months from March 1, 2016 through August 31, 2019 and the term of the lease for
the Expansion Space is for seven years and six
months, which commenced on March 1, 2012. We have the option to extend the term of the Original Lease for an additional five year term as long as certain conditions are met.
As
of December 31, 2013, future minimum lease payments due under non-cancelable operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
Obligations
|
|
Sublease
Agreements
|
|
Net Lease
Obligations
|
|
|
|
(in thousands)
|
|
2014
|
|
$
|
2,164
|
|
$
|
(34
|
)
|
$
|
2,130
|
|
2015
|
|
|
1,448
|
|
|
|
|
|
1,448
|
|
2016
|
|
|
941
|
|
|
|
|
|
941
|
|
2017
|
|
|
819
|
|
|
|
|
|
819
|
|
Thereafter
|
|
|
1,218
|
|
|
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,590
|
|
$
|
(34
|
)
|
$
|
6,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
rent expense, net of sublease income of $34,000, $219,000 and $663,000 in 2013, 2012 and 2011, respectively, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Rent expense
|
|
$
|
3,062
|
|
$
|
2,578
|
|
$
|
2,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Employee Benefit Plan:
We have a defined contribution retirement plan for eligible employees. Employees may contribute up to 60% of their pretax compensation to the 401(k) portion of
the plan. Since April 2006, we have matched 50% of an employee's contribution up to the first 6% of an employee's eligible compensation. The cost of our contributions to the 401(k) portion of the plan
for 2013, 2012 and 2011 was $1.4 million, $1.1 million and $857,000, respectively.
61
8. Line of Credit:
On July 17, 2013, we entered into a credit agreement with Castle Pines Capital LLC ("CPC"), an affiliate of Wells Fargo Bank, National Association.
The credit agreement provides for a floor plan line of credit and a revolving facility in a maximum combined aggregate amount of $40 million. Borrowing under the revolving facility cannot
exceed the lesser of (i) $40 million minus the amount outstanding under the floor plan line of credit or (ii) a borrowing base consisting of 85% of certain eligible accounts and
100% of channel financed inventory, subject to CPC's ability to impose reserves in the future. The floor plan line of credit finances certain purchases of inventory by us from vendors approved by CPC
and the revolving facility is used for working capital purposes and permitted acquisitions.
The
amounts outstanding under the revolving facility will bear interest at a per annum rate of 2.0% above Wells Fargo's one-month LIBOR rate (approximately 0.17% at December 31,
2013). Advances under the floor plan line of credit will not bear interest so long as they are paid by the applicable payment due date and advances that remain outstanding after the applicable payment
due date will bear interest at a per annum rate of LIBOR plus 4%. We are obligated to pay quarterly to CPC an unused commitment fee equal to 0.50% per annum on the average daily unused amount of the
combined facility, with usage including the sum of any advances under either the floor plan line of credit or the revolving facility. The combined facility and certain bank product obligations owed to
Wells Fargo and CPC or its affiliates are secured by substantially all of our assets. The credit agreement terminates on July 17, 2016 and we will be obligated to pay certain prepayment fees if
the credit agreement is terminated prior to that date.
The
credit agreement contains customary representations, warranties, covenants and events of default, including but not limited to, covenants restricting our ability to (i) grant
liens on our assets, (ii) make certain fundamental changes, including merging or consolidating with another entity or making any material change in the nature of our business, (iii) make
certain dividends or distributions, (iv) make certain loans or investments, (v) guarantee or become liable in any way on certain liabilities or
obligations of any other person or entity, or (vi) incur certain indebtedness. Our prior credit agreement (as discussed below) included similar restrictions.
The
credit agreement contains certain covenants regarding our financial performance, including (i) a minimum tangible net worth of at least $20 million, (ii) a
maximum funded debt to EBITDA of no more than 3.00 to 1.00, and (iii) a minimum quarterly net income of at least $250,000.
The
credit agreement replaced the credit facility we had in place with Wells Fargo, which was terminated upon the effectiveness of the credit agreement. We did not incur any early
termination fees or penalties in connection with the termination of the prior credit agreement. Wells Fargo serves and may continue to serve as our transfer agent and has performed and may continue to
perform commercial banking and financial services for us for which they have received and may continue to receive customary fees. The prior credit agreement provided for a revolving line of credit for
a total maximum borrowing amount of $20.0 million.
We
had outstanding advances of $6.0 million on the prior credit agreement at December 31, 2012. At December 31, 2013, we had no outstanding advances on the prior
credit agreement or the revolving facility. Of the $40 million maximum borrowing amount available under the combined floor plan line of credit and revolving facility, we had outstanding
advances of $20.0 million on the floor plan line of credit related to the purchase of inventory from a vendor.
62
9. Stockholders' Equity:
On August 8, 2013, we entered into an underwriting agreement relating to the public offering of 3,300,000 shares of our common
stock at a price to the public of $11.00 per share, less underwriting discounts. In addition, we granted the underwriters a 30-day option to purchase up to an additional 495,000 shares at $11.00 per
share to cover over-allotments, if any. On August 14,
2013, we completed the offering of 3,795,000 shares of common stock at a price to the public of $11.00 per share. The number of shares sold in the offering includes the underwriters' full exercise of
their over-allotment option. We received proceeds from the common stock sold by us, net of offering costs, of approximately $39.0 million.
On
March 14, 2011, we completed a public offering of 4,266,500 shares of common stock with a price to the public of $5.75 per share. We issued and sold 3,306,500 shares in the
offering and the selling shareholder sold 960,000 shares in the offering. We received proceeds from the common stock sold by us, net of offering costs of $17.5 million. We did not receive any
proceeds from the shares sold by the selling shareholder.
In May 2011, our shareholders approved our 2011 Incentive Compensation Plan ("2011 Plan"). The 2011 plan replaced our existing 2009
Incentive Compensation Plan ("2009 Plan") and 2000 Director Stock Option Plan (the "Director Plan"), each of which terminated upon approval of the 2011 Plan on May 12, 2011. We reserved up to
750,000 initial shares of our common stock for possible issuance under the 2011 Plan and 303,943 shares remaining available for future grants under the 2009 Plan. Awards under the 2011 Plan may
consist of options (non-qualified and incentive stock options), stock appreciation rights, or SARs, restricted stock units, performance units, dividend equivalents, annual incentive awards and other
share-based awards as determined by our Compensation Committee. The terms and conditions of each award are set in an award agreement as determined by the Compensation Committee. As of
December 31, 2013, there were 613,174 shares available for grant under the 2011 Plan.
Under the 2011 Plan, eligible employees may be awarded shares of restricted stock. These shares generally vest three to four years
after issuance, subject to continuous employment and certain other conditions. In 2013, 2012 and 2011, we issued 273,500, 279,428 and 140,000 shares, respectively, of time-based restricted
stock to our executive management and certain other employees. Restricted shares are valued at the closing price of our stock on the date of grant and are expensed over the vesting period.
Unrecognized compensation expense related to the non-vested stock grants was $3.4 million at December 31, 2013 and is expected to be recognized through October 2017. Compensation expense
related to these restricted stock grants was $1.9 million in 2013, $910,000 in 2012 and $621,000 in 2011.
In
2013, 2012 and 2011, we issued 36,000, 36,000 and 36,607 shares of common stock to members of the Board of Directors, respectively. Our non-employee directors receive 6,000 shares of
restricted stock for their Board service. We issue the annual restricted stock grants on June 30 of each year and they vest one-quarter upon issuance and one-quarter on the following
September 30, December 31, and March 31, respectively, provided that the director is still a member of the Board on that date. As of December 31, 2013, 9,000 shares of the
2013 restricted stock grant were not vested. The 2012 and 2011 awards to our directors have all vested. For 2013, 2012 and 2011, total compensation expense for these awards was approximately $424,000
$323,000 and $260,000, respectively.
63
Performance-based Restricted Stock Grants under our 2011 Plan, 2009 Plan and Director Plan:
Under the 2011 Plan, we are able to grant performance-based awards of restricted stock to our employees. The purpose of the
performance-based grants is to retain key employees and to align key management with shareholders' interests.
On
December 23, 2013, we awarded 171,408 shares of restricted stock pursuant to our 2011 Plan to executive management. These shares vest as follows: two-thirds if we
achieve 150% of the non-GAAP operating income target of $32.3 million for 2014, with such percentages adjusted according to the matrix approved by our compensation committee during the
December 23, 2013 meeting (one-third of this subtotal will vest upon announcement of the non-GAAP operating income target, one-third will vest on the first anniversary of the announcement, and
the last third of this subtotal will vest on the second anniversary of the announcement); one-third time-based vesting (one-third of this subtotal on the first anniversary of the grant date, one-third
of this subtotal on the second anniversary of the grant date, and the last third of this subtotal on the third anniversary of the grant date), provided that the individual remains employed by us on
these vesting dates. The total fair value of the shares that have not vested under this award is $1.9 million, comprised of $633,000 for the time-based awards and $1.3 million for the
performance-based awards. We are amortizing the $633,000 fair value of the time-based shares that have not vested as follows: (1) $211,000 through the first anniversary of the grant date
(2) $211,000 over the two-year vesting period and (3) $211,000 over the three-year vesting period. For the performance-based shares, we are only subjecting the portion that will be
attained if the Company achieves 100% of non-GAAP operating income during 2014 to amortization, as this is the Company's best estimate of 2014 non-GAAP operating results as of December 31,
2013. The corresponding fair value of the performance-based shares executive management will receive if the Company achieves 100% of non-GAAP operating income during 2014 is $633,000 and will vest as
follows: (1) $211,000 over the 14-month period for the achievement of the performance objectives and remaining employed by us through the announcement of 2014 financial results,
(2) $211,000 over the two-year vesting period (3) $211,000 over the three-year vesting period. Unrecognized compensation expense related to both the performance-based and time-based
restricted stock grants in this award was
$1.9 million at December 31, 2013 and is expected to be recognized through February 2017. Compensation expense related to these restricted stock grants was $15,000 for the year ended
December 31, 2013.
On
March 11, 2013, we awarded 36,000 shares of restricted stock pursuant to our 2011 Plan to certain managers. The restricted stock vests as follows: (1) fifty percent upon
the achievement of our income or gross profit objectives for 2013 and remaining employed by us through December 31, 2014, (2) twenty five percent upon the second grant anniversary date
(3) 12.5 percent upon the third grant anniversary date and (4) 12.5 percent upon the fourth grant anniversary date. We are amortizing the $382,000 fair value of the shares
that have not vested as follows: (1) $191,000 over the 22-month period for the achievement of the performance objectives and remaining employed by us through December 31, 2014,
(2) $95,000 over the two-year vesting period (3) $48,000 over the three-year vesting period and (4) $48,000 over the four-year vesting period. Unrecognized compensation expense
related to the restricted stock grants was $238,000 at December 31, 2013 and is expected to be recognized through March 2017. Compensation expense related to these restricted stock grants was
$144,000 for the year ended December 31, 2013.
On
December 4, 2012, we awarded approximately 163,000 shares of restricted stock pursuant to our 2011 Plan to executive management. The restricted stock vests as follows:
(1) fifty percent upon the achievement of our predetermined earnings from operations objective for 2013 as approved by our Board of Directors and assuming the individual employee remains
employed by us through December 31, 2014, (2) twenty five percent upon the second grant anniversary date, (3) 12.5 percent upon the third grant anniversary date and
(4) 12.5 percent upon the fourth grant anniversary date. We are amortizing the $1.4 million fair value of the shares that have not vested as follows: (1) $680,000
64
over
a 25-month period for the achievement of the performance objectives and assuming the individual employee remains employed by us through December 31, 2014, (2) $340,000 over the
two-year vesting period, (3) $170,000 over the three-year vesting period and (4) $170,000 over the four-year vesting period. Unrecognized compensation expense related to the non-vested
stock grants was $618,000 at December 31, 2013 and is expected to be recognized through November 2016. Compensation expense related to these restricted stock grants was $532,000 and $51,000 for
the year ended December 31, 2013 and 2012, respectively.
On
October 4, 2012, we awarded 45,000 shares of restricted stock pursuant to our 2011 Plan to certain managers. The restricted stock vests as follows: (1) fifty percent
upon the achievement of our income or gross profit objectives for 2012 and having remained employed by us through the announcement of the 2012 financial results, (2) twenty five percent upon
the second grant anniversary date and (3) twenty five percent upon the third grant anniversary date. We are amortizing the $386,000 fair value of the shares that have not vested as follows:
(1) $198,000 over the 4.5-month period for the achievement of the performance objectives and having remained employed by us through the announcement of 2012
financial results, (2) $99,000 over the two-year vesting period and (3) $99,000 over the three-year vesting period. Unrecognized compensation expense related to the restricted stock
grants was $93,000 at December 31, 2013 and is expected to be recognized through September 2015. Compensation expense related to these restricted stock grants was $80,000 and $20,000 for the
year ended December 31, 2013 and 2012, respectively.
On
February 22, 2012, we awarded approximately 173,000 shares of restricted stock pursuant to our 2011 Plan to certain members of our executive management team. The restricted
stock vests as follows: (1) fifty percent upon the achievement of our predetermined earnings from operations objective for 2012 as approved by our Board of Directors and assuming the individual
employee remained employed by us through December 31, 2013, (2) twenty five percent upon the second grant anniversary date and (3) twenty five percent upon the third grant
anniversary date, provided in each case the individual is employed with us on each vesting date. We are amortizing the $1.5 million fair value of the shares that have not vested as follows:
(1) $750,000 over the 22.5-month period for the achievement of the performance objectives and assuming the individual employee remained employed by us through December 31, 2013,
(2) $375,000 over the two-year vesting period and (3) $375,000 over the three-year vesting period. Unrecognized compensation expense related to the non-vested stock grants was $128,000
at December 31, 2013 and is expected to be recognized through February 2015. Compensation expense related to these restricted stock grants was $191,000 and $286,000 for the year ended
December 31, 2013 and 2012, respectively.
On
July 17, 2011, we awarded 215,000 shares of restricted stock pursuant to our 2011 Plan to certain managers. The restricted stock vests as follows: (1) 39,000 upon the
achievement of our income or gross profit objectives for 2011, (2) 88,000 upon the second grant anniversary date and (3) 88,000 upon the third grant anniversary date. We are amortizing
the $1.6 million fair value of the restricted shares that have not vested as follows: (1) $292,000 over a 6-month vesting period for the achievement of the performance objectives,
(2) $658,000 over the two-year vesting period and (3) $658,000 over the three-year vesting period. Unrecognized compensation expense related to the restricted stock grants was $85,000 at
December 31, 2013 and is expected to be recognized through June 2014. Compensation expense related to these restricted stock grants was $297,000, $309,000 and $566,000 for the years ended
December 31, 2013, 2012 and 2011, respectively.
On
January 17, 2011, we awarded 209,000 shares of restricted stock pursuant to our 2011 Plan to executive management. The restricted stock vests as follows: (1) 104,500
shares upon the achievement of our predetermined earnings from operations objective for 2011 as approved by our Board of Directors and assuming the individual employee remained employed by us through
December 31, 2013, (2) 52,250 upon the second grant anniversary date and (3) 52,250 upon the third grant anniversary date. We are amortizing the $1.2 million fair value of
the restricted stock as follows: (1) $612,000 over
65
a
12 month vesting period for the achievement of the performance objectives, (2) $306,000 over the two-year vesting period and (3) $306,000 over the three-year vesting period.
Unrecognized compensation expense related to the non-vested stock grants was $12,800 at December 31, 2013 and is expected to be recognized through January 2014. Compensation expense related to
these restricted stock grants was $313,000, $459,000 and $440,000 for the years ended December 31, 2013, 2012 and 2011, respectively.
On
August 17, 2010, we awarded 25,000 shares of restricted stock pursuant to our 2009 Plan to managers and certain employees. The grants vest upon the achievement of an on-time
and on-budget implementation of the new enterprise resource planning ("ERP") system. In addition, the individual employee must have remained employed by us through February 1, 2012. We are
amortizing the $85,000 fair value of the restricted stock on the date of grant ratably over the eighteen-month vesting period in accordance with specific vesting terms. There was no unrecognized
compensation expense related to these restricted stock grants at December 31, 2013. For 2012 and 2011, compensation expense related to these restricted stock grants was $(56,000) and $53,000,
respectively.
On
August 17, 2010, we awarded 42,307 shares of restricted stock pursuant to our 2009 Plan to executive management. The grants vested upon our achievement of the predetermined
earnings from operations objective for the second-half of 2010 as approved by our Board of Directors. In addition, the individual must have remained employed by us through December 31, 2011. As
of December 31, 2011, all of these awards are fully vested. We amortized the $144,000 fair value of the restricted stock over the eighteen-month vesting period in accordance with specified
vesting terms. There was no unrecognized compensation expense related to these restricted stock grants at December 31, 2013 and 2012. For 2011, compensation expense related to these restricted
stock grants was $102,000.
On
February 2, 2010, we awarded 25,000 shares of restricted stock pursuant to our 2009 Plan to senior management and managers. The grants vested upon our achievement of the
predetermined earnings from operations objective for 2010 as approved by our Board of Directors. In addition, the individual employee must have remained employed by us through December 31,
2011. As of December 31, 2011, all of these awards are fully vested. We amortized the $112,000 fair value of the restricted stock over a two-year period that began on January 1, 2010.
There was no unrecognized compensation expense related to these restricted stock grants at December 31, 2013 and 2012. For 2011, compensation expense related to these restricted stock grants
was $(34,000).
On
December 14, 2009, we awarded 201,250 shares of restricted stock pursuant to our 2009 Plan to senior management and managers. The grants vested upon our achievement of the
predetermined earnings from operations objective for 2010 as approved by our Board of Directors. In addition, the individual employee must have remained employed by us through December 31,
2011. As of December 31, 2011, all of these awards are fully vested. We amortized the $767,000 fair value of the restricted stock over a two-year period that began on January 1, 2010.
There was no unrecognized compensation expense related to these restricted stock grants at December 31, 2013 and 2012. For 2011, compensation expense related to these restricted stock grants
was $316,000.
66
The
following table summarizes our restricted stock activity for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant-Date Fair Value
|
|
Restricted stock at January 1, 2011
|
|
|
647,058
|
|
$
|
4.04
|
|
Granted
|
|
|
564,000
|
|
$
|
7.12
|
|
Shares vested
|
|
|
(75,000
|
)
|
$
|
3.88
|
|
Shares cancelled
|
|
|
(57,000
|
)
|
$
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock at January 1, 2012
|
|
|
1,079,058
|
|
$
|
5.60
|
|
Granted
|
|
|
663,843
|
|
$
|
8.58
|
|
Shares vested
|
|
|
(385,808
|
)
|
$
|
5.66
|
|
Shares cancelled
|
|
|
(109,425
|
)
|
$
|
7.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock at January 1, 2013
|
|
|
1,247,668
|
|
$
|
7.47
|
|
Granted
|
|
|
480,908
|
|
$
|
11.21
|
|
Shares vested
|
|
|
(316,000
|
)
|
$
|
5.84
|
|
Shares cancelled
|
|
|
(231,061
|
)
|
$
|
8.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock at December 31, 2013
|
|
|
1,181,515
|
|
$
|
9.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had no stock option grants in 2013, 2012 or 2011.
In
December 2009, we awarded 25,000 stock options to one of our managers. The stock options vest over three years with one-third vesting each year if the individual is still employed by
us. We use the Black-Scholes option pricing model to estimate the fair value of stock options. The weighted-average fair value per option at the date of grant was $2.35.
In
July 2009, we awarded 450,000 stock options to our president and chief executive officer. The stock options vest 25% per year over a term of four years, provided he continues
employment with us through each relevant vesting date. Unvested stock options will immediately vest upon a change of control of us (as defined in his employment agreement) but only if he (i) is
continuously employed to the date of the change of control, (ii) the change of control price (as defined in the employment agreement) exceeds $3.50 per share, and (iii) such acceleration
and vesting will not cause the option to be subject to the adverse consequences described in Section 409A of the Internal Revenue Code. We use the Black-Scholes option pricing model to estimate
the fair value of stock options. The weighted-average fair value per option at the date of grant was $2.15.
Total
stock-based compensation expense related to stock options was $134,000 and $242,000 and $264,000 for the years ended December 31, 2013, 2012 and 2011, respectively. At
December 31, 2013 there were no unrecognized stock-based compensation expense related to stock options.
67
The
following table summarizes activity under our stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
Number of Shares
|
|
Range of
Exercise Prices
|
|
Weighted
Average
Exercise Price
|
|
Balance, December 31, 2010
|
|
|
1,037,711
|
|
$1.44 - $9,81
|
|
$
|
4.10
|
|
Options granted
|
|
|
|
|
|
|
$
|
|
|
Options exercised
|
|
|
(263,564
|
)
|
$1.44 - 8.44
|
|
$
|
3.88
|
|
Options cancelled
|
|
|
(106,765
|
)
|
$3.46 - 9.81
|
|
$
|
8.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
667,382
|
|
$1.44 - $5.21
|
|
$
|
3.52
|
|
Options granted
|
|
|
|
|
|
|
$
|
|
|
Options exercised
|
|
|
(95,092
|
)
|
$1.44 - $4.36
|
|
$
|
3.66
|
|
Options cancelled
|
|
|
(4,250
|
)
|
$3.71 - $4.36
|
|
$
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
568,040
|
|
$1.80 - $5.21
|
|
$
|
3.49
|
|
Options granted
|
|
|
|
|
|
|
$
|
|
|
Options exercised
|
|
|
(77,738
|
)
|
$1.80 - $5.00
|
|
$
|
3.23
|
|
Options cancelled
|
|
|
(4,518
|
)
|
$3.32 - $3.85
|
|
$
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
485,784
|
|
$1.80 - $5.00
|
|
$
|
3.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of December 31, 2011
|
|
|
436,827
|
|
$1.44 - $5.21
|
|
$
|
3.58
|
|
Options exercisable as of December 31, 2012
|
|
|
455,540
|
|
$1.80 - $5.21
|
|
$
|
3.49
|
|
Options exercisable as of December 31, 2013
|
|
|
485,784
|
|
$2.68 - $5.21
|
|
$
|
3.54
|
|
The
weighted average remaining contractual life of options outstanding at December 31, 2013 was 5.34 years. At December 31, 2013, 2012 and 2011, respectively, the
aggregate intrinsic value of options outstanding and exercisable was $3,577,239, $2,316,414 and $2,692,302. Total intrinsic value of options exercised was $568,335, $563,405, and $988,986 for 2013,
2012 and 2011, respectively.
10. Lease Receivables:
We occasionally enter into sales-type lease agreements with our customers resulting from the sale of certain products. Our lease receivables are recorded at cost
within the accounts receivable and long-term lease receivables balances on our balance sheet and are due in installments over the lives of the leases. Cash received and applied against this receivable
balance is recorded within changes in operating assets and liabilities in the net cash provided by operating activities section of the statement of cash flows. Finance income is derived over the term
of the sales-type lease arrangement as the unearned income on financed sales-type leases is earned. Unearned income is amortized over the life of the lease using the interest method. The present value
of net investment in sales-type lease receivables of $1.3 million and $1.0 million at December 31, 2013 and 2012, respectively, is reflected net of unearned income of $57,000 and
$60,000 at December 31, 2013 and 2012, respectively. As of December 31, 2013, scheduled maturities of minimum lease payments receivable were as follows for the fiscal years ended
December 31:
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
|
|
866
|
|
2015
|
|
|
444
|
|
2016
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,376
|
|
Less: Current portion
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
|
Long-term sales-type lease receivable
|
|
$
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
Lease
receivables are individually evaluated for impairment. In the event we determine that a lease receivable may not be paid, we include in our allowance an amount for the outstanding
balance related to the lease receivable. At December 31, 2013, there were no amounts past due related to lease receivables.
11. Commitments and Contingencies:
We have change of control severance agreements and employment agreements in place with certain executive employees. Under the agreements, an executive is entitled
to a severance payment in the event the executive (a) is terminated without cause by us in anticipation of, in connection with, at the time of or within two years after a change of control, or
(b) resigns for good reasons arising in anticipation of, in connection with, at the time of or within two years after a change of control.
12. Quarterly Financial Information (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
June 30
|
|
Sept 30
|
|
Dec 31
|
|
|
|
(in thousands, except per share data)
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
133,518
|
|
$
|
147,779
|
|
$
|
139,519
|
|
$
|
173,368
|
|
Gross profit
|
|
|
29,833
|
|
|
33,561
|
|
|
29,805
|
|
|
40,659
|
|
Operating earnings
|
|
|
1,966
|
|
|
4,936
|
|
|
1,155
|
|
|
9,348
|
|
Net earnings
|
|
|
1,098
|
|
|
2,904
|
|
|
818
|
|
|
5,225
|
|
Net earnings per sharebasic
|
|
|
0.07
|
|
|
0.17
|
|
|
0.05
|
|
|
0.24
|
|
Net earnings per sharediluted
|
|
|
0.07
|
|
|
0.16
|
|
|
0.05
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
June 30
|
|
Sep 30
|
|
Dec 31
|
|
|
|
(in thousands, except per share data)
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
119,088
|
|
$
|
120,042
|
|
$
|
104,774
|
|
$
|
147,298
|
|
Gross profit
|
|
|
27,326
|
|
|
28,033
|
|
|
24,012
|
|
|
32,655
|
|
Operating earnings
|
|
|
3,612
|
|
|
5,411
|
|
|
3,255
|
|
|
5,440
|
|
Net earnings
|
|
|
2,161
|
|
|
3,219
|
|
|
1,923
|
|
|
3,232
|
|
Net earnings per sharebasic
|
|
|
0.13
|
|
|
0.19
|
|
|
0.11
|
|
|
0.19
|
|
Net earnings per sharediluted
|
|
|
0.12
|
|
|
0.18
|
|
|
0.11
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
June 30
|
|
Sept 30
|
|
Dec 31
|
|
|
|
(in thousands, except per share data)
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
85,694
|
|
$
|
89,481
|
|
$
|
90,140
|
|
$
|
114,712
|
|
Gross profit
|
|
|
20,755
|
|
|
21,679
|
|
|
21,240
|
|
|
25,938
|
|
Operating earnings
|
|
|
3,000
|
|
|
4,379
|
|
|
4,859
|
|
|
4,555
|
|
Net earnings
|
|
|
1,748
|
|
|
2,697
|
|
|
2,793
|
|
|
2,607
|
|
Net earnings per sharebasic
|
|
|
0.13
|
|
|
0.16
|
|
|
0.17
|
|
|
0.16
|
|
Net earnings per sharediluted
|
|
|
0.12
|
|
|
0.16
|
|
|
0.16
|
|
|
0.15
|
|
13. Subsequent Events:
None.
69