| | Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by Items 10, 11, 12, 13 and 14 will be contained in our definitive proxy statement for our 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year covered by this report pursuant to Regulation 14A under the Exchange Act, and incorporated herein by reference.
The information required by Items 10, 11, 12, 13 and 14 will be contained in our definitive proxy statement for our 2012 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year covered by this report pursuant to Regulation 14A under the Exchange Act, and incorporated herein by reference.
PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as part of this report: |
1-2.1. The following financial statements and financial statement schedules are filed as a part of this report:
Report of Independent Registered Public Accounting Firm Balance Sheets as of December 31, 20112012 and 20102011 Statements of Income and Comprehensive Income for the Years Ended December 31, 2012, 2011 2010 and 20092010 Statements of Shareholders’ Equity for the Years Ended December 31, 2012, 2011 2010 and 20092010 Statements of Cash Flows for the Years Ended December 31, 2012, 2011 2010 and 20092010 Notes to Financial Statements 3. Financial Statement Schedules. Schedule II Valuation and Qualifying Accounts
4. 2. The following exhibitsfinancial statement schedules are fieldfiled as part of this report:
Exhibit Number | Name of Exhibit | No. in Document | 3.1 | Certificate of Incorporation of the Company, as amended. (1) | 3.1 | 3.1(a) | Certificate of Amendment of Certificate of Incorporation filed on July 14, 1998. (3) | 3.1(a) | 3.2 | Amended and Restated By-Laws of the Company. (11) | 3.2 | 4.1 | Form of Warrant issued to designees of EarlyBirdCapital, Inc., dated February 19, 2003. (7) | 4.7 | 10.1 | 1992 Stock Option Plan. (1) | 10.3 | 10.2 | 1995 Employee Stock Option Plan. (2) | 10.4 | 10.3 | Form of military contract. (1) | 10.7 | 10.4 | 1998 Performance Equity Plan. (3) | 10.28 | 10.5 | Performance Equity Plan 2000. (4) | 10.29 | 10.5.1 | Amendment to Performance Equity Plan 2000 (9) | 10.6.1 | *10.6 | Stock Option Agreement, dated August 14, 2001, between Edward J. Fred and the Company. (5) | 10.35 | *10.7 | Stock Option Agreement between the Company and Edward J. Fred, dated June 18, 2002. (6) | 10.56 | 10.8 | Form of Merger & Acquisition Agreement, between EarlyBirdCapital, Inc. and the Company. (7) | 10.26 | 10.9 | Registration Rights Agreement between the Company and Chemical Investments dated February 26, 2002, as assigned to Crescendo Partners, II. (7) | 10.27 | 10.9.1 | Schedule of Omitted Document in the form of Exhibit 10.9, including material detail in which such document differs from Exhibit 10.9. (7) | 10.27.1 | *10.10 | Stock Option agreement between Vincent Palazzolo and the Company, dated as of May 17, 2004 (8) | 10.22 | *10.11 | Employment Agreement between Vincent Palazzolo and the Company, dated as of December 16, 2009. (10) | 10.23 |
Schedule II -Valuation and Qualifying Accounts-Allowance for Doubtful Accounts
3. The following exhibits are filed as part of this report: Exhibit Number | Name of Exhibit | No. in Document | 3.1 | Certificate of Incorporation of the Company, as amended. (1) | 3.1 | 3.1(a) | Certificate of Amendment of Certificate of Incorporation filed on July 14, 1998. (3) | 3.1(a) | 3.2 | Amended and Restated By-Laws of the Company. (11) | 3.2 | 10.1 | 1995 Employee Stock Option Plan. (2) | 10.4 | 10.2 | Form of military contract. (1) | 10.7 | 10.3 | 1998 Performance Equity Plan. (3) | 10.28 | 10.4 | Performance Equity Plan 2000. (4) | 10.29 | 10.4.1 | Amendment to Performance Equity Plan 2000 (9) | 10.6.1 | *10.5 | Stock Option Agreement between the Company and Edward J. Fred, dated June 18, 2002. (6) | 10.56 | 10.6 | Registration Rights Agreement between the Company and Chemical Investments dated February 26, 2002, as assigned to Crescendo Partners, II. (7) | 10.27 | 10.6.1 | Schedule of Omitted Document in the form of Exhibit 10.9, including material detail in which such document differs from Exhibit 10.9. (7) | 10.27.1 | *10.7 | Stock Option agreement between Vincent Palazzolo and the Company, dated as of May 17, 2004 (8) | 10.22 | *10.8 | Employment Agreement between Vincent Palazzolo and the Company, dated as of December 16, 2009. (10) | 10.2 |
*10.12 | Stock Option Agreement between the Company and Vincent Palazzolo, dated December 1, 2006 (9) | 10.24 | *10.13 | Amended and Restated Employment Agreement between Edward J. Fred and the Company, dated December 16, 2009. (10) | 10.23 | 10.14 | Credit Agreement between CPI Aerostructures, Inc., and Sovereign Bank, dated as of August 13, 2007 (12) | 10.23 | 10.15 | Commercial Security Agreement, dated August 13, 2007, between CPI Aerostructures, Inc., Grantor, and Sovereign Bank, Lender (12) | 10.24 | 10.16 | First Amendment to Credit Agreement, dated as of October 22, 2008, by and between CPI Aerostructures, Inc. and Sovereign Bank (15) | | 10.17 | ISDA 2002 Master Agreement and Schedule, dated as of October 22, 2008, between Sovereign Bank and CPI Aerostructures, Inc. (15) | | 10.18 | Second Amendment to Credit Agreement, dated as of July 7, 2009, by and between CPI Aerostructures, Inc. and Sovereign Bank (14) | | *10.19 | Employment Agreement between Douglas McCrosson and the Company, dated as of December 16, 2009. (10) | | 10.20 | Performance Equity Plan 2009 (16) | | 10.21 | Third Amendment to Credit Agreement, dated as of May 26, 2010, by and between CPI Aerostructures, Inc. and Sovereign Bank (17) | | 10.22 | Fifth Amendment to Credit Agreement, dated as of May 11, 2011, by and between CPI Aerostructures, Inc. and Sovereign Bank (18) | | 10.23 | Agreement of Lease, made as of this 30th day of June in the year 2011, between Heartland Boys II L.P. and CPI Aerostructures Inc. (19) | | 10.24 | Sixth Amendment to Credit Agreement, dated as of September 1, 2011, by and between CPI Aerostructures, Inc. and Sovereign Bank (20) | | *10.25 | Letter Amendment to Employment Agreement, dated November 4, 2011, from the Company to Edward J. Fred (21) | | *10.26 | Letter Amendment to Employment Agreement, dated November 4, 2011, from the Company to Vincent Palazzolo (21) | | *10.27 | Letter Amendment to Employment Agreement, dated November 4, 2011, from the Company to Douglas McCrosson (21) | | 10.28 | Seventh Amendment to Credit Agreement, dated as of November 29, 2011, by and between CPI Aerostructures, Inc. and Sovereign Bank (22) | | 10.29 | March 2012 Amendment to Credit Facility | | **12 | Statement re Computation of Ratios | | 14 | Code of Business Conduct and Ethics (13) | 14 | **21 | Subsidiaries of the Registrant. | | **23.1 | Consent of J.H. Cohn LLP | | **31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | **31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | **32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | **101.INS | XRBL Instance Document | | **101.SCH | XRBL Taxonomy Extension Schema | | **101.CAL | XRBL TaxonomyExtension Calculation Linkbase | | **101.DEF | XRBL TaxonomyExtension Definition Linkbase | | **101.LAB | XRBL TaxonomyExtension label Linkbase | | **101.PRE | XRBL TaxonomyExtension Presentation Linkbase | |
*10.9 | Stock Option Agreement between the Company and Vincent Palazzolo, dated December 1, 2006 (9) | 10.24 | *10.10 | Amended and Restated Employment Agreement between Edward J. Fred and the Company, dated December 16, 2009. (10) | 10.1 | 10.11 | Credit Agreement between CPI Aerostructures, Inc., and Sovereign Bank, dated as of August 13, 2007 (12) | 10.23 | 10.12 | Commercial Security Agreement, dated August 13, 2007, between CPI Aerostructures, Inc., Grantor, and Sovereign Bank, Lender (12) | 10.24 | 10.13 | First Amendment to Credit Agreement, dated as of October 22, 2008, by and between CPI Aerostructures, Inc. and Sovereign Bank (15) | 10.16 | 10.14 | ISDA 2002 Master Agreement and Schedule, dated as of October 22, 2008, between Sovereign Bank and CPI Aerostructures, Inc. (15) | 10.17 | 10.15 | Second Amendment to Credit Agreement, dated as of July 7, 2009, by and between CPI Aerostructures, Inc. and Sovereign Bank (14) | 10.1 | *10.16 | Employment Agreement between Douglas McCrosson and the Company, dated as of December 16, 2009. (10) | 10.3 | 10.17 | Performance Equity Plan 2009 (16) | | 10.18 | Third Amendment to Credit Agreement, dated as of May 26, 2010, by and between CPI Aerostructures, Inc. and Sovereign Bank (17) | 10.1 | 10.19 | Fifth Amendment to Credit Agreement, dated as of May 11, 2011, by and between CPI Aerostructures, Inc. and Sovereign Bank (18) | 10.1 | 10.20 | Agreement of Lease, dated June 30, 2011, between Heartland Boys II L.P. and CPI Aerostructures Inc. (19) | 10.1 | 10.21 | Sixth Amendment to Credit Agreement, dated as of September 1, 2011, by and between CPI Aerostructures, Inc. and Sovereign Bank (20) | 10.1 | *10.22 | Letter Amendment to Employment Agreement, dated November 4, 2011, from the Company to Edward J. Fred (21) | 10.1 | *10.23 | Letter Amendment to Employment Agreement, dated November 4, 2011, from the Company to Vincent Palazzolo (21) | 10.2 | *10.24 | Letter Amendment to Employment Agreement, dated November 4, 2011, from the Company to Douglas McCrosson (21) | 10.3 | 10.25 | Seventh Amendment to Credit Agreement, dated as of November 29, 2011, by and between CPI Aerostructures, Inc. and Sovereign Bank (22) | 10.1 | 10.26 | Eighth Amendment to Credit Agreement, dated as of March 9, 2012 by and between CPI Aerostructures, Inc. and Sovereign Bank, N.A. (23) | 10.1 | 10.27 | Underwriting Agreement, dated June 8, 2012 between CPI Aerostructures, Inc., Selling Stockholders and Roth Capital Partners, LLC, as representative (24) | 10.1 | 10.28 | Amended and Restated Credit Agreement, dated as of December 5, 2012, among CPI Aerostructures, Inc., the several lenders from time to time party thereto, and Sovereign Bank, N.A. (25) | 10.1 | **12 | Statement re Computation of Ratios | | 14 | Code of Business Conduct and Ethics (13) | | **21 | Subsidiaries of the Registrant | | **23.1 | Consent of CohnReznick LLP | | **31.1 | Certificatiom of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | **31.2 | Certificatiom of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | **32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
*Management compensation contract or arrangement.
**Filed herewith.
(1) | Filed as an exhibit to the Company’s Registration Statement on Form S-1 (No. 33-49270) declared effective on September 16, 1992 and incorporated herein by reference. | (2) | Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for year ended December 31, 1995 and incorporated herein by reference. |
(3) | Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1998 and incorporated herein by reference. | (4) | Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000 and incorporated herein by reference. | (5) | Filed as an exhibit to Schedule 13D filed on behalf of Edward J. Fred on October 19, 2001 and incorporated herein by reference. | (6) | Filed as an exhibit to Schedule 13D filed on behalf of Edward J. Fred on July 12, 2002 and incorporated herein by reference. | (7) | Filed as an exhibit to the Company’s Registration Statement on Form SB-2 (No. 333-101902) declared effective on February 12, 2003 and incorporated herein by reference. | (8) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated May 24, 2004 and incorporated herein by reference. | (9) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated December 1, 2006 and incorporated herein by reference. | (10) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated December 21, 2009 and incorporated herein by reference. | (11) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated November 13, 2007 and incorporated herein by reference. | (12) | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference. | (13) | Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 and incorporated herein by reference. | (14) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated July 13, 2009 and incorporated herein by reference. | (15) | Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference. | (16) | Included as Appendix A to the Company’s Proxy Statement filed on April 30, 2009. | (17) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated May 26, 2010 and incorporated herein by reference | (18) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated May 11, 2011 and incorporated herein by reference | (19) | Filed as an exhibit to the Company’s Current Report on Form 10-Q for the quarter ended June 30, 2011 and incorporated herein by reference | (20) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated September 2, 2011 and incorporated herein by reference | (21) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated November 7, 2011 and incorporated herein by reference | (22) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated November 30, 2011 and incorporated herein by reference | (23) | Filed as an exhibit to the Company's Current Report on Form 8-K dated March 12, 2012 and incorporated herein by reference | (24) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated June 8, 2012 and incorporated herein by reference | (25) | Filed as an exhibit to the Company’s Current Report on Form 8-K dated December 6, 2012 and incorporated herein by reference |
CPI AEROSTRUCTURES, INC. INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm | F-1 | | | | | Financial Statements: | | Balance Sheets as of December 31, 20112012 and 20102011 | F-2 | Statements of Income and Comprehensive Income for the Years Ended December 31, 2012, 2011 2010 and 20092010 | F-3 | Statements of Shareholders’ Equity for the Years Ended | | December 31, 2012, 2011 2010 and 20092010 | F-4 | Statements of Cash Flows for the Years Ended December 31, 2012, 2011 2010 and 20092010 | F-5 | Notes to Financial Statements | F-6 - F-19F-18 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and StockholdersShareholders CPI Aerostructures, Inc.
We have audited the accompanying balance sheets of CPI Aerostructures, Inc. as of December 31, 20112012 and 2010,2011, and the related statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2011.2012. Our audits of the financial statements included the financial statement schedule listed in the index appearing under Item 15. TheseCPI Aerostructures, Inc.’s management is responsible for these financial statements and the financial statement schedule are the responsibility of the Company's management.schedule. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CPI Aerostructures, Inc. as of December 31, 20112012 and 2010,2011, and its results of operations and cash flows for each of the three years in the period ended December 31, 2011,2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material repects,respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company'sCPI Aerostructures, Inc.’s internal control over financial reporting as of December 31, 2011,2012, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 14, 2012,13, 2013, expressed an unqualified opinion on the effectiveness of the Company'sCPI Aerostructures, Inc.’s internal control over financial reporting.
/s/J. H. CohnCohnReznick LLP
Jericho, New York March 14, 201213, 2013
| | December 31, | | | December 31, | | December 31, | | | 2011 | | | 2010 | | 2012 | 2011 | ASSETS | | | | | | | | Current Assets: | | | | | | | | Cash | | $ | 878,200 | | | $ | 823,376 | | $2,709,803 | $878,200 | Accounts receivable, net | | | 4,285,570 | | | | 6,152,544 | | 6,774,346 | 4,285,570 | Costs and estimated earnings in excess of billings on uncompleted contracts | | | 79,010,362 | | | | 47,165,166 | | | Deferred income taxes | | | 257,000 | | | | -- | | | Costs and estimated earnings in excess of billings on uncompleted | | | contracts Deferred income taxes | | 108,909,844 534,000 | 79,126,828 257,000 | Prepaid expenses and other current assets | | | 662,326 | | | | 606,369 | | 426,063 | 662,326 | Total current assets | | | 85,093,458 | | | | 54,747,455 | | 119,354,056 | 85,209,924 | | | | | | | | | | | Property and equipment, net | | | 2,629,569 | | | | 881,915 | | 2,907,476 | 2,629,569 | Deferred income taxes | | | 1,105,000 | | | | 668,000 | | 1,001,000 | 1,105,000 | Other assets | | | 112,080 | | | | 159,817 | | 1,620,984 | 112,080 | Total Assets | | $ | 88,940,107 | | | $ | 56,457,187 | | $124,883,516 | $89,056,573 | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | Current Liabilities: | | | | | | | | | | Accounts payable | | $ | 11,998,244 | | | $ | 8,267,330 | | $13,286,558 | $11,998,244 | Accrued expenses | | | 994,398 | | | | 301,941 | | 943,356 | 994,398 | Billings in excess of costs and estimated earnings on uncompleted contracts | | 656,853 | 116,466 | Current portion of long-term debt | | | 887,380 | | | | 685,008 | | 1,100,564 | 887,380 | Line of credit | | | 16,100,000 | | | | 800,000 | | 23,450,000 | 16,100,000 | Deferred income taxes | | | 125,000 | | | | 182,000 | | 102,000 | 125,000 | Income taxes payable | | | 2,802,000 | | | | 134,006 | | 106,000 | 2,802,000 | Total current liabilities | | | 32,907,022 | | | | 10,370,285 | | 39,645,331 | 33,023,488 | | | | | | | | | | | Long-term debt, net of current portion | | | 889,239 | | | | 1,190,097 | | | Deferred income taxes | | | 660,000 | | | | ---- | | | | | | Long-term debt, net of current portion Deferred income taxes | | 3,209,873 867,000 | 889,239 660,000 | Other liabilities | | | 457,639 | | | | 226,362 | | 567,113 | 457,639 | Total Liabilities | | | 34,913,900 | | | | 11,786,744 | | 44,289,317 | 35,030,366 | | | | | | | | | | | Commitments | | | | | | | | | | | | | | | | | | | | Shareholders’ Equity: | | | | | | | | | | Common stock - $.001 par value; authorized 50,000,000 shares, issued 7,079,638 and 6,911,570 shares, respectively, and outstanding 6,946,381 and 6,789,736 shares, respectively | | | 7,080 | | | | 6,912 | | | Common stock - $.001 par value; authorized 50,000,000 shares, | | | issued 8,371,439 and 7,079,638 shares, respectively, and | | | outstanding 8,371,439 and 6,946,381 shares, respectively | | 8,371 | 7,080 | Additional paid-in capital | | | 35,346,273 | | | | 33,272,237 | | 49,780,673 | 35,346,273 | Retained earnings | | | 19,834,852 | | | | 12,417,924 | | 30,845,982 | 19,834,852 | Accumulated other comprehensive loss | | | (21,772 | ) | | | (45,404 | ) | (40,827) | (21,772) | Treasury stock, 133,257 and 121,834 shares, respectively of common stock (at cost) | | | (1,1140,226 | ) | | | (981,226 | ) | | Treasury stock, 0 and 133,257 shares, respectively, | | | of common stock (at cost) | | --- | (1,140,226) | Total Shareholders’ Equity | | | 54,026,207 | | | | 44,670,443 | | 80,594,199 | 54,026,207 | Total Liabilities and Shareholders’ Equity | | $ | 88,940,107 | | | $ | 56,457,187 | | $124,883,516 | $89,056,573 |
See Notes to the Financial Statements
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | | | | | Year ended December 31, | 2011 | 2010 | 2009 | | Years ended December 31, | | 2012 | 2011 | 2010 | | | | | | Revenue | $74,135,669 | $43,990,784 | $43,906,825 | $89,272,582 | $74,135,669 | $43,990,784 | | | | | | Cost of sales | 55,325,729 | 37,877,960 | 32,597,208 | 65,039,969 | 55,325,729 | 37,877,960 | | | | | | Gross profit | 18,809,940 | 6,112,824 | 11,309,617 | 24,232,613 | 18,809,940 | 6,112,824 | | | | | | Selling, general and administrative expenses | 7,931,586 | 5,415,292 | 5,197,663 | 7,322,630 | 7,931,586 | 5,415,292 | Income from operations | 10,878,354 | 697,532 | 6,111,954 | 16,909,983 | 10,878,354 | 697,532 | | | | | | Interest income (expense): | | | | Other income (expense): | | | | Interest/other income | 4,065 | 3,770 | 2,014 | 31,520 | 4,065 | 3,770 | Interest expense | (343,491) | (158,406) | (252,961) | (416,373) | (343,491) | (158,406) | Total other income (expense), net | (339,426) | (154,636) | (250,947) | (384,853) | (339,426) | (154,636) | Income before provision for income taxes | 10,538,928 | 542,896 | 5,861,007 | 16,525,130 | 10,538,928 | 542,896 | | | | | | Provision for income taxes | 3,122,000 | 13,000 | 1,915,000 | 5,514,000 | 3,122,000 | 13,000 | | | | | | Net income | $7,416,928 | $529,896 | $3,946,007 | 11,011,130 | 7,416,928 | 529,896 | | | | | | Basic net income per common share | $1.08 | $0.08 | $0.66 | | Other comprehensive income (loss), | | | | net of tax | | | | Change in unrealized gain (loss)- | | | | Interest rate swap | | (19,055) | 23,632 | 7,470 | | | | | | Diluted net income per common share | $1.04 | $0.08 | $0.64 | | Comprehensive income | | $10,992,075 | $7,440,560 | $537,366 | Income per common share-Basic | | $1.43 | $1.08 | $0.08 | | | | | Income per common share-Diluted | | $1.40 | $1.04 | $0.08 | | | | | | Shares used in computing earnings per common share: | | | | | Basic | 6,869,624 | 6,489,942 | 5,994,326 | 7,721,304 | 6,869,624 | 6,489,942 | Diluted | 7,133,604 | 6,736,501 | 6,156,628 | 7,865,090 | 7,133,604 | 6,736,501 |
See Notes to the Financial Statements
STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended December 31, 2012, 2011 2010 and 20092010
| CommonStock | | | | Common Stock Shares | | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | | | | | | Balance at January 1, 2009 | 6,046,273 | $6,046 | $26,660,606 | $7,942,021 | $(541,006) | $(84,517) | $33,983,150 | | | | | | | | Balance at January 1, 2010 | | 6,122,524 | $6,123 | $27,369,043 | $11,888,028 | $(692,806) | $(52,874) | $38,517,514 | Net Income | ---- | ---- | 3,946,007 | ---- | ---- | 3,946,007 | ---- | ---- | 529,896 | ---- | ---- | 529,896 | Change in unrealized loss from interest rate swap | ---- | ---- | ---- | 31,643 | 31,643 | ---- | ---- | ---- | 7,470 | Comprehensive income | ---- | ---- | ---- | ---- | 3,977,650 | | Common stock issued upon exercise of options | 60,000 | 60 | 151,740 | ---- | ---- | 151,800 | | Common stock issued as employee compensation | 16,251 | 17 | 72,990 | ---- | ---- | 73,007 | | Stock compensation expense | ---- | 483,707 | ---- | ---- | 483,707 | | Treasury stock acquired | ---- | ---- | ---- | (151,800) | ---- | (151,800) | | Balance at December 31, 2009 | 6,122,524 | 6,123 | 27,369,043 | 11,888,028 | (692,806) | (52,874) | $38,517,514 | | Net Income | ---- | ---- | 529,896 | ---- | ---- | 529,896 | | Change in unrealized loss from interest rate swap | ---- | ---- | ---- | ---- | 7,470 | 7,470 | | Comprehensive income | ---- | ---- | ---- | ---- | 537,366 | | Common stock issued in share offering | 500,000 | 500 | 3,529,041 | ---- | ---- | 3,529,541 | 500,000 | 500 | 3,529,041 | ---- | ---- | 3,529,541 | Common stock issued upon exercise of options | 272,000 | 272 | 1,389,678 | ---- | ---- | 1,389,950 | 272,000 | 272 | 1,389,678 | ---- | ---- | 1,389,950 | Common stock issued as employee compensation | 17,046 | 17 | 126,846 | ---- | ---- | 126,863 | 17,046 | 17 | 126,846 | ---- | ---- | 126,863 | Stock compensation expense | ---- | 553,629 | ---- | ---- | 553,629 | | Tax benefit from stock option plans | ---- | 304,000 | ---- | ----- | 304,000 | | Stock based compensation expense Tax benefit from stock option plans | | ---- ---- | 553,629 304,000 | ---- ---- | ---- ---- | 553,629 304,000 | Treasury stock acquired | ---- | ---- | ---- | (288,420) | ---- | (288,420) | ---- | ---- | ---- | (288,420) | ---- | (288,420) | Balance at December 31, 2010 | 6,911,570 | 6,912 | 33,272,237 | 12,417,924 | (981,226) | (45,404) | $44,670,443 | 6,911,570 | 6,912 | 33,272,237 | 12,417,924 | (981,226) | (45,404) | 44,670,443 | Net Income | ---- | ---- | 7,416,928 | ---- | ---- | 7,416,928 | ---- | ---- | 7,416,928 | ---- | ---- | 7,416,928 | Change in unrealized loss from interest rate swap | ---- | ---- | ---- | 23,632 | 23,632 | ---- | ---- | ---- | ---- | 23,632 | Comprehensive income | --- | --- | --- | --- | 7,440,560 | | Common stock issued upon exercise of options | 165,333 | 165 | 614,282 | ---- | ---- | 614,447 | 165,333 | 165 | 614,282 | ---- | ---- | 614,447 | Common stock issued as employee compensation | 2,735 | 3 | 36,154 | ---- | ---- | 36,157 | 2,735 | 3 | 36,154 | ---- | ---- | 36,157 | Stock compensation expense | ---- | 985,600 | ---- | ---- | 985,600 | | Stock based compensation expense | | ---- | 985,600 | ---- | ---- | 985,600 | Tax benefit from stock option plans | --- | 438,000 | -- | --- | --- | 438,000 | ---- | 438,000 | ---- | ----- | 438,000 | Treasury stock acquired | ---- | ---- | ---- | (159,000) | ---- | (159,000) | ---- | ---- | ---- | (159,000) | ---- | (159,000) | Balance at December 31, 2011 | 7,079,638 | $7,080 | $35,346,273 | $19,834,852 | $(1,140,226) | $(21,772) | $54,026,207 | 7,079,638 | 7,080 | 35,346,273 | 19,834,852 | (1,140,226) | (21,772) | 54,026,207 | Net Income | | ---- | ---- | 11,011,130 | ---- | ---- | 11,011,130 | Change in unrealized loss from interest rate swap | | ---- | ---- | ---- | (19,055) | Common stock issued in share offering | | 1,195,750 | 1,195 | 13,322,499 | ---- | ---- | 13,323,694 | Common stock issued upon exercise of options | | 210,143 | 210 | 1,290,305 | ---- | ---- | 1,290,515 | Common stock issued as employee compensation | | 19,165 | 19 | 266,032 | ---- | ---- | 266,051 | Stock based compensation expense | | ---- | 382,657 | ---- | ---- | 382,657 | Tax benefit from stock option plans | | --- | 313,000 | -- | --- | --- | 313,000 | Treasury stock retired | | (133,257) | (133) | (1,140,093) | ---- | 1,140,226 | ---- | --- | Balance at December 31, 2012 | | 8,371,439 | $8,371 | $49,780,673 | $30,845,982 | --- | $(40,827) | $80,594,199 |
See Notes to the Financial Statements
Year ended December 31, | | 2011 | | | 2010 | | | 2009 | | | Years ended December 31, | | 2012 | 2011 | 2010 | Cash flows from operating activities: | | | | | | | | | | | | Net income | | $ | 7,416,928 | | | $ | 529,896 | | | $ | 3,946,007 | | $11,011,130 | $7,416,928 | $529,896 | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments to reconcile net income | | | | to net cash used in operating activities: | | | | Depreciation and amortization | | | 591,373 | | | | 386,394 | | | | 338,995 | | 623,795 | 591,373 | 386,394 | Deferred rent | | | 266,909 | | | | (4,832 | ) | | | 7,830 | | 90,419 | 266,909 | (4,832) | Stock-based compensation expense | | | 985,600 | | | | 553,629 | | | | 483,707 | | 382,657 | 985,600 | 553,629 | Common stock issued as employee compensation | | | 36,157 | | | | 27,168 | | | | 21,468 | | 37,761 | 36,157 | 27,168 | Deferred portion of provision for income taxes | | | (103,000 | ) | | | (265,000 | ) | | | (367,800 | ) | 11,000 | (103,000) | (265,000) | Tax benefit for stock options | | | (438,000 | ) | | | (304,000 | ) | | | --- | | | Bad debts | | | 75,000 | | | | --- | | | | --- | | | Tax benefit for stock options Bad debts | | (313,000) (50,000) | (438,000) 75,000 | (304,000) --- | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | (Increase) decrease in accounts receivable | | | 1,791,974 | | | | (878,612 | ) | | | (2,428,920 | ) | (3,951,680) | 1,791,974 | (878,612) | Increase in costs and estimated earnings in excess of billings on uncompleted contracts | | | (31,845,196 | ) | | | (4,146,945 | ) | | | (5,153,205 | ) | | Increase in costs and estimated earnings in excess of billings | | | | on uncompleted contracts | | (29,783,016) | (31,942,776) | (4,136,426) | Decrease (increase) in prepaid expenses and other current assets | | | (8,220 | ) | | | (125,853 | ) | | | 168,589 | | 240,263 | (8,220) | (125,853) | Decrease in other assets | | | --- | | | | --- | | | | 60,000 | | | Increase in accounts payable and accrued expenses | | | 4,423,371 | | | | 2,199,337 | | | | 2,136,464 | | 1,465,562 | 4,423,371 | 2,199,337 | (Decrease) increase in income taxes payable | | | 3,105,994 | | | | (1,930,368 | ) | | | 1,461,374 | | (2,383,000) | 3,105,994 | (1,930,368) | | | | | | | | | | | | | | | Net cash provided by (used in) operating activities | | | (13,701,110 | ) | | | (3,959,186 | ) | | | 674,509 | | | Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts | | 540,387 | 97,580 | (10,519) | Net cash used in operating activities | | (22,077,722) | (13,701,110) | (3,959,186) | Cash flows from investing activities: | | | | | | | | | | | | | | | Purchase of property and equipment | | | (1,587,898 | ) | | | (300,803 | ) | | | (142,661 | ) | (825,110) | (1,587,898) | (300,803) | | | | | | | | | | | | | | | | Net cash used in investing activities | | | (1,587,898 | ) | | | (300,803 | ) | | | (142,661 | ) | (825,110) | (1,587,898) | (300,803) | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | Proceeds from exercise of stock options and warrants | | | 455,447 | | | | 1,101,529 | | | | --- | | | Proceeds from sale of common stock | | | --- | | | | 3,529,541 | | | | --- | | | Proceeds from exercise of stock options Proceeds from sale of common stock | | 1,290,515 13,323,694 | 455,447 --- | 1,101,529 3,529,541 | Payment of line of credit | | | --- | | | | (2,200,000 | ) | | | (800,000 | ) | (4,000,000) | --- | (2,200,000) | Proceeds from line of credit | | | 15,300,000 | | | | 800,000 | | | | 2,700,000 | | 11,350,000 | 15,300,000 | 800,000 | Payment of long-term debt | | | (849,615 | ) | | | (676,530 | ) | | | (631,105 | ) | (2,042,774) | (849,615) | (676,530) | Proceeds from long-term debt | | | --- | | | | --- | | | | --- | | 4,500,000 | --- | Tax benefit for stock options | | | 438,000 | | | | 304,000 | | | | --- | | 313,000 | 438,000 | 304,000 | Net cash provided by financing activities | | | 15,343,832 | | | | 2,858,540 | | | | 1,268,895 | | 24,734,435 | 15,343,832 | 2,858,540 | Net increase (decrease) in cash | | | 54,824 | | | | (1,401,449 | ) | | | 1,800,743 | | 1,831,603 | 54,824 | (1,401,449) | Cash at beginning of year | | | 823,376 | | | | 2,224,825 | | | | 424,082 | | 878,200 | 823,376 | 2,224,825 | Cash at end of year | | $ | 878,200 | | | $ | 823,376 | | | $ | 2,224,825 | | $2,709,803 | $878,200 | $823,376 | | | | | | | | | | | | | | | | Supplemental schedule of noncash investing and financing activities: | | | | | | | | | | | | | | | Deferred tax benefit of interest rate swap liability | | $ | --- | | | $ | --- | | | $ | (16,300 | ) | | Equipment acquired under capital lease | | $ | 751,129 | | | $ | 113,686 | | | $ | 47,180 | | $76,592 | $751,129 | $113,686 | Settlement of other receivables | | $ | 30,000 | | | $ | 60,000 | | | $ | 60,000 | | --- | $30,000 | $60,000 | Accrued expenses settled in exchange for common stock | | | --- | | | $ | 99,696 | | | $ | 51,540 | | $228,290 | --- | $99,696 | Stock options proceeds paid with Company’s stock | | $ | 159,000 | | | $ | 288,420 | | | $ | 151,800 | | --- | $159,000 | $288,420 | Supplemental schedule of cash flow information: | | | | | | | | | | | | | | | Cash paid during the year for interest | | $ | 366,491 | | | $ | 158,406 | | | $ | 265,761 | | $783,373 | $366,491 | $158,406 | Cash paid for income taxes | | $ | 180,000 | | | $ | 2,276,367 | | | $ | 808,627 | | $7,886,409 | $180,000 | $2,276,367 |
See Notes to the Financial Statements
NOTES TO FINANCIAL STATEMENTS 1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The operations of CPI Aerostructures, Inc. (“CPI Aero” or the “Company”) consist of the production of complex aerospace structural assemblies principally for the U.S. Air Force and other branches of the U.S. armed forces, whether as a prime contractor or as a subcontractor to other defense prime contractors. The Company also acts as a subcontractor to prime aerospace manufactures in the production of commercial aircraft parts.
Revenue Recognition
The Company’s revenue is recognized based on the percentage of completion method of accounting for its contracts measured by the percentage of total costs incurred to date to estimated total costs at completion for each contract. Contract costs include all direct material, labor costs, tooling and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Selling, general and administrative costs are charged to expense as incurred. Estimated losses on uncompleted contracts are recognized in the period in which such losses are determined. Changes in job performance may result in revisions to costs and income and are recognized in the period in which revisions are determined to be required. The percentage of completion method of accounting involves considerable use of estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods and, as a result, there can be a significant disparity between earnings (both for accounting and taxes) as reported and actual cash received by the Company during any reporting period. In accordance with industry practice, costs and estimated earnings in excess of billings on uncompleted contracts, included in the accompanying balance sheets, contain amounts relating to contracts and programs with long production cycles, a portion of which will not be realized within one year. The Company’s recorded revenue may be adjusted in later periods in the event that the Company’s cost estimates prove to be inaccurate or a contract is terminated.
Reclassifications
Certain reclassifications of prior period balances have been made to conform to the current period presentation. The Company reclassified billings in excess of earnings from costs in excess of earnings, which did not impact results of operations, cash flows or earnings per share.
Government Contracts
The Company’s government contracts are subject to the procurement rules and regulations of the United StatesUS government. Many of the contract terms are dictated by these rules and regulations. Specifically, cost-based pricing is determined under the Federal Acquisition RegulationsRegulation (“FAR”), which provide guidance on the types of costs that are allowable in establishing prices for goods and services under U.S. government contracts. For example, costs such as those related to charitable contributions, advertising, interest expense, and public relations are unallowable, and therefore not recoverable through sales. During and after the fulfillment of a government contract, the Company may be audited in respect of the direct and allocated indirect costs attributable thereto. These audits may result in adjustments to the Company’s contract cost, and/or revenue.
When contractual terms allow, the Company invoices its customers on a progress basis.
Cash
The Company maintains its cash in two financial institutions. The balances are insured by the Federal Deposit Insurance Corporation. From time to time, the Company’s balances may exceed these limits. As of December 31, 2011,2012, the Company had approximately $1,000,000$1,749,000 of uninsured balances. The Company limits its credit risk by selecting financial institutions considered to be highly credit worthy.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectability based on an evaluation of historical and anticipated trends, the financial conditions of the Company’s customers and an evaluation of the impact of economic conditions.
Property and Equipment
Depreciation and amortization of property and equipment is provided by the straight-line method over the shorter of estimated useful lives of the respective assets or the life of the lease, for leasehold improvements.
Rent
We recognize rent expense on a straight-line basis over the expected lease term. Within the provisions of certain leases there are escalations in payments over the lease term. The effects of the escalations have been reflected in rent expense on a straight-line basis over the expected lease term.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates by management. Actual results could differ from these estimates.
Long Lived Assets
The Company reviews its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Company does not believe that any such change has occurred. If such changes in circumstance are present, a loss is recognized to the extent the carrying value of the asset is in excess of the sumfair value of the undiscounted cash flows expected to result from the use of the asset and amounts expected to be realized upon its eventual disposition.
Short-Term Debt
The fair value of the Company’s short-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Using this method, the fair value of the Company’s short-term debt was not significantly different than the stated value at December 31, 20112012 and 2010.2011.
Derivatives
Our use of derivative instruments has primarily been to hedge interest rates. These derivative contracts are entered into with financial institutions. We do not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use.
We record these derivative financial instruments on the balance sheet at fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the results of operations immediately. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the results of operations immediately. See below for a discussion of our use of derivative instruments, management of credit risk inherent in derivative instruments and fair value information.
In October 2008, the Company entered into an interest rate swap with the objective of reducing our exposure to cash flow volatility arising from interest rate fluctuations associated with certain debt. The notional amount, maturity date, and currency of these contracts match those of the underlying debt. The Company has designated this interest rate swap contract as a cash flow hedge. The Company measures ineffectiveness by comparing the cumulative change in the forward contact with the cumulative change in the hedged item. No material ineffectiveness was recognized in 20112012 and 2010.2011. As of December 31, 20112012 and 2010,2011, we had a net deferred loss associated with cash flow hedges of approximately $33,000$61,000 and $69,000,$33,000, respectively, due to the interest rate swap which has been included in Other Liabilities.
As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may fail to meet their contractual obligations. Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our counterparties and cause one or more of our counterparties to fail to perform as expected. To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. AllTo date, all counterparties have performed in accordance with their contractual obligations.
Fair Value
At December 31, 20112012 and 2010,2011, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.
| 2011 | 2010 | 2012 | 2011 | | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Debt | | | | | Short-term borrowings and long-term debt | $17,876,619 | $17,876,619 | $2,675,105 | $2,675,105 | $27,760,437 | $27,760,437 | $17,876,619 | $17,876,619 |
We estimated the fair value of debt using market quotes and calculations based on market rates.
The following tables presents the fair values of those financial liabilities measured on a recurring basis as of December 31, 20112012 and 2010:2011:
| | Fair Value Measurements 2011 | | Fair Value Measurements 2012 | Description | Total | Quoted Prices in Active Markets for Identical assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Interest Rate Swap, net | $32,988 | -- | $32,988 | -- | $60,516 | -- | $60,516 | -- | Total | $32,988 | -- | $32,988 | -- | $60,516 | -- | $60,516 | -- |
| | Fair Value Measurements 2010 | | Fair Value Measurements 2011 | Description | Total | Quoted Prices in Active Markets for Identical assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Interest Rate Swap, net | $ 68,794 | -- | $ 68,794 | -- | $ 32,988 | -- | $ 32,988 | -- | Total | $ 68,794 | -- | $ 68,794 | -- | $ 32,988 | -- | $ 32,988 | -- |
The fair value of the Company’s interest rate swap was determined by comparing the fixed rate set at the inception of the transaction to the “replacement swap rate,” which represents the market rate for an offsetting interest rate swap with the same notional amounts and final maturity date. The market value is then determined by calculating the present value interest differential between the contractual swap and the replacement swap.
As of December 31, 2012 and 2011, $60,516 and 2010, $32,988, and $68,794, respectively, was included in Other Liabilities related to the fair value of the Company’s interest rate swap, and $21,772$40,827 and $45,404,$21,772, respectively, net of tax of $11,216$19,689 and $23,390,$11,216, respectively, was included in Accumulated Other Comprehensive Loss.
Freight and Delivery Costs
The Company incurred freight and delivery costs of approximately $29,000, $92,000, $75,000, $72,000, respectively, during the years ended December 31, 2012, 2011 2010 and 2009.2010. These costs are included in cost of sales.
Earnings Per Share
Basic earnings per common share is computed using the weighted-average number of shares outstanding. Diluted earnings per common share is computed using the weighted-average number of shares outstanding adjusted for the incremental shares attributed to outstanding options and warrants to purchase common stock. Incremental shares of 263,920415,517 were used in the calculation of diluted earnings per common share in 2012. Incremental shares of 124,217 were not included in the diluted earnings per share calculations at December 31, 2012, as their exercise price was in excess of the Company’s quoted market price and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation. Incremental shares of 263,980 were used in the calculation of diluted earnings per common share in 2011. Incremental shares of 80,000 were not included in the diluted earnings per share calculations at December 31, 2011, as their exercise price was in excess of the Company’s quoted market price and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation. Incremental shares of 246,559 were used in the calculation of diluted earnings per common share in 2010. Incremental shares of 75,000 were not included in the diluted earnings per share calculations at December 31, 2010, as their exercise price was in excess of the Company’s quoted market price and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation. Incremental shares of 162,302 were used in the calculation of diluted earnings per common share in 2009. Incremental shares of 603,333 were not included in the diluted earnings per share calculations at December 31, 2009, as their exercise price was in excess of the Company’s quoted market price and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation.
Income taxes
Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to the temporary differences between the financial statementstatements carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion onof management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company has recorded a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (the “FASB”) issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures about significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements of a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update was effective for the Company’s interim and annual reporting periods beginning January 1, 2011. The adoption of this pronouncement did not have any impact on the Company’s interim and annual reporting periods beginning January 1, 2011. The adoption of this pronouncement did not have any impact on the Company’s financial statements and related disclosures.
In May 2011, the FASB issued guidance that amends Generally Accepted Accounting Principles (“USU.S. GAAP”) to conform it with fair value measurement and disclosure requirements in International Financial Reporting Standards. The amendments changed the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The provisions of this guidance are effective for the first reporting period (including interim periods) beginning after December 15, 2011. The Company is currently evaluatingadoption of this pronouncement did not have any impact on the impact this accounting standard update may have on its results of operations,Company’s financial conditionstatements and related disclosures.
In June 2011, the FASB issued new accounting guidance on the presentation of other comprehensive income. The new guidance eliminates the current option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. Instead, an entity has the option to present the total of comprehensive income, the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Full retrospective application is required. As the new guidance will only amend the presentation requirements of other comprehensive income, the Company does not expect the adoption to have a significant impact on its financial condition or results of operations.
2.COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS At December 31, 2011,2012, costs and estimated earnings in excess of billings on uncompleted contracts (unbilled) consist of:
| U.S. Government | Commercial | Total | U.S. Government | Commercial | Total | | Costs incurred on uncompleted contracts | $162,233,699 | $24,713,310 | $186,947,009 | $214,888,101 | $42,636,753 | $257,524,854 | Estimated earnings | 72,883,505 | 15,029,802 | 87,913,307 | 85,320,636 | 23,782,285 | 109,102,921 | | 235,117,204 | 39,743,112 | 274,860,316 | 300,208,737 | 66,419,038 | 366,627,775 | Less billings to date | 171,694,325 | 24,155,629 | 195,849,954 | 215,743,090 | 42,631,694 | 258,374,784 | Costs and estimated earnings in excess of billings on uncompleted contracts | $63,422,879 | $15,587,483 | $79,010,362 | $84,465,647 | $23,787,344 | $108,252,991 | | | | | | | | At December 31, 2010, costs and estimated earnings in excess of billings on uncompleted contracts (unbilled) consist of: | | At December 31, 2011, costs and estimated earnings in excess of billings on uncompleted contracts (unbilled) consist of: | | At December 31, 2011, costs and estimated earnings in excess of billings on uncompleted contracts (unbilled) consist of: | | U.S. Government | Commercial | Total | U.S. Government | Commercial | Total | | | | | | | Costs incurred on uncompleted contracts | $120,072,649 | $33,521,525 | $153,594,174 | | Costs incurred on uncompleted | | | | | Contracts | | $162,233,699 | $24,713,310 | $186,947,009 | Estimated earnings | 51,712,912 | 17,647,006 | 69,359,918 | 72,883,505 | 15,029,802 | 87,913,307 | | 171,785,561 | 51,168,531 | 222,954,092 | 235,117,204 | 39,743,112 | 274,860,316 | Less billings to date | 138,885,635 | 36,903,291 | 175,788,926 | 171,694,325 | 24,155,629 | 195,849,954 | Costs and estimated earnings in excess of billings on uncompleted contracts | $32,899,926 | $14,265,240 | $47,165,166 | $63,422,879 | $15,587,483 | $79,010,362 |
The above amounts are included in the accompanying balance sheets under the following captions at December 31, 2012 and December 31, 2011:
| 2012 | 2011 | Costs and estimated earnings in excess of billings on | | | uncompleted contracts | $ 108,909,844 | $ 79,126,828 | Billings in excess of costs and estimated earnings on | | | uncompleted contracts | (656,853) | (116,466) | | | | Totals | $ 108,252,991 | $ 79,010,362 |
Unbilled costs and estimated earnings are billed in accordance with applicable contract terms. As of December 31, 2011,2012, approximately $10,000,000$20 million of the balances above are not expected to be collected within one year. There are no amounts billed under retainage provisions.
Revisions in the estimated gross profits on contracts and contract amounts are made in the period in which the circumstances requiring the revisions occur. During the years ended December 31, 2012, 2011 2010 and 2009,2010, the effect of such revisions in total estimated contract profits resulted in a decrease to the total gross profit to be earned on the contractcontracts of approximately $1,300,000, $3,000,000 $10,200,000 and $6,100,000,$10,200,000, respectively, from that which would have been reported had the revised estimate been used as the basis of recognition of contract profits in prior years.
Although management believes it has established adequate procedures for estimating costs to complete on uncompleted open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion.
3.ACCOUNTS RECEIVABLE
Accounts receivable consists of trade receivables as follows:
Billed receivables | $4,360,570 | $6,161,524 | $8,312,250 | $4,360,570 | Less: allowance for doubtful accounts | (75,000) | (8,980) | (25,000) | (75,000) | | $4,285,570 | $6,152,544 | $8,287,250 | $4,285,570 |
At December, 31 2012, approximatley $1,512,000 of the above amounts are classified as non-current other assets. 4. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of the following | | | | Estimated Useful Life | | | Estimated Useful Life | December 31, | 2011 | 2010 | 2012 | 2011 | | | | | | | | Machinery and equipment | $814,270 | $665,834 | 5 to 10 years | $941,017 | $814,270 | 5 to 10 years | Computer equipment | 2,487,106 | 1,571,377 | 5 years | 2,674,053 | 2,487,106 | 5 years | Furniture and fixtures | 280,151 | 218,804 | 7 years | 541,617 | 280,151 | 7 years | Automobiles and trucks | 13,162 | 13,162 | 5 years | 13,162 | 13,162 | 5 years | Leasehold improvements | 1,154,361 | 863,871 | 10 years | 1,480,903 | 1,154,361 | 10 years | | 4,749,050 | 3,333,048 | | 5,650,752 | 4,749,050 | | Less accumulated depreciation and amortization | 2,119,481 | 2,451,133 | | 2,743,276 | 2,119,481 | | | $2,629,569 | $881,915 | | $2,907,476 | $2,629,569 | |
Depreciation and amortization expense for the years ended December 31, 2012, 2011 and 2010 was $623,795, $591,373 and 2009 was $591,373, $386,394, and $338,995, respectively.
During the years ended December 31, 20112012 and 2010,2011, the Company acquired $751,129$76,592 and $113,686,$751,129, respectively, of property and equipment under notes payable and capital leases. At December 31, 2011 and 2010, assets acquired under capital leases, which was included in machinery and equipment, was approximately $965,000 and $214,000, respectively. At December 31, 2011 and 2010 , accumulated depreciation and amortization related to assets acquired under capital leases was approximately $183,000 and $62,000, respectively.
5.LINE OF CREDIT: In August 2007, the Company entered into a two-year, $2.5 million revolving credit facility with Sovereign Bank (the “Sovereign Revolving Facility”), which was secured by all of the Company’s assets. On July 7, 2009, the Company and Sovereign Bank amended the terms of the Sovereign Revolving Facility, increasing the revolving credit facility under the Credit Agreement from an aggregate of $2.5 million to an aggregate of $3.5 million and extending the term of the revolving credit facility from August 2010 to August 2011. In addition, the interest rate of borrowings under the revolving credit facility was amended to (i) the greater of 4.0% or 3.5% in excess of the LIBOR rate or (ii) the greater of 4.0% or 0.75% in excess of Sovereign Bank’s prime rate, as elected by the Company in accordance with the Credit Agreement. The Credit Agreement was further amended to increase the commitment fee from 0.25% to 0.50% per annum on the average daily unused portion of the revolving credit commitment commencing September 30, 2009, and to permit the Company’s sale of a certain single customer accounts receivable.
On May 26, 2010, the Company and Sovereign Bank entered into a third amendment to the Sovereign Revolving Facility increasing the revolving credit facility under the Credit Agreement from an aggregate of $3.5 million to an aggregate of $4.0 million and extending the term of the revolving credit facility from August 2011 to August 2013. In addition, the interest rate on borrowings under the revolving credit facility was decreased to (i) the greater of 3.75% or 3.25% in excess of the LIBOR Raterate or (ii) the greater of 3.75% or 0.50% in excess of Sovereign Bank’s prime rate, as elected by the Company in accordance with the Credit Agreement.
On May 10, 2011, the Company entered into a fifth amendment to its credit agreement with Sovereign Bank, increasing the revolving credit facility from an aggregate of $4,000,000$4 million to an aggregate of $10,000,000$10 million and extending the term from August 2013 to August 2014. In addition, the interest rate of borrowings under the revolving credit facility will no longer be subject to a minimum rate of 3.75%. On September 1, 2011, the Company entered into a sixth amendment to its credit agreement with Sovereign Bank providing for a $3,000,000$3.0 million increase until November 30, 2011 of the revolving credit facility under the Credit Agreement, from an aggregate of $10,000,000$10.0 million to an aggregate of $13,000,000.$13.0 million. On November 29, 2011, the Company entered into a seventh amendment to its credit agreement with Sovereign Bank, which increased the revolving credit facility under the Credit Agreement from an aggregate of $13,000,000$13.0 million to an aggregate of $18,000,000$18.0 million and extended the term of earlier terminating revolving credit loans to August 2014. The amendmentAmendment also provides for a reduction in the interest rate of borrowings under the revolving credit facility to 2.75% in excess of the LIBOR rate or Sovereign Bank’s prime rate, as elected by the Company in accordance with the Credit Agreement, a reduction in the commitment fee to a rate of 0.4% per annum on the average daily unused portion of the revolving credit commitment, commencing December 31, 2011 and the addition of a covenant to the Credit Agreement requiring that the Company maintain a ratio of Unsubordinated Liabilities to Capital Base, as such terms are defined in the Credit Agreement.
On December 5, 2012, the Company entered into an Amended and Restated Credit Agreement with Sovereign Bank as the sole arranger, administrative agent and collateral agent and Valley National Bank. The Restated Agreement provides for a revolving credit loan commitment of $35 million, which replaces the Sovereign Revolving Facility, and a term loan of $3.9 million. The term of the Restated Agreement is through December 2016. The Restated Agreement increases the availability under, and amends and restates the Credit Agreement, dated as of August 13, 2007, as subsequently amended, between the Company and Sovereign Bank (the “Prior Agreement”), which provided for a revolving credit loan commitment and two term loans. One of the term loans under the Prior Agreement was refinanced as a revolving credit loan under the Restated Agreement. The other term loan and the revolving credit loans under the Prior Agreement continued as a term loan and revolving credit loan under the Restated Agreement.
As of December 31, 2011,2012, the Company was in compliance with all financial covenants contained in the credit agreement. As of December 31, 2011,2012, the Company had $16,100,000$23.45 million outstanding under the Sovereign Revolving Facility bearing interest at 2.77%2.71%.
6. LONG-TERM DEBT On October 22, 2008, the Company obtained a $3 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility”). Prior to entering into the term loan the Company had borrowed $2.5 million under the Sovereign Revolving Facility to fund the initial tooling costs related to a long-term contract. The Company used the proceeds from the Sovereign Term Facility to repay the borrowings under the Sovereign Revolving Facility and to pay for additional tooling related to a long-term contract. TheThis term loan was refinanced as a revolving credit loan under the Restated Agreement of December 5, 2012. On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility 2”). Sovereign Term Facility 2 was used to purchase tooling and equipment for new programs. Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 2.5%3% or Sovereign Bank’s prime rate (2.77% as of December 31, 2011) and is secured by all of our assets.rate. The terms and conditions of the Sovereign Revolving Facility are applicable to the Sovereign Term Facility. Additionally, the Company and Sovereign Bank entered into a five year interest rate swap agreement, in the notional amount of $3$4.5 million. Under the interest rate swap, the Company pays an amount to Sovereign Bank representing interest on the notional amount at a fixed rate of 5.8%4.11% and receives an amount from Sovereign Bank representing interest on the notional amount atof a rate equal to the one-month LIBOR plus 2.5%3%. The effect of this interest rate swap will be the Company paying a fixed interest rate of 5.8%4.11% over the term of the Sovereign Term Facility. The value of debt exchanged for a fixed rate of interest reduces according to the repayment schedule of the notes.Facility 2. The maturities of the long-term debt are as follows: Year ending December 31, | | | | | | | | | 2012 | $887,380 | | 2013 | 721,246 | $1,100,564 | 2014 | 88,389 | 1,011,686 | 2015 | 46,476 | | 2016 | 33,128 | | 2015 2016 2017 | | 960,784 937,403 300,000 | | $1,776,619 | $4,310,437 |
Also included in long-term debt are capital leases and notes payable of $410,437 and $626,620 at December 31, 2012 and 2011, respectively, including a current portion of $287,380. $200,564 and $287,380, respectively.
The company is committed to make paymentscost of assets under capital leases ofwas approximately $312,000, $186,000, $95,000, $50,000$1,051,000 and $34,000 in each of the years ending$975,000 at December 31, 2012 2013, 2014, 2015 and 2016,2011, respectively. Included in these payments isAccumulated depreciate of assets under capital leases was approximately $50,000 of interest expense. $382,000 and $187,000 at December 31, 2012 and 2011, respectively.
7. COMMITMENTS: The Company has employment agreements with three employees. The aggregate future commitment under these agreements is as follows:
Year ending December 31, | | | | | | 2012 | $847,300 | | 2013 | 884,500 | $884,500 | 2014 | 923,000 | 923,000 | | $2,654,800 | $1,807,500 |
These agreements provide for additional bonus payments that are calculated as defined.
The Company leases an office and warehouse facility under a non-cancelable operating lease which expires in December 2022. The aggregate future commitment under this agreement is as follows:
Year ending December 31, | | | | | | 2012 | $1,517,650 | | 2013 | 1,554,080 | $1,554,080 | 2014 | 1,591,604 | 1,591,604 | 2015 2016 | 1,562,685 1,600,467 | | 2015 2016 2017 | | 1,562,685 1,600,467 1,639,382 | Thereafter | 9,212,304 | 7,572,922 | | $17,038,790 | $15,521,140 |
Rent expense for the years ended December 31, 2012, 2011 and 2010 was $1,634,121, $1,044,394 and 2009 was $1,044,394, $443,071, and $430,066, respectively.
8INCOME TAXES The provision for income taxes consists of the following:
| Years ended December 31, | | | 2011 | 2010 | 2009 | | Years ended December 31, | | 2012 | 2011 | 2010 | Current: | | | | | Federal | $3,220,000 | $435,000 | $2,282,800 | $5,503,000 | $3,220,000 | $435,000 | Prior year overaccrual | --- | (157,000) | --- | | State | 5,000 | --- | | Prior year over accrual State | | --- --- | --- 5,000 | (157,000) --- | | | | | | Deferred: | | | | | Federal | (103,000) | (265,000) | (367,800) | 11,000 | (103,000) | (265,000) | | $3,122,000 | $13,000 | $1,915,000 | $5,514,000 | $3,122,000 | $13,000 |
The difference between the income tax provision (benefit) computed at the federal statutory rate and the actual tax provision (benefit) is accounted for as follows:
December 31, | 2011 | 2010 | 2009 | 2012 | 2011 | 2010 | | | | | | Taxes computed at the federal statutory rate | $3,583,000 | $237,000 | $1,993,000 | | State income tax, net of federal benefit | 3,000 | --- | | Taxes computed at the federal | | | | statutory rate State income tax, net | | $5,701,000 -- | $3,583,000 3,000 | $237,000 --- | Prior year true-up | (61,000) | (157,000) | --- | 47,000 | (61,000) | (157,000) | Permanent differences | (403,000) | (67,000) | (78,000) | (234,000) | (403,000) | (67,000) | Provision for Income Taxes | $3,122,000 | $13,000 | $1,915,000 | $5,514,000 | $3,122,000 | $13,000 |
The components of deferred income tax assets and liabilities are as follows:
| | | | | | | | Revenue recognition | $231,000 | $--- | $422,000 | $231,000 | Allowance for doubtful accounts | 26,000 | --- | 112,000 | 26,000 | Deferred tax asset-current | 257,000 | --- | 534,000 | 257,000 | Property and equipment | --- | 49,000 | | Deferred rent | 141,000 | --- | 175,000 | 141,000 | Stock options | 953,000 | 596,000 | 805,000 | 953,000 | Interest rate swap | 11,000 | 23,000 | 21,000 | 11,000 | Deferred Tax Assets-non current | 1,105,000 | 668,000 | 1,001,000 | 1,105,000 | | | | Deferred Tax Liabilities: | | | Revenue recognition | --- | 182,000 | | Deferred Tax Liabilities: | | | Prepaid expenses | 125,000 | --- | 102,000 | 125,000 | Deferred Tax Liabilities-current | 125,000 | 182,000 | 102,000 | 125,000 | Property and equipment | 660,000 | --- | 867,000 | 660,000 | Deferred tax liability-noncurrent | 660,000 | --- | 867,000 | 660,000 | Net Deferred Tax Assets (Liabilities) | $577,000 | $486,000 | $566,000 | $577,000 |
The Company recognized, for income tax purposes, a tax benefit of $313,000, $438,000 $304,000 and zero$304,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, for compensation expense related to its stock option plan for which no corresponding charge to operations has been recorded. Such amounts have been added to additional paid-in capital in those years.
The Company did not account for the domestic production activity deduction when preparing the 2009 tax accrual. The Company did take the domestic production activity deduction when preparing its 2009 federal income tax return, which resulted in an overaccrual of approximately $157,000.
9.9. EMPLOYEE STOCK OPTION PLANS: The Company accounts for compensation expense associated with Stock Options based on the fair value of the options on the date of grant.
The Company used the modified transition method to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee share-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of the fair value method.
The Company’s net income for the years ended December 31, 2012, 2011 and 2010, include approximately $383,000, $986,000 and 2009, includes approximately $986,000, $554,000 and $484,000 of stock based compensation expense, respectively. The Company recorded reductions in income tax payable of approximately $528,000, $547,000 $123,000 and zero$123,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, as a result of the tax benefit upon exercise of options. The compensation expense related to the Company’s stock-based compensation arrangements is recorded as a component of selling, general and administrative expenses. Cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized from options exercised (excess tax benefits) areis classified as cash inflows from financing activities and cash inflows from operating activities.
In 1995, the Company adopted the 1995 Stock Option Plan (the “1995 Plan”), as amended, for which 200,000 common shares are reserved for issuance. The 1995 Plan provides for the issuance of either incentive stock options or nonqualified stock options to employees, consultants or others who provide services to the Company. The options’ exercise price is equal to the closing price of the Company’s shares on the day of issuance, except for incentive stock options granted to the Company’s president, which are exercisable at 110% of the closing price of the Company’s shares on the date of issuance.
In 1998, the Company adopted the 1998 Performance Equity Plan (the “1998 Plan”). The 1998 Plan, as amended, reserved 463,334 common shares for issuance. The 1998 Plan provides for the issuance of either incentive stock options or
nonqualified stock options to employees, consultants or others who provide services to the Company. The options’ exercise price is equal to the closing price of the Company’s shares on the day of issuance, except for incentive stock options granted to the Company’s president, which are exercisable at 110% of the closing price of the Company’s shares on the date of issuance.
In 2000, the Company adopted the Performance Equity Plan 2000 (the “2000 Plan”). The 2000 Plan, as amended, reserved 1,230,000 common shares for issuance. The 2000 Plan provides for the issuance of either incentive stock options or nonqualified stock options to employees, consultants or others who provide services to the Company. The options’ exercise price is equal to the closing price of the Company’s shares on the day of issuance, except for incentive stock options granted to the Company’s president, which are exercisable at 110% of the closing price of the Company’s shares on the date of issuance.
In 2009, the Company adopted the Performance Equity Plan 2009 (the “2009 Plan”). The 2009 Plan reserved 500,000 common shares for issuance. The 2009 Plan provides for the issuance of either incentive stock options or nonqualified stock options to employees, consultants or others who provide services to the Company. The options’ exercise price is equal to the closing price of the Company’s shares on the day of issuance, except for incentive stock options granted to any person possessing more than 10% of the total combined voting power of all classes of Company stock, which are exercisable at 110% of the closing price of the Company’s shares on the date of issuance.
The Company has 360,285280,266 options available for grant under the 2009 Plan.
The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option valuation model. The following weighted average assumptions were used for option grants during the years ended December 31, 2012, 2011 2010 and 2009:2010:
| 2011 | 2010 | 2009 | 2012 | 2011 | 2010 | Risk-free interest rate | 2.08% | 2.55% | 1.66% | 0.90% | 2.08% | 2.55% | Expected volatility | 100.9% | 97.0% | 95.8% | 101.8% | 100.9% | 97.0% | Dividend yield | 0% | 0% | 0% | 0% | | | | | Expected option term-in years | 5 | 5 | 5 | 5 |
The risk free interest rate for the years ended December 31, 2012, 2011 2010 and 20092010 is based on the 5 year U.S. Treasury note rate on the day of grant. The expected volatility computation for the years ended December 31, 2012, 2011 2010 and 20092010 is based on the average of the volatility over the most recent four year period, which represents the Company’s estimate of expected volatility over the expected option term. The Company has never paid a dividend, and is not expected to pay a dividend in the foreseeable future, therefore the dividend yield is assumed to be zero. The Company assumes zero forfeitures of options as the historical forfeiture rate is below 1%.
A summary of the status of the Company’s stock option plans is as follows: | Fixed Options | Weighted average Exercise PriceOptionssns | Weighted average remaining contractual term (in years) Exercise Price | Weighted average remaining contractual term (in years) | Aggregate Intrinsic Value |
Outstanding | | | | | | | | | at January 1, 2009 | 1,047,333 | $6.42 | 3.91 | | | Granted during period | 125,000 | 6.38 | | | | Exercised | (60,000) | 2.53 | | | | Forfeited/Expired | (60,000) | 9.38 | | | | Outstanding | | | | | | at December 31, 2009 | 1,052,333 | $6.47 | 3.91 | | | at January 1, 2010 | | 1,052,333 | $6.47 | 3.91 | | Granted during period | 80,000 | 7.38 | | | 80,000 | 7.38 | | | Exercised | (272,000) | 5.11 | | | (272,000) | 5.11 | | | Forfeited/Expired | (80,000) | 10.01 | | | (80,000) | 10.01 | | | Outstanding | | | | | | | | | at December 31, 2010 | 780,333 | $6.68 | 2.92 | | 780,333 | $6.68 | 2.92 | | Granted during period | 80,000 | 14.90 | | | 80,000 | 14.90 | | | Exercised | (165,333) | 3.72 | | | (165,333) | 3.72 | | | Forfeited/Expired | --- | --- | | | --- | --- | | | Outstanding | | | | | | at December 31, 2011 | | 695,000 | $8.33 | 2.66 | | Granted during period | | 40,517 | 11.87 | | | Exercised | | (240,000) | 6.85 | | | Forfeited/Expired | | --- | --- | | | Outstanding and expected to vest | | | | | | | | | at December 31, 2011 | 695,000 | 8.33 | 2.66 | 2,704,495 | | at December 31, 2012 | | 495,517 | 9.33 | 2.73 | 858,997 | | | | | | | | | | Vested | | | | | | | | | at December 31, 2011 | 680,000 | 8.37 | 2.39 | 2,625,444 | | at December 31, 2012 | | 495,517 | 9.33 | 2.73 | 858,997 |
The weighted-average fair value of each option granted during the years ended December 31, 2012, 2011 2010 and 2009,2010, estimated as of the grant date using the Black-Scholes option valuation model was $8.91, $11.24 $5.47 and $4.87,$5.47, respectively.
The Company’s stock options granted to non-employee directors vest immediately upon grant and have a maximum contractual term of five years. Stock options granted to employees vest over three years and have a maximum contractual term of ten years. The expected option term is calculated utilizing historical data of option exercises.
As of December 31, 2012, 2011 2010 and 2009,2010, there was $0, $21,687 $108,435 and $228,186,$108,435, respectively, of unrecognized compensation cost related to non-vestednonvested stock option awards which will be amortized through March 2012, the requisite service period.awards.
During the year ended December 31, 2011, 145,3332012, 180,000 stock options were exercised for cash resulting in cash proceeds to the Company of $455,448. In addition, 20,000$1,187,700. During the same period an additional 10,000 options were exercised, pursuant to provisions of the stock option plan, in whichwhere the Company received no cash and 11,4234,589 shares of its common stock in exchange for the 20,00010,000 shares issued in the exercise. The 11,4234,589 shares that the Company received were valued at $159,000,$69,095, the fair market value of the shares on the date of exercise. In addition, 25,000 options were exercised, pursuant to provisions of the stock option plan, for a combination of cash and common shares. The Company received $102,815 in cash and 4,333 shares in exchange for the 25,000 shares issued in this exercise. The 4,333 shares that the Company received were valued at $69,930, the fair market value of the shares on the date of exercise. Lastly, the Company received no cash and 20,935 shares of its common stock in exchange for the 25,000 shares issued in the exercise. The 20,935 shares that the Company received were valued at $216,630, the fair market value of the shares on the date of exercise.
During the years ended December 31, 2012, 2011 and 2010, the Company earned a tax benefit of $313,000, $438,000 and $304,000, respectively, from the exercise and were added to treasury stock.of stock options.
The intrinsic value of stock options exercised during the years ended December 31, 2012, 2011 2010 and 20092010 was approximately $1,337,000, $1,609,000 and $1,936,000, and $218,000, respectively.
The fair value of all options vested during the years ended December 31, 2012, 2011 2010 and 20092010 was approximately $859,000, $2,625,000 $563,000 and $419,000,$563,000, respectively.
10.10. EMPLOYEE BENEFIT PLAN: On September 11, 1996, Thethe Company’s board of directors instituted a defined contribution plan under Section 401(k) of the Internal Revenue Code (the “Code”). On October 1, 1998, the Company amended and standardized its plan as required by the Code. Pursuant to the amended plan, qualified employees may contribute a percentage of their pretax eligible compensation to the Plan and the Company will match a percentage of each employee’s contribution. Additionally, the Company has a profit-sharing plan covering all eligible employees. Contributions by the Company are at the discretion of management. The amount of contributions recorded by the Company in 2012, 2011 and 2010 amounted to $301,196, $232,364 and 2009 were approximately $232,000, $173,000 and $153,000,$173,186, respectively.
11. MAJOR CUSTOMER:
Nine11.MAJOR CUSTOMERS:
Seven percent of revenue in 2012, 9% of revenue in 2011 and 10% of revenue in 2010 and 28% of revenue in 2009 were directly to the U.S. government. Five and a halfGovernment. Two percent and 2%5.5% of accounts receivable at December 31, 20112012 and 2010,2011, respectively, were from the U. S. government.Government.
In addition, in 2012, 33%, 18%, 17% and 13% of our revenue were to our four largest Commercial customers, respectively. In 2011, 33%, 30%, 14% and 11% of our revenue were to our four largest Commercial customers, respectively. In 2010, 35%At December 31, 2012, 36%, 27%, 12%30% and 10%21% of accounts receivable were from our revenue were to our fourthree largest Commercial customers, respectively. In 2009, 21%, 18%, 17% and 11% of our revenue were to our four largest Commercial customers, respectively.commercial customers. At December 31, 2011, 36%, 34% and 12% of accounts receivable were from our three largest commercial customers. At December 31, 2010, 48%, 28% and 15% of accounts receivable were from our three largest commercial customers.
At December 31, 2012 and 2011, 3% and 2010, 8% and 16%, respectively, of CostCosts and Estimated Earnings in Excess of Billings on Uncompleted Contracts were from the U.S. government.
At December 31, 2011, 40%2012, 39%, 21%22%, 15%14%, and 13% of CostCosts and Estimated Earnings in Excess of Billings on Uncompleted Contracts were from our four largest commercial customers. At December 31, 2010, 28%2011, 40%, 22%21%, 19%15% and 10%13% of CostCosts and Estimated Earnings in Excess of Billings on Uncompleted Contracts were from our four largest commercial customers.customers
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of any single quarter are not necessarily indicative of the Company’s results for the full year. Earnings per share data is computed independently for each of the periods presented. As a result, the sum of the earnings per share amounts for the quarter may not equal the total for the year.
| | | Quarter ended | | 2012 | | March 31, | June 30, | September30, | December 31, | Revenue | | 19,721,095 | 20,854,627 | 21,340,831 | 27,356,029 | Gross Profit | | 4,964,386 | 5,768,644 | 5,804,424 | 7,695,159 | Net Income | | 1,919,320 | 2,696,019 | 2,795,437 | 3,600,354 | Earning per share | | | | | | Basic | | 0.28 | 0.37 | 0.33 | 0.43 | Diluted | | 0.27 | 0.36 | 0.33 | 0.43 | | | Quarter ended | | | | | | 2011 | March 31, | June 30, | September 30, | December 31, | | | | | Revenue | 16,009,608 | 17,426,223 | 16,607,638 | 24,092,200 | 16,009,608 | 17,426,223 | 16,607,638 | 24,092,200 | Gross Profit | 3,850,104 | 4,244,801 | 4,167,605 | 6,547,430 | 3,850,104 | 4,244,801 | 4,167,605 | 6,547,430 | Net Income | 1,368,050 | 1,570,816 | 1,805,042 | 2,673,020 | 1,368,050 | 1,570,816 | 1,805,042 | 2,673,020 | Earning per share | | | | | | | | | Basic | 0.20 | 0.23 | 0.26 | 0.39 | 0.20 | 0.23 | 0.26 | 0.39 | Diluted | 0.19 | 0.22 | 0.25 | 0.37 | 0.19 | 0.22 | 0.25 | 0.37 | | | | | | | | | | 2010 | | | | | | Revenue | 11,005,529 | 12,544,625 | 12,976,084 | 7,464,546 | | Gross Profit (loss) | 2,749,082 | 3,351,329 | 3,382,413 | (3,370,000) | | Net Income (loss) | 860,815 | 1,205,254 | 1,429,363 | (2,965,536) | | Earning (loss) per share | | | | | | Basic | 0.14 | 0.18 | 0.21 | (0.44) | | Diluted | 0.14 | 0.18 | 0.21 | (0.44) | | | | | | | |
13. SUBSEQUENT EVENTS
On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility 2”). Sovereign Term Facility 2 will be used to purchase tooling and equipment for new programs. Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or Sovereign Bank’s prime rate.
Additionally, the Company and Sovereign Bank entered into a five year interest rate swap agreement, in the notional amount of $4.5 million. Under the interest rate swap, the Company pays an amount to Sovereign Bank representing interest on the notional amount at a rate of 4.11% and receives an amount from Sovereign Bank representing interest on the notional amount at a rate equal to the one-month LIBOR plus 3%. The effect of this interest rate swap will be the Company paying a fixed interest rate of 4.11% over the term of the Sovereign Term Facility 2.
| CPI Aerostructures, Inc. | | Schedule II - Valuation and Qualifying Accounts | | | | Allowance for Doubtful Accounts | | | (Deducted from Accounts Receivable) | | | | | | | | | 2011 | 2010 | 2009 | Balance at January 1 | | $8,980 | $8,980 | $8,980 | | | | | | (Dedcutions from)/charges to costs and expenses | | 75,000 | | | Deductions from reserves | | (8,980) | | | | | | | | Balance at December 31, | | $75,000 | $8,980 | $8,980 |
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| | | Schedule II - Valuation and Qualifying Accounts | | | | Allowance for Doubtful Accounts | | | (Deducted from Accounts Receivable) | | | | | | | | | 2012 | 2011 | 2010 | Balance at January 1 | | $75,000 | $8,980 | $8,980 | | | | | | (Dedcutions from)/charges to costs and expenses | | | 75,000 | | Deductions from reserves | | (50,000) | (8,980) | | | | | | | Balance at December 31, | | $25,000 | $75,000 | $8,980 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: | March 14, 201213, 2013 | CPI AEROSTRUCTURES, INC. | | (Registrant) | | | | | | | | By: | /s/ Vincent Palazzolo | | | Vincent Palazzolo | | | Chief Financial Officer and Secretary (Principal financial and accounting officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature | Title | Date | | | | /s/ Eric Rosenfeld | Chairman of the Board of Directors | March 14, 201213, 2013 | Eric Rosenfeld | Directors | | | | | /s/ Edward J. Fred | Chief Executive Officer and President | March 14, 201213, 2013 | Edward J. Fred | President | | | | | | | | /s/ Vincent Palazzolo | Chief Financial Officer and Secretary (Principal financial and accounting officer) | March 14, 201213, 2013 | Vincent Palazzolo | | | | | | /s/ Walter Paulick | Director | March 14, 201213, 2013 | Walter Paulick | | | | | | /s/ Kenneth McSweeney | Director | March 14, 201213, 2013 | Kenneth McSweeney | | | | | | /s/ Harvey Bazaar | Director | March 14, 201213, 2013 | Harvey Bazaar | | |
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